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Supporting our
stakeholders
Annual Report and Accounts 2020
Contents
CEO’s
statement
Proven operational and
financial resilience
page 28
Overview
Who we are
Highlights
Chairman’s statement
Strategic report
Our business model
01
02
08
12
Relationships with our key stakeholders 16
The Group’s response to COVID-19
Market review
Chief Executive Officer’s statement
Our strategic framework
Strategy in action
Segment review
Key performance indicators
Financial review
Risk review
Principal risks and uncertainties
Viability statement
Corporate responsibility report
21
24
28
32
34
40
52
54
61
70
88
90
Non-financial information statement
106
Market
review
2020 was a
demanding year
page 24
Governance
Board of Directors
Group Executive team
Corporate Governance Report
Group Nomination and Governance
Committee Report
Group Audit Committee Report
Group Risk Committee Report
Other Committees
116
118
120
130
134
142
145
Directors’ Remuneration Report
146
Directors’ Report: Other Information
168
Statement of Directors’ Responsibilities
171
Financial statements
Independent Auditor’s Report
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Appendices
Independent assurance statement
Alternative performance measures
Glossary
Company information
174
188
189
190
191
192
270
272
276
277
Risk
review
Responding to the
pandemic
page 61
OSB GROUP PLC Annual Report and Accounts 2020
About us
Who we are
Our purpose
Find out more online
Our investor site gives you
direct access to a wide range
of information about OSB:
www.osb.co.uk
We have shown we can produce excellent
returns in challenging circumstances.
David Weymouth
Chairman
OSB Group is a leading specialist mortgage lender,
primarily focused on carefully selected sub-segments
of the mortgage market. Our specialist lending is
supported by our Kent Reliance and Charter Savings
Bank retail savings franchises.
To help our customers,
colleagues and
communities prosper.
To prosper means so much more than to
be financially well off. It is to flourish and
succeed in a myriad of ways: personally,
professionally, in our relationships and in
ourselves as well as enabling those people,
communities and businesses around us to
succeed too.
OSB GROUP PLC Annual Report and Accounts 2020
0101
OverviewStrategic reportGovernanceFinancial statementsAppendices Statutory 2020
Statutory 2019
Underlying 2020
Pro forma underlying 2019
Highlights
Throughout the Strategic report the
KPIs are presented on a statutory and
an underlying basis for 2020, and a
statutory and pro forma underlying
basis for 2019.
Management believe these provide a more
consistent basis for comparing the Group’s
performance between financial periods.
Underlying results for 2020 exclude
exceptional items, integration costs
and other acquisition-related items.
Pro forma underlying results for 2019
assume that the combination with Charter
Court Financial Services Group plc (CCFS)
occurred on 1 January 2019 and include
12 months of results from CCFS. They also
exclude exceptional items, integration
costs and other acquisition-related items.
For a reconciliation of statutory results
to underlying and pro forma underlying
results, see page 60.
In 2020, the Group’s external auditor
performed an independent reasonable
assurance review of certain alternative
performance measures as highlighted with
the symbol ∆ – see the Appendix for the
auditor’s statement.
Read more
See Financial review, page 54
02
02
OSB GROUP PLC Annual Report and Accounts 2020
Gross new lending ∆
(9)%
(42)%
£6.5bn
£3.8bn
£4.1bn
£3.8bn
2020
2019
2020
2019
Cost to income ratio ∆
(1)
pt
(2)
pts
31%
32%
27%
29%
2020
2019
2020
2019
Profit before tax
Basic EPS ∆
(pence per share)
Full year dividend ∆
(pence per share)
25%
(9)%
(19)%
(10)%
196%
£381.1m
£346.2m
52.6p
58.1p
42.8p
64.9p
14.5p
£260.4m
£209.1m
4.9p
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Net loan book
Return on equity ∆
Net interest margin ∆
4%
5%
(5)
pts
(6)
pts
(27)
bps
(19)
bps
£19.2bn £18.4bn
£19.0bn £18.2bn
25%
243bps
247bps
266bps
216bps
18%
19%
13%
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Fully loaded Common Equity
Tier 1 ratio
Loan loss ratio ∆
2.3
pts
18.3%
16.0%
25
bps
28
bps
38bps
38bps
13bps
10bps
2020
2019
2020
2019
2020
2019
OSB GROUP PLC Annual Report and Accounts 2020
0303
OverviewStrategic reportGovernanceFinancial statementsAppendices At a glance
Our specialist mortgage lending is supported by Kent
Reliance and Charter Savings Bank retail savings franchises.
What we do
How we do it
Specialist lending
Sophisticated
funding platform
£19.2bn
Statutory net loans to customers
We primarily target market sub-sectors offering
high growth potential and attractive risk-adjusted
returns, in which we can take a leading position
and where we have established expertise,
platforms and capabilities.
These include:
} Private rented sector Buy-to-Let
} Bespoke and specialist first and second charge
residential funding
} Commercial and semi-commercial mortgages
} Residential development finance
} Secured funding lines
} Bridging finance
} Asset finance
We originate mortgages organically
via specialist brokers and independent
financial advisers through our
specialist brands.
Read more
See Segment overview, page 40
04
04
OSB GROUP PLC Annual Report and Accounts 2020
£16.6bn
Statutory retail deposits
We are predominantly funded by retail
savings originated through our Kent Reliance
and Charter Savings Bank franchises.
Both offer products online and Kent Reliance
also has nine branches in the South East of
England. Diversification of funding is provided
by sophisticated securitisation platforms.
Unique
operating model
31%
Statutory cost to income ratio
The Group has a unique and cost-efficient business
model and maintains an efficient, scalable and
resilient infrastructure. We are able to leverage our
deep credit expertise and have combined the data
analytics capability of CCFS with the skills of our
wholly-owned subsidiary OSB India providing
excellent support services, including operations,
IT, finance and human resources.
Our vision
Our values
Our vision is to be recognised as the UK’s number
one choice of specialist bank through our
commitment to exceptional service, strong
relationships and competitive products.
} OSB Group operates through the intermediary
lending market – our brokers. We are a specialist
lender and not just any specialist lender, but one
of the largest. We will maintain that market-
leading position by ensuring that we are the
specialist lender of choice for our broker
customers through our range of specialist
lending brands.
} In Savings, we want to ensure that our offering
supports not only the consumer market,
predominantly through the Kent Reliance brand,
but also the more commercial markets of pooled
deposits, SMEs and public sector bodies through
Charter Savings Bank.
We take a personal approach to everything we do
} We treat everyone with respect and take
accountability for our actions.
We take a flexible approach to everything we do
} We ensure that we work collaboratively with
our colleagues, customers and other stakeholders
to achieve shared positive outcomes.
Stronger
together
Take
ownership
Aim high
We collaborate to create a culture in
which we all share goals and values.
We aim to build trust, respect and
openness across the Company.
We take ownership of what needs to
be done as well as our personal and
professional development, helping
to achieve the collective goals of
the business.
We set the bar high for ourselves and
our customers. They are the ones who
know when we are going above and
beyond and remember the promises
we keep.
Respect
others
We treat all others fairly and
communicate in a way that respects
an inclusive and diverse culture, listening
to all voices and ensuring opinions are
offered and heard.
Stewardship We act with conscience and take social,
environmental and ethical factors into
consideration when making decisions.
OSB GROUP PLC Annual Report and Accounts 2020
0505
OverviewStrategic reportGovernanceFinancial statementsAppendices Why invest in OSB Group?
During 2020 OSB Group demonstrated
the inherent strengths of its business model
Leader in chosen
market sub-segments
OSB Group has a clear track record of above
market growth and is a leader in professional
Buy-to-Let and specialist Residential
mortgage lending.
In 2020, the Group’s share of new business in the
Buy-to-Let segment was c. 6%, a position we are
proud of, and one that has been delivered with
leading returns.
The Combination with CCFS strengthened our
position further and allowed us to provide our
recognised high quality service to a wider reach
of customers.
Exceptional returns driven by attractive
margins and sustainable growth
Throughout its history, the combined Group has
consistently generated a market-leading return
on equity (RoE), driven by attractive margins,
significant growth in its specialist market segments
and sound risk management. The Group’s business
model is based on a secured balance sheet, strong
capital and liquidity positions. Combined with prudent
and diligent risk management, it provides a solid
platform for sustainable growth. For more information
on the Group’s risk management and Principal risks and
uncertainties, see the Risk review section.
In 2020, the Group’s achievements were:
} underlying RoE of 19% amidst an unprecedented
global pandemic (statutory RoE 13%)
} 9% underlying net loan book growth excluding
structured asset sales in the year (statutory net
loan book growth 4%)
} strong cost discipline and efficiency
} prudent risk appetite through higher pricing and
tighter criteria.
Competitive advantage
The Group focuses on market sub-segments
where its specialist approach to underwriting
offers a key source of differentiation.
Following the Combination with CCFS, the Group
provides excellent service for manual, bespoke
underwriting as well as automated underwriting with
faster decisions. Our greater scale and increasing
ability to generate cost efficiencies from the Group’s
fully-owned subsidiary, OSB India, has enabled us to
deliver a consistently strong cost to income ratio,
whilst still investing in the business to support our
strategic priorities. OSB Group remains the most
cost-efficient bank in the sector.
Integrating the two Banks has also led to a more
sophisticated and diversified funding model in both
retail savings and capital markets, ensuring constant
and efficient access to funding and supporting the
optimisation of cost of funds.
06
OSB GROUP PLC Annual Report and Accounts 2020
Experienced leadership
team
The Group is managed by an experienced and
well-respected leadership team and governed
by a Board with broad skills and expertise.
The leadership team has a long track record
in operational management and delivering
sustainable returns for shareholders.
Post Combination, we have taken two great cultures
and combined them as one under a common
purpose, to help our customers, colleagues and
communities prosper. Our values are also combined
and we have added more emphasis on stewardship.
This will ensure we act positively with conscience and
have environmental, social and governance factors
front of mind when making decisions.
Cash-generative business with
strong distribution potential
The Group is strongly capitalised, enabling
it to support significant growth as well as our
stated dividend policy of distributing at least
25% of underlying earnings attributable to
ordinary shareholders.
At the end of 2020, the Group’s CET1 ratio was at
a historically high level of 18.3%, after providing for
the Board’s recommended dividend of 14.5 pence
per share.
Attractive marketplace
Our core market segments are growing as the
Buy-to-Let segment continues to professionalise
and specialist residential opportunities, including
near-prime, are increasingly attractive.
Structurally, our target market sub-segments are
strong as the fundamental lack of affordable housing
in the UK persists.
Both owner-occupied and private rental housing
market segments have stood firm throughout 2020
with underlying customer demand supported by
further government stimulus, including the Stamp
Duty Land Tax holiday.
The Group has deliberately controlled new lending
volumes in its more cyclical sub-segments throughout
the pandemic, through pricing and lending criteria,
and is well positioned to increase lending through our
strong franchises as the outlook improves. For more
information on the Group’s credit risk management
and Principal risks and uncertainties see the Risk
review section.
OSB GROUP PLC Annual Report and Accounts 2020
07
OverviewStrategic reportGovernanceFinancial statementsAppendices Chairman’s statement
Supporting our stakeholders
in challenging times for all of us
OSB Group rose to the challenge
and demonstrated the inherent
strengths of our business model
David Weymouth
Non-Executive Chairman
How we are supporting
our stakeholders
Responding quickly
to support customers
and colleagues
Strong credit and risk
management
Strong capital and
liquidity position
Read more
See pages 21 to 23
Read more
See pages 61 to 69
Read more
See pages 56 to 57
2020 was a very demanding year with the
global pandemic truly testing us all. I am
particularly pleased that OSB Group rose
to the challenge and demonstrated the
inherent strengths of our business model.
Our disciplined approach to risk, capital
and liquidity was amplified by our positive
culture and adaptability and I must
commend the resilience, resourcefulness
and responsiveness of my colleagues.
08
OSB GROUP PLC Annual Report and Accounts 2020
Dividend proposal
The uncertain economic outlook at the beginning of 2020 as the
pandemic took hold led the Board to take the prudent decision
not to pay the 2019 final dividend. The economic outlook remains
uncertain, but we have reasons to be hopeful with the roll-out
of vaccinations and the housing market remaining strong. I am
delighted that, as the Group performed exceptionally well during
2020 and has a very strong capital position, with a record CET1
ratio, the Board is recommending the payment of a dividend for
2020 of 14.5 pence per share.
Future prospects
We cannot avoid the wider economic impact of COVID-19 and
remain cognisant of the ongoing uncertainty over the true impact
of the pandemic on the economy, our customers and our business
when the government support comes to an end. However, we do
have control over our own operations and have shown we can
produce excellent returns in challenging circumstances. We are
working exceptionally well as a combined business with the greater
scale serving to protect our position in the market sub-segments
in which we operate. The Group is positioned well to meet the
challenges ahead and to continue to deliver attractive and
sustainable returns for our shareholders across the cycle.
I would like to thank all of my colleagues for their dedication and
unwavering commitment in such a difficult year.
David Weymouth
Chairman
8 April 2021
This approach produced excellent results, reflecting the strong
operational performance of the Group, and we were successful in
growing our loan book, keeping our employees safe and delivering
an attractive return for shareholders.
We celebrated the milestone of being a combined Group for a year
in October 2020 and the progress in aligning OneSavings Bank
(OSB) and Charter Court Financial Services Group (CCFS)
continued at pace. We achieved the synergies that we set out in
our first year earlier than planned and are ahead of schedule
towards delivering the three-year synergy target. We are stronger
together and our success in negotiating the challenges of 2020
highlighted this.
Supporting our stakeholders
Your Board is committed to serving all of our stakeholders,
including our borrowers, our colleagues, our partners and the
wider communities. We explain in greater detail our stakeholder
approach on pages 16 to 19, but I would like to highlight the
following key areas of success:
} responding rapidly to support customers by offering
self-certified payment deferrals to those who might be in
financial difficulty
} building on our track record of excellent customer satisfaction,
reflected in our exceptional Net Promoter Scores in the year
for both OSB and CCFS
} supporting the well-being of our colleagues who have had
to deal with a changed working environment and further
consequences of the pandemic on their lives.
Sustainability is increasingly important to our stakeholders and the
Board has the responsibility to lead the Group’s efforts to support
environmental and social issues alongside its already strong focus
on governance and stewardship. We are embedding climate
change risk in our Strategic Risk Management Framework and
making good progress across a range of related activities. We are
working towards having a coordinated environmental, social and
governance strategy with clear targets to be in place by the end
of 2021. Investors are increasingly focused on this area and we see
a clear path to creating value for all stakeholders through our
efforts. More details on our progress can be found throughout this
Annual Report.
The recently identified potential fraud by a third party on a funding
line provided by the Group, which delayed publication of the
Group’s 2020 results, was taken very seriously by the Board. The
Board believes that this is an isolated incident following an internal
review. The Board has also commissioned an external review of
processes and controls in relation to the funding lines business and
will make enhancements based on recommendations received.
OSB GROUP PLC Annual Report and Accounts 2020
09
OverviewStrategic reportGovernanceFinancial statementsAppendices Strategic report
Our business model
12
Relationships with our key stakeholders 16
The Group’s response to COVID-19
Market review
Chief Executive Officer’s statement
Our strategic framework
Strategy in action
Segment review
Key performance indicators
Financial review
Risk review
Principal risks and uncertainties
Viability statement
Corporate responsibility report
21
24
28
32
34
40
52
54
61
70
88
90
Non-financial information statement
106
1010
OSB GROUP PLC Annual Report and Accounts 2020
O
v
e
r
v
e
w
i
i
S
t
r
a
t
e
g
c
r
e
p
o
r
t
Strong relationships, built on
regular engagement and
open dialogue with all our
stakeholders, are central to the
Group’s strategy and culture
OSB GROUP PLC
Annual Report and Accounts 2020
1111
OverviewStrategic reportGovernanceFinancial statementsAppendicesGovernanceFinancial statementsAppendices
Our business model
Our purpose is to help our customers,
colleagues and communities prosper.
Resources and
relationships
What we do
Brands and heritage
We have a family of
specialist lending brands
targeting selected
sub-segments of the
mortgage market which
are underserved by large
UK banking institutions.
We have well-established
savings franchises through
Kent Reliance, with its
150-year heritage, and the
Charter Savings Bank
brand.
Employees
Our team of highly skilled
employees possess
expertise and in-depth
knowledge of the property,
capital and savings
markets, underwriting
and risk assessment and
customer management.
Infrastructure
We benefit from cost
and efficiency advantages
provided by our wholly-
owned subsidiary, OSB
India, as well as credit
expertise and mortgage
administration services
provided by CCFS.
Relationships with
intermediaries and
customers
Our strong and deep
relationships with the
mortgage intermediaries
that distribute our products
continue to win us
industry recognition.
Capital strength
We have a strong CET1
ratio and the management
capability to add capital
through significant
profitable loan book growth.
Specialist lending
business
Our key strengths
Strategic priorities
} Strong levels of mortgage origination
} Be a leading specialist lender in
} Excellent loan performance
} Award-winning product propositions
} Strong relationships with intermediaries
our chosen market sub-segments
} Retain focus on our complementary
underwriting platforms: OSB’s bespoke
and manual approach and CCFS’
automated risk assessment platforms
} Further deepen relationships and
distribution with intermediaries
Sophisticated
funding platform
Our key strengths
Strategic priorities
} Stable savings funding via Kent Reliance
and Charter Savings Bank brands
} Capital markets expertise with
securitisation platforms allowing
for programmatic issuance of high
quality residential mortgage-backed
securities (RMBS)
} Provide cost-efficient funding through
a resilient and diversified funding
platform to support our future growth
} Deliver consistently good value savings
products to our customers
} Pursue sophisticated wholesale
funding markets and efficient balance
sheet management
Unique operating
model
Our key strengths
Strategic priorities
} OSB India: Best-in-class customer service
} Continue to leverage our unique and
} Deep credit expertise and data analytics
of CCFS
cost-efficient operating model
} Leverage deep credit expertise and
} Continued, disciplined cost management
data analytics
} Maintain an efficient, scalable and
resilient infrastructure
12
OSB GROUP PLC Annual Report and Accounts 2020
Statutory net loans
to customers
OSB segment
net loans
CCFS segment net
underlying loans
£19.2bn
2019: £18.4bn
Buy-to-Let
Residential
Bridging
Second charge
Other
66%
30%
1%
2%
1%
Group’s funding
channels as at
31 December 2020
Retail
Bank of England
Wholesale
81%
17%
2%
Buy-to-Let/SME
Residential
82%
18%
19
securitisations since
2013 across OSB and
CCFS worth over
£7.9bn
2019: 15 securitisations
worth £5.1bn
493
colleagues employed
at OSB India as at
31 December 2020
2019: 490
Read more on pages 32 to 33
Statutory retail deposits
£16.6bn
2019: £16.3bn
Read more on pages 32 to 33
Statutory cost to
income ratio
31%
2019: 32%
Read more on pages 32 to 33
Outcomes and
value creation
For shareholders
Statutory basic EPS
Dividend per share
42.8p
14.5p
For customers
OSB savings
customer NPS1
OSB customer
retention2
+67
93%
CCFS savings
customer NPS1
CCFS customer
retention2
+72
77%
For intermediaries
OSB broker NPS1
CCFS broker NPS1
+49
+54
For employees
Number of new
colleagues who
joined the Group
in 2020
222
Number of
Group employees
promoted
in 2020
127
For communities
Group sponsorship and donations
£516,000
1. OSB customer score relates to Kent Reliance savings
customers; CCFS customer NPS relates to Charter
Savings Bank customers; OSB broker NPS relates to Kent
Reliance brokers and CCFS broker NPS relates to Precise
Mortgage brokers.
2. Retention is defined as average maturing fixed contractual
retail deposits that remain with the Bank on their
maturity date.
OSB GROUP PLC Annual Report and Accounts 2020
13
GovernanceFinancial statementsAppendicesStrategic reportOverview
Our business model explained
OSB Group reports its lending business
under two segments: OSB and CCFS.
OneSavings Bank
Specialist
mortgage
lending
Gross loan book1
£11.1bn
2019: £10.8bn
Organic
originations1
£1.9bn
2019: £3.4bn
Net interest
income1
£333m
2019: £316m
1. Statutory.
Gross loan book2
£8.0bn
2019: £7.4bn
Organic
originations2
£1.9bn
2019: £3.1bn
Net interest
income2
£201m
2019: £202m
2. Underlying.
Buy-to-Let/SME sub-segments
Residential sub-segments
Buy-to-Let
We provide loans to limited
companies and individuals,
secured on residential
property held for investment
purposes. We target
experienced and professional
landlords or high net worth
individuals with established
and extensive property
portfolios.
Commercial
mortgages
We provide loans to limited
companies and individuals,
secured on commercial and
semi-commercial properties
held for investment purposes
or for owner-occupation.
Residential
development
We provide development loans
to small and medium-sized
developers of residential
property.
Funding lines
We provide loans to non-bank
finance companies secured
against portfolios of financial
assets, principally mortgages
and leases.
Asset finance
We provide loans under hire
purchase, leasing and
refinancing arrangements to
UK SMEs and small corporates
to finance business-
critical assets.
First charge
We provide loans to
individuals, secured by
a first charge against
their residential home.
Our target customers include
those with a high net worth
and complex income streams,
and near-prime borrowers.
We are also experts in shared
ownership, lending to first-time
buyers and key workers
buying a property in
conjunction with a housing
association.
Funding lines
We provide funding lines to
non-bank lenders who operate
in high-yielding, specialist
sub-segments such as
residential bridge finance.
Read more on pages 42 to 45
Charter Court Financial Services
Buy-to-Let
We provide products to
professional and non-
professional landlords with
good quality credit history,
through a wide product
offering, including personal
and limited company
ownership.
Residential
We provide a range of
competitive products to prime
borrowers, complex prime
borrowers (including
self-employed, Help to Buy,
Right to Buy and new-build)
and near-prime borrowers.
Bridging
We focus on lending to
customers who need to fund
short-term cash flow needs,
for example, to cover light and
heavy refurbishments, home
improvements, auction
purchases and also to ‘bridge’
delays in obtaining mortgages
and ‘chain breaks’.
Second charge
We offer loans to prime
residential customers with
low loan to value ratios, who
require additional capital and
who wish to secure a loan with
a charge against a property
which is already charged to
another lender.
14
OSB GROUP PLC Annual Report and Accounts 2020
Read more on pages 46 to 48
Our securitisation platforms
CCFS has been a
programmatic issuer of
high-quality residential
mortgage-backed securities
through the Precise Mortgage
Funding and Charter
Mortgage Funding franchises,
completing 14 securitisations
worth more than £4.5bn to
31 December 2020.
OSB issued two additional
securitisations under
Canterbury Finance in 2020,
the majority of which have
been fully retained,
completing three transactions
in total under this programme
worth more than £2.6bn to
31 December 2020.
Sophisticated
funding
platform
Statutory retail
deposits
£16.6bn
2019: £16.3bn
19
securitisations
since 2013,
across OSB and
CCFS, worth
over
£7.9bn
2019: £5.1bn
Retail savings
Online
Kent Reliance is our
award-winning retail savings
franchise with over 150 years
of heritage, attracting
retail savings deposits via
the internet.
Charter Savings Bank is a
multi-award-winning online
bank providing a range of
competitive savings products.
Direct
The direct channel sources
savings products via telephone
(Kent Reliance) and post
(Kent Reliance and Charter
Savings Bank).
High street
branches
Our Kent Reliance branded
network operates in the South
East of England and offers a
variety of fixed, notice, easy
access and regular savings
products, including ISAs.
Kent Reliance and Charter
Savings Bank offer accounts
to SMEs and Charter Savings
Bank is also present in the
pooled deposits market.
Read more on pages 50 to 51
We have a one team approach
between the UK and India.
OSBI operates a fully
paperless office – all data and
processing are in the UK.
Unique
operating
model
Statutory cost
to income ratio
31%
2019: 32%
Colleagues
employed at
OSB India
493
2019: 490
Customer service
The Group operates customer
service functions in multiple
locations across the UK
including its head office in
Chatham, Wolverhampton,
Fareham, London and Fleet.
These, together with our
wholly-owned subsidiary OSB
India, help us deliver on our
aim of putting customers first.
We deliver cost efficiencies
through excellent process
design and management.
We have efficient, scalable
and resilient infrastructure
supported by strong
IT security.
OSB India
OSB India (OSBI) is a
wholly-owned subsidiary
based in Bangalore, India.
OSBI puts customer service at
the heart of everything it does
and we reward our people
based on the quality of service
they provide to customers,
demonstrated by our excellent
customer Net Promoter Score.
Various functions are also
supported by OSBI, including
support services, operations,
IT, finance and human
resources.
Read more on page 38
OSB GROUP PLC Annual Report and Accounts 2020
15
GovernanceFinancial statementsAppendicesStrategic reportOverview Relationship with our stakeholders and section 172
Our purpose is to help our customers,
colleagues and communities prosper.
Strong relationships, built on regular engagement and open dialogue
with all our stakeholders, are fundamental to achieving this purpose.
These relationships are central to the Group’s strategy and culture;
and are embedded in the Board’s responsibilities.
We outline below how OSB Group and its Directors engaged with
key stakeholders, and in doing so, discharged their duties under
section 172. For more information on activities of the Board and
its Committees, see pages 120 to 167 in the Corporate
Governance Report.
Customers
We pride ourselves on building long-term, strong relationships
with our customers. In 2020, we demonstrated our dedication to
providing excellent service by supporting our borrowers and savers
throughout the pandemic. This included responding to customers
requesting mortgage payment deferrals, continuing to help those
looking to finance their projects and supporting our savers, safely
in branches or via telephone, post and the internet.
When our savers call or interact with our Banks, we offer them
an opportunity to let us know how we did. We listen to them and
act upon what they tell us. Throughout the year, we have been
collecting customer feedback and despite the difficulties of the
pandemic, increased volume of calls and savers’ activity, we are
incredibly proud of achieving strong satisfaction metrics for both
Kent Reliance and Charter Savings Bank.
Savings NPS for KR
Savings NPS for CSB
+67
2019: +66
+72
2019: +72
The needs of our customers are at the heart of our business and
the Board believes that the long-term success of the Group is
dependent on the strength of our relationships with our customers.
The Board’s engagement with customers is indirect and Directors
are kept informed of customer-related matters through regular
reports, feedback and research. Satisfaction scores and retention
rates, together with the number of complaints and resolution
times, form part of the management and Board monthly
reporting packs, ensuring the visibility of customer experience
to management and the Board. Customer satisfaction scores are
also used as part of the executive remuneration assessment and
form the basis of new initiatives and actions which continually
improve customer experience.
16
OSB GROUP PLC Annual Report and Accounts 2020
Colleagues
Our nearly 1,800 colleagues are our key asset and our success
depends on the talented individuals we employ.
We have always favoured two-way communication between
management and our employees through regular town hall
meetings, informal sessions with management and opportunities to
ask questions anonymously. Even though these events were held
virtually in 2020, with the majority of employees working from
home, they proved popular and contributed to many initiatives
that were undertaken by the business.
Engagement also took place via Group-wide surveys and the
results were presented to the Board. We are proud that the
Group retained its ‘Two Star’ rating in The Sunday Times 100 Best
Companies to Work For and for the fourth consecutive year, OSB
India was officially certified as a ‘Great Place to Work’ in 2020.
The Group also participated in the Banking Standards Board
Survey in 2020.
For more detail on employee initiatives in the year, see the
Corporate responsibility report on pages 92 to 99
The interests of the Group’s employees were considered by the
Board and its Committees during the year via regular updates
provided by senior management, the Group’s HR function and the
feedback from meetings of working groups. One of the key topics
at the forefront of the Board’s mind in 2020 was the impact of the
pandemic on our employees’ lives, both professionally and
personally, their well-being and mental health.
The following matters, which were identified as affecting our
stakeholders, were of particular interest to the Board in 2020:
} the impact of COVID-19 on customers in terms of their savings
behaviours, mortgage payment deferral requests and signs
of repayment distress;
} industry-related conduct risk issues and the potential impact
on customers; and
} management information in relation to customer complaints
and complaints data from the Financial Ombudsman Service,
engagement scores, satisfaction scores and retention rates.
In addition, management and the Board engaged with customers
through the Kent Reliance Provident Society (KRPS) which conducts
customer engagement activity studies for OSB. During 2020,
KRPS conducted five such studies.
Further information about our customers can be found in the
Corporate responsibility report on pages 90 to 91
Intermediaries
Our lending products, with the exception of funding lines and
residential development loans, are distributed via mortgage
brokers. Mortgage brokers are vital to our success and we adapted
the way in which we assist them to provide even better service
in 2020.
We pride ourselves in providing unique and consistent lending
propositions across all lending brands which fulfil our goal
of making it easier for intermediaries to serve our borrowers.
Our efforts extend beyond our proposition, as we continuously
enhance the service we provide and regularly engage with the
broker community. Our business development managers listen
and work with intermediaries, making themselves available to
discuss cases and helping to obtain swift and reliable decisions.
The Board and management track broker and borrower
satisfaction scores; and the details of complaints in monthly
Board reporting packs.
Intermediary events were reduced during 2020, but the Group’s
Sales teams participated in 416 physical and virtual intermediary
events, interacting with brokers and keeping abreast of industry
developments and intermediary requirements.
Broker NPS for OSB
Broker NPS for CCFS
+49
2019: +27
+54
2019: +18
OSB GROUP PLC Annual Report and Accounts 2020
17
GovernanceFinancial statementsAppendicesStrategic reportOverview Relationship with our stakeholders and section 172 (Continued)
Mary McNamara is the Non-Executive Director appointed by
the Board with responsibility for employee engagement and
is a permanent member of the Workforce Advisory Forum
(known internally as OneVoice). Members of the Board and senior
management are also encouraged to attend OneVoice meetings
in order to understand and discuss employee-related issues
directly from representatives across the entire business. Employee
feedback from each meeting is shared and discussed with
members of the Board and it forms the basis of new policies,
benefits and any other employee-related projects.
Further information on OneVoice can be found in the Directors’
Report on page 169
Another key area of Director engagement was their oversight of the
decision to harmonise grades, benefits and terms and conditions
across the Group as part of the integration programme.
Members of the Board also have standing invitations to attend
meetings of the newly-formed Diversity and Inclusion Working
Group and Health and Safety Working Group, with its members
consisting of employee representatives from across the business.
Updates from both working groups are submitted to the Board or
its Committees on an annual basis. Members of the Board oversee
the Group’s talent management initiatives and senior executive
succession planning.
Finally, the Board has oversight of the Group’s whistleblowing
activity and reviews and approves the Group’s gender pay gap
reporting and its commitment to the Women in Finance Charter.
Shareholders
Our approach to investor engagement has remained
straightforward as we favour an open dialogue. Despite the
restrictions on physical meetings, 2020 was a year of dynamic
and active engagement with our shareholders and the Investor
Relations team met 113 individual investors via virtual one-to-one
meetings, industry conferences and roadshows.
The Board ensures that all shareholders have equal access to
information through regulatory announcements, general meetings
and publications on our website. The Board’s primary engagement
with investors comes through the Group’s Chief Executive Officer
(CEO) and Chief Financial Officer (CFO) who meet with investors
and sell-side analysts and present the Group’s results to the
market. The Board receives regular updates from the Investor
Relations function which include investor feedback, analysts’
recommendations and market views. The Group’s Chairman
is also available for investor meetings and attended three
meetings with major shareholders during 2020.
In 2020, the Board took the decision to cancel the 2019 final
dividend. More information about this key strategic decision
is presented on page 20.
18
OSB GROUP PLC Annual Report and Accounts 2020
In 2020, the Board, through the Chair of the Group Remuneration
Committee, engaged with shareholders in relation to the Executive
Directors’ Remuneration Policy. The process, which included
listening to shareholders and amending some parts of the policy,
resulted in a strong endorsement of the policy at the AGM. During
the year, shareholder approval was sought in relation to the
insertion of the new holding company in November 2020, which
shareholders overwhelmingly voted in favour of.
Suppliers
Our business is supported by a large number of suppliers, which
in turn allows us, as a Group, to provide high standards of service
to our customers. The members of the Board do not interact
directly with the Group’s suppliers; however, they are involved in
overseeing the Group’s supplier relationships and are regularly
kept up to date by senior management on supplier considerations
and developments.
In 2020, the Board was also involved with the following aspects
of supplier relationships:
} consideration of potential supplier challenges as a result of the
integration and the impact of COVID-19;
} consideration of the risks associated with suppliers and the
framework for assurance;
} oversight of key supplier relationships including the engagement
between the Group Audit Committee and the external auditor;
and
} oversight of all levels of insurance in place for the Group.
The Board reviews and approves the Group’s Modern Slavery and
Human Trafficking Statement on an annual basis, which can be
found on our website at www.osb.co.uk.
Communities
Each year, OSB engages with charitable causes in Kent and
supports a national charity chosen by employees by taking part
in a variety of charitable events and partnerships. CCFS is involved
in the West Midlands community and every year supports a
chosen local charity. OSB India is also active in the community
local to the office in Bangalore, as well as in areas where there
are critical needs.
Employees and the business donated c. £516,000 to its charity
partners in the year and our employees also dedicated time
in a variety of volunteering activities, described in the Corporate
Responsibility Report on pages 102 to 105.
Engagement with our local communities is actively encouraged by
the Board and senior management who believe that the fostering
of such relationships is part of contributing to the communities in
which we operate to make a positive impact.
In 2020, the Board endorsed the initiative of the Group Executive
Committee to forgo their potential 2020 cash bonuses. The Board
decided to use some of the savings to help support charities
focused on homelessness. In this vein, the Group committed
to a minimum of £250,000, with £100,000 donated to Shelter,
which offers support and advice to those facing housing issues or
homelessness across the UK. The remainder was donated to local
charities that serve homeless people and to finance the purchase
of dialysis machines for the HBS Dialysis Unit in India, which
provides dialysis for underprivileged patients.
Environment
The Group is committed to operating sustainably and to
continually reducing our environmental impact by not only
promoting awareness of environmental issues among our
employees, but also by adhering to our plan to become
a greener organisation.
During the year, there were multiple initiatives undertaken by
the Group, which are described in more detail in the Corporate
Responsibility Report on pages 100 and 101.
The Board is responsible for encouraging and overseeing an
environmentally-friendly culture and ensuring that the business
is ready to respond to the growing impact of climate change
on the Group’s activities and enhanced regulation.
OSB GROUP PLC Annual Report and Accounts 2020
19
Regulators
The Board recognises the importance of open and continuous
dialogue with all of our regulators, as well as other government
bodies and trade associations.
The Group maintains proactive dialogue with the Prudential
Regulation Authority and Financial Conduct Authority.
Engagement typically takes the form of regular and ad hoc
meetings attended by both members of the Board and Executives,
as well as subject matter experts. The number of meetings held
with regulators increased in 2020 and included, among other
topics, operational resilience, the ability to respond to a financial
stress, business continuity review and incident management. There
was also significant interaction with our regulators with regard to
the insertion and approval of the new holding company and the
complexities of maintaining two banking licences within the Group.
Even though the Directors do not participate in all meetings, the
senior management including the CFO and Chief Risk Officers
provide the Board and its Committees with feedback and regular
updates in respect of the broader regulatory developments and
compliance considerations.
The Group also regularly interacts and has constructive
relationships with the Bank of England and HM Revenue &
Customs, among others, which helps to ensure that the Group
is aligned with the relevant regulatory frameworks and that
the business is engaged with issues impacting the financial
services industry.
GovernanceFinancial statementsAppendicesStrategic reportOverview Relationship with our stakeholders and section 172 (Continued)
Section 172 Statement
The Directors are bound by their duties under section 172(1)(a) to
(f) of the Companies Act 2006 and the manner in which these
have been discharged; in particular their duty to act in the way
they consider, in good faith, promotes the success of the
Company for the benefit of its members as a whole.
The stakeholders which the Directors considered in this regard
are customers, intermediaries, employees, shareholders,
suppliers, regulators and the local communities in which we are
located. These stakeholders are considered to be those the most
likely to be impacted by decisions taken by the Board. The
pages on 16 to 19 and those that follow, set out how Directors
complied with the requirements of section 172 during the year.
Decision making
The Board recognises that considering our stakeholders in key
business decisions is fundamental to our ability to deliver the
Group’s strategy in line with our long-term values and operating
the business in a sustainable way. Balancing the needs and
expectations of our key stakeholders has been at the forefront
of the Board’s mind and has been more important than ever
during 2020, as a result of the global pandemic; whilst
acknowledging that some decisions will result in different
outcomes for each stakeholder.
Key strategic decision in the year
Cancellation of the 2019 final dividend
In April 2020, given the unprecedented and rapidly
developing situation due to the outbreak of COVID-19 and
the associated uncertainties, the Board took the difficult
decision to cancel the 2019 final dividend.
The Board spent an extensive amount of time in
discussions, not only internally, but also obtained advice
from the Group’s external advisers and communicated
with the regulator. The Board also closely monitored the
situation among the Group’s peers and the larger
systemic banks. The Board discussed the impact that
a non-payment of dividend would have on investors who
had become accustomed to receiving a regular dividend.
The Board also considered other stakeholders and how
paying a dividend may negatively impact them. The
Board was aware that COVID-19 was unprecedented
and that the extent of its impact remained uncertain at
the time the decision was made. The Board decided that
in order to help to serve the needs of businesses and
households through the extraordinary challenges
presented by COVID-19, the dividend would be cancelled.
The decision-making process of the Board demonstrated
that the best outcome for all stakeholders concerned was
to preserve the Group’s capital, even though the Group’s
regulator did not specifically disallow the payment of the
Group’s dividend. The Group’s strong capital position also
provided certainty for our employees and their jobs; to
our suppliers; and demonstrated our prudent
management in times of crisis.
As a result of the Group’s strong performance in 2020,
the Board is delighted to recommend the payment of
a dividend of 14.5 pence per share for the year.
20
OSB GROUP PLC Annual Report and Accounts 2020
The Group’s response to COVID-19
The COVID-19 pandemic dominated 2020 and had a
material impact on society, businesses and the economy.
Despite the unprecedented nature of the events in the year
and the challenges that arose, the Group proved its ability
to successfully manage through its adaptability, operational
resilience and prudent management and continued to create
value for all stakeholders in the year.
None of this would have been possible without the operational
flexibility the Group has demonstrated both in the UK and in India.
Mortgage payment deferrals meant redeployment of resources at
short notice, our call centres in India had to be rapidly adapted for
employees working from home and our UK offices and Kent
Reliance branches were made compliant with social distancing
requirements to keep our employees and customers safe.
2020 was also a time when we were able to reflect and learn
from the pandemic. The Board is taking the opportunity to review
some of the existing plans for the business to create an even
more operationally resilient organisation, taking into account
challenges presented by the crisis, not relying on single suppliers
or geographical locations, but rather diversifying to protect
the business.
Resilient business
The Group’s business model, based on a secured balance sheet,
prudent and diligent risk management and strong capital and
liquidity positions, withstood the test of 2020.
Management and the Board took early decisions about the
Group’s risk appetite and chose to further protect the business by
withdrawing most products in late March 2020. Once the situation
improved, the Group returned to the market with a limited set of
products with tighter underwriting criteria and higher pricing.
The Group also controlled the volume of new business by pausing
lending in more cyclical segments of the market, including
commercial, development finance and funding lines.
To strengthen its capital position, in April 2020, the Group took the
difficult but prudent decision not to pay the 2019 final dividend.
Previous crises have shown that maintaining strong levels of
liquidity has been critical for banks and the Group increased
liquidity at the outbreak of the pandemic in March 2020 by
drawing additional, attractively-priced funds, under the Bank
of England’s Indexed Long-Term Repo scheme, which were later
replaced by the Term Funding Scheme with additional incentives
for SMEs. Throughout the remainder of the year, the Group
managed its capital and liquidity positions conservatively in
order to maintain a suitable excess in the face of an uncertain
and rapidly changing environment. A major modelling and
benchmarking exercise for extreme stresses was also completed
by the Group’s Risk function to ensure that the Group is well
positioned to withstand a severe crisis with appropriate
contingency plans in place.
OSB GROUP PLC Annual Report and Accounts 2020
21
GovernanceFinancial statementsAppendicesStrategic reportOverview The Group’s response to COVID-19 (Continued)
For our customers
The Group’s priority throughout the year was to offer assistance
to our customers who might have been experiencing financial
difficulty as a result of the pandemic, both those borrowing
with the Group and those saving with Kent Reliance or Charter
Savings Bank.
For our intermediaries
As a result of the pandemic, we became not only more proactive
in our engagement with brokers, but we also provided additional
virtual ways of interaction and allowed more flexible working
hours for our Sales teams to accommodate brokers’
changing hours.
Within days of the mortgage payment deferral scheme being
announced by the government, the Group had acted quickly and
assertively, redeploying resources to respond to the spike in calls
from mortgage customers. By the end of June 2020, the Group
had granted payment deferrals to c.26,000 accounts, with a value
equivalent to 28% of the Group’s mortgage book. Research
amongst customers suggested that the significant majority of
requests for payment deferrals were to conserve cash and not as
a result of customers facing financial difficulty. As at 31 December
2020, active payment deferrals represented only 1.3% of the
Group’s loan book by value.
The Group continued to process existing mortgage applications
on a limited range of products and, at the same time, successfully
assisting borrowers requesting mortgage payment deferrals.
Due to restrictions placed on physical valuations during the first
lockdown, the Group enhanced its risk assessment processes
to accept alternative valuation methods for certain products
from mid-April 2020, to assist borrowers further.
In October 2020, InterBay Asset Finance launched the Coronavirus
Business Interruption Loan Scheme product, enabling us to finance
new deals for SME customers affected by COVID-19.
To assist our savers, we kept Kent Reliance branches open
throughout the pandemic with appropriate safety protocols in
place. Both Kent Reliance and Charter Savings Bank encouraged
the use of online access to accounts with an additional channel
of contact via secure messaging and maintained postal and
telephone channels. Our savings customers also received emails
notifying them of alternative ways they could transact and we
regularly placed COVID-specific updates as well as information
about our service levels on our website.
At the outset of the pandemic in March 2020, the Group stopped
accepting new applications for a short period of time, however,
we continued to process all applications already in place where
we had physical valuations.
For our employees
It has been of paramount importance for the Group to ensure
the physical safety and well-being of its employees throughout
the pandemic. From the end of March 2020, the majority of the
Group’s employees in the UK and India have been working from
home. For those whose roles could not be performed adequately
from home, the Group offered safe working conditions in our
offices. In India, the Group prepared ahead of lockdown, which
enabled the majority of employees to work from home with safe
and secure technology in place. In addition, we instigated
business continuity plans and were granted a number of
government licences for critical employees to attend offices in
two additional locations as well as in the main Bangalore site.
The Group took actions to ensure that flexible working
arrangements were available for our employees, across its
different locations, as well as additional equipment and reliable
technology. Communication between colleagues continued via
online forums, team and Executive updates, virtual town halls
and informal quizzes. The Group cascaded mindfulness guidance,
published mental health support information and held training
workshops, amongst other measures, to aid employees to better
manage their new working conditions.
The OSB Group did not place any of its employees on the UK
Government’s furlough scheme and welcomed 222 new
colleagues in 2020.
22
OSB GROUP PLC Annual Report and Accounts 2020
For our shareholders
Even though the Board took the difficult decision in March 2020
not to pay the 2019 final dividend, shareholders were rewarded
by strong performance of the Group in 2020, despite an increase
in impairment provisions and a slowdown in the UK mortgage
market. The share price performance was very strong, returning
to pre-pandemic levels by December 2020 and the Board has
recommended the payment of a dividend of 14.5 pence per share
for 2020.
For our communities
At the outbreak of the pandemic, members of the Group Executive
Committee volunteered to forgo their potential entitlement to the
2020 cash bonus. The Board decided to retain half of the saving in
the business and donate the other half to charities, with a minimum
value of £250,000. Shelter, a charity which offers support and
advice to those facing housing issues or homelessness across the
UK, received a £100,000 donation. The remainder was donated
to charities that serve homeless people in the communities in which
the Group is based in the UK and to provide medical equipment
to a local hospital in India.
Rising to the challenge
Gary Wayte, Group Operational Resilience Director
The COVID-19 global pandemic presented the Group with the
unprecedented challenge of balancing the needs and safety
of our customers with the welfare of our colleagues.
The combination of a dramatic increase in volumes for some of
our services, such as mortgage payment deferral requests,
coupled with the need to transition the majority of our colleagues
to homeworking, was undoubtedly challenging. Throughout the
year, we continued to meet the demands of both our savings
and borrowing customers, not least by ensuring that our branch
network remained open for those unable to interact with us
through alternative channels.
Whilst the effectiveness of the Group’s response is a result
of many contributing factors, the roll-out of a Group video
communication platform, together with the very high levels of
reliability and stability of the Group’s IT systems, were crucial
factors, as was the flexibility, resilience and professionalism of
our colleagues.
80%
Employees working from home
During 2020, approximately 80% of the Group’s employees in
the UK and India were working from home, at times operating
outside core business hours in order to protect the bandwidth
and capacity of IT systems and to meet business demands. For
those that were in the offices or branches, a range of additional
safety measures were introduced in order to provide a COVID-
secure operating environment.
OSB GROUP PLC Annual Report and Accounts 2020
23
GovernanceFinancial statementsAppendicesStrategic reportOverview Market review
UK Buy-to-Let gross advances
£37bn
2020
2019
2018
£37.0bn
£42.5bn
£40.8bn
Source: UK Finance, New and outstanding Buy-to-Let mortgages, Feb 2021.
UK average house price inflation
8.5%
2020
2019
2018
2.2%
2.5%
8.5%
Source: ONS, December UK House Price Index, Feb 2021.
24
OSB GROUP PLC Annual Report and Accounts 2020
The UK housing and mortgage market
According to the Bank of England, gross mortgage lending reached
£243.1bn in 2020, down 9% compared to £267.9bn in 2019.1
Mortgage transaction volumes in 2020 decreased to the lowest
level since 20161 due to the impact of the COVID-19 pandemic and
the measures introduced by the UK Government in order to limit
the spread of the virus. In addition, lingering uncertainty remained
for much of the year over the UK’s future relationship with the
European Union, as negotiations appeared to hit an impasse until a
breakthrough was made and a trade deal was agreed in December.
The first national lockdown, which began in March 2020,
introduced a number of significant challenges for the housing and
mortgage market:
} social distancing measures required staff across the industry
to adapt to working from home, while conducting business
remotely
} physical property valuations were suspended by many large
surveying firms as house visits were not possible due to social
distancing requirements
} furlough of staff across many industries raised concerns about
job security and the potential for the unemployment rate to rise
} the government, with support from UK lenders, announced the
ability for individuals to take a mortgage payment deferral.
This required the prioritisation of mortgage payment deferral
requests and meant that mortgage lenders had to scale
back new lending activity to ensure that service levels could
be maintained.
Lockdown measures remained in place throughout the second
quarter of the year and continued to cause delays in property
transactions, easing from April onwards. In particular, there was
a large reduction in the number of products available at high loan
to value (LTV) as lenders sought to limit exposure to the higher-risk
segments of the market.
In May, the UK Government published guidance on how to
work safely in other people’s homes during COVID-19. This
announcement enabled physical valuations to resume which
meant that lenders could begin to reduce the backlog of cases
that had built up throughout the lockdown and gradually expand
lending criteria.
New lending activity steadily recovered in the second half of the
year as pent-up demand was released and the Stamp Duty Land
Tax (SDLT) holiday led to a rebound in purchase transactions
towards the end of the year. This surge in demand, combined with
continued low mortgage interest rates, led to upwards pressure
on house prices during the year.
Increasing infection rates throughout October and growing
concerns regarding a second wave, led to a second national
lockdown during November. The new processes and procedures
put in place by mortgage professionals during the first lockdown
ensured that the impact of these measures was largely mitigated.
The Bank of England noted in its Monetary Policy Report in
February 2021 that markets had reacted positively to the news of
successful vaccines and the delivery of the vaccine programme,
which should support the removal of restrictions and a bounce
back in economic activity.
The UK savings market
The UK savings market was also impacted by the COVID-19
pandemic as customers stopped spending and started saving at
the highest rate in nearly 30 years. The percentage of disposable
income saved rose from 9.6% to 29.1%, which was more than
double the previous record of 14.4% set in 1993.2
While some of the increased savings will have come from prudence
in an uncertain world, the majority came as a result of enforced
saving as national lockdowns prevented discretionary spending on
everything from houses and cars, to holidays and entertainment.
Over £150bn was deposited with banks and building societies in
2020 and c. £56bn was deposited in the three months between
April and June alone, during the first national lockdown, compared
to c. £6bn the month before.3 The NS&I increased their deposit
requirement from £6bn to £35bn4 and competed strongly
to obtain it.
Savings rates fell to historically low levels following the
decision by the Bank of England to cut its base rate by 65
basis points to a record low of 0.1% by mid-March, although
there was a delay in banks and other deposit takers passing
the base rate cuts on to savers in full, as they prudently
managed liquidity at the start of the pandemic.
Between the start of March and the start of July, the average rate
paid on an easy access savings account more than halved from
0.50% to 0.23%, while the average rate on a one year fixed rate
bond dropped from 1.15% to 0.66%.5 Many providers chose to
simply exit the market altogether, with the number of savings
accounts on offer reducing from 1,906 in November 2019 to
1,517 in November 2020.5
Rates were forced down further in the second half of the
year as banks and building societies had to control savings
inflows to avoid amassing unnecessary liquidity, as lending
volumes reduced and NS&I announced significant rate cuts.6
OSB GROUP PLC Annual Report and Accounts 2020
25
GovernanceFinancial statementsAppendicesStrategic reportOverview Market review (Continued)
The Group’s lending segments
Buy-to-Let
In the Buy-to-Let segment of the mortgage market, the March
lockdown was the main driver behind the annual decrease in
volumes. According to UK Finance, Buy-to-Let gross advances
reached £37bn in 2020, a 13% decrease from £42.5bn in 2019.7
Purchase activity was more significantly affected in the early
months of the pandemic, with fewer landlords entering the market;
however, this was mitigated to a degree by the SDLT holiday which
supported a recovery in house purchase activity during the fourth
quarter of the year.
Buy-to-Let purchases reached £9.8bn during the year, down 8%
compared to 2019, while remortgage originations reached £26.3bn,
down 13% year-on-year.7 The professionalisation of the Buy-to-Let
market that has been driven by increased tax liability for private
landlords and sustained regulatory change over a number of years
continued. On 6 April 2020, the final phase of the Buy-to-Let tax
relief changes were introduced, meaning that private landlords
would no longer be able to deduct any mortgage interest
payments from their rental income when calculating their tax
liability. Instead, this has been replaced by a tax credit calculated
at 20% of the mortgage interest payment. For some landlords,
especially those that are higher rate or additional rate taxpayers,
this would result in a larger tax bill.
In addition, changes to Capital Gains Tax (CGT) rules that come
into force from the 2020-21 tax year, mean that landlords must
now declare and pay any CGT liabilities within 30 days of selling
an investment property, whereas in the past any CGT liability did
not need to be declared until the next annual tax return. This
provides a much shorter window for paying the tax bill and in
combination with more restrictive rules around Private Residence
Relief and Letting Relief could further increase the tax liability for
certain landlords.
Research conducted by BVA BDRC in its Landlords Panel survey8
reported that in the fourth quarter of 2020, 66% of landlords
believed that their lettings business will be negatively affected by
the coronavirus pandemic; however, this proportion decreased
compared to the first half of the year (Q1 2020: 81%) signalling
negative, but improving, sentiment among landlords. This is also
reflected in the landlords’ confidence measure, which initially saw
a sharp decline as the pandemic started then showed signs of
a rebound and a greater sense of optimism towards the end
of the year.
The proportion of landlords seeking to reduce the size of their
portfolio (20%) remains higher than the proportion intending to buy
new properties (16%); however, the gap has closed from this point
last year (22% and 14% respectively).8 Of those landlords looking to
buy new properties, a majority now intend to do so within a limited
company structure, with the most desirable attribute for new
properties being potential rental yield. The market is becoming
increasingly dominated by professional landlords whose primary
source of income is from their property portfolio.
The fundamentals underpinning the private rented sector remain
strong, with continued increases in house prices stretching
affordability further and the reduced availability of high LTV
mortgages generating high demand for rental properties.
Residential
The UK residential mortgage market was equally affected by the
outbreak of coronavirus and the measures that were introduced
subsequently. The national lockdown in March was the primary
driver of the reduced lending volumes in 2020 as lenders faced
significant service pressures as they adapted to working from
home and prioritised processing of mortgage payment deferral
requests. Many of them reduced new business activity by
tightening criteria and withdrawing products as they focused
on low LTV, prime lending.
The purchase market was more impacted than the remortgage
market, where it is easier to transact without face-to-face contact,
with strong product transfer activity continuing. Purchase activity
accelerated in the second half of 2020, stimulated by pent-up
demand, the SDLT holiday and upcoming changes to the Help-to-
Buy scheme.
House prices continued to rise, potentially increasing affordability
challenges, with many buyers seeking to complete their purchases
before the government incentives are withdrawn.
Commercial
The commercial property market, which was largely shut in the
second quarter of 2020, due to the pandemic, experienced
contrasting dynamics stemming directly from the social measures
introduced to contain the virus and dividing it into sectors that
were thriving or struggling.
The hospitality and leisure sectors of the commercial market were
severely impacted by coronavirus restrictions, which have also
further exacerbated the difficult situation shopping centres and
the High Street were already experiencing pre-pandemic.
As consumers moved online, traditional retailers struggled to pay
rents and therefore shut shops. Many pubs, bars and restaurants
also remaining closed, contributing to retail tenant demand
and rents on the High Street falling in all but the most prime
locations, with CBRE Group reporting an annual decline of 8.3%
in rent for ‘all retail’.9 However, convenience retail showed growth
in 2020, as shopping for essentials became even more local.10
In addition, mixed use asset classes such as semi-commercial
property, which offers a diverse income stream underpinned by
the residential lettings, continued to be attractive to investors.
In contrast, the industrial sector, especially warehouse and
distribution, saw greater occupier and investor demand,
resulting in an increase in rents and capital values, with CBRE
reporting annual rental value and capital value growth of 2.8%
and 4.7% respectively for ‘all industrial’.9 Finally, office space
was impacted by lower occupancy rates as office workers
were working from home for the majority of 2020. This trend
26
OSB GROUP PLC Annual Report and Accounts 2020
has also created some uncertainty around future occupier
requirements for office space, as many businesses may not be
renewing their leases or may be choosing smaller office spaces
and adopting flexible and agile working post pandemic.10
Overall, in 2020, there was £41.8bn invested into UK commercial
property, a fall of 22% from 2019.11
Residential development
The UK has experienced a long period of house price growth,
creating affordability problems, as demand for housing
outstripped both supply and real wage growth. Transaction
volumes for new build sales were affected by the national
lockdown in March, as they were for the second hand market.
However, the furlough scheme, mortgage payment deferrals and,
to a lesser extent, the suspension on lenders and landlords taking
possessions, as well as other government schemes supporting
lending and house purchases, protected both housing markets
from the effects of the pandemic and boosted the demand for
housing throughout 2020.
The strongest demand experienced by Heritable’s customers was
for houses that were affordable to local populations in the regions,
which the business has concentrated on funding. It was notable
that sales rates for the few apartment schemes funded in London
were also high, seemingly bucking the trend of that particular
market. These have resulted in high levels of repayments for the
Heritable business through 2020.
It appears that some regions remain structurally reliant on the
government’s Help to Buy scheme and therefore these areas tend
to be avoided by Heritable. When government intervention into
the housing markets, both directly and indirectly, is withdrawn
there is a risk that these transaction volumes will fall and the
support required by small and medium sized developers, which
forms OSB Group’s core audience for development finance, will
therefore increase.
Second charge lending
Second charge lending was severely disrupted by the measures
introduced to slow the spread of coronavirus, as lenders scaled
back their appetite for new business with lower maximum LTVs
and stricter lending criteria. According to the FLA, second charge
mortgage lending reached £728m in 2020, down 42% compared
to 2019.12
Funding lines
There are a number of successful non-bank or alternative
providers of finance to retail and SME customers in the UK.
These businesses are funded through a variety of means,
including wholesale finance provided by banks, investment
funds and securitisation/bond markets, high net worth
investors and market-based peer-to-peer platforms.
OSB Group is an active provider of secured funding lines to these
specialty finance providers, primarily focusing on short-term real
estate finance and development finance. Through these activities,
the Group has achieved senior secured exposure at attractive
returns to asset classes that it knows well primarily secured
against property-related mortgages. OSB Group sees a regular
flow of opportunities; however, given the COVID-19 pandemic and
economic uncertainty, in 2020 the Group did not consider any
new client facilities, choosing to focus on servicing the existing
borrowers and applying amended, restricted lending criteria.
1. UK Finance, New mortgage lending by purpose of loan, UK (BOE), Feb 2021.
7. UK Finance, New and outstanding Buy-to-Let mortgages, Feb 2021.
2. House of Commons Library, Research Briefing, Coronavirus: Impact on Household Saving and
8. BVA BDRC Landlords Panel, Q4 2020, Jan 2021.
Debt, Jan 2021.
3. Bank of England Database, LPMVVHS, Dec 2020.
4. NS&I press release 16 July 2020.
5. Moneyfacts Treasury Reports 2020.
6. NS&I press release 21 Sept 2020.
9. CBRE UK Monthly Index, Dec 2020.
10. Commercial Auction 2020 Annual review, Allsops.
11. https://www.savills.co.uk/research_articles/229130/310162-0
12. FLA, Feb 2021.
OSB GROUP PLC Annual Report and Accounts 2020
27
GovernanceFinancial statementsAppendicesStrategic reportOverview Chief Executive Officer’s statement
Our track record in generating
attractive and sustainable returns
continued and we delivered
strong financial results amidst
the turmoil, whilst ensuring we
protected our colleagues,
customers and other
stakeholders.
Andy Golding
Chief Executive Officer
I am incredibly proud of how the Group responded
in 2020 to the unprecedented and sobering events
caused by COVID-19.
2020 was an extremely challenging year, with the impact of
COVID-19 felt by all businesses, the wider economy and society
as a whole. I am incredibly proud of how the Group responded to
this unprecedented event and the proven operational and financial
resilience of our business. Our track record in generating attractive
and sustainable returns continued and we delivered strong
financial results amidst the turmoil, whilst ensuring we protected
our colleagues, customers and other stakeholders. We achieved
this whilst positioning the Group well for further challenges or
new opportunities in the future, with a strong balance sheet,
prudent underwriting and a tested, resilient business model.
As the year evolved, we continued to adapt all areas of the
business, to ensure our colleagues could safely and confidently
deliver the service our customers have come to expect. Quick and
clear decision making at the start of the pandemic positioned us
well to manage subsequent lockdowns. I am particularly pleased
that we continue to deliver a class-leading return on equity despite
taking significant impairment charges in the year under IFRS 9,
with an underlying return on equity of 19% and 13% on a statutory
basis (2019: 25% and 18% respectively).
I am delighted that we continued to successfully deliver against
our integration plans, with colleagues across the Group pulling
together under a common purpose and culture.
The Board considered it prudent to preserve the Group’s capital
when we made the difficult and cautious decision, at the start
of the pandemic, not to pay the 2019 final dividend given the
unprecedented level of economic uncertainty at that time.
However, the income needs of our shareholders are important
to us and given our strong performance in 2020 and record
CET1 ratio, I am pleased that the Board is recommending
the payment of a dividend of 14.5 pence per share for 2020,
representing 25% of full year underlying earnings attributable to
ordinary shareholders, in line with our stated dividend policy.
28
OSB GROUP PLC Annual Report and Accounts 2020
Underlying return on equity
Statutory return on equity
19%
2019: 25%
13%
2019: 18%
Financial performance
Our financial performance in 2020 was resilient, but clearly
impacted by the pandemic and the ensuing deterioration in the
outlook for the economy, which led to a significant increase in
expected credit losses despite broadly stable arrears. Expected
credit losses also included an impairment provision of £20m in
relation to potential fraudulent activity by a third party on a
secured funding line provided by the Group. However, I am very
pleased that we demonstrated our ability to continue to generate
strong profit and, on an underlying basis, pre-tax profit was
£346.2m, equating to underlying basic earnings per share of 58.1
pence (2019: £381.1m and 64.9 pence respectively). Statutory
pre-tax profit was £260.4m and statutory basic earnings per share
decreased by 19% to 42.8 pence (2019: £209.1m and 52.6 pence
respectively).
We continued to grow our business and the underlying net loan
book increased in line with management expectations by 9%,
excluding the impact of structured asset sales in January. This
growth was achieved despite the second lockdown towards the
end of the last quarter of 2020. The statutory net loan book
increased by 4%.
Adapting to COVID-19
More than in any other year in our history, it was essential that we
were there for our stakeholders throughout 2020.
I continue to be very grateful to each and every colleague for
the effort, perseverance and dedication that they have shown
throughout this difficult time, displaying excellent adaptability as
government rules changed in line with fluctuating infection rates.
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 OSB India. The majority of our
colleagues, both in the UK and India, are currently working from
home and we are responsibly helping those who are unable to
work from home by operating under appropriate protocols in our
offices. We recognise the additional strains that the changed
circumstances can cause and made emotional well-being support
available for all our colleagues. The Group did not participate in
any of the government COVID-related business support schemes
nor did we place any of our employees on the furlough scheme.
The underlying net interest margin for the year of 247bps (2019:
266bps) was broadly flat to the first half. The NIM run rate in the
fourth quarter improved significantly as the base rate cuts were
passed on to retail savers in full by the end of the third quarter and
we maintained our discipline and control over mortgage pricing.
The statutory NIM was 216bps for 2020 (2019: 243bps).
The Group maintained its strong focus on cost discipline and
efficiency and benefitted from the delivery of synergies and lower
discretionary spending such as reduced travel, entertainment and
marketing expense during lockdowns. This resulted in an underlying
cost to income ratio of 27% and 31% on a statutory basis for the
year (2019: 29% and 32% respectively).
We have not yet seen any significant deterioration in customers’
credit performance or arrears; however, we retain our conservative
view on the macroeconomic outlook whilst UK Government support
remains in place, with the full impact of the pandemic yet to be felt.
Across the Group, resources were redeployed quickly to assist
borrowers who may have been in financial difficulty. Payment
deferrals peaked in the second quarter at 26,000 accounts,
representing 28% of the loan book by value. However, active
deferral requests reduced to only 1.3% of the Group’s loan book by
value by year end and we experienced low levels of new arrears on
accounts exiting payment deferrals. At the same time, we
continued processing existing mortgage applications.
Mortgage intermediaries continued to be supported and our
frequent interactions were maintained, as video and telephone
calls became the norm. We were proactive in understanding the
communication channels that brokers would prefer us to use and
communicated clearly and effectively the changes we had to make
as the impact of the pandemic unfolded. I am delighted that, for
the first time, both Kent Reliance and Precise Mortgages were
awarded a five star rating at the Financial Adviser Services Awards
2020, highlighting the Group’s unwavering dedication to serving
our clients through the pandemic.
OSB GROUP PLC Annual Report and Accounts 2020
29
GovernanceFinancial statementsAppendicesStrategic reportOverview Chief Executive Officer’s statement (Continued)
We supported our savings customers by enhancing our online
services and our small branch network remained open and was
quickly adapted to be a safe environment for our customers and
colleagues. Our strong savings proposition also helped the Group
maintain strengthened levels of liquidity.
The Group maintained a prudent appetite to risk in light of the
unprecedented macroeconomic uncertainty and continues to
control growth through pricing and lending criteria, especially in
our more cyclical sub-segments. The strong demand for our core
Buy-to-Let and Residential mortgages still enabled us to grow our
overall net loan book in a controlled manner and we continued to
concentrate on our high underwriting standards and protecting the
credit quality of our book. These deliberate actions demonstrate
our approach to maintaining profitability, protecting our balance
sheet and generating strong returns for shareholders.
Lending through the pandemic
We entered 2020 with a robust pipeline of new mortgages and
originated £3.8bn of new business in the year (2019: £4.1bn
statutory, £6.5bn pro forma underlying). Application levels in our
core businesses were strong prior to COVID-19, but the initial
lockdown inevitably impacted application and completion volumes
in the second and third quarters, mirroring the overall mortgage
market. As restrictions eased in the middle of the year, we chose to
increase lending in our core Buy-to-Let and Residential businesses
at higher pricing, albeit with reduced maximum LTVs and loan size.
We remained vigilant regarding market uncertainty and managed
our risk appetite accordingly to maintain strong credit quality.
However, I am pleased that new business volumes have now
recovered to near pre-COVID levels in these sub-segments, with
a strong pipeline of new business.
Net loan book growth was impacted by our sensible, clear
decisions to reduce lending in our more cyclical market sub-
segments. We continue to control new lending in our commercial,
bridging, development finance, funding lines and second charge
residential businesses. In addition, we have seen strong early
repayments from our residential development finance customers,
demonstrating the strength of that proposition.
The Group recognised an impairment provision of £20m in 2020
in relation to potential fraudulent activity by a third party on a
funding line of £28.6m provided by the Group, secured against
lease receivables and the underlying hard assets. The Group’s
funding line business is primarily secured against property-related
mortgages1 and the Board believes that this is an isolated incident.
The Board has commissioned an external review of processes and
controls in relation to the funding lines business and will make
enhancements based on recommendations received.
InterBay Asset Finance saw increased levels of new business as we
entered the fourth quarter of the year and in October launched
products under the Coronavirus Business Interruption Loan
Scheme. This enabled us to finance new deals for SME customers
who had been affected by COVID-19.
30
OSB GROUP PLC Annual Report and Accounts 2020
Sophisticated funding model
The Group remained predominantly retail funded in 2020 and our
strong savings propositions, through Kent Reliance and Charter
Savings Bank, continued to attract increased customer numbers.
This allowed us to fund the business at an increasingly favourable
cost as base rate cuts were passed on to retail savers in full by the
end of the third quarter. The Group had £16.6bn of statutory retail
deposits as at 31 December, up 2% on the prior year (2019:
£16.3bn).
Customer satisfaction, measured through the Net Promoter Score,
remained high at +67 and +72 for Kent Reliance and Charter
Savings Bank, respectively. I am very pleased that retention rates
for savers continued to be exceptionally high, reaching 93%
amongst Kent Reliance customers and 77% for Charter Savings
Bank. I am also delighted that our savings brands received
recognition with Charter Savings Bank awarded Best Bank Savings
Provider in the Moneyfacts Awards and Best Savings Provider
in the Savings Champion Awards. Kent Reliance won Best Easy
Access Savings provider in the Moneynet awards. These awards
demonstrate our dedication to delivering excellent customer
service, supported by the outstanding skills and adaptability of
the dedicated people in our operations in India and the UK.
We continued to complement our retail savings franchises by
utilising our capabilities in the wholesale funding market,
demonstrating one of the strengths of our successful Combination
with CCFS. In 2020, the Group completed four securitisation
transactions with a combined value of £2.8bn across the
Canterbury Finance and Precise Mortgage Funding programmes.
We were also successful in generating gains through the sale of
residual positions and in 2020 we recorded a gain of £33m on an
underlying basis, or £20m on a statutory basis, while derecognising
£0.8bn of securitised mortgages from the Group’s balance sheet.
We were also accepted to the Term Funding Scheme with
additional incentives for SMEs (TFSME) in 2020 with borrowings of
£1bn at the end of the year. We intend to use the TFSME funding to
refinance and extend the duration of the remaining £2.6bn of
drawings under the TFS scheme. TFSME drawings may also be
used to fund additional growth opportunities subject to our
encumbrance policy.
Building our business
The integration of OSB and CCFS has progressed very well, with
the synergies set out for the first year of the Combination achieved
earlier than anticipated, and by the end of the first year we had
achieved more than 65% of our end of year three synergy target.
We are currently ahead of schedule towards delivering our year
two synergy target and expect to marginally exceed our run-rate
pledge by the end of the final year. We streamlined the Board and
de-duplicated a significant proportion of senior management roles
early and also achieved efficiencies from combining various central
and support functions. Our costs to date are lower than originally
expected. Operational resilience has had an increased focus in
light of the pandemic and the Board is taking the opportunity to
review whether some planned consolidation of locations and
suppliers is still the best way forward. Any decision is not expected
to have a material impact on the quantum of synergies.
I am delighted that colleagues across the Group worked well
together, ensuring that we offered excellent service to customers
across our franchises. We have taken two great cultures and
combined them as one under a common purpose, to help our
customers, colleagues and communities prosper. Our values are
also combined and we have added more emphasis on stewardship.
This will ensure we act positively with conscience and have
environmental, social and governance factors front of mind when
making decisions.
Sustainability is important to us and the Group operates under the
highest governance and ethical standards. We are focused on
reducing our impact on the environment and are cognisant of the
impact of social and environmental change on our business and
stakeholders. We regularly review our policies, activities and
outcomes and I am looking forward to reporting further on ESG
matters as we progress.
In July 2020, the Group received its Annual Resolution Letter from
the Bank of England setting out its preferred resolution strategy. As
anticipated, the Group is subject to a single point of entry bail-in
requirement which, from July 2023, is expected to be equal to 18%
of risk-weighted assets, rising to a final requirement of two times
Pillar 1 and Pillar 2a from July 2025. The Group intends to fulfil its
minimum requirement for own funds and eligible liabilities through
senior debt issued by OSB GROUP PLC, which became the
Group’s holding company in November 2020, with the first
anticipated debt issue during the first half of 2022, subject to
market conditions.
We continued to make good progress towards IRB during the year,
albeit some elements of the project were inevitably delayed by the
impact of COVID-19, which created the need to deploy significant
resources to support additional stress testing and expected credit
loss modelling and also restricted the ability of external advisers to
access our premises and systems. Nevertheless, we are still aiming
to submit our module 1 application by the end of the year. In the
meantime the Group continues to benefit from the enhanced risk
models and assessment in its decision-making.
Looking forward to 2021
After a year of unprecedented uncertainty, it seems there is finally
reason for some cautious optimism. Vaccinations are being rolled
out at an impressive pace and we hope the country will begin to
return to some sense of normality. There is positive news in the
fact that a Brexit deal was agreed, reducing some uncertainty,
although there may be further twists and turns as the UK builds its
relationships with the EU and other trading partners. However, we
remain cognisant of the many businesses, families and individuals
currently receiving support from government initiatives and the
ongoing uncertainty about the true impact of the pandemic on the
economy, our customers and the Group’s business when the
support ends.
We have demonstrated that OSB Group is a strong and resilient
business in the face of economic slowdown and uncertainty and
that we do not seek growth at the expense of quality. We have
continued to generate very attractive returns, despite taking
significant impairment charges under COVID-19 forward-looking
assumptions. Whilst we continue to control lending in our more
cyclical businesses, applications remain strong in our Buy-to-Let
and Residential sub-segments, at higher pricing and lower LTVs
than pre-COVID and we have a strong pipeline. The Group is
well-placed to accelerate lending when the macroeconomic
outlook becomes clearer, with a very strong capital position,
secured loan book and strong risk management capabilities.
Based on our pipeline and current application levels and risk
appetite, we currently expect to deliver underlying net loan book
growth for 2021 of c. 10%, although we remain cognisant of
continued uncertainty in the economic outlook. Based on current
pricing and cost of funds, we expect underlying NIM for 2021 to
return to 2019 levels. We expect the underlying cost to income ratio
to increase marginally in 2021, as the ratio in 2020 benefitted from
higher income from gains on structured asset sales and lower
discretionary spend in lockdown.
Andy Golding
Chief Executive Officer
8 April 2021
1. The Group’s gross loans to customers include £175.7m in relation to funding lines of which 66%
is secured on property-related mortgages.
OSB GROUP PLC Annual Report and Accounts 2020
31
GovernanceFinancial statementsAppendicesStrategic reportOverview Our strategic framework
Our vision is to be
recognised as the UK’s
number one choice for
specialist banking through
our commitment to
exceptional service,
strong relationships and
competitive propositions.
Priorities
intermediaries
Our goals
to demand
Specialist mortgage lending
Priorities
Sophisticated funding platform
Unique operating model
Be a leading specialist lender in
our chosen market segments
Focus on automated and bespoke
manual underwriting
Further deepen relationships and
Maintain a stable, high-quality,
Leverage our unique and cost-
reputation for delivery with
diversified funding platform
efficient operating model
Our goals
Grow loan originations at attractive
margins in our chosen market segments
} Target market sub-segments which offer attractive
returns on a risk-adjusted basis
High-quality decisions protecting
the business
} Use deep credit experience to deliver high-quality
lending decisions
} Deliver incremental, non-organic business
} Leverage CCFS’ automated approach in
} Invest in a highly responsive, customer-focused
culture
} Innovate to secure sustainable long-term
market leadership
conjunction with OSB’s skilled manual underwriting
capabilities and in-house real estate expertise
} Deliver a quality, differentiated service supported
by highly responsive decision-making
} Clear decisions recognised by intermediaries for
their quality and fairness
2020
} Organic originations were £3.8bn, down 42% from
pro forma underlying £6.5bn in 2019 due to the
impact of the pandemic
} OSB’s Buy-to-Let gross loan book was up 4% in
2020 and CCFS’ gross underlying Buy-to-Let loan
book was up 11%
} For the first time, both Kent Reliance and Precise
Mortgages were awarded a five star rating at the
Financial Adviser Services Awards 2020
} Controlled risk appetite in light of COVID-19 with
tightened lending criteria and reduced LTV limits
as core market segment lending returned after the
first lockdown
} The OSB Transactional Credit Committee met twice
each week in 2020 to assist with more complex or
larger new mortgage applications
} Increased stress testing in specialist sub-segments
} Continued to help customers through the pandemic
by flexible working whilst maintaining high
underwriting standards
Increase partner reach in response
Expertise in funding options
Best-in-class customer service
} Maintain a resilient and diversified funding platform
} Have customer service at the heart of everything
} Access to specialist products developed
by listening to intermediary partners
} Be accessible and available to intermediaries
} Complementary propositions for OSB and
CCFS brands
} Gain intermediary recognition for delivering
sustainable propositions
} Deliver bespoke solutions to meet intermediary
and customer needs
to support future growth and ensure liquidity
requirements are met through the economic cycle
and cost of funds is optimised
} Be primarily funded through attracting and
retaining a loyal retail savings customer base
} Deliver a proposition offering transparent,
straightforward savings products, providing
long-term value combined with excellent service levels
} Maintain a sophisticated securitisation funding
programme and balance sheet management
capability
that we do
} Maintain centres of excellence across OSB’s and
CCFS’ existing locations in Chatham,
Wolverhampton and Bangalore, India
} Extend activity in OSB India (OSBI) to develop
high-quality areas of excellence
} Deliver cost efficiencies through excellent process
design and management
} Deliver flexible and resilient operating processes
2020
} OSB’s Choices programme had another successful
year with 75% of borrowers choosing a new product
with the Bank within three months of their existing
product ending
} CCFS enhanced service standards
} CCFS’ and OSB’s Sales teams attended 416
physical and virtual intermediary events in 2020
} Opened nearly 47,000 new savings accounts across
} Investments in training and process development
both Banks in 2020
} Achieved 93% customer retention for Kent Reliance
and 77% for Charter Savings Bank
} Received multiple awards for savings products,
including Best Bank Savings Provider from the
Moneyfacts Awards for Charter Savings Bank and
Best Easy Access Savings provider in the Moneynet
Awards for Kent Reliance
} Delivered securitisation transactions with a
combined value of £2.8bn in 2020
contributed to strong savings customer NPS of +67
for Kent Reliance and +72 for Charter Savings Bank
} Continued to develop deep credit know-how
through proprietary data analytics
} 493 employees at OSB India at the end of 2020
} Demonstrated outstanding operational resilience
and flexibility during the pandemic
Looking forward
Looking forward
} Maintain our strong credit and return requirements
} Using OSB’s and CCFS’ credit experience in
and assess the attractiveness of growth
opportunities in our current market sub-segments
when macroeconomic conditions improve
} Deploy scale and resources on organic growth
opportunities
} Identify new market sub-segments with high returns
on a risk-adjusted basis
} Identify additional potential revenue synergies
a best-of-both approach
} Leverage differentiated but complementary
underwriting capabilities to enhance customer
propositions
} Increase underwriting efficiency to better serve
borrower needs across complementary brands
} Use enhanced data insight and analysis of
the combined OSB and CCFS data sets and
analytic capabilities
} Continue to build direct relationships with
intermediaries
} Continue to invest in both Kent Reliance and
Charter Savings Bank retail deposit franchises
} Use greater scale to deliver efficient, scalable
and resilient infrastructure including IT security
} Leverage best practice of CCFS and OSB across the
} Benefit from the ability to execute structured
} Deliver cost efficiencies and operational
combined Group to maintain and further enhance
balance sheet management transactions across
best-in-class service performance to brokers
the combined Group’s balance sheet
enhancements by leveraging OSBI’s lending,
savings and support operations and capabilities
} Increase the breadth of sales support to
intermediaries during the application process
} Utilise in-house expertise to enable efficient access
} Deliver efficiencies and enhanced capabilities in
to capital markets
centres of excellence
} Increase the Group’s encumbrance efficiency:
} Use robotics technology and improve workflows
access to more wholesale funding for each pound
to further enhance primary servicing
of assets encumbered
Key risks*
Key risks*
} Unknown long-term impact of COVID-19 on
} Changing regulation for underwriting
} Loss of key broker relationships
} Increased competition for retail funds
} Difficulty in continuous service improvement as the
employment, house prices and the wider economy
} Political and economic uncertainty affecting
long-term demand for specialist mortgages
} Potential regulatory and tax changes on Buy-to-Let
} New specialist lenders entering the market
} More complex underwriting requirements
} Difficulty in recruiting experienced employees
} Increasing intermediary demands
} Demands of ever-changing technology
Key performance indicators
Organic originations
£3.8bn
Underlying loan loss ratio
38bps
2019: £6.5bn pro forma underlying
2019: 10bps pro forma underlying
} Competition reducing pricing below the Group’s
} Increased customer expectation for technology
risk-adjusted return appetite
} More complex underwriting requirements slowing
the process
} Volatility of capital markets on demand and price
} Increased burden of regulatory compliance –
for example, Open Banking (which currently
does not apply to the Group)
Group grows
} Increasing costs in India
} Increasing complexity from compliance with
changing regulation
} Maintaining operational resilience as the Group
grows
Key performance indicators
OSB broker NPS
CCFS broker NPS
+49
2019: +27
+54
2019: +18
securitisations since 2013 across OSB
and CCFS worth over
19
£7.9bn
Underlying cost to income ratio
27%
2019: 29% pro forma underlying
32
OSB GROUP PLC Annual Report and Accounts 2020
Specialist mortgage lending
Priorities
Be a leading specialist lender in
Focus on automated and bespoke
our chosen market segments
manual underwriting
Grow loan originations at attractive
High-quality decisions protecting
margins in our chosen market segments
the business
} Target market sub-segments which offer attractive
} Use deep credit experience to deliver high-quality
returns on a risk-adjusted basis
lending decisions
} Deliver incremental, non-organic business
} Leverage CCFS’ automated approach in
} Invest in a highly responsive, customer-focused
culture
} Innovate to secure sustainable long-term
market leadership
conjunction with OSB’s skilled manual underwriting
capabilities and in-house real estate expertise
} Deliver a quality, differentiated service supported
by highly responsive decision-making
} Clear decisions recognised by intermediaries for
their quality and fairness
Our goals
2020
} Organic originations were £3.8bn, down 42% from
} Controlled risk appetite in light of COVID-19 with
pro forma underlying £6.5bn in 2019 due to the
impact of the pandemic
tightened lending criteria and reduced LTV limits
as core market segment lending returned after the
} OSB’s Buy-to-Let gross loan book was up 4% in
first lockdown
2020 and CCFS’ gross underlying Buy-to-Let loan
} The OSB Transactional Credit Committee met twice
book was up 11%
} For the first time, both Kent Reliance and Precise
Mortgages were awarded a five star rating at the
Financial Adviser Services Awards 2020
each week in 2020 to assist with more complex or
larger new mortgage applications
} Increased stress testing in specialist sub-segments
} Continued to help customers through the pandemic
by flexible working whilst maintaining high
underwriting standards
Priorities
Further deepen relationships and
reputation for delivery with
intermediaries
Our goals
Increase partner reach in response
to demand
} Access to specialist products developed
by listening to intermediary partners
} Be accessible and available to intermediaries
} Complementary propositions for OSB and
CCFS brands
} Gain intermediary recognition for delivering
sustainable propositions
} Deliver bespoke solutions to meet intermediary
and customer needs
2020
} OSB’s Choices programme had another successful
year with 75% of borrowers choosing a new product
with the Bank within three months of their existing
product ending
} CCFS enhanced service standards
} CCFS’ and OSB’s Sales teams attended 416
physical and virtual intermediary events in 2020
Sophisticated funding platform
Unique operating model
Maintain a stable, high-quality,
diversified funding platform
Leverage our unique and cost-
efficient operating model
Expertise in funding options
} Maintain a resilient and diversified funding platform
Best-in-class customer service
} Have customer service at the heart of everything
to support future growth and ensure liquidity
requirements are met through the economic cycle
and cost of funds is optimised
} Be primarily funded through attracting and
retaining a loyal retail savings customer base
that we do
} Maintain centres of excellence across OSB’s and
CCFS’ existing locations in Chatham,
Wolverhampton and Bangalore, India
} Extend activity in OSB India (OSBI) to develop
} Deliver a proposition offering transparent,
high-quality areas of excellence
straightforward savings products, providing
long-term value combined with excellent service levels
} Maintain a sophisticated securitisation funding
programme and balance sheet management
capability
} Deliver cost efficiencies through excellent process
design and management
} Deliver flexible and resilient operating processes
} Opened nearly 47,000 new savings accounts across
} Investments in training and process development
both Banks in 2020
} Achieved 93% customer retention for Kent Reliance
and 77% for Charter Savings Bank
} Received multiple awards for savings products,
including Best Bank Savings Provider from the
Moneyfacts Awards for Charter Savings Bank and
Best Easy Access Savings provider in the Moneynet
Awards for Kent Reliance
} Delivered securitisation transactions with a
combined value of £2.8bn in 2020
contributed to strong savings customer NPS of +67
for Kent Reliance and +72 for Charter Savings Bank
} Continued to develop deep credit know-how
through proprietary data analytics
} 493 employees at OSB India at the end of 2020
} Demonstrated outstanding operational resilience
and flexibility during the pandemic
Looking forward
Looking forward
} Maintain our strong credit and return requirements
} Using OSB’s and CCFS’ credit experience in
and assess the attractiveness of growth
opportunities in our current market sub-segments
when macroeconomic conditions improve
a best-of-both approach
} Leverage differentiated but complementary
underwriting capabilities to enhance customer
} Deploy scale and resources on organic growth
propositions
opportunities
} Identify new market sub-segments with high returns
on a risk-adjusted basis
} Identify additional potential revenue synergies
} Increase underwriting efficiency to better serve
borrower needs across complementary brands
} Use enhanced data insight and analysis of
the combined OSB and CCFS data sets and
analytic capabilities
} Continue to build direct relationships with
intermediaries
} Continue to invest in both Kent Reliance and
Charter Savings Bank retail deposit franchises
} Use greater scale to deliver efficient, scalable
and resilient infrastructure including IT security
} Leverage best practice of CCFS and OSB across the
combined Group to maintain and further enhance
best-in-class service performance to brokers
} Benefit from the ability to execute structured
} Deliver cost efficiencies and operational
balance sheet management transactions across
the combined Group’s balance sheet
enhancements by leveraging OSBI’s lending,
savings and support operations and capabilities
} Increase the breadth of sales support to
intermediaries during the application process
} Utilise in-house expertise to enable efficient access
} Deliver efficiencies and enhanced capabilities in
to capital markets
centres of excellence
} Increase the Group’s encumbrance efficiency:
} Use robotics technology and improve workflows
access to more wholesale funding for each pound
of assets encumbered
to further enhance primary servicing
Key risks*
Key risks*
} Unknown long-term impact of COVID-19 on
} Changing regulation for underwriting
} Loss of key broker relationships
} Increased competition for retail funds
} Difficulty in continuous service improvement as the
employment, house prices and the wider economy
} Political and economic uncertainty affecting
long-term demand for specialist mortgages
} Potential regulatory and tax changes on Buy-to-Let
} New specialist lenders entering the market
} More complex underwriting requirements
} Difficulty in recruiting experienced employees
} Increasing intermediary demands
} Demands of ever-changing technology
Key performance indicators
Organic originations
£3.8bn
Underlying loan loss ratio
38bps
2019: £6.5bn pro forma underlying
2019: 10bps pro forma underlying
} Competition reducing pricing below the Group’s
} Increased customer expectation for technology
risk-adjusted return appetite
} More complex underwriting requirements slowing
the process
} Volatility of capital markets on demand and price
} Increased burden of regulatory compliance –
for example, Open Banking (which currently
does not apply to the Group)
Group grows
} Increasing costs in India
} Increasing complexity from compliance with
changing regulation
} Maintaining operational resilience as the Group
grows
Key performance indicators
OSB broker NPS
CCFS broker NPS
+49
2019: +27
+54
2019: +18
19
securitisations since 2013 across OSB
and CCFS worth over
£7.9bn
Underlying cost to income ratio
27%
2019: 29% pro forma underlying
* For more information on the Group’s risk management and principal risks and uncertainties see the Risk review section on pages 61 to 87.
OSB GROUP PLC Annual Report and Accounts 2020
33
GovernanceFinancial statementsAppendicesStrategic reportOverview Strategy in action
Creating a leading specialist lender
in our chosen market segments
Our scale, complementary strengths and enhanced customer
propositions following the Combination support our goal to become
a leading specialist lender in the UK.
Leading lender in our chosen market segments
Our market coverage is strong and we attract customers who want
an automated approach to underwriting in addition to those who
need a bespoke manual solution.
Through the Group’s substantial scale and resources, we:
} are leaders and experts in our chosen specialist, secured
market segments
} offer both bespoke and automated underwriting capability
} have strong relationships with intermediaries which provide us
with rapid and widespread distribution, supporting stronger
origination volumes.
Our market segments
Through our lending brands we target specialist mortgage market
segments that are underserved by UK retail banks and building
societies, and are underpinned by positive long-term market
dynamics. We continually evaluate the attractiveness of and
growth opportunities within our current market segments, together
with assessing opportunities to move into new specialist segments.
We concentrate on areas where margins are attractive relative to
risk and lending is sustainable within our conservative risk appetite.
Our increased scale enables us to serve more customers and
expand our reach across specialist segments.
We currently lend in the following specialist market segments:
} Buy-to-Let
} bespoke specialist and near prime residential
} second charge residential
} shared ownership residential
} commercial and semi-commercial
} bridging and short-term loans
} residential development
} asset finance
} funding lines.
Deep credit expertise
Our credit expertise and extensive product knowledge will help
us to achieve market leadership. Each of our brands are led by
experienced industry professionals and are supported by highly
skilled teams with experience and insight spanning the entire
mortgage life cycle. We have proprietary data analytics, which
continue to enhance our deep credit knowledge. The Group uses
this knowledge and data to adapt quickly to changing market
conditions, identifying niche lending opportunities and tailoring
its product offering accordingly.
Expanded underwriting capability
Bespoke underwriting
Our Kent Reliance brand does not use automated or scorecard-
based processes. All of its loans are underwritten by experienced
and skilled underwriters, supported by technology to reduce
the administrative burden on underwriters and mortgage
intermediaries. We consider each loan on its own merit, responding
quickly and flexibly to offer the best solution for each of our
customers. No case is too complex for us, and for those borrowers
with more tailored or larger borrowing requirements, our
Transactional Credit Committee meets twice each week,
demonstrating our responsiveness to broker needs.
Automated underwriting platform
Our CCFS brands use an automated underwriting platform to
manage mortgage applications, delivering a rapid decision in
principle, based on rigorous lending policy rules and credit scores.
The platform is underpinned by extensive underwriting expertise,
enabling identification of new niches and determining appropriate
lending parameters. The platform enables Precise Mortgages to
react quickly to non-standard mortgage requests which are
common in the Group’s target market segments, while ensuring
consistent underwriting within the Group’s risk appetite. Quick
response times help the Group to compete for the ‘first look’ at
credit opportunities, while a robust manual verification process
further strengthens the disciplined approach to credit risk.
Expanded intermediary relationships
Both OSB and CCFS have developed extensive intermediary
relationships and the combined Group can now leverage both
sets of intermediaries to support stronger origination volumes.
34
OSB GROUP PLC Annual Report and Accounts 2020
Managing risks in our lending strategy
Both OSB and CCFS have developed risk identification,
management processes and expertise. During 2020 the Group
primarily focused on developing a considered and measured
response to the global pandemic based on our strategies.
A particular area of focus was credit risk. The Group undertook
additional stress testing and adjusted its risk appetite, primarily
through tightening its lending criteria to effectively manage the
risk of lending in a highly disruptive and economically uncertain
market. For more information on the Group’s risk management
and principal risks and uncertainties see the Risk review section
on pages 61 to 87.
Case study
Helping people into homes and
inspiring the young
Al Kerr, one of OSB Group’s biggest customers, knows the value
of teamwork. Being a successful landlord is about recognising
that it isn’t just bricks and mortar, but it is more of a people
business, whether it is working with those that support him or
who he supports such as the young people he has helped and
encouraged to build careers in property and related professions.
A cornerstone of his success is being passionate about having
happy tenants and he instils his passion into his own team and
shares it with his business partners. OSB is a long-term partner
of Al’s and so it wasn’t a surprise when he asked us to help him
undertake a simultaneous remortgage of his property portfolio.
The long-term success of his business was being threatened
by changes in regulation and to protect it, and the people he
employs, it became an imperative to incorporate his borrowing
by moving his mortgages from his own name into a company
structure. To make things more complicated it was necessary
to do this in a single day, which meant more than a year of
planning, not only with banks such as OSB, but also solicitors,
surveyors and other property professionals.
Then came the pandemic, making a difficult undertaking even
more complex and creating challenges to the day-to-day
operations of his business. With a dedicated team across the
Group, we stepped up to the challenge and got the job done.
In Al’s words: ‘The team at OSB pulled out all the stops and
simplified the process as much as possible’.
His business is secure and he can now look forward to the
next stage of his enterprise, working with partners like OSB,
helping people into homes and inspiring the young to develop
successful careers.
OSB GROUP PLC Annual Report and Accounts 2020
35
GovernanceFinancial statementsAppendicesStrategic reportOverview Strategy in action (Continued)
Sophisticated funding platform
The Group has stable funding from retail savings and capital
markets expertise for programmatic issuance of mortgage-backed
securities. This enables the Group to optimise its cost of funds while
prudently managing funding and liquidity risks.
Retail savings
OSB Group is predominantly funded by retail savings deposits,
operated under two brands: Kent Reliance and Charter Savings
Bank (CSB).
Customer satisfaction and transparent savings products
Our customers’ satisfaction is key to how we do business and at
the heart of our corporate culture.
Kent Reliance is a savings franchise with over 150 years of heritage
and nine branches in the South East of England. It also takes
deposits via post, telephone and online while CSB offers its
products online and via post.
Both Banks have a wide range of savings products, including easy
access, fixed term bonds, cash ISAs and business savings
accounts.
In line with its dynamic funding strategy, CSB has diversified its
retail funding sources through pooled funding platforms. The range
of products sourced via these platforms includes easy access and
non-retail deposits.
Our key strengths are:
} customer focus;
} transparent, good-value savings products.
The outstanding customer service that we consistently provide to
our savings customers is evidenced by our high NPS. For 2020,
Kent Reliance had NPS of +67 and CSB +72. In addition, 93% of
Kent Reliance customers whose savings products matured in the
year renewed with us and 77% of CSB’s customers also did so.
During the year, Kent Reliance opened just over 25,000 new
accounts and CSB just over 21,500.
Both Banks were also recognised by the industry, winning multiple
awards in the year, including Best Bank Savings Provider in the
Moneyfacts Awards and Best Savings Provider in the Savings
Champion Awards for CSB and Best Easy Access Savings
provider in the Moneynet awards for Kent Reliance among others.
Kent Reliance’s proposition for savers is simple: to offer consistently
good-value savings products that meet customer needs for cash
savings without having to price at the very top of the best buy
tables. The Bank also offers loyalty rates for its existing customers.
CSB’s philosophy is to maintain and develop its award-winning
business, by diversifying its product offering to access funding
pools. It also aims to offer competitively priced new savings
products in its existing product lines. Operating with an agile,
nimble approach, CSB can respond quickly to the funding
requirements of the business, providing advantageous cost
of funds.
36
OSB GROUP PLC Annual Report and Accounts 2020
Wholesale funding
The Group has built attractive diversification opportunities to
supplement its retail funding.
CCFS uses its securitisation platform as a means of providing
low-cost, term duration funding. Wholesale funding enabled the
business to rebalance the weighted average life of liabilities away
from shorter duration retail funding and thereby optimise the
funding mix. The Group recognises the cyclical nature of capital
markets funding and therefore utilises it opportunistically, taking
advantage of favourable market conditions.
CCFS has been a programmatic issuer of high-quality residential
mortgage-backed securities (RMBS) through the Precise Mortgage
Funding and Charter Mortgage Funding franchises with 14
securitisations worth more than £4.5bn since 2013.
OSB returned to the securitisation market in 2019 and has since
issued three securitisations of organically originated mortgages
under the Canterbury Finance programme totalling £2.6bn.
In 2020, CCFS also maintained warehouse funding capacity
through two Tier 1 investment banks. These facilities act as a bridge
to RMBS funding, helping the Group to maximise the efficiency
of its liquidity position through the transition from retail deposit
to securitisation funding.
The Group also has the capability to engage in transactions which
could result in the full derecognition of the underlying mortgage
assets, through the sale of residual positions in its securitisation
vehicles.
Bank of England funding
The Group also takes advantage of the Bank of England’s funding
schemes. In the first half of 2020, the Group was accepted to
participate in the Term Funding Scheme for SMEs with drawings of
£1.0bn as at the end of 2020. Drawings under the TFS scheme
remained unchanged from 2019 at £2.6bn.
For more information about the Group’s securitisation funding,
see pages 50-51
Case study
Bucking the trend by investing to
improve our services
Jenny Longbottom
Savings Operations Manager
The need to become better and better for our savers was never
more important than in 2020. With the particular challenges that
the year brought upon us all, physical premises were of
paramount focus to ensure the health and safety of our
customers and branch colleagues. We have implemented safety
screens and one-way systems amongst other measures and we
kept well informed of important information and updates. We
have also collaborated with colleagues in the Customer Enquiry
Team to help them support customers who found themselves
having to do things slightly differently.
Despite these challenges, we continued to invest in the branch
network and the Strood branch moved to larger premises with
additional service points and private meeting space. We will
continue to invest in our branches in the future and we are proud
to grow our presence on the High Street when others are
withdrawing and to be upgrading our branches for the benefit of
our customers and colleagues alike.
OSB GROUP PLC Annual Report and Accounts 2020
37
GovernanceFinancial statementsAppendicesStrategic reportOverview
Strategy in action (Continued)
Efficient, scalable and resilient
infrastructure and systems
The Group has a unique and cost-efficient business model and
maintains a robust, scalable and resilient infrastructure. Our
customer service functions, based in our multiple locations across
the UK and at our wholly-owned subsidiary OSB India, help us
deliver on our aim of putting customers first.
Focus on customers
The Group operates customer service functions in multiple
locations across the UK including its head office in Chatham,
Wolverhampton, Fareham, London and Fleet. These, together with
our wholly-owned subsidiary OSB India, help us deliver on our aim
of putting customers first.
At OSBI, we employ highly talented and motivated employees at
a competitive cost. We benchmark our processes against industry
best practice, challenging what we do and eliminating customer
pain points as they arise. We continue to invest in developing skills
that enable highly efficient service management, matching those
to business needs both in India and the UK.
The Group has proven collections capabilities and expertise in case
management and supporting customers in financial difficulty, from
initial arrears through to repossession. This offers valuable insights
into, as well as the opportunity to learn from, the performance of
mortgage loan products. We have deep credit expertise through
proprietary data analytics.
We reward our people based on the quality of service they provide
to customers, further protecting our retail savings franchise and
leading to high customer satisfaction. In 2020, OSB achieved
a customer NPS of +67 and CCFS’ was an excellent +72.
Our key strengths:
} Excellent customer experience
} High customer NPS
} High employee retention rates
We are proud of our low employee turnover in India, with the
regretted attrition rate of just over 11%, outperforming local
industry averages.
Focus on quality and cost discipline
The Combination has increased the Group’s scope to deliver
efficient, scalable and resilient infrastructure and invest in IT
security, supported by data security and resilience experts.
Both OSB and CCFS are extremely cost-efficient with low cost
to income ratios, reflecting historical high growth in income, the
benefits of OSBI and high operating leverage as the balance sheet
has grown.
Savings NPS for KR
Savings NPS for CSB
+67
2019: +66
+72
2019: +72
38
OSB GROUP PLC Annual Report and Accounts 2020
Case study
OSBI – resilient and flexible
Anil Philip
Head of Support Services, OSBI
As we went into 2020, little did we know that a pandemic would sweep the globe!
Hours before a sudden announcement by the Government of India that the whole
country would go under a strict lockdown, a decision was made by the Group
to set up all processes for work from home. Within a short period of time we had
to enable 90% of colleagues to work remotely, many of them in locations other
than Bangalore, find enough equipment, get those working in different states
to safely collect the equipment and then to return home. Some of our colleagues
spent seven weeks working from Hyderabad’s hotels, unable to return home
to Bangalore.
Despite these challenges we stood up to one of the biggest operational
challenges at OSBI.
OSB GROUP PLC Annual Report and Accounts 2020
39
GovernanceFinancial statementsAppendicesStrategic reportOverview Segment review
Coronavirus impact on the Group’s lending segments
The Group’s segment results reflect the impact of the pandemic
on its lending activities throughout 2020. The reduction in new
business volumes reflects multiple dynamics which developed over
the course of the year as the pandemic evolved.
The Group attracted strong levels of applications and completions
for nearly all of the first quarter of 2020 across all of its lending
brands. In late March, as the lockdown and social distancing
measures were imposed by the government, the Group took the
decision to temporarily suspend new business activity across its
lending sub-segments. This decision was largely due to the ban
on home visits making physical property valuations, a critical
component of the Group’s bespoke underwriting process, all but
impossible. As a result, the Group concentrated on progressing
the pipeline of applications with existing physical valuations,
whilst ensuring resources were deployed to prioritise the needs
of customers, including those who wished to request a mortgage
payment deferral.
Self-certified mortgage payment deferrals were announced by
the government in March 2020. Payment deferrals peaked in
the second quarter at 26,000 accounts, representing 28% of the
Group’s mortgage book by value. Anecdotal evidence suggested
that many people who requested a payment deferral were doing
so to prudently safeguard their cash flow, rather than as a
necessity, and the underlying performance of the Group’s loan
book seemed to confirm it. Arrears remained broadly stable
throughout the year and as at 31 December 2020 the percentage
of loans and advances in three months plus arrears remained
broadly stable at 1.3% for OSB (2019: 1.3%) and 0.5% for CCFS
(2019: 0.3%). Volumes of mortgage payment deferrals reduced
significantly and as at 31 December 2020 active payment deferrals
represented only 1.3% of the Group’s loan book by value.
As the restrictions on physical valuations began to ease in the
middle of May, the Group took the opportunity to undertake a
controlled increase of business volumes in its core Buy-to-Let and
residential sub-segments, although with a limited suite of products,
tighter lending criteria and higher headline rates. Gradually,
additional products were introduced and criteria expanded,
however certain products in more cyclical business lines including
commercial, residential development finance, funding lines and
second charge residential were greatly reduced with tightly
controlled and limited product sets introduced later in the year.
The second national lockdown, imposed in early November, did not
significantly impact lending volumes since new processes, policies
and procedures agreed during the first lockdown were already in
place and market disruption was limited as physical valuations
continued to be carried out. The Group maintained its prudent risk
assessment and a controlled approach to its lending proposition
for the remainder of the year.
For more information on the impact of the coronavirus on the
wider UK lending and savings markets, see Market review on
pages 24-27
I had to change the way
I interact with brokers
Helen Comben
Senior Business
Development Manager,
KRFI
Case study
A can-do attitude
Helen Comben
Senior Business Development Manager, KRFI
2020 started as any normal year with daily visits to brokers in the City
and North London. We had an excellent start to the year with good
levels of mortgages. When the lockdown began, we were all asked to
work from home and I had to change the way I interact with brokers.
In order to conduct face-to-face visits I used video conferencing. Brokers
appreciated that by not being in meetings, I had more availability to
proactively contact them regarding their cases and they could speak
to me more easily. However, there is nothing better to establish and build
broker relationships than meeting them and I can’t wait to be back on
the road soon!
In 2020 I won the Legal & General Best BDM award and having been
a BDM for nearly 20 years, I genuinely believe that my brokers
appreciate everything that I do for them, together with my honesty
and the knowledge to look at a case with a can-do attitude.
40
OSB GROUP PLC Annual Report and Accounts 2020
The Group reports its lending business under two segments:
OSB and CCFS
OneSavings Bank (OSB) segment
The following tables show the OSB segment’s statutory loans and advances to customers and contribution to profit:
Year ended 31-Dec-2020
Gross loans and advances to customers
Expected credit losses
Net loans and advances to customers
Risk-weighted assets
Profit or loss for the year
Net interest income
Gain on sale of loans
Other income
Total income
Impairment of financial assets
Contribution to profit
Year ended 31-Dec-2019
Gross loans and advances to customers
Expected credit losses
Net loans and advances to customers
Risk-weighted assets
Profit or loss for the year
Net interest income
Other expense
Total income
Impairment of financial assets
Contribution to profit
BTL/SME
£m
Residential
£m
Total
£m
9,164.6
1,966.8
11,131.4
(67.0)
(16.6)
(83.6)
9,097.6
1,950.2
11,047.8
4,282.9
874.4
5,157.3
264.7
18.0
0.2
282.9
(47.0)
68.1
-
0.6
68.7
(3.7)
332.8
18.0
0.8
351.6
(50.7)
235.9
65.0
300.9
BTL/SME
£m
Residential
£m
Total
£m
8,983.2
1,837.4
10,820.6
(21.6)
(14.0)
(35.6)
8,961.6
1,823.4
10,785.0
4,244.0
846.0
5,090.0
253.5
(8.0)
245.5
(13.8)
231.7
62.7
(4.9)
57.8
1.9
59.7
316.2
(12.9)
303.3
(11.9)
291.4
OSB GROUP PLC Annual Report and Accounts 2020
41
GovernanceFinancial statementsAppendicesStrategic reportOverview Segment review (Continued)
OneSavings Bank – Buy-to-Let/SME sub-segment
Gross loan book
£9,164.6m
+2%
2019: £8,983.2m
Net interest income
£264.7m
+4%
2019: £253.5m
Contribution to profit
£235.9m
+2%
2019: £231.7m
This sub-segment comprises Buy-to-Let
mortgages secured on residential property held
for investment purposes by experienced and
professional landlords, commercial mortgages
secured on commercial and semi-commercial
properties held for investment purposes or for
owner-occupation, bridge finance, residential
development finance to small and medium-
sized developers, secured funding lines to other
lenders and asset finance.
Buy-to-Let/SME sub-segment: gross loans to customers
Buy-to-Let
Commercial
Residential development
Funding lines
Gross loans to customers
Expected credit losses
Net loans to customers
Group
31-Dec-2020
£m
Group
31-Dec-2019
£m
8,044.6
821.9
133.1
165.0
7,727.0
888.0
146.1
222.1
9,164.6
8,983.2
(67.0)
(21.6)
9,097.6
8,961.6
The Buy-to-Let/SME net loan book was £9,097.6m, up 2%
from £8,961.6m in 2019, or 7% excluding structured assets
sales in the year. Organic originations in this sub-segment
decreased 46% versus 2019 to £1,542.5m (2019: £2,847.2m),
reflecting reduced activity from late March, before a controlled
return to the market in the second half of the year.
The gross loan book in the Buy-to-Let sub-segment increased
4% to £8,044.6m (2019: £7,727.0m) or 10% excluding structured
asset sales in the year. The Group restricted its product range
and tightened criteria, including property types, customer credit
history and reduced maximum loan to values (LTVs) upon market
re-entry, when physical valuations resumed. At the same time, the
Group took the opportunity to increase interest rates marginally.
A controlled increase in lending activity commenced in the second
half of the year and was mostly dominated by professional, multi-
property landlords who represented 84% of completions by value
for the Kent Reliance brand, whilst the proportion of mortgage
applications from landlords borrowing via a limited company
remained unchanged at 75% (2019: 81% and 75%, respectively).
Refinancing levels were broadly stable and represented 58% of
Kent Reliance Buy-to-Let completions and the percentage of
completions for five-year fixed rate products was flat to the prior
year at 52% (2019: 60% and 52%, respectively). OSB’s retention
programme, Choices, continued to be popular with borrowers, with
75% (2019: 69%) of existing borrowers choosing a new product with
the Bank within three months of their original product term ending.
The weighted average LTV of the Buy-to-Let book as at
31 December 2020 was 67% with an average loan size of £260,000
(2019: restated 68%1 and £260,000). The weighted average interest
coverage ratio for Buy-to-Let origination during 2020 was 201%
(2019: restated 199%2).
42
OSB GROUP PLC Annual Report and Accounts 2020
Through its InterBay brand, OSB lends to borrowers investing
in commercial and semi-commercial property, reported in the
Commercial total, and more complex Buy-to-Let properties,
reported in the Buy-to-Let total. The commercial sub-segment
gross loan book reduced by 7% to £821.9m (2019: £888.0m)
as the Group paused new lending activity in late March and
returned to the market with a much reduced product suite in
May, offering semi-commercial loans only to a maximum LTV
of 60%. As the commercial market is traditionally more sensitive
to economic downturns, the Group reduced its appetite for
lending and new loans were underwritten with tightened criteria.
The InterBay proposition began to be extended in November
when the maximum LTV limit for semi-commercial loans was
lifted to 70% and standard commercial lending was relaunched
to a maximum LTV of 65%. The weighted average LTV of the
commercial book was 71% and the average loan size was
£385,000 in 2020 (2019: 67% and £375,000, respectively).
InterBay Asset Finance, which predominantly targets UK SMEs
and small corporates financing business-critical assets, had
a good start to the year. As the pandemic progressed, there
was a significant reduction in new business volumes from April
and the primary focus was on supporting customers with
payment deferral requests. The launch of the Group’s products
under the Coronavirus Business Interruption Loan Scheme in
October coincided with a general recovery in business activity
in the asset finance market in the final quarter of the year.
The gross carrying amount under finance leases increased to
£65.5m as at 31 December 2020 (31 December 2019: £47.7m).
The Heritable residential development business provides
development finance to small and medium-sized residential
developers. Our preference is to fund house builders who
operate outside central London and provide relatively
affordable family housing, as opposed to complex city
centre schemes, where affordability and construction
cost control can be more challenging. New applications
come primarily from a mixture of repeat business from the
team’s extensive existing relationships and referrals.
The residential development funding gross loan book at the
end of 2020 was £133.1m, with a further £145.6m committed
(31 December 2019: £146.1m and £115.1m, respectively). In late
March 2020, government guidance on closing development
sites meant that construction projects were deferred and
advances reduced. When restrictions were relaxed in May,
our developer customers experienced rapidly increasing
rates of sale which continued to the year end. Consequently,
loan repayments were higher than in any previous year.
Since inception in 2014, Heritable has written £1,231m of loans,
of which £703m had been repaid by the end of 2020. The Group
continues to be cautious on approving new developments given
current macroeconomic uncertainty and remains focused on
the cash flow requirements of our developer customers. As at
the end of December 2020, the business had commitments
to finance the development of 1,882 residential units, the
majority of which are houses located outside central London.
In 2020, the Group continued to provide secured funding lines
to non-bank lenders which operate in certain high-yielding,
specialist sub-segments, primarily secured against property-
related mortgages. Total credit approved limits as at 31 December
2020 were £520.0m, with 85% in respect of property-related
funding lines and gross loans outstanding were £165.0m, with
64% secured against property-related mortgages (31 December
2019: £540.0m and £222.1m, respectively). Given macroeconomic
uncertainties, a cautious risk approach was adopted and no
new secured funding line facilities were added during the year,
as the Group chose to focus on servicing existing borrowers
and applying amended, restricted lending criteria. The Group
recognised an impairment provision of £20.0m in relation to
potential fraudulent activity by a third party on a funding line
provided by the Group, secured against lease receivables and
the underlying hard assets. The Group had an outstanding
receivable on this funding line of £28.6m as at 31 December 2020.
Net interest income in the Buy-to-Let/SME sub-segment increased
4% to £264.7m from £253.5m as a result of the loan book growth,
partially offset by a delay in passing on the base rate cuts to
depositors in full. The Buy-to-Let/SME sub-segment also benefitted
from the gain on structured asset sales of £18.0m which was offset
by impairment losses of £47.0m (2019: £13.8m). Impairment losses
increased due to the impact of adopting COVID-19 forward-looking
assumptions in the Group’s IFRS 9 models and an impairment
provision of £20.0m in relation to potential fraudulent activity by
a third party on a secured funding line provided by the Group.
Overall, the Buy-to-Let/SME sub-segment made a contribution to
profit of £235.9m in 2020, up 2% compared with £231.7m in 2019.
The Group remains highly focused on the risk assessment
of new lending, as demonstrated by the average book LTV
in the Buy-to-Let/SME sub-segment3 as at 31 December
2020 of 67% (31 December 2019: restated 68%1) with only
2.9% of loans exceeding 90% LTV (31 December 2019: 1.8%).
The average LTV for new Buy-to-Let/SME origination3
remained stable at 71% (2019: restated 71%1).
1. The Group restated the comparative LTVs due to a change in aggregation methodology.
2. Interest coverage ratio for 2019 was restated due to an improvement in calculation
methodology.
3. Buy-to-Let/SME sub-segment average weighted LTVs include KR and Interbay Buy-to-Let,
semi-commercial and commercial lending.
OSB GROUP PLC Annual Report and Accounts 2020
43
GovernanceFinancial statementsAppendicesStrategic reportOverview Segment review (Continued)
OneSavings Bank – Residential sub-segment
Gross loan book
£1,966.8m
+7%
2019: £1,837.4m
Net interest income
£68.1m
+9%
2019: £62.7m
Contribution to profit
£65.0m
+9%
2019: £59.7m
This sub-segment comprises lending to owner-
occupiers, secured via either first or second
charge against their residential home. The
Group also provides funding lines to non-bank
lenders which operate in high-yielding,
specialist sub-segments such as residential
bridge finance.
Residential sub-segment: gross loans to customers
First charge
Second charge
Funding lines
Gross loans to customers
Expected credit losses
Net loans to customers
Group
31-Dec-2020
£m
Group
31-Dec-2019
£m
1,660.7
295.4
10.7
1,466.6
358.6
12.2
1,966.8
1,837.4
(16.6)
(14.0)
1,950.2
1,823.4
The residential net loan book was £1,950.2m as at 31 December
2020, up 7% compared with £1,823.4m in 2019 with organic
originations of £354.2m during the year (2019: £540.5m).
OSB’s first charge residential gross loan book grew in the year
to £1,660.7m, 13% up from £1,466.6m in 2019 with the strong
performance largely due to the success of the Group’s shared
ownership proposition, which has proven extremely popular since
it was relaunched in June. First charge lending to high net worth
individuals or borrowers in more complex income circumstances
was restricted following the March lockdown, in line with the
Group’s controlled approach to market re-entry in light of the
uncertain macroeconomic outlook.
Prestige Finance, OSB’s second charge mortgage brand, 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 OSB second charge
residential loan book had a gross value of £295.4m at the end
of 2020 (31 December 2019: £358.6m).
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 Group continued to adopt a cautious approach to these
more cyclical businesses given macroeconomic uncertainty.
Total credit approved limits as at 31 December 2020 were £29.2m
with total loans outstanding of £10.7m secured against property-
related mortgages (2019: £31.0m and £12.2m, respectively).
44
OSB GROUP PLC Annual Report and Accounts 2020
Residential mortgages made a contribution to profit of £65.0m
in 2020, up 9% compared with £59.7m in 2019 and in line with
the growth in net interest income to £68.1m from £62.7m in 2019.
The growth in net interest income was due primarily to growth
in the first charge loan book, partially offset by a delay in
passing on the base rate cuts in full to savers. Impairment losses
increased due primarily to the impact of adopting COVID-19
forward-looking assumptions in the Group’s IFRS 9 models.
The average book LTV1 remained low at 54% (2019: restated
57%2) with only 1.6% of loans by value with LTVs exceeding
90% (2019: 3.3%). The average LTV of new residential
origination1 during 2020 reduced to 61% (2019: restated
70%2) primarily as a result of growth in shared ownership
originations which complete at much lower LTVs.
1. Residential sub-segment average weighted LTVs include first and second charge lending.
2. The Group restated the comparative LTVs due to a change in aggregation methodology.
Case study
A digital learning curve
Michael Walsh
Business Development Manager, Precise Mortgages
Mortgage brokers and intermediaries have always been
fundamental to the success of Precise Mortgages and they have
played a pivotal role in providing borrowers with sound advice,
especially during the pandemic.
For Business Development Managers like myself, the days
of being out and about in various towns and cities across
the UK were quickly put on hold when lockdown started in
March 2020. Gone was the opportunity to meet up with brokers
in person to educate them on specialist lending, generate new
business opportunities and strengthen relationships with their
existing clients.
8%
CCFS underlying net loan book growth
To work from home efficiently, I had to quickly embrace video
conferencing technologies and online webinars which allowed
me to continue my day-to-day support for Scottish brokers.
This digital learning curve on technology and remote working
platforms gave me the opportunity to continue the growth
of specialist lending in my region.
While homeworking looks to continue for the immediate future,
I look forward to the day I can return to face-to-face meetings
with my brokers to offer them on-site support and education
on our specialist lending proposition.
OSB GROUP PLC Annual Report and Accounts 2020
45
GovernanceFinancial statementsAppendicesStrategic reportOverview Segment review (Continued)
Charter Court Financial Services (CCFS) segment
CCFS underlying gross loans to customers
Buy-to-Let
Residential
Bridging
Second charge
Other1
Gross loans to customers
Expected credit losses
Net loans to customers
1. Other relates to acquired loan portfolios.
Group
31-Dec-2020
£m
Group
31-Dec-2019
£m
5,292.0
2,386.1
106.1
197.9
19.1
4,748.5
2,170.8
214.4
218.6
22.1
8,001.2
7,374.4
(28.2)
(8.0)
7,973.0
7,366.4
The CCFS underlying net loan book grew 8% to £7,973.0m at the
end of 2020 (2019: £7,366.4m) supported by organic originations
of £1,870.2m at attractive margins (2019: £3,108.2m). Excluding
structured asset sales in the year, the net loan book grew 13%.
Buy-to-Let sub-segment
During 2020, CCFS’ organic originations in the Buy-to-Let
sub-segment were £1,122.6m (2019: £1,895.2m), a decrease
of 41% directly attributable to the impact of the coronavirus
pandemic. As at 31 December 2020, the underlying gross
loan book in this sub-segment increased 11% to £5,292.0m
(2019: £4,748.5m), or 19% excluding structured asset sales.
CCFS’ Buy-to-Let products saw increasing application levels in
the second half of the year, despite the introduction of tighter
underwriting criteria and increased headline interest rates after
the March lockdown. Demand was especially strong from those
borrowing via a limited company structure, which represented 56%
of Buy-to-Let completions for the Precise brand in 2020, up from
50% in 2019. The remortgage levels remained largely unchanged at
57% of completions for Precise Mortgages Buy-to-Let (2019: 60%).
Loans for specialist property types remained relatively resilient,
despite the Group choosing to limit its risk appetite, achieved in
part through earlier policy restrictions on the maximum number
of bedrooms and units for houses in multiple occupation and
multi-unit properties respectively, while lending on holiday lets
was suspended. These property types made up 30% of Buy-to-
Let completions for Precise Mortgages in 2020 and in 2019.
Precise Mortgages continued to rank highly, according to research
by BVA BDRC, as the specialist lender mortgage intermediaries are
most likely to recommend to portfolio landlords.
Gross loan book
£8,001.2m1
+8%
2019: £7,374.4m2
Net interest income
£201.2m1
n/a
2019: £202.2m2
Contribution to profit
£198.1m1
-22%
2019: £254.8m2
1. Underlying.
2. Pro forma underlying.
Charter Court Financial Services
targets specialist mortgage market
segments with a focus on specialist
Buy-to-Let, residential, bridging and
second charge lending.
46
OSB GROUP PLC Annual Report and Accounts 2020
The tables below present underlying results for the CCFS segment for 2020 and 2019 and a reconciliation to the statutory results.
The 2020 table is presented on an underlying basis, which excludes acquisition-related items. The 2019 table is presented on a pro forma
underlying basis, which assumes that the Combination with CCFS occurred on 1 January 2019 and includes 12 months of results from
CCFS. It also excludes acquisition-related items.
Year ended 31-Dec-2020
Buy-to-Let
£m
Residential
£m
Bridging
£m
Gross loans and advances to customers
Expected credit losses
5,292.0
2,386.1
(18.1)
(7.5)
106.1
(1.9)
Second
charge
£m
197.9
(0.7)
Net loans and advances to customers
5,273.9
2,378.6
104.2
197.2
Other1
£m
19.1
–
19.1
Total
underlying
£m
8,001.2
(28.2)
Acquisition-
related items2
£m
209.1
0.8
Total
statutory
£m
8,210.3
(27.4)
7,973.0
209.9
8,182.9
Risk-weighted assets
2,163.8
1,001.5
59.6
82.9
7.0
3,314.8
93.6
3,408.4
Profit or loss account
Net interest income
Gain on sale of loans
Other income
Total income
Impairment of financial assets
Contribution to profit
Year ended 31-Dec-2019
Gross loans and advances to
customers
Expected credit losses
Net loans and advances to
customers
114.8
–
0.3
115.1
(14.9)
100.2
67.8
–
0.3
68.1
(4.0)
64.1
Buy-to-Let
£m
Residential
£m
Bridging
£m
11.8
–
–
11.8
(1.3)
10.5
Second
charge
£m
7.4
–
–
7.4
(0.3)
7.1
Other1
£m
(0.6)
15.1
1.7
16.2
–
16.2
201.2
15.1
2.3
218.6
(20.5)
(61.8)
(13.1)
13.3
(61.6)
0.2
139.4
2.0
15.6
157.0
(20.3)
198.1
(61.4)
136.7
Total pro
forma
underlying
£m
Pre-
acquisition
profits
£m
Acquisition-
related items2
£m
Total
statutory
£m
4,748.5
2,170.8
(3.5)
(3.6)
214.4
(0.5)
218.6
(0.4)
22.1
–
7,374.4
(8.0)
4,745.0
2,167.2
213.9
218.2
22.1
7,366.4
–
–
–
–
294.7
0.7
7,669.1
(7.3)
295.4
7,661.8
124.9
3,293.0
Risk-weighted assets
2,002.4
934.0
127.9
95.4
8.4
3,168.1
Profit or loss account
Net interest income
Gain on sale of loans
Other income
Total income
Impairment of financial assets
Contribution to profit
114.3
–
0.1
114.4
(2.1)
112.3
63.6
–
0.2
63.8
(1.7)
62.1
15.5
–
0.1
15.6
(0.5)
15.1
7.1
–
–
7.1
(0.1)
7.0
1.7
58.7
(2.1)
58.3
–
58.3
202.2
58.7
(1.7)
259.2
(4.4)
(152.1)
(58.7)
10.0
(200.8)
4.3
(21.6)
–
3.3
(18.3)
(3.6)
28.5
–
11.6
40.1
(3.7)
254.8
(196.5)
(21.9)
36.4
1. Other relates to acquired loan portfolios and related net interest income as well as gains on structured asset sales and fee income from third party mortgage servicing.
2. For more details on acquisition-related adjustments, see Reconciliation of statutory to underlying and pro forma underlying results on page 60.
OSB GROUP PLC Annual Report and Accounts 2020
47
GovernanceFinancial statementsAppendicesStrategic reportOverview Bridging sub-segment
Short-term bridging originations decreased to £141.8m in 2020
and gross underlying loans in this sub-segment were £106.1m at
the end of 2020. In late March, the Group paused lending in this
sub-segment and returned with a much reduced suite of products
and highly restricted underwriting criteria in the second half of the
year, with a focus on high-quality lending in the regulated sector
of the market.
On an underlying basis, the contribution to profit from the bridging
sub-segment reduced to £10.5m in 2020 (2019: £15.1m) due to lower
net interest income of £11.8m as the loan book reduced (2019:
£15.5m) and higher impairment losses of £1.3m (2019: £0.5m). On
a statutory basis, the bridging sub-segment made a contribution
to profit of £9.7m.
Second charge sub-segment
The second charge underlying gross loan book reduced to £197.9m
at the end of 2020 (2019: £218.6m) with a reduction in originations
to £31.9m from £82.2 in 2019. Second charge products were
withdrawn from the market in late March and once the Group
returned to lending, risk criteria were tightened with a focus on
prime borrowers, offering a maximum LTV of 50% and a maximum
loan size of £200,000, demonstrating control over new business
written whilst the outlook remains uncertain.
The second charge sub-segment made a contribution to profit of
£7.1m on an underlying basis, broadly flat compared with £7.0m
in 2019 and £6.6m on a statutory basis. Net interest income in this
sub-segment remained broadly flat at £7.4m versus £7.1m in 2019.
1. Interest coverage ratio for 2019 was restated due to alignment of the calculation across
both Banks.
2. The Group restated the comparative LTVs due to a change in calculation methodology.
Segment review (Continued)
Net interest income in this sub-segment remained broadly flat
compared with the prior year at £114.8m (2019: £114.3m) as it was
impacted by index repricing and a delay in passing on the base
rate cuts to savers in full. On an underlying basis, Buy-to-Let made
a contribution to profit of £100.2m in 2020, down 11% compared
with £112.3m in 2019 as £14.9m of impairment losses were
recognised in the year (2019: £2.1m) reflecting primarily the impact
of adopting COVID-19 forward-looking assumptions in the Group’s
IFRS 9 models. On a statutory basis, the Buy-to-Let sub-segment
made a contribution to profit of £71.5m.
Average loan to value for new lending in this segment was 74% with
an average loan size of £170,000 (2019: 73% and £183,000). The
book loan to value was 69% as at 31 December 2020 (2019: 71%).
The weighted average interest coverage ratio for Buy-to-Let
origination during 2020 was 193% (2019: restated 187%1).
Residential sub-segment
The underlying gross loan book in CCFS’ residential sub-segment
was 10% up in the year to £2,386.1m (2019: £2,170.8).
Even though organic originations reduced 28% in the year,
they remained strong, reaching £573.9m in 2020 (2019:
£797.2m). Throughout the year, the Group saw demand
for Precise Mortgages’ residential products despite a shift
in focus towards prime borrowers. Lending under the
government’s Help to Buy scheme performed exceptionally
well in the year as applications increased compared with
2019. The scheme helps first time buyers to take their first
step onto the property ladder as the number of mortgage
products available for borrowers with small deposits reduced
significantly due to the effects of the coronavirus pandemic.
The CCFS residential sub-segment made a contribution to profit
of £64.1m on an underlying basis, up 3% compared with £62.1m
in 2019. The net interest income increased by 7% to £67.8m from
£63.6m in 2019 due to the growth in the Residential loan book
partially offset by a delay in passing on the base rate cuts to
savers in full. Impairment losses increased to £4.0m from £1.7m
in 2019 due to the impact of adopting COVID-19 forward-looking
assumptions in the Group’s IFRS 9 models. On a statutory basis,
the residential sub-segment made a contribution to profit
of £45.4m.
The average loan size for the residential sub-segment was
£160,000 (2019: restated £150,000) with average LTV for new
lending of 67% (2019: restated 68%2) and book LTV of 62%
(2019: restated 65%2) as at 31 December 2020.
48
OSB GROUP PLC Annual Report and Accounts 2020
Case study
Rising to the challenge
Alison Drysdale
Kent Reliance Technical Underwriting Specialist
This has been one of the most challenging and interesting years
that I have experienced as an underwriter and the support of my
colleagues meant that we were able to rise to the challenge.
I could not imagine at the beginning of the year that the majority
of the team would be working from home, but it is testament to our
‘Stronger Together’ value as we continued to provide an excellent
service to our brokers from our living rooms. The excellence we
displayed won us 5 stars at the Financial Adviser Service Awards
for both our brands: KRFI and Precise Mortgages.
5 stars
5 star award at the Financial Adviser Service Awards
In March, the underwriters supported colleagues in the servicing
team with payment deferral requests to ensure that our
customers had their requests processed in a timely manner as
new business applications were temporarily paused. As soon
as it was possible, we returned to the market and the team were
able to continue with their role either at home or in the office.
Video conferencing allowed us to keep in touch as a team and
made training and development of new underwriters possible,
with a number of them obtaining new or increased mandates
throughout the year.
I will never forget this year or the support my team has
shown throughout.
OSB GROUP PLC Annual Report and Accounts 2020
49
GovernanceFinancial statementsAppendicesStrategic reportOverview Segment review (Continued)
Wholesale funding overview
Highlights
} 2020 securitisation transactions
concluded with a combined value
of £2.8bn (2019: £1.2bn).
} Sale of economic interest in two
securitisations resulting in a statutory gain
of £19.9m, £33.0m underlying (2019: £nil
statutory, £58.6m pro forma underlying).
Securitisation is central to the Group’s liability management
strategy, as well as a key funding source, with c. £8bn of issuance
since December 2013 across the CCFS and OSB trading entities.
In addition to providing cost efficient funding, the Group utilises
securitisations to accelerate organic capital generation through the
sale of residual positions, as well as to provide efficient access to
commercial and central bank repo facilities.
The Group’s strategy is to be fleet-of-foot and dynamic rather than
deterministic with its securitisation issuance plans, enabling it to
maximise the opportunity of a strong market with repeat issuances
and utilise other options when the market is poor.
2020 exemplified the strength of this approach. The Group was
able to complete the majority of its intended capital markets
transactions early in the year whilst markets were strong. It then
utilised central bank repo facilities for its wholesale funding needs
through the rest of the period at a time during which the capital
markets were exceptionally volatile.
Included within this early activity were a number of strategically
important transactions. In particular, the Group completed its first
Simple, Transparent, and Standardised eligible prime residential
mortgage-backed securities (RMBS) transaction, CMF 2020-1,
which priced at SONIA +60 basis points (S+60bps) on the senior
notes and S+66bps across the £330m of mortgage collateralised
bonds placed into the market. The CMF series continues to provide
the Group with a source of attractively priced funding: the near
£1bn of mortgage collateralised bonds placed through the series to
date have been sold at a combined day one spread over SONIA/
LIBOR of 62bps.
Meanwhile, the first two months of the year also saw the Group
structure and sell its economic interest in the Precise Mortgage
Funding (PMF) 2020-1B transaction, as well as the A2 notes and
residual certificates in the Canterbury No. 1 transaction.
The sale of the residual interest in these two deals was completed
through an auction process and generated a statutory gain on sale
of £19.9m (£33.0m on an underlying basis). As well as generating
a significant gain on sale, the trade released £287m of risk-
weighted assets, providing a substantial increase in Group and
bank entity capital headroom ahead of a period of protracted
market uncertainty.
In addition to the placement of around £1.1bn RMBS bonds into the
market during the period, the Group also completed two significant
retained RMBS transactions, Canterbury No.2, which closed in
March and Canterbury No.3 which closed in September. These
transactions, totalling more than £2bn in issuance, provide the
Group with a substantial portfolio of AAA rated senior bonds which
can be sold into the market at short notice for liquidity purposes, as
well as being eligible for commercial and central bank funding repo
facilities. The trade forms part of a broader strategy to increase
the Group’s wholesale funding options and, in particular, to
increase its encumbrance efficiency; meaning that it can access
more wholesale funding for each pound of assets encumbered and
thus utilise wholesale funding to a greater degree than would
otherwise be possible.
This is particularly pertinent given the Group’s access to the Term
Funding Scheme for SMEs, which provides four-year funding at an
anticipated cost of Bank Base Rate flat. The Group’s combined
initial allowance through the scheme is £2.0bn, with a further
£5.1bn of additional allowance due to subsequent net loan book
growth through to 31 December 2020. The Group intends to utilise
the scheme to repay all outstanding balances under the original
TFS scheme. In addition, there should be an opportunity to utilise
the scheme further to help fund net loan book growth through to
31 October 2021, when it closes to new drawdowns, subject to
collateral availability and encumbrance constraints. By improving
the encumbrance efficiency of the Group’s collateral used for
drawing down against the TFSME, it is likely that the Group will be
able to take greater advantage of this allowance, in conjunction
with other Bank of England repo facilities.
Retained RMBS deals also provide the Group with the flexibility to
subsequently place bonds into the market at short notice, should
an attractive economic opportunity present itself.
50
OSB GROUP PLC Annual Report and Accounts 2020
Group issuances to 31 December 2020 (£m)
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
518.0
376.2
164.0
235.0
230.0
171.2
224.0
143.0
196.1
41.7
89.5
210.9
210.54
86.1
111.5
134.5
158.3
215.7
153.0
133.0
76.6
89.4
960.0
959.7
164.0
570.0
120.9
379.2
15.2
360.2
47.1
282.6
PMF No.1
2013
ROCHFIN
No.1 20131
PMF
2014-1
PMF
2014-2
PMF
2015-1
PMF
2015-2B1
PMF
2015-3R
ROCHFIN
No.2 20161
PMF
2017-1B1
CMF
2017-11
PMF
2018-1B1
PMF
2018-2B1
CMF
2018-11
PMF
2019-1B1
CANBY
No.11
PMF
2020-1B1
CMF
2020-1
CANBY
No.2
CANBY
No.3
Outstanding BTL
Outstanding Residential
Original deal mortgage balance
PMF
No.1
2013
0
0
ROCHFIN
No.1 20131
PMF
2014-1
PMF
2014-2
PMF
2015-1
PMF
2015-2B1
PMF
2015-3R
ROCHFIN
No.2 20161
PMF
2017-1B1
CMF
2017-11
PMF
2018-1B1
PMF
2018-2B1
CMF
2018-11
PMF
2019-1B1
CANBY
No.11
PMF
2020-1B
CMF
2020-1
CANBY
No.2
CANBY
No.3
0
0
0
0
0
0
0
54
0
0
0
0
156
1836
3
0
7
4
0
0
1
0
9
0
2
8
12
0
0
0
1
0
3
0
4
0
0.00%
0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2.79% 3.73% 4.36% 3.75% 3.80% 4.38% 3.89%
3.91% 3.59%
4.10% 3.79% 3.83%
1.15%
1.45% 0.80% 0.95% 0.95%
1.25%
n/a
1.30% 0.75% 0.50% 0.65% 0.68% 0.47%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0.93%
1.17% 0.93% 0.60% 0.95% 1.00%
1.43%
n/a
0.88%
1.11%
1.10%
1.53% 1.00%
n/a
1.02% 0.64% 0.74% 0.77% 0.55%
1.27%
1.45%
1.13% 0.66%
1.14%
1.33%
Number of
accounts 3+
months in
arrears
Losses to date
(£k)
Weighted
average
mortgage
interest rate
Senior note
spread
(over LIBOR)
Senior note
spread
(over SONIA)
Weighted
average margin
at closing
1. Group derecognition deal.
PMF – Precise Mortgage Funding plc ROCHFIN – Rochester Finance plc CMF – Charter Mortgage Funding plc CANBY – Canterbury Finance plc
OSB GROUP PLC Annual Report and Accounts 2020
51
GovernanceFinancial statementsAppendicesStrategic reportOverview Key performance indicators
Throughout the Strategic report the
KPIs are presented on a statutory and
an underlying basis for 2020, and a
statutory and pro forma underlying
basis for 2019.
Management believe these provide a more
consistent basis for comparing the Group’s
performance between financial periods.
Underlying results for 2020 exclude
exceptional items, integration costs
and other acquisition-related items.
Pro forma underlying results for 2019
assume that the Combination occurred
on 1 January 2019 and include 12 months
of results from CCFS. They also exclude
exceptional items, integration costs and
other acquisition-related items.
For a reconciliation of statutory results
to underlying and pro forma underlying
results, see page 60.
In 2020, the Group’s external auditor
performed an independent reasonable
assurance review of certain alternative
performance measures as highlighted with
the symbol Δ – see the Appendix for the
auditor’s statement.
Statutory 2020
Statutory 2019
Underlying 2020
Pro forma underlying 2019
OSB 2020
OSB 2019
CCFS 2020
CCFS 2019
1. Gross new lending ∆
Statutory £3.8bn (2019: £4.1bn)
Underlying £3.8bn (2019: pro forma
underlying £6.5bn)
2. Net interest margin (NIM) ∆
Statutory 216bps (2019: 243bps)
Underlying 247bps (2019: pro forma
underlying 266bps)
2020
2019
2020
2019
£3.8bn
£4.1bn
£3.8bn
£6.5bn
2020
2019
2020
2019
216bps
243bps
247bps
266bps
Definition
Gross new lending is defined as gross new
organic lending before redemptions.
2020 performance
The reduction in gross new lending in the
year reflects the impact of the coronavirus
pandemic on the Group’s lending activities.
Definition
NIM is defined as net interest income as
a percentage of a 13 point average 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.
2020 performance
Both statutory and underlying NIM were lower
in 2020 primarily due to a delay in passing
on the base rate cuts in full to retail savers.
Statutory NIM was also impacted by the
dilutive effect of including CCFS’ results
post Combination.
3. Cost to income ratio ∆
Statutory 31% (2019: 32%)
Underlying 27% (2019: pro forma
underlying 29%)
4. Management expense ratio ∆
Statutory 71bps (2019: 76bps)
Underlying 70bps (2019: pro forma
underlying 84bps)
2020
2019
2020
2019
31%
32%
27%
29%
2020
2019
2020
2019
71bps
76bps
70pbs
84bps
Definition
Cost to income ratio is defined as
administrative expenses as a percentage of
total income. It is a measure of operational
efficiency.
Definition
Management expense ratio is defined as
administrative expenses as a percentage
of a 13 point average of total assets.
It is a measure of operational efficiency.
2020 performance
Statutory and underlying cost to income
ratios improved in 2020 as the Group
benefitted from the delivery of synergies and
lower discretionary spend during lockdowns.
The statutory cost to income ratio was also
impacted by a full year of amortisation of the
fair value uplift on CCFS’ net assets which
reduced total income on a statutory basis.
2020 performance
Statutory and underlying management
expense ratios improved in 2020 as the Group
benefitted from the delivery of synergies and
lower discretionary spend during lockdowns.
52
OSB GROUP PLC Annual Report and Accounts 2020
5. Loan loss ratio ∆
Statutory 38bps (2019: 13bps)
Underlying 38bps (2019: pro forma
underlying 10bps)
6. Dividend per share ∆
Statutory 14.5 pence per share
(2019: 4.9 pence per share)
2020
2019
2020
2019
13bps
10bps
38bps
38bps
2020
2019
4.9p
14.5p
7. Basic EPS ∆
Statutory 42.8 pence per share (2019: 52.6)
Underlying 58.1 pence per share (2019: pro
forma underlying 64.9)
2020
2019
2020
2019
42.8p
52.6p
58.1p
64.9p
Definition
Basic EPS is defined as profit attributable to
ordinary shareholders, which is profit after
tax and after deducting coupons on
non-controlling interest securities, gross
of tax, divided by the weighted average
number of ordinary shares in issue.
2020 performance
Statutory basic EPS decreased in 2020 as
the increase in profit after taxation was more
than offset by the impact of the additional
shares issued for the all-share Combination
with CCFS.
Underlying basic EPS reduced due to the
reduction in underlying profit after taxation.
Definition
Dividend per share is defined as the sum
of the recommended final dividend and any
interim dividend for the year divided by the
number of ordinary shares in issue at the
year end.
2020 performance
The Board recommends a final dividend for
2020 of 14.5 pence per share, representing
25% of underlying profit attributable to
ordinary shareholders. In the prior year, as
the 2019 final recommended dividend was
cancelled, 4.9 pence represents the 2019
interim dividend.
Definition
Loan loss ratio is defined as impairment losses
as a percentage of a 13 point average of
gross loans and advances. It is a measure
of the credit performance of the loan book.
2020 performance
Statutory and underlying loan loss ratios
increased, despite the stable credit profile
of the Group and positive house price
movements in the year, primarily as a result
of adopting more adverse forward-looking
macroeconomic scenarios due to the
pandemic, changes to the Group’s staging
criteria in line with PRA guidance, COVID-19
related enhancements to the Group’s models
and recognising an impairment provision in
relation to potential fraudulent activity by a
third party on a secured funding line provided
by the Group.
8. Return on equity ∆
Statutory 13% (2019: 18%)
Underlying 19% (2019: pro forma
underlying 25%)
2020
2019
2020
2019
13%
18%
19%
25%
Definition
Return on equity is defined as profit
attributable to ordinary shareholders,
which is profit after tax and after deducting
coupons on non-controlling interest securities,
gross of tax, as a percentage of a 13 point
average of shareholders’ equity (excluding
£60m of non-controlling interest securities).
2020 performance
Statutory and underlying return on equity
reduced in 2020 due to higher impairment
losses and a strengthened equity position,
which benefitted from the cancellation of
the 2019 final dividend and strong capital
generation from profitability.
The statutory return on equity was also
adversely impacted by a full year of
amortisation of the net fair value uplift
to CCFS’ net assets on Combination.
9. CRD IV fully-loaded Common Equity
Tier 1 capital ratio
Statutory 18.3% (2019: 16.0%)
10. Savings customer satisfaction –
Net Promoter Score (NPS)
OSB +67 (2019: +66)
CCFS +72 (2019: +72)
2020
2019
18.3%
16.0%
Definition
This is defined as Common Equity Tier 1 (CET1)
capital as a percentage of risk-weighted
assets (calculated on a standardised basis)
and is a measure of the capital strength of
the Group.
2020 performance
The CET1 ratio strengthened in the year
supported by the cancellation of the final
dividend for 2019, the application of the
Capital Requirements Regulation ‘Quick Fix’
package and strong capital generation
from profitability.
2020
2019
2020
2019
+67
+66
+72
+72
Definition
The NPS measures our customers’ satisfaction
with our service and products. It is based
on customer responses to the question of
whether they would recommend us to a
friend. The question scale is 0 for absolutely
not to 10 for definitely yes. Based on the
score, a customer is defined as a detractor
between 0 and 6, a passive between 7 and 8
and a promoter between 9 and 10.
Subtracting the percentage of detractors
from the percentage of promoters gives an
NPS of between -100 and +100.
2020 performance
OSB’s savings customer NPS improved to +67
and CCFS’ remained an outstanding +72.
OSB GROUP PLC Annual Report and Accounts 2020
53
GovernanceFinancial statementsAppendicesStrategic reportOverview Financial review
Review of the Group’s performance presented on
a statutory basis; the 2019 results include CCFS
from the date of the Combination
Statutory profit before and after tax
The Group reported 25% growth in statutory profit before taxation
to £260.4m (2019: £209.1m) after exceptional items, integration
costs and other acquisition-related items of £85.8m1 (2019:
£33.2m2) primarily due to the inclusion of a full year of profits
from CCFS following the Combination in October 2019, which
more than offset the impact of higher impairment charges as the
Group adopted more adverse COVID-19 related forward-looking
assumptions in its IFRS 9 models and recognised an impairment
provision in relation to potential fraudulent activity by a third party
on a secured funding line provided by the Group.
Statutory profit after taxation in 2020 increased by 24% to
£196.3m (2019: £158.8m) including the after-tax exceptional items,
integration costs and other acquisition-related items of £68.6m1
(2019: £27.4m2), broadly in line with the increase in profit before tax.
The Group’s effective tax rate increased to 23.1%3 in 2020
(2019: 22.8%), primarily due to the impact of the government’s
cancellation of planned corporation tax rate reductions on
19 March 2020 on the deferred tax liability in relation to the
Combination and a larger portion of the profit being subject
to the Bank Corporation Tax Surcharge from the inclusion
of a full year of profits from CCFS.
Statutory return on equity for 2020 fell to 13% (2019: 18%),
primarily due to a full year of amortisation of the net fair value
uplift to CCFS’ net assets on Combination, higher impairment
charges and a strengthened equity position, which benefitted
from the cancellation of the 2019 final dividend and strong capital
generation from profitability.
Statutory basic earnings per share fell by 19% to 42.8 pence per
share (2019: 52.6 pence per share) as the increase in profit after
taxation was more than offset by the impact of the additional
shares issued for the all-share Combination with CCFS.
Net interest margin (NIM)
The Group reported an increase in statutory net interest income
of 37% to £472.2m in 2020 (2019: £344.7m), reflecting the inclusion
of a full year of net interest income from CCFS, which more than
offset the impact of higher amortisation of the net fair value uplift
to CCFS’ net assets on Combination.
Statutory NIM for 2020 reduced to 216bps (2019: 243bps),
primarily due to the dilutive impact of including CCFS’ results post
Combination as well as the dilutive impact of a delay in passing
on the base rate cuts in full to retail savers.
The CCFS business has a lower NIM than the OSB business and
statutory NIM in 2020 was also adversely impacted by a full year
of amortisation of the fair value uplift on acquisition of CCFS’
net assets.
54
OSB GROUP PLC Annual Report and Accounts 2020
Summary statutory results for 2020 and 2019
Summary Statement of Profit or Loss
Net interest income
Net fair value gain/(loss) on financial
instruments
Gain/(loss) on sale of financial instruments
Other operating income
Administrative expenses
Provisions
Impairment of financial assets
Impairment of intangible assets
Gain on Combination with CCFS
Integration costs
Exceptional items
Profit before taxation
Profit after taxation
Key ratios * Δ
Net interest margin
Cost to income ratio
Management expense ratio
Loan loss ratio
Basic EPS, pence per share
Return on equity
Dividend per share, pence per share
Group
31-Dec-2020
£m
Group
31-Dec-2019
£m
472.2
344.7
7.4
20.0
9.0
(157.0)
(0.1)
(71.0)
(7.0)
–
(9.8)
(3.3)
260.4
196.3
(3.3)
(0.1)
2.1
(108.7)
–
(15.6)
–
10.8
(5.2)
(15.6)
209.1
158.8
216bps
31%
71bps
38bps
42.8
13%
14.5
243bps
32%
76bps
13bps
52.6
18%
4.9
Extracts from the Statement of Financial Position
£m
£m
Loans and advances to customers
Retail deposits
Total assets
19,230.7
16,603.1
22,654.5
18,446.8
16,255.0
21,417.1
Key ratios
Common Equity Tier 1 ratio*
Total capital ratio
Leverage ratio
18.3%
18.3%
6.9%
16.0%
17.3%
6.5%
* For definitions of key ratios, see Key performance indicators on pages 52 to 53, for more detail
on the calculation of key ratios, see the Appendix on pages 272 to 274.
In 2020, the Group’s external auditor performed an independent
reasonable assurance review of certain alternative performance
measures as highlighted with the symbol Δ – see the Appendix for
the auditor’s statement.
Insertion of a new ultimate holding company
A new ultimate holding company, OSB GROUP PLC (OSBG), was
inserted in November 2020 as part of the Group’s integration
strategy following the Combination with Charter Court Financial
Services Group (CCFS). OSBG became the new ultimate holding
company and listed entity of the Group.
The new structure will allow the Group to fulfil its MREL requirements
more efficiently through senior debt issuance via OSBG. The Bank of
England has given the Group a transitional period of three years to
13 July 2023 to meet its new interim MREL requirement of 18% of
risk-weighted assets and five years to 13 July 2025 to meet its new
end-state MREL requirement of two times Pillar 1 and Pillar 2A.
Upon insertion of OSBG, each OSB share was cancelled and replaced
with one OSBG share with no change to voting rights or ranking.
The insertion of OSBG is treated as a business combination under
common control. OSBG has adopted the predecessor value method,
with an investment in subsidiary in OSBG being the book value of the
balance sheet of OSB at the date of insertion and the financial
statements prepared predominantly as if OSBG had been inserted
as the new ultimate parent company on 1 January 2019.
Net fair value gain/(loss) on financial instruments
The statutory net fair value gain on financial instruments of £7.4m
in 2020 (2019: £3.3m loss) includes a £13.0m gain (2019: £nil) from
the amortisation of hedge accounting inception adjustments,
a £17.0m gain from the unwind of acquisition-related inception
adjustments (2019: £3.3m) and a £2.2m gain (2019: £5.3m loss)
from other items including the amortisation of the fair value relating
to de-designated hedge relationships due to ineffectiveness,
offset by a net loss of £6.8m (2019: £4.8m loss) in respect of the
ineffective portion of hedges and an £18.0m net loss on unmatched
swaps (2019: £3.5m net gain).
The net loss on unmatched swaps primarily related to fair value
movements on mortgage pipeline swaps, prior to them being
matched against completed mortgages and was caused by
a fall in outlook on the LIBOR and SONIA yield curves. The Group
economically hedges its committed pipeline of mortgages and this
unrealised loss unwinds over the life of the swaps through hedge
accounting inception adjustments.
The amortisation of fair value relating to de-designated hedge
relationships occurs when hedge relationships are cancelled due
to ineffectiveness.
Gain on sale of financial instruments
The gain on sale of financial instruments of £20.0m in 2020 on
a statutory basis, comprised a gain of £19.9m on disposal of the
remaining notes under the Canterbury No.1 and PMF 2020-1B
securitisations in January and a gain of £0.1m on the sale of
£150.0m of AAA notes from the Canterbury No. 3 securitisation
in September.
In 2019 the Group identified that an additional £0.1m of customer
receipts was due to the purchaser of the personal loan portfolio,
recognising an additional loss on sale of £0.1m.
Other operating income
Statutory other operating income of £9.0m (2019: £2.1m) largely
related to fees and commissions receivable, and the increase was
due to the inclusion of a full year of CCFS fees and commissions
and servicing fees, including those relating to securitised loans,
which have been deconsolidated from the Group’s balance sheet.
Administrative expenses
Statutory administrative expenses increased 44% to £157.0m in
2020 (2019: £108.7m) primarily due to the inclusion of CCFS’
administrative expenses for the full year, which more than offset
the impact of the delivery of synergies and lower discretionary
spend during lockdowns.
The Group’s statutory cost to income ratio of 31% (2019: 32%)
improved with the delivery of synergies and the benefit of lower
discretionary spend during lockdowns, which more than offset the
impact of lower income due to a full year of acquisition-related
adjustments (including the amortisation of the fair value uplift on
CCFS’ net assets), partially offset by gains on structured asset
sales in the year.
The statutory management expense ratio improved to 71bps (2019:
76bps) reflecting the delivery of synergies and lower discretionary
spend during lockdowns.
Impairment of financial assets
Statutory impairment losses increased to £71.0m in 2020 (2019:
£15.6m) representing 38bps of average gross loans and advances
(2019: 13bps).
Impairment losses in 2020 increased primarily due to the impact of
adopting more adverse forward-looking macroeconomic scenarios
as the coronavirus pandemic changed the outlook for the UK
economy, changes to the Group’s staging criteria in line with PRA
guidance, which moved certain higher risk accounts with payment
deferrals to stage 2, and COVID-related enhancements to the
Group’s models. For more detail see the Risk review. The Group
also recognised an impairment provision of £20.0m in relation to
potential fraudulent activity by a third party on a funding line
provided by the Group, secured against lease receivables and
the underlying hard assets.
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
due to COVID-19 on the recoverable amount of the broker
relationship intangible.
OSB GROUP PLC Annual Report and Accounts 2020
55
GovernanceFinancial statementsAppendicesStrategic reportOverview
Financial review (Continued)
Integration
Progress towards achieving the synergies from the Combination has
been strong. By the first anniversary of the Combination, we had
delivered run rate savings of over £15m, well ahead of our £6.6m
target and representing more than 65% of our end of year three
target run rate. This was achieved primarily by streamlining the
Board and senior management team earlier than planned and
through efficiencies from combining various central and support
functions. The synergies realised during 2020 from these efficiencies
were equivalent to a c. 2% points improvement in the Group’s
underlying cost to income ratio. We continue to find additional
synergies and are ahead of schedule towards realising the planned
run rate savings for the end of year two, with a projected end
of year three run rate marginally in excess of the £22m target.
The Board is taking the opportunity to review whether some planned
consolidation of locations and suppliers should take place, based on
a heightened focus on operational resilience. In light of additional
opportunities found, any decision is not expected to have a material
impact on the overall quantum of run-rate synergies targeted by the
end of year three. No material dis-synergies have been identified
to date.
In the first year following the Combination, costs to achieve the
synergies were £10m against an expectation of £13m. However, some
costs were delayed into the second year meaning that we anticipate
being closer to plan at the end of year two. Final costs are expected
to be marginally below the target of £39m by the end of year three.
Integration costs
The Group recorded £9.8m (2019: £5.2m) of integration costs
largely related to staff costs for key personnel retained to assist
in the integration for a fixed period and fees incurred for external
advice on the Group’s future operating structure.
Exceptional items
Statutory exceptional items of £3.3m in 2020 related to the
insertion of OSB GROUP PLC as the new holding company and
listed entity of the Group.
The exceptional items of £15.6m in 2019 comprised transaction
costs incurred by OSB in relation to the Combination with CCFS.
Dividend
The Board has recommended a final dividend for 2020 of 14.5
pence per share, representing 25% of full year underlying profit
attributable to ordinary shareholders, as no interim dividend, which
is normally one third of the prior year total dividend, was paid in
the year. See the Appendix on page 275 for the calculation.
The recommended dividend will be paid on 2 June 2021, subject to
approval at the AGM on 27 May 2021, with an ex-dividend date of
15 April 2021 and a record date of 16 April 2021.
Balance sheet growth
Net loans and advances to customers increased by 4% in 2020
to £19,230.7m (31 December 2019: £18,446.8m) on a statutory
basis, reflecting subdued originations due to the pandemic as
well as structured asset sales in the year. Excluding the impact
of structured asset sales, the statutory net loan book increased
by 9%.
On a statutory basis, retail deposits increased by 2% to £16,603.1m
from £16,255.0m, which the Group supplemented by participating
in the Bank of England’s funding schemes.
As at 31 December 2020, the Group’s drawings under the Term
Funding Scheme (TFS) remained at £2.6bn (2019: £2.6bn) with a
repayment of £60.0m during the year. In the first half of 2020, the
Group was accepted to participate in the Term Funding Scheme
for SMEs (TFSME) with drawings of £1.0bn as at the end of 2020,
which were used to replace Indexed Long-Term Repo (ILTR) funding
and support net loan book growth. All of the Group’s borrowings
under the ILTR scheme were repaid during the year (2019: £290m).
The TFS drawdowns are offered in the form of collateralised cash
loans. The scheme closed to new drawings at the end of February
2018 and the Group has four years from the date of drawing to
repay the existing loans. TFSME drawdowns are also offered in
the form of collateralised cash loans. The scheme commenced
in March 2020 and offers four-year funding of at least 10% of
participants’ stock of real economy lending at interest rates at,
or very close to, Bank Base Rate. Additional funding is available
for banks that increase lending, especially to small and medium-
sized enterprises. The TFSME is available for new funding until
31 October 2021.
The Group had up to £350m (2019: £600m) of contingent
wholesale funding capacity available to it through the CCFS
warehouse facilities, none of which was utilised at the year end.
The Group also utilises sophisticated securitisation platforms
to complement its retail funding requirements and to optimise its
collateral for commercial and central bank funding. For further
details of securitisation activity in 2020, see the Wholesale funding
overview on page 50.
Total assets grew by 6% to £22,654.5m (31 December 2019:
£21,417.1m) primarily reflecting the growth in loans and advances
and liquid assets.
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).
56
OSB GROUP PLC Annual Report and Accounts 2020
As at 31 December 2020, OSB had £1,366.7m (2019: £1,231.8m) and
CCFS had £1,069.1m (2019: £1,077.3m) of HQLA LCR eligible assets.
Both Banks also held a significant portfolio of unencumbered
prepositioned Bank of England level C eligible collateral in the
Bank of England Single Collateral Pool.
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.
Summary Consolidated Statement of Cash Flows
Profit before tax
Net cash generated/(used in):
Operating activities
Investing activities
Financing activities
Net increase in cash and cash equivalents
Group
31-Dec-2020
£m
Group
31-Dec-2019
£m
260.4
209.1
(1,326.3)
755.8
838.3
267.8
(536.1)
826.6
488.1
778.6
As at 31 December 2020, OSB had a liquidity coverage ratio of
254% (2019: 199%) and CCFS 146% (2019: 145%), and the Group
LCR was 198%, all significantly in excess of the 2020 regulatory
minimum of 100%.
Cash and cash equivalents at the beginning
of the period
2,102.8
1,324.2
Cash and cash equivalents at the end of
the period
2,370.6
2,102.8
The Group maintained prudent levels of liquidity as at 31 December
2020 in light of the continued uncertainty due to COVID-19.
Capital
The Group’s capital position remained exceptionally strong
with fully-loaded CET1 capital and total capital ratios of 18.3%
as at 31 December 2020 (31 December 2019: 16.0% and 17.3%
respectively). The total capital ratio was the same as the CET1 ratio
following the insertion of OSBG as the ultimate holding company,
as non-controlling interest securities (previously AT1 securities),
subordinated debt and PSBs issued by OSB no longer qualify
as regulatory capital at the Group level.
The capital ratios as at 31 December 2020 benefitted from the
cancelled final dividend for 2019, the application of the Capital
Requirements Regulation ‘Quick Fix’ package and strong capital
generation from profitability.
The Group had a leverage ratio of 6.9% as at 31 December 2020
(31 December 2019: 6.5%).
The combined Group had a Pillar 2a requirement of 1.18% of
risk-weighted assets (excluding a static integration add-on of
£19.5m) as at 31 December 2020 (31 December 2019: 1.67%
excluding the static integration add-on). The reduction in the Pillar
2a requirement was notified by the PRA in anticipation of the
Counter Cyclical Buffer (CCyB) being increased to 2%. Until such
time as the CCyB is increased, it is offset by a PRA buffer such as
to have a neutral effect on the Group’s minimum CET1 requirement.
Cash flow statement
The Group’s cash and cash equivalents increased by £267.8m
during the year to £2,370.6m as at 31 December 2020.
Loans and advances to customers increased by £1,705.0m during
the year, partially funded by £348.1m of deposits from retail
customers offset by an increase in loans and advances to credit
institutions (primarily the Bank of England call account) of £154.0m.
Additional funding was provided by cash generated from financing
activities of £838.3m and included £935.9m of net drawings under
the Bank of England’s TFS and TFSME schemes and £381.6m of net
proceeds from securitisation of mortgages, partially offset by the
repayment of warehouse funding, ILTR and commercial repos
during the year. Cash generated from investing activities was
£755.8m, mainly from the sale of RMBS securities and
derecognition of securitisations.
In 2019, the increase in the Group’s loans and advances to
customers of £2,230.8m was partially funded by £1,637.8m of
deposits from retail customers. Additional funding was provided by
cash generated from financing activities of £488.1m and included
£170.0m of net drawings under the Indexed Long-Term Repo
scheme, £220.4m of proceeds from securitisation of mortgages,
warehouse funding of £93.5m and £41.3m from commercial repos
offset by a dividend payment of £37.3m. Cash generated from
investing activities was £826.6m, largely as a result of £870.4m
of cash and cash equivalents acquired on the Combination
with CCFS.
1. As shown in the reconciliation of statutory to underlying results on page 60.
2. In 2019, this comprised £48.9m (£42.9m after tax) of acquisition-related items as shown in the
reconciliation of statutory to pro forma underlying results on page 60, less CCFS’
pre-acquisition transaction costs of £15.7m (£15.5m after tax).
3. Effective tax rate excludes a £4.4m charge for the impact of the deferred tax rate change and
a benefit of £0.4m in respect of earlier years.
OSB GROUP PLC Annual Report and Accounts 2020
57
GovernanceFinancial statementsAppendicesStrategic reportOverview Financial review (Continued)
Review of the Group’s performance, presented on an
underlying basis for 2020 and a pro forma underlying
basis for 2019
Underlying profit before and after tax
Underlying profit before taxation was £346.2m for the year, down
9% from pro forma underlying profit before taxation of £381.1m
in 2019, primarily due to higher impairment losses as the Group
adopted more adverse COVID-19 related forward-looking
assumptions in its IFRS 9 models and recognised an impairment
provision of £20.0m in relation to potential fraudulent activity by
a third party on a funding line provided by the Group, secured
against lease receivables and the underlying hard assets, which
more than offset the benefit from balance sheet growth.
Underlying profit after taxation was £264.9m in 2020, down 10%
from pro forma underlying profit after taxation of £294.2m in 2019,
in line with the decrease in profit before tax and a higher effective
tax rate. On an underlying basis, the Group’s effective tax rate was
23.5% in 2020 (2019: 22.8%) as a larger portion of the Group’s
profit was subject to the Bank Corporation Tax Surcharge.
Underlying return on equity for 2020 remained strong at 19%,
although it was lower than 25% in 2019, due primarily to the higher
impairment charges and a strengthened equity position, which
benefitted from the cancellation of the 2019 final dividend and
strong capital generation from profitability.
Underlying basic earnings per share decreased to 58.1 pence per
share (2019: 64.9 pence per share) due to the reduction in profit
after taxation.
Alternative performance measures
The Group presents alternative performance measures (APMs)
in this Strategic report as management believe they provide a
more consistent basis for comparing the Group’s performance
between financial periods. Underlying results for 2020
exclude exceptional items, integration costs and other
acquisition-related items. Pro forma underlying results for
2019 assume that the Combination occurred on 1 January
2019 and include 12 months of results from CCFS. They also
exclude exceptional items, integration costs and other
acquisition-related items.
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.
For more information on the APMs and the reconciliation
between APMs and the statutory equivalents, see the Appendix
on pages 272-274.
58
OSB GROUP PLC Annual Report and Accounts 2020
Summary of underlying results for 2020 and results on
a pro forma underlying basis for 2019
Summary Statement of Profit or Loss
Net interest income
Net fair value loss on financial instruments
Gain on sale of financial instruments
Other operating income
Administrative expenses
Provisions
Impairment of financial assets
Profit before taxation
Profit after taxation
Key ratios 1 Δ
Net interest margin
Cost to income ratio
Management expense ratio
Loan loss ratio
Basic EPS, pence per share
Return on equity
Group
31-Dec-2020
£m
Group
31-Dec-2019
£m
534.0
(5.9)
33.1
9.0
(152.7)
(0.1)
(71.2)
346.2
264.9
518.4
(20.3)
58.6
5.8
(165.1)
–
(16.3)
381.1
294.2
247bps
27%
70bps
38bps
58.1
19%
266bps
29%
84bps
10bps
64.9
25%
Extracts from the Statement of Financial Position
£m
£m
Loans and advances
Retail deposits
Total assets
19,020.8
16,600.0
22,472.2
18,151.4
16,248.6
21,166.5
1. For definitions of key ratios, see Key performance indicators on pages 52 to 53, for more detail
on calculation of key ratios, see the Appendix on pages 272 to 274.
In 2020, the Group’s external auditor performed an independent
reasonable assurance review of certain alternative performance
measures as highlighted with the symbol Δ – see the Appendix for the
auditor’s statement.
Net interest margin
On an underlying basis, net interest income increased 3% in 2020
to £534.0m from £518.4m in 2019 and underlying net interest
margin (NIM) was 247bps (2019: 266bps).
The reduction in underlying NIM to 247bps from 266bps in 2019,
primarily reflects the dilutive impact of a delay in passing on the
base rate cuts in full to retail savers. The full impact of the base
rate cuts was passed on to savers by the end of the third quarter
of 2020.
Net fair value loss on financial instruments
The underlying net fair value loss on financial instruments
decreased to £5.9m from a pro forma underlying loss of £20.3m
in 2019.
The underlying cost to income and underlying management
expense ratios improved to 27% and 70bps respectively (2019: 29%
and 84bps respectively) reflecting the delivery of synergies and
lower discretionary spend during lockdowns.
The loss for 2020 included a loss of £6.8m (2019: £4.8m loss) from
hedge ineffectiveness, a loss on unmatched swaps of £18.0m
(2019: £13.3m loss) and a £16.7m gain (2019: £1.7m) relating to
the amortisation of hedging adjustments arising when hedge
accounting commences on derivative instruments previously taken
out against the mortgage pipeline and other hedge accounting
inception adjustments. Other hedging and fair value movements
amounted to a gain of £2.2m (2019: £3.9m loss).
The net loss on unmatched swaps primarily relates to fair value
movements on mortgage pipeline swaps, prior to them being
matched against completed mortgages and due to a fall in outlook
on the LIBOR and SONIA yield curves. The Group economically
hedges its committed pipeline of mortgages and this unrealised
loss unwinds over the life of the swaps through hedge accounting
inception adjustments.
Gain on sale of financial instruments
The underlying gain on structured asset sales of £33.1m in the
year (2019: £58.6m) related to a gain of £33.0m on disposal of
the remaining notes under the Canterbury No.1 and PMF 2020-1B
securitisations in January 2020. In September, the Group sold
£150.0m of notes from the Canterbury No. 3 securitisation
generating a gain of £0.1m.
In 2019, the gain on sale of loans consisted of a gain of £58.7m
from sales of residual interests in three CCFS securitisations to
third party investors prior to the Combination and a £0.1m loss
from customer receipts due to the purchaser of the personal
loan portfolio.
Other operating income
Other operating income of £9.0m (2019: £5.8m) primarily related
to CCFS’ fees for servicing third party mortgage portfolios and
servicing fees for derecognised securitised mortgages, where the
Group continued to service the loans.
Administrative expenses
Underlying administrative expenses were £152.7m in 2020, a
decrease of 8% from £165.1m in 2019, as the synergies from the
integration of OSB and CCFS continued to be delivered and the
Group benefitted from lower discretionary spend in lockdowns,
including those relating to travel, accommodation and marketing,
as employees continued to follow COVID-19 restrictions in the UK
and India.
Impairment of financial assets
Impairment losses on an underlying basis increased to £71.2m in
2020 (2019: £16.3m) representing 38bps of average gross loans
and advances (2019: pro forma underlying 10bps).
Impairment losses in 2020 increased primarily due to the impact of
adopting more adverse forward-looking macroeconomic scenarios
as the coronavirus pandemic changed the outlook for the UK
economy, changes to the Group’s staging criteria in line with PRA
guidance, which moved certain higher risk accounts with payment
deferrals to stage 2, and COVID-related enhancements to the
Group’s models. For more detail, see the Risk review. The Group
also recognised an impairment provision of £20.0m in relation
to potential fraudulent activity by a third party on a funding line
provided by the Group, secured against lease receivables and
the underlying hard assets.
Balance sheet
On an underlying basis, the loan book increased 5% to £19,020.8m
(2019: £18,151.4m) reflecting reduced originations due to the
pandemic as well as structured asset sales at the start of the year.
Excluding the impact of the structured asset sales, the underlying
net loan book growth would have been 9%.
Underlying retail deposits increased by 2% during 2020 to
£16,600.0m (2019: £16,248.6m) as both Banks continued to attract
new savers by offering attractively priced savings products and
outstanding customer service. The balance of the Group’s funding
requirement was provided by the Bank of England’s funding
schemes and RMBS which provided £935.9m and £381.6m of
net new funding respectively. For further details of the Group’s
securitisation activity in 2020, see the Wholesale funding overview
on page 50.
The Group’s total underlying assets increased in the year by 6% to
£22,472.2m from £21,166.5m in 2019, primarily reflecting the growth
in loans and advances and liquid assets.
OSB GROUP PLC Annual Report and Accounts 2020
59
GovernanceFinancial statementsAppendicesStrategic reportOverview Financial review (Continued)
Reconciliation of statutory to underlying and pro forma underlying results
Net interest income
Net fair value gain/(loss) on financial instruments
Gain/(loss) on sale of loans
Other operating income
Total income
Administrative expenses
Provisions
Impairment of financial assets
Impairment of intangible assets
Gain on Combination with CCFS
Integration costs
Exceptional items
Profit before tax
Profit after tax
Summary balance sheet
Loans and advances to customers
Other financial assets
Other non-financial assets
Total assets
Amounts owed to retail depositors
Other financial liabilities
Other non-financial liabilities
Total liabilities
Net assets
2020
Reverse
acquisition-
related and
exceptional
items
£m
61.81
(13.3)2
13.13
–
61.6
4.34
–
(0.2)5
7.06
–
9.87
3.38
85.8
68.6
Statutory
results
£m
472.2
7.4
20.0
9.0
508.6
(157.0)
(0.1)
(71.0)
(7.0)
–
(9.8)
(3.3)
260.4
196.3
Underlying
results
£m
Statutory
results
£m
534.0
344.7
(5.9)
33.1
9.0
570.2
(152.7)
(0.1)
(71.2)
–
–
–
–
346.2
264.9
(3.3)
(0.1)
2.1
343.4
(108.7)
–
(15.6)
–
10.8
(5.2)
(15.6)
209.1
158.8
2019
CCFS
pre-
acquisition
results
£m
Reverse
acquisition-
related items
£m
Pro forma
underlying
results
£m
152.1
(13.7)
58.7
3.7
200.8
(57.7)
–
(4.3)
–
–
–
(15.7)
123.1
92.5
21.6
(3.3)
-
–
18.3
1.3
–
3.6
–
(10.8)
5.2
31.3
48.9
42.9
518.4
(20.3)
58.6
5.8
562.5
(165.1)
–
(16.3)
–
–
–
–
381.1
294.2
19,230.7
3,341.8
82.0
(209.9)9 19,020.8
3,378.6
72.8
36.810
(9.2)11
18,446.8
2,878.2
92.1
22,654.5
(182.3) 22,472.2
21,417.1
16,603.1
4,296.6
77.9
(3.1)12 16,600.0
4,301.0
16.5
4.413
(61.4)14
16,255.0
3,544.0
141.1
20,977.6
(60.1)
20,917.5
19,940.1
1,676.9
(122.2)
1,554.7
1,477.0
–
–
–
–
–
–
–
–
–
(295.4) 18,151.4
2,941.4
73.7
63.2
(18.4)
(250.6) 21,166.5
(6.4) 16,248.6
3,554.0
10.0
78.0
(63.1)
(59.5) 19,880.6
(191.1)
1,285.9
1. Amortisation of the net fair value uplift to CCFS’ mortgage loans and retail deposits
8. Reversal of exceptional costs incurred during the year, see note 14 to the financial statements.
on Combination.
9. Recognition of a fair value uplift to CCFS’ loan book less accumulated amortisation of the fair
2. Reversal of £17.0m of acquisition-related inception adjustments and recognition
of £3.7m of inception adjustments under CCFS’ entity level hedge accounting.
value uplift and a movement on credit provisions.
10. Fair value adjustment to hedged assets.
3. Recognition of additional gain on sale of securitised loans.
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 13 to the
financial statements.
60
OSB GROUP PLC Annual Report and Accounts 2020
11. Adjustment to current tax asset and recognition of acquired intangibles on Combination.
12. Fair value adjustment to CCFS’ retail deposits less accumulated amortisation.
13. Fair value adjustment to hedged liabilities.
14. Adjustment to deferred tax liability and other acquisition-related adjustments.
Risk review
Key achievements in 2020
During the year, the Group sustained momentum on
strategically important risk and compliance initiatives. In
particular, the Board and senior management were mindful
of ensuring that the pandemic did not impact continued
progress and investment in the following initiatives:
} Design and implementation of a comprehensive framework
to assess and report on pandemic-based risks, leveraging
enhanced risk data and analytical capabilities.
} The development and implementation of key Group level
frameworks and policies. In particular, a transitional
overarching Group Risk Management Framework was
developed, including Group risk appetite statements and limits.
} Continued progress against the Group IRB programme
agenda, including development of next generation models,
enhanced model performance monitoring, governance
and integration of IRB-based outputs within wider business
and decision-making processes.
} Integration risk was also identified as a principal risk and
is subject to the necessary disciplines as articulated in
the Group Risk Management Framework. Integration risk
is identified as a risk to and from the integration programme
which is subject to review, monitoring and reporting
against an integration risk appetite. Key integration
activities are subject to second and third line oversight
and assurance activity.
} Though the Group continues to maintain two independently
} Operational resilience assessment and management has
regulated banking entities, the Risk and Compliance functions
have been transitioned to a shared service operating model,
whereby the individual functions and teams are Group based,
providing necessary support services to the entity specific
Boards and wider business functions.
progressively been aligned across the two banking entities,
and was subject to a review against emerging regulatory
expectations. The Group’s operational resilience capabilities
helped to guide the response to the operational disruptions
resulting from the pandemic.
} Completion of Group and banking entity Internal Capital
} Continued improvement and alignment of vulnerable
Adequacy Assessment Processes (ICAAPs), including risk and
capital-based assessments which were consistent in approach
but reflect the individual banking entity risk profiles. Climate
change risks, including physical risks and transitional risks,
associated with transitioning to a low carbon economy, were
also assessed as part of the ICAAP development process.
customer identification and management procedures.
During the period, the Group performed a number of internal
thematic reviews to ensure that account management
procedures resulted in fair customer outcomes and any
learnings from these reviews were used to further enhance
customer management strategies.
} Delivery of aligned liquidity and funding risk assessment
and monitoring capabilities, which will support the Group
and solo banks Internal Liquidity Adequacy Assessment
Processes (ILAAPs).
Executive summary
During the year, the Group primarily focused on developing a
considered and measured response to the global pandemic based
on its strategic objectives, risk appetite and risk management
capabilities. In particular, the Board and senior management
ensured that the Group continued to operate with sufficient
financial buffers and operational capacity to withstand any
future extreme but plausible economic shocks.
The Group leveraged the underlying risk management frameworks
to assess, monitor and respond to the emerging economic,
business and operational challenges arising from the pandemic.
The Group’s response was subject to extensive planning,
coordination and implementation oversight by the Board and
senior management through both formal Committee meetings and
ad hoc engagement sessions. The Group benefitted greatly from
the extensive and diverse risk management experience of the
Board and senior management during all phases of the pandemic.
The Group’s response to the pandemic has been centrally
coordinated whilst being cognisant of the specific business and
operational characteristics of the individual banking entities.
The Board and senior management responded quickly to assess
the potential implications and impacts of the emerging pandemic
across all identified principal risks, with a particular focus on
credit, capital, liquidity and operational risks.
Well established stress testing and analytical capabilities were
leveraged to identify the risks and vulnerabilities to the business,
and economic and operational drivers which may be impacted by
the pandemic. This analysis highlighted the potential implications
of the pandemic on the Group’s assets, liabilities, funding and
solvency positions, operational capacity and customers.
Continued and progressive enhancements were made to the
risk assessment approaches to ensure that the Group’s response
was aligned to the evolving nature of the pandemic.
OSB GROUP PLC Annual Report and Accounts 2020
61
GovernanceFinancial statementsAppendicesStrategic reportOverview Risk review (Continued)
The Board and senior management maintained an open and
active dialogue with primary stakeholders including employees,
customers and regulatory authorities throughout 2020.
At the onset of the pandemic the Group took appropriate actions
to ensure full compliance with social distancing and lockdown
guidelines, utilising its business continuity and operational
resilience frameworks. As the majority of the Group’s workforce
transitioned to working from home, the Group took appropriate
actions to ensure operational risks were subject to active
identification, assessment and monitoring.
As payment deferral guidelines were introduced, the Group took
timely actions to ensure effective compliance with the emerging
regulatory guidelines, swiftly updating its risk modelling and
provisioning approaches, whilst modifying its operational
procedures to ensure an effective response to customers
requesting payment deferrals.
The Group updated its IFRS 9 provisioning approach to reflect the
emerging pandemic-based economic scenarios, including the
varied permutations of how the UK economy may be impacted.
Appropriate adjustments were also applied to the underlying
model-based judgements and estimates. The Group continuously
monitored and updated its credit provisioning approach. The
Group remains mindful of the potential for future risks which may
manifest themselves post the removal of the government support
schemes, particularly the furlough scheme, and is confident that
its provisioning approach is sufficiently agile and responsive to
emerging trends and issues.
To ensure that the quantum of model-based provisions remained
appropriate, a top-down triangulation exercise was commissioned
by the Board. The top-down assessment benchmarked IFRS 9
provisions to historical stresses, peer assessment and look through
assessments of Buy-to-Let (BTL), residential and commercial
portfolios, to underlying borrower and tenant characteristics.
The IFRS 9 based provisions were supported by the independent
top-down triangulation exercise.
The Group also adjusted its risk appetite, primarily through
tightening its lending criteria to effectively manage the risk of
lending in a highly disrupted and economically uncertain market.
The actions taken were framed to ensure that the Group
maintained its asset quality profile whilst sustaining its core lending
brands and delivering appropriate levels of balance sheet growth.
Following extensive review, the Board approved actions to
strengthen the liquidity positions across both banking entities
through drawdowns under the Bank of England Indexed Long-Term
Repo facility, which were later replaced with drawings from the
new Term Funding Scheme for SMEs (TFSME). Both bank entities
continued to retain prudent levels of liquidity, considering the
uncertain economic outlook. The Group’s capital position
strengthened throughout the year, supported by actions taken
such as the cancellation of the 2019 final dividend, tightened
lending criteria and the impact of regulatory capital preservation
rule changes as outlined within the PRA’s ‘Quick Fix’ package,
which included revisions to the IFRS 9 transitional arrangements for
the capital impact of IFRS 9 expected credit losses and revisions to
the small and medium-sized enterprises support factor.
The Risk and Compliance function provided extensive oversight
and advisory support to customer-facing functions, enabling the
Group to respond effectively to customer expectations, regulatory
guidelines and the conduct and compliance-based risk appetite.
The Group ensured that customers’ account performance was
reported to credit reference agencies, in accordance with
regulatory guidance.
To enable the Board and senior management to remain fully
informed of the evolving impact of the pandemic, the level and
frequency of risk-based analysis and management information
was increased. Information provided was used to monitor customer
behaviour and outcomes, whilst also detailing sensitivity and stress
test analysis on capital, IFRS 9 provision levels and funding metrics.
Reverse stress test and recovery option analysis was also
performed to inform the going concern assessment of the Group
and its banking entities. Operational capacity thresholds were
actively monitored and reported to ensure timely action was taken
to enable continuity of all key services.
Despite the highly disruptive and uncertain business, economic
and operating environment, the Group continued to operate within
the defined risk appetite levels. Some risk metrics have operated
outside acceptable thresholds, such as expected credit losses,
however, the underlying performance of the loan portfolios
remained broadly stable with respect to borrower credit profiles,
arrears and loan to value (LTV) levels, notwithstanding the potential
fraud by a third party on a funding line provided by the Group,
secured against lease receivables and the underlying hard assets.
The number of customers who requested payment deferrals
reduced progressively throughout 2020 to only 1.3% of the Group’s
loan book by value as at year end.
62
OSB GROUP PLC Annual Report and Accounts 2020
} Delivering further enhancements to the Group and
individual entity ILAAPs and related liquidity risk
management arrangements.
} Further embedding of the Group’s IRB risk measurement
capabilities including the monitoring and management
of the credit risk profile utilising enhanced analytics, to ensure
improved credit decisioning, pricing and risk management.
Continued progression of the Group’s IRB programme in
accordance with defined timelines also remains a key area
of focus.
} Alignment of operational risk management systems and
operational risk frameworks across the Group.
} Implementation of recommendations from the independent
review of controls and processes in the funding lines business.
} Continued close monitoring, scenario analysis and stress testing
of the Group’s capital and liquidity projections.
} Delivery of a climate change risk management framework
covering both physical and transitional risks.
The Board and senior management are fully committed to
achieving the objectives above through continued investment
in people, systems, data and processes.
We continued to make good progress towards IRB during the year,
albeit some elements of the project were inevitably delayed by the
impact of COVID-19, which created the need to deploy significant
resources to support additional stress testing and expected credit
loss modelling and also restricted the ability of external advisers to
access our premises and systems. Nevertheless, we are still aiming
to submit our module 1 application by the end of 2021. In the
meantime, the Group continues to benefit from the enhanced risk
models and assessment in its decision making.
The Group maintained prudent levels of contingent financial
resources to sustain its business operations and to withstand
an extreme but plausible stress. Operational resilience was also
demonstrated by the fact that, during lockdowns, a fundamental
change to the Group’s operating model did not result in a material
operational risk incident or an increase in realised operational
risk losses.
The Board and senior management remain mindful of the
continuously evolving nature of the pandemic and are fully
engaged to ensure that appropriate and timely actions continue
to be taken, such that the Group continues to operate within
its specific risk appetite levels and delivers against its stated
strategic objectives.
Priority areas for 2021
The ongoing COVID-19 pandemic continues to contribute to
significant uncertainty around the macroeconomic outlook and
operating environment for 2021. Therefore, continued close
monitoring of the Group’s risk profile and operating effectiveness
remains a key priority.
Further development and embedding of the overarching Group risk
management framework also remains a key priority, including:
} Continued integration of the Risk and Compliance functions in
accordance with the target end state, reflecting industry best
practice and regulatory expectations.
} Development and embedding of Group-level recovery and
resolution plans. The Risk function is also committed to ensuring
effective and timely compliance with the requirements of the
Resolution Assessment Framework over the coming two years,
whilst providing oversight and advisory support with respect to
the Group’s minimum requirement for own funds and eligible
liabilities (MREL) strategy and planning.
OSB GROUP PLC Annual Report and Accounts 2020
63
GovernanceFinancial statementsAppendicesStrategic reportOverview Risk review (Continued)
High level key risk indicators
Risk appetite is aligned to a select range of key performance
indicators which are used to assess performance against strategic,
business, operational and regulatory objectives.
Actual performance against these indicators is continually
assessed and reported. Below is a detailed summary of the
Group’s key risk indicators with high level commentary on
the performance observed during 2020.
Key risk indicators
Loan loss ratio
Liquidity coverage ratio
0.38%
0.38%
254%
3+ months arrears
1.3%
1.3%
0.13%
0.10%
0.5%
0.3%
199%
146%
145%
2020
2019
Statutory
2020
2019
Underlying
2020
2019
2020
2019
2020
2019
2020
2019
OSB
CCFS
OSB
CCFS
Commentary
Loan loss ratios increased as a result of
adopting more adverse forward-looking
macroeconomic scenarios due to the
pandemic, changes to staging criteria,
COVID-related enhancements to Group’s
models, and recognising an impairment
provision for a potential fraudulent activity
by a third party on a secured funding line.
CET1
18.3%
16.0%
Total capital
18.3% 17.3%
2020
2019
2020
2019
Commentary
The OSB LCR increased primarily due to
higher eligible high-quality liquid assets via
retail deposits and TFSME drawdowns. The
LCR also increased due to reduced pipeline
requirements. The CCFS LCR remained
broadly stable during 2020.
Commentary
Arrears levels remained low during 2020.
A stable arrears ratio was observed across
OSB, whilst the increasing arrears ratio
observed across CCFS was largely driven
by the seasoning of the loan portfolios.
Commentary
The Group’s capital position remained
exceptionally strong as the CET1 capital ratio
benefitted from the cancelled 2019 final
dividend, the application of the CRR ‘Quick
Fix’ package and strong capital generation
from profitability. The total capital ratio was
the same as CET1 in 2020 as non-controlling
interest securities, subordinated debt and
PSBs issued by OSB no longer qualified as
regulatory capital at the Group level.
Risk management
Approach to risk management
The Group views its capabilities to effectively identify, assess and
manage its risk profile as critical to its growth strategy. The Group
developed a transitional overarching Risk Management Framework
(RMF) to drive a consistent approach to risk identification and
assessment across both licensed bank entities. This framework will
continue to evolve and be updated as integration activity continues
prior to the Group reaching its target end state.
The RMF is the overarching framework which enables the Board
and senior management to actively manage and optimise the risk
profile within the constraints of the risk appetite. The RMF also
enables informed risk-based decisions to be taken in a timely
manner, ensuring the interests and expectations of key
stakeholders can be met.
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OSB GROUP PLC Annual Report and Accounts 2020
The RMF also provides a structured mechanism to align critical
components of an effective approach to risk management. The
RMF links overarching risk principles to day-to-day risk monitoring
and management activities.
The modular construct of the RMF provides an agile approach
to keeping pace with the evolving nature of the risk profile and
underlying drivers. The RMF and its core modular components
are subject to periodic review and approval by the Board and
its relevant Committees. The key modules of the RMF structure
are as follows:
1. Risk principles and culture – the Group has established a set
of risk principles which inform and guide all risk management
activities and it has a strong, proactive and transparent ‘risk
culture’ where all employees across the Group are aware of
their responsibilities in relation to risk management.
2. Risk strategy and appetite – the Group has a clear business
purpose, vision and values strategy which is supported by an
articulated risk vision and underlying principles. The Group
calibrates its risk appetite to reflect the Group’s strategic
objectives and business operating plans, as well as external
economic, business and regulatory constraints.
3. Risk assessment and control – the Group’s business model
and strategy exposes it to a defined risk profile and the risk
governance structure is informed by this risk profile such that
the Group can identify and manage its risks in an effective
and efficient manner.
4. Risk definitions and categorisation – the Group sets out its
principal risks which represent the primary risks to which the
Group is exposed.
5. Risk analytics (including stress testing and scenario analysis)
– the Group uses quantitative analysis and statistical modelling
to help improve its business decisions.
6. Risk data and Information Technology – the maintenance
of high quality risk information, along with the Group’s data
enrichment and aggregation capabilities, are central to the
Risk function’s objectives being achieved.
7. Risk frameworks, policies and procedures – risk frameworks,
policies and supporting documentation outline the process by
which risk is effectively managed and governed within the Group.
8. Risk management information (MI) and reporting – the Group
has established a comprehensive suite of risk MI and reports
covering all principal risk types.
9. Risk governance and function organisation – risk governance
refers to the processes and structures established by the Board
to ensure that risks are assumed and managed within the
Board-approved risk appetite, with clear delineation between
risk taking, oversight and assurance responsibilities. The Group’s
risk governance framework is structured to adhere to the ‘three
lines of defence’ model.
Further detail on these modules is set out in the Group’s
Pillar 3 disclosures.
The following diagrams outline the core components of the RMF
and the organisational arrangements to ensure that the Group
operates in accordance with the requirements of the RMF.
Key elements
Principal
risks
Risk Management Framework
Risk principles and culture
Risk strategy and appetite
Risk governance and function organisation
Risk definitions and categorisation
Financial risks
Credit risk
Market risk
Liquidity and funding risk
Solvency risk
Non-financial risks
Strategic and business risk
Reputational risk
Compliance/regulatory risk
Operational risk
Conduct risk
Integration risk
Capabilities
Risk framework
and policies
Risk data and IT
Risk analytics
Risk management information
Risk
regulatory
submissions
ICAAP
ILAAP
Recovery plan/
Resolution pack
OSB GROUP PLC Annual Report and Accounts 2020
65
GovernanceFinancial statementsAppendicesStrategic reportOverview Risk review (Continued)
Group Organisational Structure
Board
Committees
Management
Committees
Business
and control
functions
Board of Directors
Board
Integration
Committee
Group
Remuneration
Committee
Group
Nomination
& Governance
Committee
Group
Audit
Committee
Group Risk
Committee
Group
Models
& Ratings
Committee
Group Executive Committee
Group
Credit
Committee
Executive
M&A
Committee
Operations
Committee
Models
& Ratings
Management
Committee
Risk
Management
Committee
Regulatory
Governance
Committee
Group
Assets
& Liabilities
Committee
Executive
Disclosure
Committee
First Line of Defence
Second Line of Defence
Third Line of Defence
Ensures that risks are identified,
measured, monitored and
reported in line with policy
in an effective manner.
Provides an independent review and challenge
to the business and control functions to ensure
that all aspects of the risk profile are managed
in adherence to risk appetite and policies.
Provides independent assurance on the
effectiveness of the RMF, compliance with
regulations, adherence to policies and
effectiveness of controls.
Risk and Compliance
Internal Audit
Key Brands
Finance and HR
Operations
IT and Change
Commercial
Sales and Marketing
Legal and Regulation
Credit Strategy
Executives
Chief Executive Officer
Chief Risk
Officers
Group Chief
Credit Officer
Group Chief
Internal Auditor
Chief
Financial Officer
Group
Chief Operating Officer
Group
Chief Information Officer
Group General Counsel
and Company Secretary
Group
Commercial Director
Group Managing
Director, Savings
Group Managing
Director, Mortgages
Brand-Level Senior
Management
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OSB GROUP PLC Annual Report and Accounts 2020
The Group’s risk appetite is calibrated using statistical analysis
and stress testing to inform the process for setting management
triggers and limits against key risk indicators. The calibration
process is designed to ensure that timely and appropriate actions
are taken to maintain the risk profile within approved thresholds.
The Board and senior management actively monitor actual
performance against approved management triggers and limits.
Currently, whilst there are two regulated banking entities within
the Group, risk appetite metrics and thresholds are set at both
individual entity and Group levels.
The Group’s risk appetite is subject to a full refresh annually across
all principal risk types and an additional mid-year review where
any metrics can be assessed and updated as appropriate. The
assessment of the Group’s risk profile against its strategy and risk
appetite has been enhanced to ensure early detection and
response to adverse trends.
Risk appetite
The Group aligns its strategic and business objectives with its risk
appetite, enabling the Board and senior management to monitor
the risk profile relative to its strategic and business performance
objectives. Risk appetite is a critical mechanism through which the
Board and senior management are able to identify adverse trends
and respond to unexpected developments in a timely and
considered manner.
The Group risk appetite is articulated by means of a series of
statements which outline the level and nature of risks that the
Group is able and willing to assume in pursuit of its strategic and
business objectives. These statements are further supported by
a suite of risk thresholds which ensure that the Group’s risk profile
is monitored and controlled within defined parameters and that
appetite breaches are subject to appropriate management
and Board oversight. The Risk Appetite Framework also helps to
outline roles and responsibilities relating to all aspects of the risk
appetite, based on a defined structure, processes, procedures
and governance.
Risk appetite is calibrated to reflect the Group’s strategic
objectives, business operating plans, as well as external economic,
business and regulatory constraints. In particular, risk appetite is
calibrated to ensure that the Group continues to deliver against its
strategic and business objectives and maintains sufficient financial
resource buffers to withstand plausible but extreme stresses. The
primary objective of the risk appetite is to ensure that the Group’s
strategy and business operating model is sufficiently resilient.
OSB GROUP PLC Annual Report and Accounts 2020
67
GovernanceFinancial statementsAppendicesStrategic reportOverview Risk review (Continued)
Approach to managing climate change risk
Climate change and society’s response to it, may result in a
number of financial risks materialising. Supervisory statement 3/19
was published in April 2019 and it sets out the PRA’s expectations
concerning financial services firms developing their approaches to
identifying, monitoring and controlling climate change risk relevant
to their specific business.
The PRA published a ‘Dear CEO’ letter in July 2020 emphasising its
expectations for firms to have fully embedded their approaches to
managing climate-related financial risk by the end of 2021.
The Group is exposed to physical, transitional and reputational
risks relating to climate change:
} Physical risks and the risks associated with a transition to a low
carbon economy, arise from a number of factors, and relate to
specific weather events (such as heatwaves, floods, wildfires
and storms) and longer-term shifts in the climate (such as
changes in precipitation, extreme weather variability, rising
sea level risk and rising mean temperatures). These risks could
include adverse movements in the value of certain properties
that are in coastal and low lying areas, or located in areas
prone to increased levels of subsidence and heave.
} Transitional risks may arise from the process of adjustment
towards a low-carbon economy which may lead to changes in
policy, regulation, the emergence of disruptive technology or
business models shifting sentiment, and societal preferences,
or evolving evidence, frameworks and legal interpretations.
These risks include a potential adverse impact in the value of
properties that require substantial updates to meet future
energy performance requirements.
} Reputational risk arising from a failure to meet changing
societal, investor or regulatory demands.
How the Group identifies and assesses climate change risk
Within the Group’s 2020 ICAAP, a number of financial and
transitional climate change risks were identified, and a series of
detailed financial risk assessments (IFRS 9 impairment and capital)
were conducted over a range of scenarios to quantify the potential
impact on the Group, should any of the scenarios materialise.
This process was supported by the acquisition of data from an
external third party.
The key conclusion from this analysis was that the Group is
currently exposed to a low level of climate change risk, when
assessing the potential impairment and capital impacts over
a range of physical perils such as flooding, subsidence and
coastal erosion across the Group’s loan book. The Risk function
also analysed the energy performance certificate (EPC) profile
of the Buy-to-Let loan book and the risks relating to landlords
having extensive remediation activity to ensure an appropriate
EPC rating is in place. Again, this analysis indicated that the
Group’s EPC profile is strong and the modelled impact of
remediation remains low.
The ongoing provision of this data will allow the Group to
monitor how its climate change risk profile evolves over time,
and consequently take action if required to ensure that the risk
of climate change remains at an acceptable level.
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OSB GROUP PLC Annual Report and Accounts 2020
During 2021 the Group plans to further enhance and embed its
approaches to identifying, monitoring and managing climate
change risk, including the development of a dedicated Climate
Change Risk Management Framework, coupled with further
enhancements to climate change risk profile monitoring, whilst
conducting further sensitivity analysis. The development of formal
climate change risk appetite statements and limits, together with a
full suite of key risk and performance indicators, is also planned.
Plans will be developed in the first half of 2021 to ensure that the
Group complies with the recommendations set out by the Task
Force on Climate-related Financial Disclosures, which have been
introduced into UK listing requirements on or after 1 January 2021.
These will be overseen by a specified Board member and the
member of the senior management team responsible for ESG.
Processes in place to manage climate change risk
Climate change risk impacts a number of the Group’s other
principal risk types, therefore work is ongoing to assess the wider
consequences across the Group. This will involve the management
of climate change risk being overseen by a number of the Group’s
Risk Committees.
How the management of climate change risk is integrated
within the Group’s wider risk management approaches
The Board has overseen the Group’s plans to comply with the PRA’s
expectations and emerging industry best practice around climate
change risk management, with progress made across the following
areas during 2020:
} The overarching Risk Management Framework was updated
to articulate the Group’s approach to climate change
risk management.
} A dedicated working group was established to oversee and
manage the Group’s response to climate change risk.
} A detailed financial risk assessment of the Group’s exposure to
climate change risk was conducted as part of the 2020 ICAAP.
} The Chief Risk Officers of the two banks have designated senior
management function (SMF) responsibility for the management
of climate change risk.
OSB GROUP PLC Annual Report and Accounts 2020
69
GovernanceFinancial statementsAppendicesStrategic reportOverview Principal risks and uncertainties
The Board carried out an assessment of the principal risks and uncertainties which may
threaten the Group’s operating model, strategic objectives, financial performance and
regulatory compliance commitments. The outcome of that assessment is summarised
in the below heatmap, with further details provided in each principal risk section.
Current assessment of principal risks
d
o
o
h
i
l
e
k
L
i
h
g
H
i
w
o
L
1
3
8
6
7
5
10
2
1 Strategic and business risk
6 Solvency risk
2 Reputational risk
7 Operational risk
4
9
3 Credit risk
4 Market risk
8 Conduct risk
9 Compliance/regulatory risk
Low
High
5 Liquidity and funding risk
10
Integration risk
Impact
1 Strategic and business risk
Definition
The risk to the Group’s earnings and profitability arising from its strategic decisions,
change in business conditions, improper implementation of decisions or lack of
responsiveness to industry changes.
Risk appetite statement
The Group’s strategic and business risk appetite states that the Group does not
intend to undertake any medium to long-term strategic actions that would put at risk
its vision of being a leading specialist lender, backed by a strong and dependable
savings franchise. The Group adopts a long-term sustainable business model which,
while focused on niche sub-sectors, is capable of adapting to growth objectives and
external developments.
Risk
Mitigation
Performance against targets
Performance against strategic and business targets
does not meet stakeholder expectations. This has
the potential to damage the Group’s franchise value
and reputation.
Regular monitoring by the Board and the Group
Executive Committee of business and financial
performance against strategic agenda and risk
appetite. The financial plan is subject to regular
reforecasts. The balanced business scorecard is the
primary mechanism to support the Board and assesses
management performance against key targets.
Use of stress testing to flex core business planning
assumptions to assess potential performance under
stressed operating conditions.
Direction
Increased
The COVID-19 pandemic has adversely
impacted the Group in meeting its strategic
and business targets.
Opportunities remain, including the Group
realising integration benefits as planned, which
will support the Group in any future macro-
economic stress, whilst managing challenges
posed by increasing levels of competition in our
key market segments.
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OSB GROUP PLC Annual Report and Accounts 2020
Economic environment
The economic environment in the UK is an important
factor impacting the strategic and business risk profile.
A macroeconomic downturn may impact the credit
quality of the Group’s existing loan portfolio and may
influence future business strategy as the Group’s new
business proposition becomes less attractive due to
lower returns.
Regulatory requirements
The potential for emerging regulatory requirements to
increase the demands on the Group’s operational
capacity and increase the cost of compliance.
Competition risk
The risk that new bank entrants and existing peer
banks shift focus to the Group’s market segments,
which increases the level of competition.
The Group continued to utilise and enhance its stress
testing capabilities to assess and minimise potential
areas of macroeconomic vulnerability.
The Group continues to invest in its IT and data
management capabilities to increase the ability to
respond to regulatory change.
A structured approach to change management and
fully leveraging internal and external expertise allows
the Group to respond effectively to regulatory change.
The Group continues to develop products and services
which meet the requirements of the markets in which
it operates.
Post the Combination, the Group has an enlarged suite
of products and capabilities to utilise, along with
increased scale and financial resources to support
a response to changes in competition.
Increased
Economic risks remain elevated due to the
ongoing COVID-19 pandemic and risks
surrounding the removal of government
support measures.
The risk relating to a no trade deal Brexit subsided
following an agreement being reached, however
the full implications of the deal arrangements
being operationalised are yet to be observed.
Increased
Increased levels of regulatory scrutiny and
greater regulatory expectations are driven by the
increased size of the Group post Combination.
Unchanged
The Group responded well to all competition and
market changes throughout 2020 and is well
positioned to respond to changes in competition
in 2021.
2 Reputational risk
Definition
The potential risk of adverse effects that can arise from the Group’s reputation being
affected due to factors such as unethical practices, adverse regulatory actions, customer
dissatisfaction and complaints or negative/adverse publicity.
Reputational risk can arise from a variety of sources and is a second order risk – the
crystallisation of a credit risk or operational risk can lead to a reputational risk impact.
Risk appetite statement
The Group does not knowingly conduct business or organise its operations to put its
reputation and franchise value at risk.
Risk
Mitigation
Deterioration of reputation
Potential loss of trust and confidence that our
stakeholders place in us as a responsible and fair
provider of financial services.
Culture and commitment to treating customers fairly
and being open and transparent in communication
with key stakeholders. Established processes to
proactively identify and manage potential sources of
reputational risk.
Direction
Unchanged
Expectations remain high to deliver the
integration in a timely and effective manner
while achieving strategic objectives. Expectations
have been raised across all stakeholders,
including employees, customers, regulators
and shareholders.
OSB GROUP PLC Annual Report and Accounts 2020
71
GovernanceFinancial statementsAppendicesStrategic reportOverview Principal risks and uncertainties (Continued)
3 Credit risk
Definition
Potential for loss due to the failure of a counterparty to meet its contractual obligation to
repay a debt in accordance with the agreed terms.
Risk appetite statement
The Group seeks to maintain a high quality lending portfolio that generates
adequate returns, under normal and stressed conditions. The portfolio is actively
managed to operate within set criteria and limits based on profit volatility, focusing
on key sectors, recoverable values and affordability and exposure levels.
The Group aims to continue to generate sufficient income and control credit losses to
a level such that it remains profitable even when subjected to a credit portfolio stress
of a 1 in 20 intensity stress scenario.
Risk
Mitigation
Individual borrower defaults
Borrowers may encounter idiosyncratic problems
in repaying their loans, for example loss of a job or
execution problems with a development project.
While in most cases of default the Group’s lending is
secured, some borrowers may fail to maintain the value
of the security.
Macroeconomic downturn
A broad deterioration in the UK economy would
adversely impact both the ability of borrowers to repay
loans and the value of the Group’s security. Credit
losses would impact the Group’s lending portfolios,
even if individual impacts were to be small, the
aggregate impact on the Group could be significant.
Wholesale credit risk
The Group has wholesale exposures both through call
accounts used for transactional and liquidity purposes
and through derivative exposures used for hedging.
Across both OSB and CCFS, a robust underwriting
assessment is undertaken to ensure that a customer
has the ability and propensity to repay and sufficient
security is available to support the new loan requested.
At CCFS, an automated scorecard approach is taken,
whilst OSB utilises a bespoke manual underwriting
approach.
Should there be problems with a loan, the Collections
and Recoveries team works with customers who are
unable to meet their loan service obligations to reach
a satisfactory conclusion while adhering to the
principle of treating customers fairly.
Our strategic focus on lending to professional landlords
means that properties are likely to be well-managed,
with income from a diversified portfolio mitigating the
impact of rental voids or maintenance costs. Lending to
owner-occupiers is subject to a detailed affordability
assessment, including the borrower’s ability to continue
payments if interest rates increase. Lending on
commercial property is based more on security, and is
scrutinised by the Group’s independent Real Estate
team as well as by external valuers.
Development lending is extended only after a deep
investigation of the borrower’s track record and stress
testing the economics of the specific project.
The Group works within portfolio limits on LTV,
affordability, name, sector and geographic
concentration that are approved by the Group Risk
Committee and the Board. These are reviewed
on a semi-annual basis. In addition, stress testing
is performed to ensure that the Group maintains
sufficient capital to absorb losses in an economic
downturn and continues to meet its regulatory
requirements.
The Group transacts only with high quality wholesale
counterparties. Derivative exposures include collateral
agreements to mitigate credit exposures.
Direction
Increased
The impact of COVID-19 on the UK economy is
uncertain and could result in a material increase
in unemployment levels and decreases in
property prices, which could drive higher
impairment levels.
The impact of the government support measures
ending remains unknown and the knock-on
impact into borrower defaults thereafter.
Increased
The economic outlook is uncertain, driven
by the potential range of outcomes resulting
from COVID-19 and the end of government
support measures.
Unchanged
The Group’s wholesale credit risk exposure
remains limited to high quality counterparties,
overnight exposures to clearing banks and
swap counterparties.
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OSB GROUP PLC Annual Report and Accounts 2020
4 Market risk
Definition
Potential loss due to changes in market prices or values.
Risk appetite statement
The Group actively manages market risk arising from structural interest
rate positions.
The Group does not seek to take a significant interest rate position or a directional
view on interest rates and it limits its mismatched and basis risk exposures.
Risk
Interest rate risk
The risk of loss from adverse movement in the overall
level of interest rates. It arises from mismatches in the
timing of repricing of assets and liabilities, both on and
off balance sheet. It includes the risks arising from
imperfect hedging of exposures and the risk of
customer behaviour driven by interest rates, e.g.
early redemption.
Basis risk
The risk of loss from an adverse divergence in interest
rates. It arises where assets and liabilities reprice from
different variable rate indices. These indices may be
market rates (e.g. Bank Base Rate, Sterling Overnight
Index Average (SONIA), or the London Interbank
Offered Rate (LIBOR)) or administered (e.g. the Bank’s
Standard Variable Rate (SVR), other discretionary
variable rates, or that received on call accounts with
other banks).
Mitigation
The Group’s Treasury function actively hedges
to match the timing of cash flows from assets
and liabilities.
Direction
Unchanged
The Group continues to assess interest rate risk
on a regular basis ensuring that risk exposure
is limited.
Due to the Group balance sheet structure, no active
management of basis risk was required by OSB Group
during 2020.
Key mitigants include new swaps being linked to SONIA
and existing LIBOR linked swaps being transitioned
to SONIA. LIBOR linked mortgages will also be
transitioned to referencing either the Bank of England
base rate or SONIA.
Unchanged
Product design, balance sheet structure and
replacing LIBOR swaps with SONIA swaps
enabled the Group to maintain the overall level of
basis risk across both Banks throughout the year.
The basis risk position will reduce over 2021 as
CCFS and OSB fully transition from LIBOR.
OSB GROUP PLC Annual Report and Accounts 2020
73
GovernanceFinancial statementsAppendicesStrategic reportOverview Principal risks and uncertainties (Continued)
5 Liquidity and funding risk
Definition
The risk that the Group, although solvent, does not have sufficient financial resources to
enable it to meet its obligations as they fall due.
Risk appetite statement
The Group will maintain sufficient liquidity to meet its liabilities as they fall due under
normal and stressed business conditions; this will be achieved by maintaining a
strong retail savings franchise, supported by a high quality liquid asset portfolio
comprised of cash and readily-monetisable assets, and through access to
pre-arranged secured funding facilities. The Board requirement to maintain balance
sheet resources sufficient to survive a range of severe but plausible stress scenarios is
interpreted in terms of the liquidity coverage ratio and the ILAAP stress scenarios.
Risk
Retail funding stress
As the Group is primarily funded by retail deposits,
a retail run could put it in a position where it could not
meet its financial obligations.
Increased competition for retail savings driving up
funding costs, adversely impacting retention levels
and profitability.
Wholesale funding stress
A market-wide stress could close securitisation markets
or make issuance costs unattractive for the Group.
Refinancing of Term Funding Scheme (TFS)
and TFSME
The Group has drawn a total of £2.6bn funding under
the TFS and £1.0bn under the TFSME creating
a refinancing concentration around the maturity
of the schemes.
Mitigation
The Group’s funding strategy is focused on a highly
stable retail deposit franchise. The Group’s large
number of depositors provides diversification, where
a high proportion of balances are covered by the FSCS
protection scheme, thus there is no material risk of
a retail run.
In addition, the Group performs in-depth liquidity
stress testing and maintains a liquid asset portfolio
sufficient to meet obligations under stress. The Group
holds prudential liquidity buffers to manage funding
requirements under normal and stressed conditions.
The Group has further diversified its retail channels by
expanding the range of pooled deposit providers used.
The Group proactively manages its savings proposition
through both the Liquidity Working Group and the
Group Assets and Liabilities Committee. Finally, the
Group has prepositioned mortgage collateral and
securitised notes with the Bank of England which allows
it to consider alternative funding sources to ensure
it is not solely reliant on retail savings. The Group also
has a mature RMBS programme and access to
warehouse facilities.
The Group continuously monitors wholesale funding
markets and is experienced in taking proactive
management actions where required.
The Group issued a number of securitisations during
2020 where both CCFS and OSB saw strong market
demand for secured wholesale issuance.
The Group has fully factored in repayment of TFS
into the funding plans of both Banks, with planned
repayment prior to the contractual date to minimise
timing and concentration risk. The Group has a wider
range of funding options to manage this process.
The Group has a TFSME allowance significantly above
its wholesale funding requirements which allows the
TFS scheme to be fully refinanced by TFSME.
Direction
Unchanged
The Group’s funding levels and mix remained
strong throughout the year.
During the year, OSB and CCFS were both able
to attract significant flows of new deposits and
depositors when required.
Unchanged
The Group’s range of wholesale funding options
available, including repo or sale of retained notes,
collateral upgrade trades and warehouse
facilities, remains broadly unchanged.
Decreased
The TFSME scheme will allow the Group to
significantly extend the maturities of its Bank
of England based funding.
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OSB GROUP PLC Annual Report and Accounts 2020
6 Solvency risk
Definition
The potential inability of the Group to ensure that it maintains sufficient capital levels for its
business strategy and risk profile under both the base and stress case financial forecasts.
We manage our capital resources in a manner which avoids excessive leverage and
allows us flexibility in raising capital.
Risk appetite statement
The Group seeks to ensure that it is able to meet its Board-level capital buffer
requirements under a severe but plausible stress scenario. The solvency risk
appetite is informed by the Group’s prudential requirements and strategic and
financial objectives.
Risk
Mitigation
Deterioration of capital ratios
Key risks to solvency arise from balance sheet growth
and unexpected losses which can result in the Group’s
capital requirements increasing, or capital resources
being depleted, such that it no longer meets the
solvency ratios as mandated by the PRA and Board
risk appetite.
The regulatory capital regime is subject to change and
could lead to increases in the level and quality of
capital that the Group needs to hold to meet regulatory
requirements.
Currently the Group operates from a strong
capital position and has a consistent record of
strong profitability.
The Group actively monitors its capital requirements
and resources against financial forecasts and plans
and undertakes stress testing analysis to subject its
solvency ratios to extreme but plausible scenarios.
The Group also holds prudent levels of capital buffers
based on CRD IV requirements and expected balance
sheet growth.
The Group engages actively with regulators, industry
bodies, and advisers to keep abreast of potential
changes and provides feedback through the
consultation process.
Direction
Unchanged
Proactive management of the Group’s balance
sheet and support measures provided by the PRA
via the CRR ‘Quick Fix’ package which included a
reset of the IFRS 9 capital transitional relief and
the extension of the SME support factor, together
with ongoing profitability, resulted in the Group’s
capital ratios strengthening.
Risks remain around adverse credit profile
performance, resulting from the ongoing
COVID-19 pandemic and the removal of
government support measures.
OSB GROUP PLC Annual Report and Accounts 2020
75
GovernanceFinancial statementsAppendicesStrategic reportOverview Principal risks and uncertainties (Continued)
7 Operational risk
Definition
The risk of loss or a negative impact on the Group resulting from inadequate or failed
internal processes, people or systems, or from external events.
Risk appetite statement
The Group’s operational processes, systems and controls are designed to minimise
disruption to customers, damage to the Group’s reputation and any detrimental
impact on financial performance. The Group actively promotes the continuous
evolution of its operating environment through the identification, evaluation and
mitigation of risks, whilst recognising that the complete elimination of operational risk
is not possible.
Risk
Mitigation
IT security (including cyber risk)
The risks resulting from a failure to protect the Group’s
systems and the data within them. This includes both
internal and external threats.
The Group invested significantly in enhancing its
protection against IT security threats, deploying
a series of tools designed to identify and prevent
network/system intrusions. This is further supported by
documented and tested procedures intended to ensure
the effective response to a security breach.
Data quality and completeness
The risks resulting from data being either inaccurate
or incomplete.
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.
Change management
The risks resulting from unsuccessful change
management implementations, including the failure
to respond effectively to release-related incidents.
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.
IT failure
The risks resulting from a major IT application or
infrastructure failure impacting access to the Group’s
IT systems.
Organisational change and integration
The risks resulting from the Group’s ongoing integration
activities, including systems, people and infrastructure.
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.
There is a low risk integration project plan (e.g. no
large-scale integration-related IT project change
planned). The Group has an experienced and capable
project management office, with close oversight and
direction provided by the Group Executive and Board
Integration Committees.
Direction
Increased
Due to the COVID-19 pandemic and the resulting
high number of employees working and
accessing systems from home, the risk
of a cyber-attack was heightened.
Whilst IT security risks continue to evolve, the level
of maturity of the Group’s controls and defences
has significantly increased, supported by
dedicated IT security experts.
The Group’s ongoing penetration testing
continues to drive enhancements by identifying
potential areas of risk.
Unchanged
Further progress was made during 2020 in
embedding Group-wide governance frameworks,
standards and controls. Further work is planned
in 2021, to move closer to the Group’s target
end state.
Increased
The Group continues to adopt an ambitious
change agenda, driven by the integration
programme. During 2020 this risk was monitored
and managed well, however further change is
planned in 2021, against the backdrop of the
ongoing COVID-19 pandemic and likely periods
of employees working from home.
Unchanged
Whilst progress was made in reducing both the
likelihood and impact of an IT failure, the risks
remain, in particular due to the new operating
environment. Further work is planned during 2021.
Unchanged
To date, organisational change resulting from the
integration project has been managed well, with
no material risks emerging during 2020. Further
work is required to reach the target end state
and carefully considered plans, strong risk
identification and monitoring and management
capabilities remain in place.
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OSB GROUP PLC Annual Report and Accounts 2020
8 Conduct risk
Definition
The risk that the Group’s behaviours or actions result in customer detriment or negatively
impact the integrity of the markets in which it operates.
Risk appetite statement
The Group aims to operate and conduct its business to the highest standards which
ensure integrity and trust with respect to how the Group operates and manages its
relationships with key stakeholders. In this regard, the Group has no appetite to
knowingly assume risks which may result in an unfair outcome for customers and/or
cause disruptions in the market segments in which it operates. However, where the
Group identifies potential conduct risks it will proactively intervene by managing,
escalating and mitigating them promptly to ensure a fair outcome is achieved.
Risk
Product suitability
Whilst the Group originates relatively simple products,
there remains a risk that products (primarily legacy)
may be deemed to be unfit for their original purpose in
line with current regulatory definitions.
Data protection
The risk that customer data is accessed
inappropriately, either as a consequence of network/
system intrusion or through operational errors in the
management of the data.
Integration risk
The risk that the integration programme directly or
indirectly causes poor outcomes for customers and
the market.
Mitigation
The Group has a strategic commitment to provide
simple, customer-focused products. In addition,
a Product Governance framework is established to
oversee both the origination of new products and
to revisit the ongoing suitability of the existing
product suite.
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.
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
its customers and the market. The Group will conduct
detailed analysis of potential customer harm
associated with particular integration steps.
Direction
Unchanged
Whilst this risk remained low as a result of
increased awareness and dedicated oversight,
the Group remains aware of the changes to the
regulatory environment and their possible impact
on product suitability.
Unchanged
Despite a number of additional controls
introduced in 2020, the network/system
threats continue to evolve in both volume
and sophistication.
Unchanged
No material issues have been identified to date
and controls are in place to ensure that the
integration programme does not result in poor
customer outcomes.
OSB GROUP PLC Annual Report and Accounts 2020
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GovernanceFinancial statementsAppendicesStrategic reportOverview Principal risks and uncertainties (Continued)
9 Compliance/regulatory risk
Definition
The risk that a change in legislation or regulation, or an interpretation that differs from the
Group’s, will adversely impact the Group.
Risk appetite statement
The Group views ongoing conformity with regulatory rules and standards across all
the jurisdictions in which it operates as a critical component of its risk culture. The
Group does not knowingly accept compliance risk which could result in regulatory
sanctions, financial loss or damage to its reputation. The Group will not tolerate any
systemic failure to comply with applicable laws, regulations or codes of conduct
relevant given its business operating model.
Risk
Mitigation
Prudential regulatory changes
The Group continues to see a high volume of key
compliance regulatory changes that impact its business
activities. These include: change in Standardised
Approach capital rules and implementation of an IRB
floor, implementation of the European Standardised
Information Sheet, extending the Senior Managers
and Certification Regime to all FCA regulated
firms and introduction of Strong Customer
Authentication requirements.
The focus on external wall cladding for high-rise
buildings was extended to smaller buildings in February
2021, and the value of properties supporting the
Group’s loan portfolios could be impacted, or customer
behaviour could change if significant remediation
activity is required to ensure building safety
regulations are met.
Conduct regulation
Regulatory changes focused on the conduct
of business could force changes in the way the
Group carries out business and impose substantial
compliance costs.
Product design, underwriting, arrears and forbearance
policies are misaligned to regulatory expectations
which result in customers not being treated fairly,
particularly those experiencing financial hardship
or vulnerable customers, with the potential for
reputational damage, redress and other
regulatory actions.
The Group has an effective horizon scanning process
to identify regulatory change.
All significant regulatory initiatives are managed by
structured programmes overseen by the Project
Management team and sponsored at Executive level.
The Group has proactively sought external expert
opinions to support interpretation of the requirements
and validation of its response, where required.
The Group has initiated a study into external wall
cladding and is reviewing its own property portfolio
along with the collateral supporting lending portfolios.
The Group also notes the recent support measures
announced by the Government to help individuals to
ensure compliance with building safety standards,
including the removal of defective cladding.
The Group has a programme of regulatory horizon
scanning linking into a formal regulatory change
management programme. In addition, the focus on
simple products and customer oriented culture means
that current practice may not have to change
significantly to meet new conduct regulations.
All Group entities utilise underwriting, arrears,
repossession, forbearance and vulnerable customer
policies which are designed to comply with regulatory
rules and expectations. These policies articulate the
Group’s commitment to ensuring that all customers,
including those who are vulnerable or experiencing
financial hardship, are treated fairly, consistently
and in a way that considers their individual needs
and circumstances.
The Group does not tolerate any systematic failure to
deliver fair customer outcomes. On an isolated basis,
incidents can result in detriment due to human and/or
operational failures. Where such incidents occur, they
are thoroughly investigated, and the appropriate
remedial actions are taken to address any customer
detriment and prevent recurrence.
Direction
Unchanged
The Group continues to have a high level of
interaction with the UK regulators and continues
to respond effectively to all regulatory changes.
Unchanged
The level of regulatory change continues to be
high, but the Group has sufficient resources and
capabilities to respond to any changes in an
effective and efficient manner.
During the year, the Group took part in a number
of FCA thematic reviews, including reviews on
long-term forbearance in the second charge
market and a Business model drivers and
unaffordable lending review.
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OSB GROUP PLC Annual Report and Accounts 2020
10 Integration risk
Definition
The risks resulting from the Group’s ongoing integration activities, including business,
operational and financial performance, systems, people and infrastructure.
Risk appetite statement
The Combination of OSB and CCFS is intended to enhance scale, bringing together
resources and capabilities, and to explore further growth opportunities which deliver
attractive long-term returns. The delivery against the integration strategy is framed
within the Group’s purpose, vision and values and the broader risk appetite. The
integration is deemed to be inherently low risk owing to the retention of core
operating brands, similarities of business models, no large-scale IT integration
or substantial migration of customer accounts.
Accordingly, the Board has a low risk appetite for adverse integration activity
outcomes, which put the strategic rationale of the merger, the Group’s purpose,
vision and values or broader risk appetite at risk. In the event that integration
workstreams are subject to delay or reprioritisation, the Board expects the rationale
to be clearly understood and justified, with defined mitigating actions implemented,
overseen by robust levels of governance.
Risk
Mitigation
A reduction in the oversight of business as usual
operational performance, increased risk to operational
resilience via the change process, unintended staff
attrition or infrastructure failure, which in turn
adversely impact operating and financial performance.
The Board is maintaining oversight of the integration
process through the Board Integration Committee.
A dedicated Integration Management Office has been
established to drive the integration process forward.
Independent assessment, monitoring and reporting
is being undertaken by the Risk and Internal
Audit functions.
Direction
Unchanged
To date the integration project has progressed
as planned, and the governance, project
management and control structures have
operated effectively, with no material
risks crystallising.
OSB GROUP PLC Annual Report and Accounts 2020
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GovernanceFinancial statementsAppendicesStrategic reportOverview Principal risks and uncertainties (Continued)
The Group proactively scans for emerging risks which may have an impact on its ongoing
operations and strategy. The Group considers its top emerging risks to be:
Emerging risk Description
Mitigating action
Political and
macroeconomic
uncertainty
Climate change
Model risk
LIBOR reform
Coronavirus
Negative interest
rates
The impact of COVID-19 and the removal of government support
measures remains uncertain. The Group’s lending activity is
predominantly focused in the United Kingdom (with a legacy back book
of mortgages in the Channel Islands) and, as such, will be impacted by
any risks emerging from changes in the macroeconomic environment.
Risks also remain around the disruption that the UK’s exit from the
European Union will have on the economy.
The Group implemented robust monitoring processes and via various
stress testing activity (i.e. ad hoc, risk appetite and ICAAP) understands
how the Group performs over a variety of macroeconomic stress
scenarios and has developed a suite of early warning indicators,
which are closely monitored to identify changes in the economic
environment. The Board and management review detailed portfolio
reports to identify any changes in the Group’s risk profile.
As the worldwide focus on climate change intensifies, both the physical
risks and the transitional risks associated with climate change continue
to grow. Climate change risks include:
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.
These risks could include adverse movements in the value of certain
properties that are in coastal and low lying areas, or located in areas
prone to increased subsidence and heave.
Transitional risks may arise from the adjustment towards a low-carbon
economy, such as tightening energy efficiency standards for domestic
and commercial buildings. These risks could include a potential adverse
movement in the value of properties requiring substantial updates to
meet future energy performance requirements.
Reputational risk arising from a failure to meet changing societal,
investor or regulatory demands.
The risk of financial loss, adverse regulatory outcomes, reputational
damage or customer detriment resulting from deficiencies in the
development, application or ongoing operation of models and
ratings systems.
Post the completion of the Combination with CCFS, the Group notes
the increasing usage of models to conduct financial assessments whilst
informing business decisions. The Group also notes changes in industry
best practice with respect to managing model risk.
The Group developed an approach to assessing and managing the
risks relating to climate change within its Risk Management Framework.
This includes scenario analysis, development of key risk indicators and
inclusion of climate risks within operational resilience activities.
A cross-functional working group is overseeing the Group’s response
to climate change, in line with industry best practice and regulatory
guidelines.
As part of the Group’s ICAAP a detailed analysis was conducted using
third party data to complete an initial assessment of the financial risk
that climate change could pose to the Group. This analysis will be
developed further during 2021 and will be aligned with activity to
develop an integrated ESG plan during the first half of 2021.
The Group’s Chief Risk Officers have designated senior management
responsibility for the management of climate change risk; during 2021
a Board member will be specified to ensure that the Group meets
regulatory and wider stakeholder expectations.
During 2020, Board and Executive level model oversight Committees
and a suite of Group level policies were introduced.
Further enhancements are planned during 2021 to ensure that the
model governance arrangements meet regulatory expectations and
model risk is managed effectively.
The LIBOR benchmark may cease to be set after the end of 2021 due to
the low level of supporting unsecured loans in the wholesale interbank
loan market. 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 ALCO has set up a dedicated working group to focus on this
risk and transition away from the LIBOR benchmark. Key mitigating
actions include new swaps being linked to SONIA and existing LIBOR
linked swaps being transitioned to SONIA. LIBOR linked mortgages will
also be transitioned to referencing either the Bank of England base
rate or SONIA.
The COVID-19 pandemic has had a material impact on individuals and
businesses where the Group has operations, including the UK and India.
The lockdown measures introduced to stem the spread of the virus have
had a profound effect on how businesses operate and individuals work,
which may have a materially adverse impact on the Group’s profitability,
capital and liquidity positions.
It is unclear how the COVID-19 pandemic will evolve during 2021 and the
impact that the roll-out of vaccines will have and whether any new strains
emerge. A further risk relates to the impact once government support
measures are withdrawn during 2021 and the resulting impact on business
failures, unemployment levels and house prices.
The Group has taken a considered approach to minimising and
managing the impact of a coronavirus-related global pandemic.
The Group approach represents a comprehensive response strategy
covering both severity and consequences of a global pandemic.
The Group’s response strategy covers key aspects of an effective
pandemic response approach, including prevention, continuity,
impact assessment and stress testing. Supporting the Group’s response
strategy are established underlying capabilities to facilitate operational
and financial resilience testing and planning, active monitoring and
reporting procedures, and active communications with all employees
(UK and India) and supervisory authorities.
To support economic performance, resulting from the impact of the
pandemic, the Bank of England may consider reducing the Bank of
England base rate below 0%. The Group would be impacted across
its lending portfolios with adverse movements in interest income,
offset by reductions in interest payable on savings accounts.
A further risk relates to increased operational and conduct risks arising
from system and process changes required to accommodate negative
interest rates.
Negative interest rates may also impact customer behaviour, with changes
in the demand for lending and savings products potentially impacting the
Group’s loan book growth plans and liquidity coverage levels.
The Group has reviewed readiness for negative interest rates and
presented findings to the Board. The review covered the terms and
conditions of the Group’s financial contracts and any systems
limitations. Some key servicing systems have been identified as requiring
further development to allow negative rates and in particular negative
pay rates. Given a mixture of floors in terms and conditions for certain
products and the Group’s margins, negative interest rates would be
unlikely to cause an issue until the Bank of England base rate reaches
a rate of -75bps or below. A working group is currently examining further
system development to manage significant negative rates.
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OSB GROUP PLC Annual Report and Accounts 2020
Risk profile performance overview
Credit risk
The Group’s fully secured loan portfolios performed robustly
during 2020, with the credit profile remaining broadly stable, post
careful monitoring and management of both the OSB and CCFS
lending portfolios.
The Group’s credit risk appetite approach ensured that the loan
portfolios were positioned to perform well in both benign and
stressed macroeconomic environments. Prudent management
actions taken shortly after the onset of the COVID-19 pandemic,
such as tightening loan to values (LTVs) and other credit policy
criteria across all loan types, ensured that new lending performed
well and was positioned to withstand future stress.
Cautious underlying net loan book growth of 5%, or 9% excluding
the impact of structured asset sales in the year, was delivered via
controlled new lending in the Group’s core Buy-to-Let and
residential owner-occupier segments, which more than offset
reductions in bridging and second charge outstanding balances.
The Group also tightened criteria in its more cyclical product lines.
Mortgage lending balances against semi-commercial and
commercial lending also reduced, as did the Group’s development
finance and funding lines sub-segments due to tighter lending
criteria and strong repayment inflows.
Sensible new lending LTV criteria and favourable property price
indexing resulted in the average weighted stock LTV for OSB1 and
CCFS reducing during 2020 to 64% and 67% respectively as at
31 December 2020 (31 December 2019: restated2 OSB 65% and
CCFS 69%), which resulted in a prudent average weighted LTV
profile of 65% at the Group level.
A low level of arrears continued to be observed during 2020, with just
0.9% of net loan balances greater than three months in arrears, which
was in line with the position as at 31 December 2019. These stable
metrics were in part supported by accounts being offered COVID-19
payment deferrals, which will have stopped accounts missing
payments during the eligible period.
Group and solo banks interest coverage ratios for new lending
improved during 2020 to 201% for OSB and 193% for CCFS (2019:
restated3 199% OSB and 187% CCFS).
During 2020, forward-looking external credit bureau probability of
default and customer indebtedness scores improved across the
Group’s core lending segments.
To support our customers during the COVID-19 pandemic, the Group
granted payment deferrals to c. 26k accounts representing 28% of the
loan book by value during the peak at the end of June 2020. As at
31 December 2020, active COVID-19 payment deferrals represented
only 1.3% of the Group’s loan book by value. Low levels of arrears have
been observed from the payment holiday cohort to date.
1. Average weighted LTV for OSB includes KR and Interbay Buy-to-Let, semi-commercial and
commercial, first and second charge residential lending.
2. The Group restated the comparative LTVs due to a change in calculation methodology.
3. Interest coverage ratio for 2019 was restated due to an improvement in calculation
methodology.
Expected Credit Losses (ECL)
Full year statutory impairment losses totalled £71.0m versus £15.6m
for 2019, with the increase being driven by the potential impact of
the COVID-19 pandemic on the UK economy and resulting changes
in customer behaviour and property valuations. The Group also
recorded an impairment provision of £20m in relation to potential
fraudulent activity by a third-party on a secured funding line
provided by the Group.
Detailed below are a number of the COVID-19 related factors and
other material items which drove the elevated impairment charge
for the year:
a. Macroeconomic scenarios – in 2020 the Group adopted a suite
of more adverse economic scenarios, which reflected the
potential impact of the COVID-19 pandemic across the UK
economy. Rising unemployment levels may result in increasing
levels of customers falling into arrears and defaulting on loan
payments, whilst falling house prices may result in lower levels
of equity and therefore potential future losses post sale.
Downside scenarios also included the impact of economic
disruption caused from the United Kingdom’s exit from the
European Union. Throughout the year, these scenarios were
updated as the pandemic progressed and government support
measures were introduced. The introduction and consequent
updates made to forward-looking macroeconomic scenarios
drove £21.2m of the total impairment charge in 2020 or 11bps of
the annualised loan loss ratio.
b. Staging criteria – the Group ensured it complied with industry
best practice and regulatory guidance with respect to payment
deferrals and their treatment in IFRS 9 staging criteria, which
included payment deferrals on their own not being treated as a
significant increase in credit risk. During 2020, the Group made
iterative enhancements to staging criteria, leveraging both
internal and external information to identify performing higher
risk cohorts across the entire customer base, but also including
the payment deferral population, moving eligible exposures into
stage 2 where a lifetime loss allowance was held. In 2020 the
impact from these staging enhancements was £4.8m of the
annual impairment charge or 3bps of the annualised loan
loss ratio.
c. COVID-19 post model adjustments – the Group implemented a
number of post model adjustments to ensure that modelled
estimates remained appropriate, considering the impact that
government support measures such as the repossession
moratorium and payment deferrals had on credit bureau files
and on loss given default and probability of default estimates.
The quantum of these post model adjustments was impacted by
the interaction with the severe forward-looking macroeconomic
scenarios, during the impairment calculation process. The
combined impact of these COVID-19 related post model
adjustments contributed £10.4m to the total 2020 impairment
charge which equated to c. 5bps of the annualised loan loss ratio.
d. Model enhancements – post Combination the Group continued
to make enhancements across the full suite of IFRS 9 impairment
models, aligning modelling approaches and definitions where
appropriate. An example of this was the implementation of an
aligned definition of default. In line with the normal course of
OSB GROUP PLC Annual Report and Accounts 2020
81
GovernanceFinancial statementsAppendicesStrategic reportOverview Risk profile performance overview (Continued)
business, modelled estimates were aligned to observed outcomes. The cumulative impact of these modelling enhancements
contributed £10.7m to the total loan loss charge during 2020, representing 6bps of the loan loss ratio. The interaction of the
severe forward-looking macroeconomic scenarios within IFRS 9 impairment calculations elevated the impact of these
modelling enhancements.
e. Funding line impairment – the Group recognised an impairment provision of £20.0m, which represented 11bps of the annualised loan
loss ratio, in relation to potential fraudulent activity by a third party on a funding line of £28.6m provided by the Group, secured
against lease receivables and the underlying hard assets. The Group’s funding line business is primarily secured against property-
related mortgages1 and we believe that this is an isolated incident. The outstanding funding line exposure was classified as in default
(not past due) and therefore transferred to stage 3, with a consequent specific provision raised.
1 The Group’s gross loans to customers include £175.7m in relation to funding lines of which 66% is secured on property-related mortgages.
The Group continues to closely monitor impairment coverage levels:
As at 31 December 2020
Stage 1
Stage 2
Stage 3 (+ POCI)
Total
As at 31 December 2019
Stage 1
Stage 2
Stage 3 (+ POCI)
Total
Gross carrying
amount
£m
Expected
credit losses
£m
16,116.3
2,691.0
515.3
21.2
31.0
58.8
Coverage
ratio
0.13%
1.15%
11.41%
19,322.6
111.0
0.57%
17,286.9
749.5
431.2
18,467.6
5.6
5.6
31.7
42.9
0.03%
0.75%
7.35%
0.23%
Macroeconomic scenarios
The measurement of ECL under the IFRS 9 approach is complex and requires a high level of judgement. The approach includes the
estimation of probability of default (PD), loss given default (LGD) and likely exposure at default (EAD). An assessment of the maximum
contractual period with which the Group is exposed to the credit risk of the asset is also undertaken.
IFRS 9 requires firms to calculate ECL allowances simulating the effect of a range of possible economic outcomes, calculated on
a probability weighted basis. This requires firms to formulate forward-looking macroeconomic forecasts and incorporate them in
ECL calculations.
i. How macroeconomic variables and scenarios are selected
During the IFRS 9 modelling process, the relationship between macroeconomic drivers and arrears, default rates and collateral values
is established. For example, if unemployment levels increase, the Group would observe an increasing number of accounts moving into
arrears. If residential or commercial property prices fall, the risk of losses being realised on the sale of a property would increase.
The Group has adopted an approach which utilises four macroeconomic scenarios. These scenarios are provided by an industry leading
economics advisory firm, that provide management and the Board with advice on which scenarios to utilise and the probability
weightings to attach to each scenario.
A base case forecast is provided, along with a plausible upside scenario. Two downside scenarios are also provided (downside and
a severe downside).
ii. How macroeconomic scenarios are utilised within ECL calculations
Probability of default estimates are either scaled up or down based on the macroeconomic scenarios utilised.
Loss given default estimates are impacted by property price forecasts which are utilised within loss estimates should an account be
possessed and sold.
Exposure at default estimates are not impacted by the macroeconomic scenarios utilised.
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OSB GROUP PLC Annual Report and Accounts 2020
Each of the above components are then directly utilised within the ECL calculation process.
iii. Macroeconomic scenario governance
The Group has a robust governance process to oversee macroeconomic scenarios and probability weightings used within ECL
calculations. Updated scenarios are provided on a monthly basis where an assessment is carried out by the Group’s Risk function to
determine whether an update is required.
On a periodic basis, the Group’s Risk function and economic adviser provide the Group Risk and Audit Committees with an overview
of recent economic performance, along with updated base, upside and two downside scenarios. The Risk function conducts a review
of the scenarios comparing them to other economic forecasts, which results in a proposed course of action, which once approved
is implemented.
iv. Changes made during 2020
a. Macroeconomic scenario
Post the onset of the COVID-19 pandemic, the Group implemented a suite of adverse economic scenarios, which incorporated the
potential impact of the lockdown periods on economic activity, resulting in rising forecasted unemployment levels and falling property
prices. The Group continued to utilise four scenarios including base and upside scenarios and two downside scenarios. The downside
scenarios also include potential future economic disruption, resulting from the United Kingdom leaving the European Union.
Throughout 2020, the scenario suite was monitored and updated as government measures were updated and the impact of the
pandemic evolved.
Details relating to the scenarios utilised to set the 31 December 2020 IFRS 9 provision levels are provided in the table below.
b. Significant increase in credit risk rules
The Group’s Significant Increase in Credit Risk (SICR) rules, prior to the COVID-19 pandemic, considered changes in default risk, internal
impairment measures, changes in customer credit bureau files, or whether forbearance measures had been applied.
The Group took steps to adjust the SICR criteria through the pandemic to account for the changes in risk profile and specifically for
payment deferrals granted, noting that not all of the instances of a payment deferral would be a significant increase in credit risk.
Payment deferrals granted due to COVID-19 alone were not automatically considered as a SICR event in line with issued guidance, and
adjustments to the rules were as follows:
} Payment deferrals considered as a SICR event where other significant high risk factors are identified on customer’s credit files;
} Payment deferrals considered as a SICR event where an account also had recent arrears; and
} Customers with stress to their income considered as a SICR event.
Forecast macroeconomic variables over a five-year period
(includes average over five years and the peak to trough projections)
As at 31 December 2020
Weighting applied
Economic driver
Gross Domestic Product (GDP)
House Price Index (HPI)
Bank Base Rate (BBR)
Unemployment Rate (UR)
Commercial Real Estate Index (CRE)
Measure
5 year average (yearly GDP growth %)
Cumulative growth/(fall) to peak/(trough) (%)
5 year average (yearly HPI growth %)
Cumulative growth/(fall) to peak/(trough) (%)
5 year average (%)
Cumulative growth/(fall) to peak/(trough) (%)
5 year average (%)
Cumulative growth/(fall) to peak/(trough) (%)
5 year average (yearly HPI growth %)
Cumulative growth/(fall) to peak/(trough) (%)
Base case
%
Upside
scenario
%
Downside
scenario
%
Severe
downside
scenario
%
40
30
23
7
3.2
-5.8
2.1
-8.5
0.5
+1.4
6.9
+3.7
2.1
-8.5
3.6
-5.6
3.6
-6.3
0.8
+1.7
6.1
+3.1
3.6
-6.3
2.6
-6.7
-0.4
-18.9
0.1
+0.0
8.8
+5.8
-0.4
-18.9
2.2
-8.0
-2.2
-26.4
0.1
+0.0
9.6
+6.5
-5.5
-40.0
OSB GROUP PLC Annual Report and Accounts 2020
83
GovernanceFinancial statementsAppendicesStrategic reportOverview Risk profile performance overview (Continued)
As at 31 December 2019
Weighting applied
Economic driver
Gross Domestic Product (GDP)
House Price Index (HPI)
Bank Base Rate (BBR)
Unemployment Rate (UR)
Commercial Real Estate Index (CRE)
Measure
5 year average (yearly GDP growth %)
Cumulative growth/(fall) to peak/(trough) (%)
5 year average (yearly HPI growth %)
Cumulative growth/(fall) to peak/(trough) (%)
5 year average (%)
Cumulative growth/(fall) to peak/(trough) (%)
5 year average (%)
Cumulative growth/(fall) to peak/(trough) (%)
5 year average (yearly HPI growth %)
Cumulative growth/(fall) to peak/(trough) (%)
Base case
%
Upside
scenario
%
Downside
scenario
%
Severe
downside
scenario
%
40
10
35
15
1.2
6.4
1.3
+5.6
1.3
+1.5
4.5
+0.7
1.3
+5.6
1.7
8.5
3.2
+14.8
1.5
+1.7
3.4
-1.0
3.2
+14.8
0.5
-3.6
-1.5
-13.4
0.2
-0.7
6.3
+2.9
-1.5
-13.4
-0.3
-5.8
-3.2
-21.1
0.1
-0.6
7.2
+4.1
-5.8
-40.0
Forbearance
Where a borrower experiences financial difficulty, which impacts their ability to service their financial commitments under the loan
agreement, forbearance may be used to achieve an outcome which is mutually beneficial to both the borrower and the Group.
By identifying borrowers who are experiencing financial difficulties pre-arrears or in arrears, a consultative process is initiated to ascertain
the underlying reasons and to establish the best course of action to enable the borrower to develop credible repayment plans to see them
through the period of financial stress.
The specific tools available to assist customers vary by product and the customers’ circumstances. The various options considered for
customers are as follows:
} Temporary switch to interest only: a temporary account change to assist customers through periods of financial difficulty where
arrears do not accrue at the original contractual payment. Any arrears existing at the commencement of the arrangement
are retained.
} Interest rate reduction: the Group may, in certain circumstances, where the borrower meets the required eligibility criteria, transfer the
mortgage to a lower contractual rate. Where this is a formal contractual change, the borrower will be requested to obtain independent
financial advice as part of the process.
} Loan term extension: a permanent account change for customers in financial distress where the overall term of the mortgage
is extended, resulting in a lower contractual monthly payment.
} Payment holiday: a temporary account change to assist customers through periods of financial difficulty where arrears accrue at the
original contractual payment. Any arrears existing at the commencement of the arrangement are retained.
} Voluntary-assisted sale: a period of time is given to allow borrowers to sell the property and arrears accrue based on the
contractual payment.
} Reduced monthly payments: a temporary arrangement for customers in financial distress. For example, a short-term arrangement
to pay less than the contractual payment. Arrears continue to accrue based on the contractual payment.
} Capitalisation of interest: arrears are added to the loan balance and are repaid over the remaining term of the facility or at maturity
for interest only products. A new payment is calculated, which will be higher than the previous payment.
} Full or partial debt forgiveness: where considered appropriate, the Group will consider writing off part of the debt. This may occur
where the borrower has an agreed sale and there will be a shortfall in the amount required to redeem the Group’s charge, in which
case repayment of the shortfall may be agreed over a period of time, subject to an affordability assessment or where possession has
been taken by the Group, and on the subsequent sale where there has been a shortfall loss.
} Arrangement to pay: where an arrangement is made with the borrower to repay an amount above the contractual monthly instalment,
which will repay arrears over a period of time.
} Promise to pay: where an arrangement is made with the borrower to defer payment or pay a lump sum at a later date.
} Bridging loans which are more than 30 days past their maturity date. Repayment is rescheduled to receive a balloon or bullet payment
at the end of the term extension where the institution can duly demonstrate future cash flow availability.
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OSB GROUP PLC Annual Report and Accounts 2020
The Group aims to proactively identify and manage forborne
accounts, utilising external credit reference bureau information to
analyse probability of default and customer indebtedness trends
over time, feeding pre-arrears watch list reports. Watch list cases
are in turn carefully monitored and managed as appropriate.
Further information regarding forbearance can be found in note 46
to the financial statements.
Fair value of collateral methodology
The Group ensures that security valuations are reviewed on an
ongoing basis for accuracy and appropriateness. Commercial
properties are subject to annual indexing, whereas residential
properties are indexed against monthly House Price Index data.
Solvency risk
The Group maintains an appropriate level and quality of capital to
support its prudential requirements with sufficient contingency to
withstand a severe but plausible stress scenario. The solvency risk
appetite is based on a stacking approach, whereby the various
capital requirements (Pillar 1, ICG, CRD IV buffers, Board and
management buffers) are incrementally aggregated as
a percentage of available capital (CET1 and total capital).
Solvency risk is a function of balance sheet growth, profitability,
access to capital markets and regulatory changes. The Group
actively monitors all key drivers of solvency risk and takes prompt
action to maintain its solvency ratios at acceptable levels. The
Board and management also assess solvency when reviewing the
Group’s business plans and inorganic growth opportunities.
During 2020, the Group proactively managed the balance sheet,
whilst the PRA introduced capital support measures detailed within
the CRR ‘Quick Fix’ package which resulted in capital ratios
strengthening. The counter-cyclical buffer was also cut from 1%
to 0% during the period as a regulatory response to COVID-19.
The Group’s fully-loaded CET1 and total capital ratios under CRD
IV increased to 18.3% as at 31 December 2020 (31 December 2019:
16.0% and 17.3% respectively) demonstrating the strong organic
capital generation capability of the business, the impact of the
regulatory support measures and prudent management of the
credit risk profile. The Group’s leverage ratio was 6.9% as at
31 December 2020 (31 December 2019: 6.5%).
The total capital ratio is the same as the CET1 ratio following the
insertion of OSB Group as the ultimate holding company, as
non-controlling interest securities, subordinated debt and PSBs
issued by OSB no longer qualify as regulatory capital at the
Group level.
Liquidity and funding risk
The Group has a prudent approach to liquidity management
through maintaining sufficient liquidity resources to cover cash
flow imbalances and fluctuations in funding under both normal
and stressed conditions, arising from market-wide and Bank-
specific events. OSB’s and CCFS’ liquidity risk appetites have been
calibrated to ensure that both banks always operate above the
minimum prudential requirements with sufficient contingency for
unexpected stresses, whilst actively minimising the risk of holding
excessive liquidity which would adversely impact the financial
efficiency of the business model.
The Group continues to attract new retail savers and has
high retention levels with existing customers. In addition, the
Combination allowed the Group a wider range of wholesale
funding options, including securitisation issuances and use
of retained notes from both banks.
In 2020, both banks actively managed their respective liquidity
and funding profiles within the confines of their risk appetites
as set out in each bank’s ILAAP.
Each Bank’s risk appetite is based on internal stress tests that
cover a range of scenarios and time periods and therefore are
a more severe measure of resilience to a liquidity event than the
standalone liquidity coverage ratio (LCR). As at 31 December 2020,
OSB had a liquidity coverage ratio of 254% (2019: 199%) and CCFS
146% (2019: 145%), and the Group LCR was 198%, all significantly
above the 2020 regulatory requirement of 100%.
Market risk
The Group proactively manages its risk profile in respect of adverse
movements in interest rates, foreign exchange rates and
counterparty exposures.
The Group accepts interest rate risk and basis risk as a
consequence of structural mismatches between fixed rate
mortgage lending, sight and fixed term savings and the
maintenance of a portfolio of high quality liquid assets. Interest
rate exposure is mitigated on a continuous basis through portfolio
diversification, reserve allocation and the use of financial
derivatives within limits set by the Group ALCO and approved
by the Board.
The Group’s balance sheet is completely GBP denominated.
The Group has some minor foreign exchange risk from funding
the OSBI business. This is minimised by pre-funding a number
of months in advance and regularly monitoring GBP/INR rates.
Wholesale counterparty risk is measured on a daily basis and
constrained by counterparty risk limits.
OSB GROUP PLC Annual Report and Accounts 2020
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GovernanceFinancial statementsAppendicesStrategic reportOverview Risk profile performance overview (Continued)
Transition away from LIBOR
The PRA and FCA have continued to encourage banks to transition
away from using LIBOR as a benchmark in all operations before
the end of 2021. Throughout the UK banking sector LIBOR remains
a key benchmark and, for each market impacted, solutions to this
issue are progressing through various industry bodies.
An internal working group has been established with strong
oversight from the Compliance and Risk functions. Risk
assessments have been completed to ensure this process is
managed in a measured and controlled manner. The Group
no longer writes any LIBOR-linked business and is transitioning
new and back book swaps from a LIBOR to a SONIA basis.
Interest rate risk
The Group does not actively assume interest rate risk, does not
execute client or speculative securities transactions for its own
account and does not seek to take a significant directional interest
rate position. Limits have been set to allow management to run
occasional unhedged positions in response to balance sheet
dynamics and capital has been allocated for this. Exposure
limits are calibrated in proportion to available CET1 capital and
estimated annual net interest income to cover capital and profit
and loss risks.
The Group sets limits on the tenor and rate reset mismatches
between fixed rate assets and liabilities, including derivatives
hedges, with exposure and risk appetite assessed by reference
to historical and potential stress scenarios at consistent levels
of modelled severity.
Throughout 2020, both banks managed their interest rate risk
exposures within risk appetite limits.
Basis risk
Basis risk arises from assets and liabilities repricing with reference
to different interest rate indices, including positions which reference
variable market and managed rates. As with structural interest
rate risk, the Group does not seek to take a significant basis risk
position, but maintains defined limits to allow operational flexibility.
Operational risk
The Group continues to adopt a proactive approach to the
management of operational risks. The operational risk
management framework has been designed to ensure a robust
approach to the identification, measurement and mitigation of
operational risks, utilising a combination of both qualitative and
quantitative evaluations. The Group’s operational processes,
systems and controls are designed to minimise disruption to
customers, damage to the Group’s reputation and any detrimental
impact on financial performance. The Group actively promotes the
continual evolution of its operating environment.
Where risks continue to exist, there are established processes
to provide the appropriate levels of governance and oversight,
together with an alignment to the level of risk appetite stated
by the Board.
A strong culture of transparency and escalation has been
cultivated throughout the organisation, with the Operational Risk
function having a Group-wide remit, ensuring a risk management
model that is well embedded and consistently applied. In addition,
a community of Risk Champions representing each business line
and location has been identified. Operational Risk Champions
ensure that the operational risk identification and assessment
processes are established across the Group in a consistent
manner. Risk Champions are provided with appropriate support
and training by the Operational Risk function.
Due to the COVID-19 pandemic and the resulting high number of
employees working and accessing systems from home, the risk of
a cyber attack has heightened. Whilst IT security risks continue to
evolve, the level of maturity of the Group’s controls and defences
has significantly increased, supported by dedicated IT security
experts. The Group’s ongoing penetration testing continues
to drive enhancements by identifying potential areas of risk.
Regulatory and compliance risk
The Group is committed to the highest standards of regulatory
conduct and aims to minimise breaches, financial costs and
reputational damage associated with non-compliance.
For both OSB and CCFS, exposure is assessed and monitored
regularly across a range of ‘business as usual’ and stressed
scenarios.
The Group has an established Compliance function which actively
identifies, assesses and monitors adherence with current regulation
and the impact of emerging regulation.
Throughout 2020, both Banks managed their basis risk exposure
within their risk appetite limits.
In order to minimise regulatory risk, the Group maintains a
proactive relationship with key regulators, engages with industry
bodies such as UK Finance and seeks external expert advice.
The Group also assesses the impact of upstream regulation on
itself and the wider market in which it operates, and undertakes
robust assurance assessments from within the Risk and
Compliance functions.
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OSB GROUP PLC Annual Report and Accounts 2020
Integration risk
At the point of the Combination, integration risk was identified
as a principal risk for the duration of the integration programme,
though the integration of the two entities was deemed inherently
low risk owing to the similarity of the two business models, with the
programme involving no material system or data migrations. The
Board took the view that it has limited appetite for integration
related risks and deemed it appropriate to identify, assess and
manage integration risks in full compliance with the wider risk
management framework and governance disciplines of the Group.
Integration risk relates to any risk which may result in the non-
delivery of planned integration objectives with respect to desired
strategic outcomes and costs and synergies performance targets.
Additionally, integration risk is also assessed with respect to the
other principal risks which may be adversely impacted as a
consequence of the integration activities.
The Board exercises oversight of the integration programme
through the Board Integration Committee based on defined critical
success factors and an integration risk appetite. The integration
programme is supported by an Integration Management Office,
with clearly defined plans, established roles and responsibilities,
necessary financial discipline and governance arrangements. The
integration programme is subject to second line oversight and third
line assurance to enable the Board and senior management to
monitor progress against plan and performance against
integration risk appetite.
The integration programme and the underlying risk profile
continued to perform in line with expectations during 2020, where
no material risk incidents or trends where identified during the year.
The integration programme did experience some level of disruption
owing to the pandemic, but overall the programme has continued
to progress as planned.
Conduct risk
The Group considers its culture and behaviour in ensuring the fair
treatment of customers and in maintaining the integrity of the
market segments in which it operates to be a fundamental part of
its strategy and a key driver to sustainable profitability and growth.
The Group does not tolerate any systemic failure to deliver fair
customer outcomes.
On an isolated basis, incidents can result in detriment owing to
human and/or operational failures. Where such incidents occur
they are thoroughly investigated and the appropriate remedial
actions are taken to address any customer detriment and to
prevent recurrence.
The Group considers effective conduct risk management to be
a product of the positive behaviour of all employees, influenced
by the culture throughout the organisation and therefore continues
to promote a strong sense of awareness and accountability.
Strategic and business risk
The Board has clearly articulated the Group’s strategic vision and
business objectives supported by performance targets. The Group
does not intend to undertake any medium to long-term strategic
actions, which would put the Group’s strategic or financial
objectives at risk.
To deliver against its strategic objectives and business plan,
the Group has adopted a sustainable business model based
on a focused approach to core niche market segments where its
experience and capabilities give it a clear competitive advantage.
The Group remains highly focused on delivering against its core
strategic objectives and strengthening its position further through
strong and sustainable financial performance.
Reputational risk
Reputational risk can arise from a variety of sources and is a
second order risk – the crystallisation of a credit risk or operational
risk can lead to a reputational risk impact.
The Group monitors reputational risk through tracking media
coverage, customer satisfaction scores, the share price and
Net Promoter Scores provided by brokers.
OSB GROUP PLC Annual Report and Accounts 2020
87
GovernanceFinancial statementsAppendicesStrategic reportOverview Viability statement
In accordance with Provision 31 of the 2018 UK Corporate Governance
Code, the Board is required to assess the viability of the Group over a
stated time horizon with a supporting statement in the Annual Report.
The viability statement is required to include an explanation
of how the prospects of the Group have been assessed, the
time horizon over which the assessment has been performed
and why the assessment period is deemed appropriate. The
viability statement needs to be supported by an assessment
of the principal risks and uncertainties to which the Group
is exposed and based on reasonable expectations to
conclude that the Group will be able to continue to operate
and meet its liabilities as they fall due over that period.
The Group uses a five-year time frame in its business and
financial planning and for internal stress test scenarios. The
long-term direction is informed by business and strategic plans
which are reviewed on, at least, an annual basis and which
include multi-year financial statements. The operating and
financial plans consider, among other matters, the Board’s risk
appetite, macroeconomic outlook, market opportunity, the
competitive landscape, and sensitivity of the financial plans
to volumes, margin pressures and capital requirements.
While a five-year time frame is used internally, levels of uncertainty
increase as the planning horizon extends and the Group’s
operating and financial plans focus more closely on the next
three years. The Board therefore considers a period of three years
to be an appropriate period for the assessment to be made.
The Banks within the Group are authorised by the PRA, and
regulated by the FCA and the PRA, and the Group undertakes
regular analysis of its risk profile and assumptions. It has a
robust set of policies, procedures and systems to undertake
a comprehensive assessment of all the principal risks and
uncertainties to which it is exposed on a current and forward-
looking basis (as described in Principal risks and uncertainties).
The Group identifies, assesses, manages and monitors its
risk profile based on the disciplines outlined within the Risk
Management Framework, in particular through leveraging
its risk appetite framework (as described in the Risk review).
Potential changes in the aggregated risk profile are assessed
across the business planning horizon by subjecting the
operating and financial plans to severe but plausible
macroeconomic and idiosyncratic stress scenarios.
The viability of the Group is assessed at both the Group and
the underlying regulated Bank levels, through leveraging the
risk management frameworks and stress testing capabilities
of both regulated banks. Post Combination, the risk
assessment and stress testing capabilities of OSB and CCFS
have been progressively aligned; however, the strength of
the capital and funding profiles of both Banks provides an
appropriate level of assurance that the Group and its entities
can withstand a severe but plausible stress scenario.
Stress testing is an integral risk management discipline, used
to assess the financial and operational resilience of the Group.
The Group developed bespoke stress testing capabilities to
assess the impact of extreme but plausible scenarios in the
context of its principal risks impacting the primary strategic,
financial and regulatory objectives. Stress test scenarios
are identified in the context of the Group’s operating model,
identified risks, business and economic outlook. The Group
actively engages external experts to inform the process by
which it develops business and economic stress scenarios.
A broad range of stress scenarios are analysed, including
the economic impact of COVID-19 forecasting the potential
impacts to HPI, unemployment and interest rates. Stress
testing has played a critical role in framing the Group’s
response to the pandemic in relation to risk appetite,
capital, liquidity levels and credit provisioning.
Stresses are applied to lending volumes, capital requirements,
liquidity and funding mix, interest margins and credit
and operational losses. Stress testing also supports key
regulatory submissions such as the ICAAP, ILAAP and
the Recovery Plan. ICAAP stress testing assesses capital
resources and requirements over a five-year period.
The Group has identified a broad suite of credible management
actions which can be implemented to manage and mitigate
the impact of stress scenarios. These management actions
are assessed under a range of scenarios varying in severity
and duration. Management actions are evaluated based
on speed of implementation, second order consequences
and dependency on market conditions and counterparties.
Management actions are used to inform capital, liquidity
and recovery planning under stress conditions.
In addition, the Group identifies a range of catastrophic
scenarios, which could result in the failure of its current business
model. Business model failure scenarios (Reverse Stress Tests
or RSTs) are primarily used to inform the Board of the outer
limits of the Group’s risk profile. RSTs play an important role
in helping the Board and Executives to assess the available
recovery options to revive a failing business model. The RST
exercise is based on analysing a range of scenarios, including
an extreme macroeconomic downturn, a cyber-attack leading
to a loss of customer data which is used for fraudulent activities,
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OSB GROUP PLC Annual Report and Accounts 2020
extreme regulatory and taxation changes impacting Buy-to-Let
lending volumes and a liquidity crisis caused by severe market
conditions combined with idiosyncratic consequences.
The pandemic scenarios take into consideration the following
drivers and implications relevant to a pandemic crisis:
The Group has established a comprehensive operational
resilience framework to actively assess the vulnerabilities and
recoverability of its critical services. The Group also conducts
regular business continuity and disaster recovery exercises.
The ongoing monitoring of all principal risks and uncertainties
that could impact the operating and financial plan, together with
the use of stress testing to ensure that the Group could survive
a severe but plausible stress, enables the Board to reasonably
assess the viability of the business model over a three-year period.
The pandemic has had a disruptive impact on the Group’s
business growth objectives and the changing characteristics of
the underlying risk profiles, particularly in relation to credit and
operational risks. The Group has enhanced its risk assessment,
monitoring and reporting procedures to ensure that these risks are
effectively managed and has accordingly adjusted its risk appetite.
The Group has also maintained strong capital and funding profiles
with a view to ensuring continued financial resilience. However,
the Group remains fully cognisant of the evolving nature of the
pandemic crisis, particularly the potential risks which may be
realised as government support schemes start to wind down.
The Board has also considered the potential implications of the
pandemic in its assessment of the financial and operational
viability of the Group and has a reasonable belief that the
Group retains adequate levels of financial resources (capital
and liquidity) and operational contingency. In assessing
the viability of the Group, the Board has considered the
potential impact and risks facing the Group with respect to
the pandemic as set out in the Risk review on pages 61-63
and the Principal risks and uncertainties on page 80.
The Group has recently undertaken a comparative review of
the macroeconomic stress scenarios used to assess the Group’s
ongoing viability relative to the pandemic scenarios, as obtained
from the Group’s third-party economic advisers. Given the evolving
nature of the pandemic crisis, the Group will continue to refine and
update the scenarios in consultation with its economic advisers.
This exercise was undertaken to ensure that the shape and
severity of the scenarios used to assess the Group’s financial
viability are sufficiently severe to accommodate for the latest
assessment of the potential economic impact of the pandemic.
} Government guidance and policy response to the crisis
} Impact of customers subject to payment deferrals and
thereafter requiring forbearance
} Impact on employment levels, regional house price and
commercial property price changes and interest rates. These
macroeconomic drivers are subsequently reflected in stressed
credit risk parameters in probability of default and loss given
default estimates
} Implication for consumer spending and business investment
The pandemic scenarios are designed to be severe, but plausible,
based on the assumption that the impact on the UK economy is
immediate and quickly feeds through into rising unemployment
rates, declining residential and commercial property prices and
a rapid slowdown in lending volumes. The Treasury and Bank
of England take proactive fiscal and monetary stimulatory
actions, but given the invasive nature of the pandemic, the
UK economy does not show signs of recovery until 2022.
The potential impact of the pandemic on the economy
and the Group’s operations is subject to continuous
monitoring through the Group’s Management Committees,
capital and liquidity, operational resilience and business
continuity planning working groups, with appropriate
escalation to the Board and supervisory authorities.
The Group has progressively enhanced its approach to assessing
the viability of its strategy and business operating model, in
particular the Group has enhanced its capabilities by:
} Enhancing stress testing capabilities through more focused
assessment of more vulnerable cohorts of its lending portfolio
supported by increased granularity of monitoring and
risk reporting.
} Increasing the diversification of its funding profile, supported by
enhanced assessment of funding and liquidity risk profiles
} Continued improvements to the risk and control self-assessment
procedures across key areas of operational risk, including
operations and technology.
} Enhancing the assessment of operational resilience through
the ongoing review of priority business functions, including
supporting infrastructure and dependencies through
a simulated business continuity exercise.
The current financial forecasts, risk profile characteristics
and stress test analysis, the Group’s capital, funding and
operational capabilities support the Directors’ assessment
that they have a reasonable expectation that the Group
will remain viable over the three-year horizon.
OSB GROUP PLC Annual Report and Accounts 2020
89
GovernanceFinancial statementsAppendicesStrategic reportOverview Corporate responsibility report
Customers
OSB Group encourages a culture that aims to:
} Communicate and work with each customer
on an individual basis.
} Act with consistency across all channels.
} Promote a confident, open and trustworthy workforce.
} Offer simplicity and ease of business.
} Offer long-term value for money.
} Offer transparent products without the use of short-term bonus
rates and to offer existing customers the benefit of loyalty rates.
Our customers are part of our success and we aim to become
a financial services provider of choice. To support this, we use an
established governance framework for consistent best practice
across the business and ensure we have robust policies and
procedures to minimise the risk of failure to deliver the service
both our savers and our borrowers have come to expect.
The main policies which govern how we transact with customers
are discussed below and apply at a Group level.
} Lending Policy – ensures that the Group lends money
responsibly and within the Group’s lending criteria and risk
appetite. The Lending Policy is approved annually and rolled
out to all relevant operational employees to use within their
day-to-day roles. The Lending Policy goes through two quality
assurance processes with both the Operations and the Credit
team, with results presented to the Group Risk Committee each
year. The performance of our lending and potential risks and
changes are discussed, challenged and approved at Group
Credit Committee and Group Risk Committee.
} Customer Vulnerability Policy – sets out the standards and
approach for the identification and treatment of vulnerable
customers and provides guidance to all parts of the Group to
ensure vulnerable customers consistently receive fair outcomes.
It ensures that employees are appropriately trained to identify
vulnerability and potential suicide risks in our customers and
put in place appropriate actions to deal with such issues as
effectively as possible. The Vulnerable Customer Review
Committee seeks to continually improve standards and ensures
that policy and outcomes are reported to the Group Risk
Committee and ultimately the Board. The Group is committed
to delivering fair and suitable outcomes to all customers based
on their individual circumstances.
} Arrears Management and Forbearance Policy – ensures that
handling of arrears and repossessions delivers fair and suitable
outcomes tailored to the circumstances of the individual
customer. The policy is focused on seeking to work proactively
with customers to prevent them falling into arrears or to cure the
arrears position to deliver an appropriate outcome. The Group
Risk Committee is responsible for reviewing risk issues and
reporting regularly to the Board, which retains responsibility for
understanding and controlling the degree of risk undertaken.
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OSB GROUP PLC Annual Report and Accounts 2020
OSB savings customer NPS
+67
2019: +66
CCFS savings customer NPS
+72
2019: +72
Employees are required to complete a range of mandatory training
modules throughout the year. In 2020, such modules were
completed by 99.6% of all employees within the Group.
There are also policies that apply to the business as a whole and
govern our operations, including:
} Data Protection and Retention policies to ensure the Group
protects its customer data and manages and retains it fairly
and appropriately.
} Conduct Risk Framework, including treating customers fairly
to ensure the Group conducts its business fairly and without
causing customer detriment.
} Conflicts of Interest Policy to ensure the Group can identify and,
if possible, avoid conflicts, and where this is not possible, to
manage conflicts fairly.
Customer engagement
We take a personal approach to our customers, treating each
customer as an individual and listening to their needs.
Many of our customers are also members of the Kent Reliance
Provident Society (KRPS), the Society formed from the membership
of the former Kent Reliance Building Society. OSB and the Society
have benefitted from member engagement through the online
‘portal’ launched late in 2015, enabling input from a geographically
broader range of members. During 2020, five major studies were
undertaken, assisting the Bank to understand opinions of savers.
Customer complaints
Whilst we concentrate on providing an excellent service, when
things go wrong, we aim to put them right and learn from any
mistakes made.
} Complaints Handling Policy – ensures that the Group responds
to complaints swiftly, fairly and consistently and that
customers’ concerns are taken seriously. We investigate
complaints competently, diligently and impartially, supported
by appropriately trained employees. Through the Operations
Committee, management information on complaints is collected
and reported on a regular basis to the Board and other relevant
Committees (as appropriate) for them to consider if additional
actions are required. Root cause analysis is used to identify and
solve underlying issues rather than apply quick fixes.
OSB GROUP PLC Annual Report and Accounts 2020
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GovernanceFinancial statementsAppendicesStrategic reportOverview Corporate responsibility report (Continued)
In 2020, our Talent Acquisition
Team filled almost a third of
UK vacancies on a direct
recruitment basis, resulting
in a saving in excess of
£400,000 on agency
recruitment fees.
Tracey Hawkins
Group Head of Talent Acquisition
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OSB GROUP PLC Annual Report and Accounts 2020
Employees
The skills, expertise and commitment of our colleagues are
fundamental to the achievement of our strategic goals. Despite
the broader challenges of 2020, we have continued to invest in
training, development and employee engagement activities
in order to ensure that the Group provides a compelling and
attractive employee proposition both for our existing employees
and for candidates considering joining the Group.
Throughout 2020, our central employee focus was on
harmonisation-related activities, establishing a joined-up
approach in terms of proactive communications in order to
ensure that employees in all sites were kept up to date with all
integration matters. Inevitably, a large proportion of employee
communications during 2020 related to the pandemic, including
guidance to ensure the safety of those employees who, due to the
nature of their roles, were required to work from our office and
branch locations. In addition, regular guidance and support was
provided for employees who were required to work from home, with
mass remote working creating a host of technical challenges and
well-being considerations, which have been proactively addressed
on an ongoing basis.
Ensuring a direct line of communication between the CEO and our
employees remained a point of ongoing focus. Aside from regular
all-employee email updates from the CEO, Andy Golding hosted
a number of video calls with groups of senior managers and the
wider employee base to provide updates on the Group’s response
to the pandemic and our published results. In addition, employees
have had the opportunity to raise questions with the CEO
anonymously, with approximately 50 questions being raised
during 2020 with responses being published centrally for all
employees to view.
Recruitment
During 2020, the remit of OSB’s dedicated Talent Acquisition Team
was broadened to focus on CCFS vacancies in addition to OSB
roles. This ensured that across all locations and for each vacancy,
a recruitment specialist partnered with the hiring managers in
order to provide them with bespoke support in attracting high
quality candidates for vacant positions and, through robust
interview and selection processes, assisted them in making strong
recruitment decisions.
We advertise vacancies internally on a weekly basis in order to
provide career development opportunities for existing employees.
In 2020, over 40% of UK vacancies were filled by way of internal
appointments with 6% of vacancies within OSB India being filled
by existing employees.
A key focus for our Talent Acquisition team was again placed on
proactively identifying potential candidates directly and through
improved use of our website and external job boards. In 2020,
our Talent Acquisition Team filled almost a third of UK vacancies
on a direct recruitment basis, resulting in a saving in excess of
£400,000 on agency recruitment fees. Within OSB India, just over
half of all the vacancies which closed in 2020 were as a result
of direct recruitment activity.
Our recruitment procedures are fair and inclusive, with shortlisting,
interviewing and selection always carried out without regard to
gender, gender reassignment, sexual orientation, marital or civil
partnership status, colour, race, caste, nationality, ethnic or
national origin, religion or belief, age, pregnancy or maternity
leave or trade union membership.
No candidate with a disability is excluded unless it is clear that the
candidate is unable to perform a duty that is intrinsic to the role,
having taken into account reasonable adjustments. Reasonable
adjustments to the recruitment process are made to ensure that
no applicant is disadvantaged because of their disability and
questions asked during the process are not discriminatory or
unnecessarily intrusive; by way of example, in 2020, the Group
arranged an interpreter for a deaf candidate during their interview
and their subsequent onboarding. Advertisements for vacancies
are reviewed to remove language associated with gender bias.
In addition, Executive sign off is required for roles where only
candidates from one gender are interviewed.
In 2020, OSB welcomed 83 new UK employees with a further 90
joining OSB India. With 49 employees joining CCFS, the Group-
wide employee base at the end of the year totalled 1,786.
Training and development
The People Development team, based in both the UK and India,
concentrate on providing learning and development opportunities
for all employees, using a mix of internal and externally-sourced
content, which are delivered through a range of media, including
workshop and digital formats.
Throughout 2020, a high level of focus was applied to OSB’s Fit to
Practice Scheme, which requires Line Managers to play a proactive
role in identifying development needs, providing developmental
feedback and establishing appropriate activities to continually
progress the competence levels of their direct reports. Within
CCFS, the approach regarding training and competence
requirements was managed on a departmental basis. The OSB Fit
to Practice Scheme will be deployed on a Group-wide basis in
2021, in order to ensure consistency of approach.
In early 2020, the OSB and CCFS People Development teams
were structurally integrated and, throughout the Group,
we continued to provide a wide range of workshops, including
bespoke management development programmes, regulatory
training and business change content to support operational
and other training needs.
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Within OSB India the non-regretted attrition rate was low in 2020,
at just under 5%.
2020 saw a continued focus on talent management and future
leadership through the delivery of our Emerging Manager and
Leading the Way programmes. These programmes are aimed at
those who are new to management roles and are designed to allow
employees to deepen their understanding of the knowledge, skills
and attitude required in a managerial or supervisory role.
In 2020, OSB India again identified a Primary Talent Group which
was provided with a range of talent management activities in order
to aid the ongoing progression of its members. Key activities
undertaken included the provision of group stretch assignments,
the opportunity to be mentored by senior leaders, psychometric
assessments, career development interviews and internally-
delivered bespoke leadership workshops.
Workshops
500
Promotions
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Corporate responsibility report (Continued)
The pandemic and the associated requirement for many
colleagues to work on a remote basis created a number of
challenges in respect of delivering workshop-based training. This
required the People Development team to transition core workshop
content into modules which could be delivered on a remote basis. It
also created a requirement to develop bespoke modules on related
content in order to provide Line Managers with support on how to
effectively manage employees remotely and how to identify and
support employee well-being given associated challenges with
isolation and the impact on mental health. During the fourth
quarter, the recorded number of training hours for delegates at
workshops averaged over 2,200 hours per month, which exceeded
the volumes that were being achieved prior to the pandemic.
During 2020, our People Development team delivered over 500
separate workshops and facilitated the attendance of over 230
employees at other learning events which were either delivered
externally or delivered internally by external training providers.
Group-wide, all monthly mandatory regulatory training
requirements were completed by year end and throughout 2020
the average percentage of employees with overdue monthly
mandatory training was less than 0.4%, demonstrating the
importance we place on ensuring that our employees are suitably
aware of key requirements.
The Group is also committed to supporting employees undertaking
professional development and, in 2020, 15 employees received
financial support to pursue their professional qualifications.
The remote working challenges of 2020 proved an obstacle in
engaging individuals as part of the Group’s Apprenticeship
Scheme; however, we are pleased that four individuals completed
their apprenticeship programmes and transitioned into permanent
employed positions. We remain confident that the scheme both
broadens employment opportunities and will continue to lead to
permanent appointments and ongoing careers within the Group.
Retention and progression
The Group has a genuine desire to retain, support and develop its
employee base. During 2020, 33 UK OSB employees and 44 CCFS
employees were formally promoted to a more senior grade along
with 50 employees within OSB India.
Our Group-wide regretted attrition rate for 2020 was less than
8% and represented a significant improvement on 2019’s figure
of almost 11%. The 2020 regretted attrition rate for OSB UK was
just over 6%, similar to the rate at CCFS at just over 7%, and OSB
India’s rate of just over 11% compares favourably with both
its 2019 figure of just over 16% and with average rates within
its local market.
In terms of non-regretted attrition, this increased on a Group-wide
basis from almost 5% in 2019 to over 15%. The increase in the UK
was the direct result of the planned restructuring activities
designed to achieve the Target Operating Models which were
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OSB GROUP PLC Annual Report and Accounts 2020
Remuneration and benefits
The Group believes in rewarding our employees fairly and
transparently, enabling them to share in the success of the
business. Details of the Group’s remuneration policies can be
found in the Remuneration Report on pages 149 to 155.
As was detailed within the 2019 Annual Report, one of our key
2020 projects related to harmonising the different UK remuneration
approaches and employee benefit offerings provided by OSB
and CCFS.
This centred on the creation of a new Group Grading Structure
with a robust classification process being undertaken to establish
the new grade for each individual role. All core benefits were then
subject to an external benchmarking review undertaken by the
Group’s external remuneration consultants in order to establish the
differing levels of benefit which would be applicable to each grade.
This resulted in a new Group Grading Structure which offers a
consistent and compelling remuneration and benefits proposition
to all existing and prospective employees at each and every level
across the Group.
At the same time, harmonised approaches were established
in respect of generic terms and conditions of employment, the
methodologies for determining annual pay increases, discretionary
bonus awards and all non-core benefits and schemes. The
harmonised approach also provides employees with an element
of choice, enabling them to determine their preference for either
a higher employee pension contribution and a slightly lower
discretionary bonus opportunity or a slightly lower employee
pension contribution and a higher discretionary bonus opportunity.
In addition, employees had an opportunity to select from two
separate Health and Insurance packages, depending on their
preferences regarding levels of cover for Life Insurance, Income
Protection, Private Medical Insurance and a Medical Cash Plan.
For the vast majority of employees, the harmonised approach
represented an enhanced benefits offering in comparison to their
previous arrangements; and for some the changes represented
a neutral position. For a very small number of employees who were
seeing their allocated grade result in a reduction of their overall
benefits package, the Group committed to offset the deficit via
an appropriate increase to their basic salary.
Once the proposals were approved, they were shared with
a number of employee forums and the Group Remuneration
Committee ahead of their being launched to the UK employee
base in early November 2020, which included a detailed Employee
Guidance Pack and an online Q&A facility, which saw over 120
questions raised and relevant responses published.
Employees also received individual letters detailing their new grade
and the associated benefits, the options which were applicable to
them and confirmation of any changes to their existing terms and
conditions of employment. All employee choices were confirmed
by the end of November during a defined options window and
became effective from 1 January 2021.
We also encourage our employees to hold shares in the Group
for the long term, via our Sharesave Scheme, which is offered
annually to all UK-based employees. The Sharesave Scheme allows
employees to save a fixed amount of between £5 and £500 per
month over either three or five years in order to use these savings
at the end of the qualifying period to buy shares at a fixed option
price. At the current time, around 57% of OSB employees and 58%
of CCFS employees are members of our Sharesave Scheme.
Redundancy and redeployment
Our Group Redundancy and Redeployment Policy is designed to
ensure that, ahead of any potential redundancy situation, we take
all reasonable steps to identify feasible alternatives that meet the
needs of the business. Should redundancy situations become
unavoidable, the Group ensures that employees are appropriately
informed and consulted, that internal redeployment opportunities
are explored and that outplacement support is made available
to assist them in obtaining employment externally.
The Board has further safeguarded the existing contractual and
statutory rights of OSB and CCFS employees for a period following
the Combination by way of enhanced redundancy payments.
Employee engagement and culture
The 2021 Best Companies to Work For survey was delayed as a
result of the pandemic; however, it was completed in January 2021
and we saw an impressive 81% of UK employees submit responses.
This was the first year that OSB and CCFS employees have
participated on a Group-wide basis.
We were pleased to retain the ‘Two Star’ rating which OSB
achieved as a result of the 2020 survey, with Best Companies
describing this rating as representing outstanding levels of
employee engagement. It was particularly pleasing that this
rating was achieved in the midst of the challenges posed by
the pandemic and the added complexities of a newly-combined
business with restructuring activities having taken place within
several functions during the year.
In September, the Group also participated in the 2020 Banking
Standards Board (BSB) survey. This was the fourth year that OSB
had taken part, the second year that OSB India employees had
participated and the first time for CCFS employees. The survey
aims to influence positive change throughout the banking sector
and provide insight into employees’ perceptions of the application
of the Group’s values, potential barriers to challenge and to voice
any observations of unethical or inappropriate behaviour.
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Following high levels of participation and responses submitted
by around 75% of employees, the headline results relating to UK
employee responses showed an increase in all nine of the separate
survey categories. 27 of the 36 main survey questions saw scores
increase with seven others flat, with the average question score
increasing by over 2% and OSB’s average ranking increasing
from 14th in 2019 to 13th out of the 29 banks who participated
in the survey.
The additional questions posed by the BSB also saw strong
responses to questions relating to the pandemic and the way the
Group had managed the impact of the pandemic and had sought
to help customers and support employees, including supporting
health and well-being.
OSB India participates in a separate employee engagement
survey, run by the Great Place to Work Institute, and has been
officially certified as a ‘Great Place to Work’ for the fourth year
in succession, with strong results in all five survey categories
(credibility of management, respect for people, fairness at the
workplace, pride and camaraderie between people). The overall
2020 results saw an increase of around 2% with scores improving
in four of the five categories, with the highest score related to the
pride category, reflecting the strong brand and culture that exists
throughout the teams in Bangalore.
Across the Group, the respective values and the related
behavioural expectations provides an opportunity for Line
Managers to assess and provide behavioural feedback within
appraisal processes and consider related learning development
activities. The values are also aligned to established award
programmes and a range of ongoing communications.
During late 2020, significant work was undertaken to establish a
new set of Group values, with input sought from employees from
all parts of the business by way of focus group discussions. The
new Group values (Stronger Together, Take Ownership, Aim High,
Respect and Stewardship) were launched in early 2021 along with
new Purpose and Vision statements and we anticipate that this
approach will enable further progress towards cultural
harmonisation irrespective of workplace location.
Whilst four of the five new values link closely to those previously
in place at OSB and CCFS, the new Stewardship value provides
an opportunity for additional focus on behaviours that relate to
the Group’s responsibilities from an environmental, social and
governance perspective.
2020 saw the expansion of OSB’s Workforce Advisory Forum
(OneVoice) to a Group-based forum, including employees from
CCFS. OneVoice met on several occasions throughout the year
and aims to enhance the level of engagement that the Group
Executive Committee and the Board have with the wider workforce.
OneVoice is attended by employees who have nominated
themselves to represent employees within their respective
department or office location, as well as rotating Non-Executive
Directors and Group Executive Committee members.
Within CCFS, the Employee Representative Committee met
on several occasions during 2020. The Committee provides
the opportunity for elected representatives from all parts of the
business to discuss employee-related concerns and provide
feedback to senior management. The level of senior engagement
with this Committee was enhanced during the year, with the CCFS
Chairman and rotating Non-Executive Directors also attending.
The Group operates a Whistleblowing Policy, championed by the
Chair of the Group Audit Committee. We encourage employees to
feel confident in raising serious concerns at the earliest opportunity
and we provide multiple channels to raise concerns confidentially,
protected from possible reprisals. Regular reports are provided to
the Group Audit Committee, including an annual report, which is
also presented to the Board.
Employee recognition and awards
In 2020, the Group recognised the significant tenure of over 60
OSB employees who reached a 5, 10, 15, 20 or 25-year milestone
of employment via our Long Service Award programme. There were
three employees who reached 25 years’ service and our longest-
serving employee has been with the Group for over 33 years.
Our approach to recognising long service has now been
harmonised and from January 2021, CCFS employees will also
participate in the same programme and will receive vouchers upon
achieving each 5-year milestone. In addition, OSB employees
reaching a 10-year milestone will be allocated with an additional
week of annual leave to use during their anniversary year,
expanding on CCFS’ previous approach to recognising significant
levels of loyal service.
Every quarter, OSB employees are invited to nominate their
colleagues as part of our OneTeam Award programme, which
aligns with OSB’s values. Throughout 2020, we received hundreds
of nominations from which quarterly individual and team awards
were established. CCFS continued to reward employees who
consistently demonstrate behaviours which support established
values with two employees being recognised each quarter as
Charter Champions.
As we progress through 2021, we will be harmonising our approach
to quarterly awards, which will be linked directly to our newly-
established Group values.
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OSB GROUP PLC Annual Report and Accounts 2020
We saw solid progress throughout 2020 and, on a Group-wide
basis, ended the year at 29.8%, with there being stages in the
latter half of 2020 where we were tracking in line with or just ahead
of the 30% target. A fresh target has now been established with
the Group committing to increase this percentage to 33% by the
end of 2023.
Last year we launched our Group-wide Diversity and Inclusion
(D&I) Working Group, deliberately coinciding this with National
Inclusion Week. This extended the focus of the existing CCFS
working group and enabled us to replace the OSB specific
Women’s Networking Forum, ensuring a broader employee focus
on D&I matters. The purpose of the D&I Working Group is to raise
awareness and tackle issues of inclusion so that every single
employee across our combined business is included and treated
equally and fairly and, that we celebrate our differences –
whatever they may be.
A range of activities were undertaken last year including a
facilitated debate on World Religion Day between religious and
non-religious employees, raising awareness on Valentine’s Day
in respect of different types of marital status, celebrating
International Women’s Day and focusing on the cultural heritage
of employees on UNESCO World Day.
In June 2020, we celebrated PRIDE month by raising awareness
and publishing emotive stories written by employees relating
to their personal experiences of being part of the LGBTQ+
community, examples of discrimination that they had faced
throughout their life as a result of their race and religion and how
they had managed challenges in respect of their mental health
and disabilities.
Diversity and inclusion
We recognise the benefits that diversity of our people brings to
the business and we actively promote and encourage a culture
and environment which values and celebrates our differences.
In 2020, we continued our journey to become a truly diverse and
inclusive organisation, which is committed to providing equal
opportunities through the recruitment, training and development
of our employees.
The commitment to actively promote an environment where
disabled candidates and employees are welcomed has remained
an area of focus. In line with our Disability Confident Employer
(Level Two) status, we are proud that the Group can offer
employment to employees who are registered as disabled.
2020 saw a significant focus on supporting mental health and well-
being via the provision of related workshops which were delivered
on a remote basis. Specific guidance, support and training relating
to the pandemic was also provided given the challenges presented
with the requirements of lockdown, isolation and home schooling.
The Group has published its 2020 Gender Pay Gap Report in line
with legislation that applies to all UK companies with more than
250 employees. The full publication is available on the Group’s
website: www.osb.co.uk.
OSB’s median gender pay gap as at the snapshot date of 5 April
2020 was 36.4%, reducing from the 2019 reported figure of 37.6%.
The 2020 mean gap at 44.0% remained similar to the 43.1% which
was reported in 2019.
CCFS’ median gender pay gap as at the snapshot date of 5 April
2020 was 14.4%, with the mean gap at 29.8%, these figures
showing a solid reduction from the 2019 reported figures of 17.8%
and 49.8%, respectively.
Whilst it is pleasing to see continued progress across the Group,
we are committed to reducing these gaps further. Fundamentally,
for both OSB and CCFS, the gaps relate to the structure of our
workforce and reflect the fact that we have more men than women
in senior roles and more female employees undertaking clerical
roles. Progress has been made to positively impact both aspects
of our workforce structure and we remain confident that our gaps
will continue to close.
We recognise that we need to focus on improving our gender
balance and have made solid progress towards the commitments
that OSB and CCFS have made as signatories of HM Treasury’s
Women in Finance Charter. Both OSB and CCFS had previously
committed to a target of 30% of senior management positions
within the UK being undertaken by female employees, with OSB’s
target date being the end of 2020 and CCFS by the end of 2022.
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The Group is also a member of the Employers Network for Equality
& Inclusion, the UK’s leading employer network, covering all
aspects of equality and inclusion issues in the workplace.
In 2020, we harmonised a range of employee policies in order
to ensure clarity and consistency of approach for our entire UK
employee base. Included within these were updated Group policies
on flexible working and homeworking, acknowledging the needs
of employees who have parental and/or carer responsibilities.
Within CCFS, we have around 21% of employees working under
a formal flexible working arrangement relating to reduced or
compressed working hours. Within OSB, around 8% of our UK
employees work part-time hours with a further 12 individuals
working a compressed working week.
In 2021, we will be seeking to undertake a Talent, Inclusion &
Diversity Evaluation, which will measure our business across eight
different areas of D&I practice. In addition, we will be seeking to
obtain a more comprehensive overview of ethnicity throughout our
employee base in order that this data can be analysed and related
actions established. Moving forward, it will also enable the Group
to undertake robust ethnicity pay gap reporting and establish
data on ethnic diversity at senior levels within the Group.
At the end of 2020, around 55% of our UK OSB workforce was
female, as was 60% of the CCFS employee base; and within OSB
India, females constitute 40% of all employees. Currently, 17% of
our Group Executive Committee are female as is 50% of the Board.
Number of Board Directors (OSB Group)
Number of Directors of subsidiaries
Number of senior managers (not Directors)1
All other employees1
1. Includes OSB, OSB India and CCFS.
Male
Female
4
16
101
733
4
4
44
896
Human rights
We want each member of our workforce and other stakeholders
to be treated with dignity and respect. OSB endorses the UN
Declaration of Human Rights and supports the UN Guiding
Principles of Business and Human Rights. The Group adheres to
the International Labour Organisation Fundamental Conventions.
We seek to engage with stakeholders with fairness, dignity and
respect. The Group does not tolerate child labour or forced labour.
OSB respects freedom of association and the rights of employees
to be represented by trade unions or works councils. The Group is
a fair employer and does not discriminate on the basis of gender,
religion, age, caste, disability or ethnicity. Our policy applies
throughout the Group and is communicated to our employees
during induction training.
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OSB GROUP PLC Annual Report and Accounts 2020
The Group’s fourth annual statement in accordance with the
Modern Slavery Act 2015 was published on our website in June
2020. Over the year, no instances of modern slavery were reported
and we continue to ensure all relevant employment policies have
direct consideration of the risk of modern slavery. Internal policies
exist, which aim to ensure we establish good practices, act
ethically and with integrity including the provision of relevant
training. The Group continues to actively engage with its existing
and new suppliers. As part of this initiative to identify and mitigate
risk, we continue to enhance our ability to classify third-party
services based upon the level of risk. We issue a Code of Conduct
documenting our expectation of compliance with modern slavery
regulations and we have incorporated, where appropriate,
provisions in the relevant contractual documentation. We are
mindful of the current COVID-19 pandemic outbreak and expect
to report on this fully in next year’s statement.
OSB and CCFS have anti-bribery and corruption policies which are
reviewed annually and approved by the Group Audit Committee.
The Group will not accept or condone any behaviour connected
with accepting, requesting or offering any bribe or inducement in
return for providing a favour.
The Group is not itself considered to be at a high risk of bribery;
all business is conducted in the UK and the only significant
outsourcing arrangement is with a wholly-owned subsidiary of a
UK building society in relation to CCFS’ deposit-taking business.
In relation to the procurement of goods and services, the anti-
bribery and corruption policies operate in conjunction with a
number of other Group policies which are incorporated into the
Conflicts of Interest policy, Modern Slavery Act Statement, and
Vendor Management and Outsourcing Policy.
If an employee suspects that a policy is not being followed, they
are required to immediately report this in accordance with the
Group’s Internal Fraud Policy and Response Plan or the financial
crime reporting procedure, as appropriate. The Group’s
Whistleblowing Policy and procedures are also available as an
alternative reporting process, if for whatever reason, it is felt that
the other procedures described above are not appropriate.
OSB India
OSB India, a wholly-owned subsidiary of the Group, is based in
Bangalore and as at the end of 2020 had 493 employees. OSB
India supports the Group across various functions including
Support Services, Operations, IT, Finance and Human Resources.
Interaction with UK colleagues is actively promoted and whilst
pandemic-related travel restrictions did not permit this in 2020,
the Group’s normal approach is to provide significant numbers of
OSB India employees with the opportunity to undertake planned
visits to UK head office locations in order to undertake role specific
training and further develop working relationships with their
UK colleagues.
OSB India is a holder of ISO 27001: 2013 certification, which
demonstrates high standards of information security. To that end,
the business continuity site in Hyderabad was opened and became
fully operational in 2017. OSB India prides itself on excellence
in customer service and the ISO 9001: 2015 certification is
a testament to meeting customer and regulatory requirements
by providing outstanding customer service.
In compliance with the Modern Slavery Act, OSB India does
not support excessive overtime and all employees in India
are encouraged to work in accordance with local legislation.
Employees are all based in our modern Bangalore office and
are provided with a range of benefits which include 22 days
of annual leave, 12 days’ sick leave and cafeteria services.
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Environment
Our Environmental Policy states that we are committed to reducing
our environmental impact and to continually improving our
environmental performance as an integral part of our business
strategy. This policy ensures that we meet or exceed all relevant
environmental obligations under law and regulation. The policy
is approved annually by the Group Nomination and Governance
Committee. It has an accountable executive and it is reviewed
by the Group Executive Committee prior to approval. We are
committed to supporting the economy in its transition to being
carbon-neutral.
The Environmental Policy contains various commitments, including:
} accepting responsibility for contributing to the protection
of the environment and striving to ensure that our actions
will not detract from the long-term sustainability of
environmental resources;
} striving to reduce the consumption of materials and energy
and use renewable or recyclable materials where possible;
} to be a ‘Zero to Landfill’ business, meaning that all Group waste
is either reused, recycled or sent to a dedicated Energy from
Waste facility;
} to minimise harmful emissions and prevent pollution;
} to promote advantageous environmental practices by all
employees; and
} to consult with suppliers to improve the environmental impact
of goods and services provided to the Group.
2020 was yet another year when the Group took on initiatives,
or advanced existing objectives, to achieve its goal of becoming
a greener organisation.
We list below our objectives stated in our Environmental Policy:
Paper
} Minimise the use of paper in the office
} Reduce packaging as much as possible
} Buy recycled and recyclable paper products
} Reuse and recycle paper, where possible
Energy and water
} Seek to reduce amount used
} Adjust heating with energy consumption in mind
} Take into account efficiency when purchasing
Office supplies
} Evaluate the environmental impact of any new products ahead
of purchase
} Favour more environmentally-friendly and efficient products
} Reuse and recycle everything where possible
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OSB GROUP PLC Annual Report and Accounts 2020
Transportation
} Promote use of travel alternatives
} Encourage the use of public transport
} Encourage car sharing
} Favour green vehicles
The Group is committed to promoting awareness of environmental
issues amongst our employees. It is the Group’s objective that we
increase employee awareness through training so they can carry
out activities in an environmentally-friendly manner. We also
involve our colleagues in the implementation of our policy to give
greater commitment and pride in their activities. We also use local
labour and materials where available to reduce carbon dioxide.
Implementation of a robust Environmental Management System
(EMS) is a key factor to improving our operating efficiency while
reducing environmental impacts. Our EMS is ISO 14001 certified
by a UKAS accredited external certification body.
Greenhouse gas emissions
We have reported on all of the emissions sources required under
The Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013 and the Companies (Directors’ Report) and
Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018 – commonly referred to as Streamlined Energy
and Carbon Reporting (SECR). The emissions disclosure is verified
by Interface NRM, an independent UKAS and ASI accredited
Certification Body, operating in full accordance with ISO 17021
(2015) Conformity assessment: Requirements for bodies providing
audit and certification of management systems, and ISO 17065
(2012) Conformity assessment – Requirements for bodies certifying
products, processes and services.
For the first time in 2020, greenhouse gas emissions have been
reported for the OSB Group, incorporating CCFS. The focus has
been on aligning the boundary and methodology of reporting to
ensure consistent reporting going forward. However, this combined
reporting, and the disruption to usual business practices caused by
COVID-19, mean that comparisons with other years is unreliable.
We are committed to sourcing 100% green energy across the
estate and over the coming months we will further develop details
of the targets we would like to achieve. These will feature transition
to a low carbon economy and offsetting our carbon emission.
UK & India carbon footprint data 2020
Scope
Description
Specific fuels
2020 – tCO2e
Scope 1
Combustion of fuel
on site and
transportation
On site: natural gas,
gas oil transport:
petrol, diesel,
unknown vehicle fuel
268
Scope 2
Purchased energy
Electricity
Supply chain
emissions
Employee business
milage
Scope 3
Total
Location based
Market based
Location based
Market based
Intensity ratio tCO2e / £1m turnover
Country
breakdown
tCO2e
United Kingdom
India
Energy usage
kWh
Total kWh consumed Electricity, natural
gas, gas oil, petrol,
diesel, unknown
vehicle fuel
India kWh
UK kWh
Location
based
Market
based
789
386
71
1,129
726
2.22
1.43
624
505
3,459,592
2,818,406
641,186
55%
45%
81%
19%
Emissions detail by fuel type
Location based method
Electricity
Natural gas
Diesel
Unknown vehicle fuel
F-Gas
70%
12%
2%
6%
10%
OSB Group plc is a ‘quoted company’ under the Streamlined
Energy and Carbon Reporting regulations so must report annually
on greenhouse gas emissions from Scope 1 and 2 Electricity, Gas
and Transport. This is the first reporting year so no emissions from
previous years are available as a comparison.
Methodology
The reporting period is the most recent financial year 01/01/2020 to
31/12/2020. This report has been compiled in line with the March 2019
BEIS ‘Environmental Reporting Guidelines: Including streamlined
energy and carbon reporting guidance’, and the EMA methodology
for SECR Reporting. All measured emissions from activities which
the organisation has financial control over are included as required
under The Companies (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018,
unless otherwise stated in the exclusions statement.
The carbon figures have been calculated using the BEIS 2020
carbon conversion factors for all fuels, other than the market
based electricity which has been taken from E.ON, EDF, SSE and
Spark as the UK suppliers.
Energy efficiency actions taken
} OSBG has invested heavily this year in its Building Management
System. This monitors and regulates our electrical and
mechanical equipment such as power systems, lighting and
ventilation. OSBG is almost at the stage where the enhanced
system will give better control over the main offices.
} OSBG has just been audited on ISO 14001.
} Most of our estate has LED lighting and PIR sensors, but we are
just refurbishing one of our oldest branches which will be fitted
with energy saving LED panels and PIR sensors.
} We have invested heavily with employees and, as well as having
our Green Ninja Team, we now have an Environmental committee
which meets twice yearly, and covers all sites (OSB and CCFS).
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Corporate responsibility report (Continued)
£13,400
employee donations for charitable causes
£502,600
Group donations in 2020
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OSB GROUP PLC Annual Report and Accounts 2020
Community
We care strongly about our local communities and are proud that
each year, the Group engages with and supports people across
both the UK and India, by taking part in a variety of charitable
events and partnerships.
Due to the COVID-19 pandemic and the social distancing measures
that have been introduced, we were constrained on what we could
organise. However, 2020 remained a year of coming together and
giving something back in different ways; we donated over £10,800
to causes close to our employees’ hearts via our Community and
Good Causes funds, almost £10,000 to charities through fund-
matching and we came together virtually to take part in
fundraisers, raising nearly £12,000 for our charity partners. OSB
India also continued to support its local community in Bangalore
by participating in charitable causes and programmes that
required critical assistance.
Giving something back
In 2020, the Group’s fundraising focus was on our national charity
partners, My Shining Star: Children’s Cancer Charity at OSB
and Socks & Chocs at CCFS. We also continued to support
other charities local to our offices, giving our employees the
chance to make a difference both nationwide and closer to
home. By focusing our efforts on our nominated charities, we
can make a more meaningful impact to the lives of those that
the charities support.
The OSB Community Fund and CCFS Good Causes Fund
As well as encouraging fundraising and volunteering, we also
offer financial support for causes close to our employees’ hearts
through OSB’s Community Fund and CCFS’ Good Causes Fund
initiatives. Given the challenging circumstances in 2020, we
updated our criteria for grants so our employees could help even
more communities local to them that may have been severely
impacted by the pandemic. This meant that any employee could
apply for funding on behalf of a registered charity or community
project, even if they were not actively involved with the fundraiser.
A total of 46 applications were received from across the Group in
2020, totalling donations of over £10,800 and we are hoping for
even more in 2021 as the popularity of the scheme grows. This
initiative is now also available in India.
Community investment
Sun Pier House
The Group also supports local communities to make a difference
in our immediate surroundings and, where possible, we encourage
our colleagues to volunteer, with the Group providing
a volunteering day to every employee each year.
We donated £5,000 to Sun Pier House CIC, which is located right
next to one of our offices in Chatham. This charity works with local
artists, creative organisations and those who want to make the
world better through cultural engagement by providing a base
for a community of artists and creative businesses.
Our donation went towards improvements to the appearance of
the Sun Wharf site, which will ultimately support the charity and
Medway Council in their 2025 City of Culture bid. If successful,
this bid could encourage as many as five million people to visit
the area, with c. £220m of investment and potentially 800 new
jobs being created, which could positively impact our Kent
Reliance businesses.
Coventry Rugby Club
Our support provides over 100 hours of rugby-based learning
activities for children in local schools, as well as supporting the
Coventry Rugby Foundation.
Our partnership delivers rugby and reading in schools, led by one
of Coventry’s elite first team players, with a programme designed
to inspire disadvantaged and disaffected children to read more.
We also support the club’s Project:500 commitment to use rugby
to drive positive engagement with children living in poverty, giving
disadvantaged and disaffected children the chance to learn
through sport and an opportunity to be part of a positive and
inclusive community. We donated £1,000 to support this initiative.
We are active supporters of the extension to this programme,
Feed:500, where families of nominated children from
disadvantaged households receive food packages filled with
fresh fruit, vegetables and protein during the festive period,
with a three-day activity camp in between.
The Head Teacher approached us for help with raising funds ‘as
there is no substitute to being read to’. The intention was to create
an environment that teachers can take their classes to ‘share
stories and enable their imaginations to go wild’.
Colmore serves a diverse community which enrols children from a
range of backgrounds and those from less privileged backgrounds
often enter the school having been exposed to 45 million fewer
words than those from more affluent homes.
We were delighted to provide financial support to help the school
reach its fund raising target, recognising that everyone at the
school will benefit and those from disadvantaged backgrounds
will inevitably be the biggest beneficiaries.
Wolverhampton Rugby Club
We have a long-standing relationship with Wolverhampton Rugby,
which is a community-based, grassroots club serving both male
and female teams from the age of six upwards.
Our support has meant people of all ages were able to come
together, share talents, learn new skills and in turn, strengthen
community bonds.
AFC Wulfrunians
Wulfrunians are a grassroots football club in the Wolverhampton
area. We answered a public appeal and funded the purchase of
a defibrillator machine.
Colmore Junior School
Colmore Junior School was looking to develop its old hall into
a reading for pleasure zone, as it does not have classrooms that
can accommodate reading areas due to the age of the building.
This life-saving piece of equipment will benefit players and
supporters both home and away across their different teams
and also other teams that use this venue.
OSB GROUP PLC Annual Report and Accounts 2020
103
GovernanceFinancial statementsAppendicesStrategic reportOverview COVID-19 donation
In 2020, the Board endorsed the initiative by members of the
Group Executive Committee to forgo their potential 2020 cash
bonus. Members felt passionately that they wanted to give
something back. As a business that provides finance for owned
and rented homes, they were keen to help the homeless or those
struggling to keep a roof over their heads, given the impact that
COVID-19 could have on this group of already vulnerable people.
The Group Executive Committee asked the Group’s charity
champions to put forward some suggestions for homeless charities
local to our main offices and, after the necessary due diligence
was completed, the following charities were selected:
} £100,000 to Shelter, who offer support and advice to those
facing housing issues or homelessness across the UK
} £50,000 to Good Shepherd (Wolverhampton)
} £50,000 to Porchlight (Kent)
} £25,000 to Society of St. James (Hampshire)
} the remaining £25,000 was donated to the HBS hospital in
Bangalore, India, which is already one of our charity partners,
to buy additional dialysis machines.
Corporate responsibility report (Continued)
Our national charity partners
My Shining Star: Children’s Cancer Charity
My Shining Star is a charity that supports families through the
financial hardship associated with childhood cancer. Around
1,600 children are diagnosed with cancer in the UK every year;
that means one in 500 children across the UK is diagnosed with
cancer before they turn 14.
Families spend an extra £600 per month, on average, during
their child’s cancer treatment (mainly for transport, food and
accommodation) and many fall into debt as a result, or families
become separated as siblings of the child are left at home.
The money we raised throughout 2020 went directly to improving
the lives of families in their darkest times. We organised Group-
wide fundraisers, supported employees taking part in virtual
marathons by matching what they had raised and held a
successful Christmas appeal, which reached our target in just
two weeks to purchase 30 luxury hampers for families whose
children were undergoing treatment over Christmas 2020.
Our partnership with My Shining Star came to an end in 2020
and we are proud to say that between employees and OSB,
we donated £34,600 during our two years supporting them.
Socks & Chocs
“A lot of people doing a little bit is better than a few people
doing a lot” – that is the motto of Ian Northcott, the founder
of Socks & Chocs.
Shocked at the plight of the homeless people he saw living rough
on the streets of Birmingham while working as a policeman, Ian
founded Socks & Chocs in 2010, initially handing out socks and
chocolates at shelters across the city.
Since then Socks & Chocs has become a national charity, relieving
hardship and distress among homeless people and those in need
who are living in adverse housing conditions.
Socks & Chocs achieved this by:
} providing essential items, such as bedding, toiletries
and clothing
} funding essential health needs which are not already readily
accessible, such as foot care, and
} funding short-term emergency accommodation, particularly in,
but not limited to, times of cold or otherwise inclement weather.
We named Socks & Chocs as our chosen charity partner in 2017
and, thanks to our employees’ fantastic efforts, in the past three
years we raised more than £150,000.
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OSB GROUP PLC Annual Report and Accounts 2020
Our local charity partners
For OSB, our locations support our national charity partner by
taking part in Group-wide fundraisers, but we also encourage our
employees to support a charity on their doorstep. Plans for 2021
mean that we will have one national charity partner, and local
charity partners in Wolverhampton, Kent, Fareham and Fleet.
By engaging with charity champions at each location, we are able
to ensure that the views of each location are represented when
local charity partners are voted for and agreed. Our charity
champions have been instrumental in supporting our Giving
Something Back initiative and have organised a number of
fundraisers in support of our national and local charity partners.
Demelza Hospice Care for Children – supported by Kent Reliance
Kent Reliance branches continue to support Demelza as their local
charity partner, fundraising in branches where possible and
offering customers the dedicated Demelza Children’s Account,
whereby the charity receives an annual donation equivalent to
an agreed percentage of the combined funds held across the
associated accounts at the end of the year.
In 2020, we raised £12,000 primarily through the Kent Reliance
branches and the annual charity donation arising from the
Demelza Children’s Account.
OSB India fundraising
Corporate social responsibility (CSR) is extremely important to OSB
India. The concept of helping society is embedded in its corporate
governance structure through their CSR policy and also through
employee engagement.
As part of the OSB India CSR policy, funds are set aside each year
to spend on social causes. This is governed by a CSR Committee
and implemented by the Corporate and Social Responsibility
Group. The focus is to help and contribute in areas where there is
critical need and within the office locality so that employees are
also able to contribute their time.
In 2020, the CSR Group continued to support the areas of child
welfare, education and healthcare.
Child welfare and education
OSB India has partnered with SOS Children’s Village, located in
Bangalore, to fund education, food, clothing and housing for 20
orphans. Working together with SOS, OSB India employees helped
to provide support for the holistic development of orphans, women
and children belonging to vulnerable families. OSB India also
hosted some events at SOS for employees to engage with the
children, which was highly appreciated by both the children
and employees.
Healthcare
OSB India is currently supporting HBS Hospital to provide dialysis
sessions to 40 individuals who live below the poverty line. OSB India
has also contributed two dialysis machines which can provide over
11,000 dialysis sessions over a period of five years. HBS Hospital is
a non-profit hospital which provides critical healthcare to members
of society who could otherwise not afford the care they need.
Introducing a new UK charity partner from 2021
At the end of 2020, our partnerships with our current charities
came to an end. As a result, we engaged employees at OSB and
CCFS in the process of selecting a new UK charity partner for 2021.
By asking our colleagues to nominate and vote for the charities, we
were able to select our first Group charity together and started a
partnership with them in January 2021. We also followed a similar
process for identifying our 2021 local charity partners.
Campaign Against Living Miserably (CALM)
With 53% of the Group vote (there were three contenders in the
final vote), CALM has been chosen as our first Group charity
partner. CALM campaign to raise awareness of mental health
issues to create social change, encouraging people to talk about
mental health and to seek help when they need it.
They are also a leading movement against suicide. Every week
125 people in the UK take their own lives. They provide frontline
services for those struggling through their free, anonymous
helpline and webchat service every day from 5pm to midnight.
We are excited to start our new partnership with CALM
as the charity’s mission aligns to the Group’s focus on
supporting well-being, both for ourselves and for our more
vulnerable customers.
Looking forward to 2021
While our calendar of scheduled events for 2020 did not
go quite as planned, we have learnt how to communicate
and engage with our colleagues in new ways. With a new
Group and local charity partners, we have been planning
our activities for 2021 to ensure we can support our charity
partners in the best way we can, given the circumstances and
we will be working closely with them to help us achieve this.
We are also introducing a new initiative into our community
strategy, which aligns with our focus on well-being within
the Group, as something new and easy for our people
to get involved with.
We have also been working on bringing the best of our community
activities across both Banks and have developed a harmonised
Group community strategy, which will be in place from 2021. By
combining our community efforts, we hope to continue to support
our employees in fulfilling their passion to support causes that are
close to their hearts and to support the Group’s desire to give back
to those who need it most.
OSB GROUP PLC Annual Report and Accounts 2020
105
GovernanceFinancial statementsAppendicesStrategic reportOverview Non-Financial Information Statement
The requirements of sections 414CA and 414CB of the Companies Act 2006 relating to non-financial
reporting are addressed in this section.
We have a range of policies and guidance that support key outcomes for all our stakeholders. Performance against our strategic
non-financial performance measures is one indicator of the effectiveness and outcomes of policies and statements. The Group’s policies
and statements include, but are not limited to, those summarised in the table below. During the year, the policies of OSB and CCFS were
reviewed and combined to apply at a Group level, as appropriate. The table provides cross references to where further information
is included within the Annual Report.
Description of policies/statement
Due diligence undertaken
Outcomes/Impacts/Risks
Further information
Environmental matters
Our Environmental Policy
outlines our commitment to
reducing our environmental
impact and to continually
improving our environmental
performance as an integral part
of our business strategy. The
policy seeks to ensure that we
meet or exceed all relevant legal
and regulatory environmental
obligations.
The Environmental Policy was reviewed by the
newly-established Environmental Working Group
which focuses on:
} assessing the impact of business activities
and driving initiatives to minimise the
consumption of energy, water, paper, office
supplies, transportation, maintenance and
cleaning;
} aligning the environmental data and actions
for all entities within the Group;
} developing an environmental culture across
the Group; and
} encouraging environmental responsibility with
employees and within supply chains.
Corporate
Responsibility
Report, see
pages 100 to
101.
The focus of actions in 2020 has been on
extending our environmental management
system and sharing best practice across the
Group. Key highlights for the year include:
} submitting our Energy Saving
Opportunity Scheme (ESOS), which
highlighted areas for improvement across
our sites which have been taken forward
for consideration;
} purchasing electric vans for the fleet and
electric vehicle charge points have been
introduced in Chatham and
Wolverhampton;
} introducing video conferencing across
the Group to reduce travel-related
carbon footprint;
} introducing automatic LED lighting where
possible and as offices are refurbished;
and
} creating an Environmental Working
Group across the Group to raise
awareness of the work being undertaken
and drive initiatives across all sites to
improve employee engagement.
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OSB GROUP PLC Annual Report and Accounts 2020
Description of policies/statement
Due diligence undertaken
Outcomes/Impacts/Risks
Further information
Employee matters
Our Group Flexible Working
Policy sets out a range of flexible
working arrangements and the
approach that the Group will
take in reviewing formal Flexible
Working Requests from
employees.
Our Group Homeworking
Policy is applicable to all UK
employees and provides clarity
in respect of the Group’s
approach regarding formal
homeworking arrangements (i.e.
following a Flexible Working
Request being agreed), informal
arrangements and enforced
arrangements (e.g. COVID-19).
Our Diversity and Inclusion
Policy sets out the Group’s
commitment to promoting
equality of opportunity,
providing an inclusive workplace
and eliminating any unfair
treatment or unlawful
discrimination.
Our Whistleblowing Policy –
Raising a Concern ensures that
all employees are encouraged
to raise any concerns they may
have about the conduct of others
in the business or the way
in which the business is run,
in good faith and without fear
of unfair treatment.
The Group Flexible Working Policy was
drafted by HR Management and reviewed
by the Group’s Legal and Company Secretariat
function. The policy was then endorsed by the
Governance Forum and approved by the Group
Executive Committee.
A similar process, as outlined above, was followed
for the Group Homeworking Policy. In addition,
the policy was reviewed by the Health and
Safety, Data Protection and Information Security
teams and the Governance Forum requested
that an external review of content be undertaken
given the high percentage of employees working
from home as a result of COVID-19. An external
review was undertaken prior to the policy
being approved.
In order to ensure appropriate Board oversight
of matters relating to diversity and inclusion,
updates are regularly provided to the Group
Nomination and Governance Committee.
In addition, the Group General Counsel and
Company Secretary, who is the Executive
responsible for diversity and inclusion, issues
regular updates to all employees in order to drive
awareness of ongoing internal initiatives and
progress relating to diversity and inclusion.
An external adviser, Legal and HR were involved in
drafting the new policy, which was endorsed by
the Governance Forum and approved by the
Group Executive Committee.
Corporate
Responsibility
Report, see
page 92.
We seek to accommodate, where possible,
all requests for flexible working, with the
majority of requests being agreed.
The Group Homeworking Policy introduced
an attestation for those working from
home (formally, informally and on an
enforced basis).
The attestation is linked to the Group
Homeworking Policy requiring employees
who work from home to confirm that they
are aware of and can appropriately mitigate
risks presented by working from home in
respect of data protection, information
security and health and safety.
Corporate
Responsibility
Report, see
pages 97
to 98.
A Group-wide Diversity and Inclusion
Working Group was established during
2020, broadening the scope of the
Women’s Networking Forum which was
previously in place.
The Group has progressed towards
achievement of our published Women
in Finance Charter target and in respect
of published Gender Pay Gap data,
which is related to our diversity and
inclusion initiatives.
In recent years, the Group’s diversity
and inclusion focus has tended to centre
around gender.
The Group is committed to ensuring
a broader focus on diversity matters,
with this being robustly demonstrated
during National Inclusion Week 2020.
A Whistleblowing Report is regularly presented
to the Group Audit Committee and an annual
report is presented to the Board. The Chair
of the Group Audit Committee is the designated
Whistleblowers’ Champion.
The Group Audit Committee receives
a whistleblowing report quarterly and
is responsible for overseeing the effective
operation of the policy; this aims to mitigate
the risk of undetected wrongdoing and
unwanted exposure for the Group.
Group Audit
Committee
Report, see
page 139.
OSB GROUP PLC Annual Report and Accounts 2020
107
GovernanceFinancial statementsAppendicesStrategic reportOverview Non-Financial Information Statement (Continued)
Description of policies/statement
Due diligence undertaken
Outcomes/Impacts/Risks
Further information
Our Group Health and Safety
Policy outlines our approach
and responsibilities under
statutory legislation. We
recognise our duty and
responsibility and the Health
and Safety Policy ensures
that the Group complies with
legislation to protect its
employees and customers,
and provides a suitable and
safe environment for employees,
customers and anyone affected
by the Group’s operations.
Social matters
Our Modern Slavery
Statement outlines the
measures we have taken to
combat the risks of modern
slavery and human trafficking
in our businesses and
supply chains.
As part of our ongoing
compliance, a review was
undertaken of the policies
potentially impacted by modern
slavery and human trafficking
with appropriate amendments
made, where necessary.
An external health and safety risk assessment
was undertaken in 2020 at our offices and
branches to ensure that we adhered to the UK
Government-issued document Working Safely
during COVID-19 in offices and contact centres.
Additional measures were put in place in
accordance with COVID-19 guidelines to
ensure any employees attending our offices
or customers visiting our branches could
do so in a safe way.
Strategic
Report, see
page 23.
The Health and Safety Working Group meet
twice per annum to review the objectives of the
Health and Safety Policy. Any relevant matters
arising from these meetings are reported to
Operational Risk.
An accountable Executive is responsible for
the Health and Safety Policy and a third party
adviser reviews it annually prior to it being
approved by the Board.
The Modern Slavery Working Group annually
reviews the Vendor Code of Conduct which is
issued to our approved third party service
providers at the time of onboarding and as part
of the annual assessment. This year, the Vendor
Code of Conduct has been updated to align
with Home Office Guidance issued in respect
of the additional risks of modern slavery posed
by COVID-19.
We perform relevant checks via the Organisation
for Economic Co-operation and Development
(OECD) Watch at the onboarding stage and,
where required, as part of our ongoing due
diligence checks. In addition, our standard
contract terms include reference to the required
modern slavery or relevant contract terms.
All employees are required to complete
mandatory training to raise awareness.
Health and safety statistics are provided
on a dashboard shared monthly with the
Board along with an annual Health and
Safety Report.
Risk assessments are completed across
the Group annually and in 2020 included
COVID-secure certification.
Annual health and safety training is
completed by all employees.
Health and Safety awareness in the
workplace has increased with updates
provided on the Group intranet to reduce
the possibility of injury to employees
and customers.
Our Vendor Management team includes
specific testing of key controls within the
Vendor Management Risk Assessment
Matrix. Relationship owners are also tested
for their awareness of the process and
requirements in respect of modern slavery
which forms part of the Group’s mandatory
training programme and awareness
updates, in line with the Vendor
Management Framework.
There are breach reporting procedures in
place and there were no reportable incidents
in this financial year.
Corporate
Responsibility
Report, see
page 98.
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OSB GROUP PLC Annual Report and Accounts 2020
Description of policies/statement
Due diligence undertaken
Outcomes/Impacts/Risks
Further information
Our Group Vendor
Management and Outsourcing
Policy sets out the core
requirements which we must
meet and provides a structure
to efficiently manage potential
and contracted third-party
relationships ensuring the right
level of engagement and due
diligence, in compliance with
our regulatory obligations.
Our Lending Policy sets out the
parameters within which we are
willing to lend money responsibly
within our set criteria and credit
risk appetite.
Our Group Complaint
Handling Policy outlines,
at a high level, our regulatory
expectations for complaint
handling from a customer-
centric perspective.
We recognise the importance of building
strong relationships and governance with
our third parties and of the possible
reputational risk this can impose. We
actively monitor our third parties to ensure
they are adhering to our requirements,
so that we can in turn meet our obligations
to stakeholders.
Strategic
Report, see
page 18.
The required due diligence and risk assessment
criteria changes and updates have been included
in the policy to align with the European Banking
Authority and other applicable guidelines.
Activities during the year included:
} a review of existing third party services
to ensure alignment with the new policy
and reclassification;
} implementation of the new policy which
is being managed through business
communication, training and awareness
sessions scheduled for assigned relationship
owners; and
} annual assurance update provided to the
Board.
All changes to the Lending Policy require approval
from the Group Credit Committee, with material
changes escalated to the Group Risk Committee.
The Group Risk Committee challenges how
the Lending Policy is applied to ensure that
the right outcomes are achieved.
As a second line of defence, the Credit Quality
Assurance process monitors adherence to the
policy through a risk-based sampling approach.
System parameters and underwriting processes
act as an additional control to ensure lending
parameters are not breached.
The credit risk appetite of the Group
monitors the performance and make-up of
the portfolio relative to pre-agreed trigger
limits and therefore is a measure of the
overall performance of the Lending Policy.
Non-adherence to the credit risk appetite
could lead to business being written outside
the agreed risk appetite.
Corporate
Responsibility
Report, see
page 90.
We investigate complaints competently, diligently
and impartially, supported by appropriately
trained employees. Root cause analysis is used
to identify and solve underlying issues rather
than apply quick fixes.
Complaints remained aligned to the level
of business activity.
Complaints are also a component of
Executive bonus scheme metrics affecting
remuneration outcomes.
Corporate
Responsibility
Report, see
page 91.
Complaint performance forms part of
management information provided to
Management Committees and to the Board.
Analysis of complaints outcomes and potential
business and customer impact is an integral
part of the Group’s processes.
Complaints may be an early warning of not
treating customers fairly, which has
regulatory consequences for the Group.
OSB GROUP PLC Annual Report and Accounts 2020
109
GovernanceFinancial statementsAppendicesStrategic reportOverview Non-Financial Information Statement (Continued)
Description of policies/statement
Due diligence undertaken
Outcomes/Impacts/Risks
Our Group Customer
Vulnerability Policy sets the
standards and approach for the
identification and treatment
of vulnerable customers and
provides guidance to all areas of
the Group to ensure vulnerable
customers consistently receive
fair outcomes.
Regular case study reviews through the
Vulnerable Customer Review Committee ensure
best practice processes across the different
customer journeys are monitored and shared with
representatives from differing customer-facing
and second line functions.
The Compliance function conducts second
line thematic reviews across both vulnerable
customer and other operational processes
should the need arise.
The Group Data Protection Officer reports twice
each year, to the Group Executive Committee
and the Board, regarding compliance with the
Data Protection Policy and reports on any data
incidents and data subject access requests.
An enhanced training programme has
been developed to focus on more complex
customer scenarios including identifying
vulnerable customers and how best to serve
them and their changing needs.
There is a potential impact to our reputation
and regulatory risks for not treating
customers fairly.
Customer complaint data shows there were
no systemic issues in vulnerability processes
and outcomes for the year.
The privacy and security of personal
information is respected and protected.
We regard sound privacy practices as
a key element of corporate governance
and accountability. Non-compliance would
expose the Group to the potential breach
of GDPR provisions.
As the second line of defence, the Compliance
function reviewed customer journeys; these
reviews are risk-based and look at customer
outcomes across the collections and litigation
processes to ensure customers are dealt with
in an effective and fair manner.
The Compliance function conducts second line
thematic reviews across collection and litigation
processes, should the need arise.
Our arrears rates are monitored through the
Group Credit Committee on a monthly basis
to ensure senior management oversight of
arrears trends. There is credit risk associated
with credit losses following the ineffective
management of customer accounts.
This has been an area of focus for the Board
and Executives and adjustments were made
to accommodate payment deferral
requests, as a result of COVID-19.
Our Group Data Protection
Policy ensures that there
are adequate policies and
procedures in place to enable
compliance with the General
Data Protection Regulation
(GDPR) and the Data Protection
Act 2018; and confirms the
necessary steps that should
be taken when processing
personal data.
Our Group Arrears
Management and
Forbearance Policy ensures
that we address the need for
internal systems and processes
to treat customers in financial
difficulties fairly, including being
proactive with customers who
display characteristics of being
on the cusp of financial difficulty.
Further information
Corporate
Responsibility
Report, see
page 90.
Corporate
Responsibility
Report, see
page 91.
Corporate
Responsibility
Report, see
page 90.
110
OSB GROUP PLC Annual Report and Accounts 2020
Description of policies/statement
Due diligence undertaken
Outcomes/Impacts/Risks
Our Anti-Bribery and
Corruption policies outline
our stance to conduct all of our
business in a honest and ethical
manner. We take a zero-
tolerance approach to bribery
and corruption and are
committed to acting
professionally, fairly and with
integrity in all of our business
dealings and relationships.
The purpose of the policies
are to provide employees and
contractors with clear guidelines
to ensure that we conduct our
activity in an ethical and
appropriate manner including
complying with the laws and
regulations of each jurisdiction
in which we operate.
Our Conflict of Interest Policy
aims to identify, maintain and
operate effective organisational
and administrative arrangements
to identify and take all
reasonable steps in order to
avoid conflicts where possible.
Further information
Corporate
Responsibility
Report, see
page 90.
The policies are subject to an annual review
process with approval provided by the Group
Audit Committee.
Anti-Bribery and Corruption training forms part
of the wider Financial Crime training package
that is mandatory for each employee to complete
on an annual basis.
In addition, the requirements set out in the
Anti-Bribery and Corruption policies are
incorporated into the Group’s Vendor
Management and Outsourcing Policy.
Gifts, hospitality and donations are closely
monitored through a log maintained by Risk and
Compliance in accordance with our associated
policies and procedures.
No material issues or breaches have arisen
from the Group’s adherence to the existing
Anti-Bribery and Corruption policies
and processes.
We recognise that there may be instances
where an employee may be exposed to the
risk of bribery or corruption and as result,
provide numerous channels in which an
employee can report such an event,
including via the whistleblowing process.
During the tender process for a new supplier,
all employees involved in the process must
ensure compliance with the Anti-Bribery
and Corruption policies and requirements.
This approach also applies to the Conflict
of Interest Policy.
During the year, a combined Group level policy
was adopted to ensure that a consistent
approach is taken across the Group in relation
to the systems and controls in place to identify,
report and manage potential and realised
conflicts of interest.
A detailed roll-out plan has been developed to
ensure the policy is implemented effectively
which will include employee training, embedding
a consistent Conflicts of Interest declaration
process, developing Group-wide procedures
and ensuring risk-based assurance activity on
adherence to the policy is undertaken.
In addition, Conflicts of Interest requirements
are incorporated into the Group’s Vendor
Management and Outsourcing Policy.
Corporate
Governance
Report, see
page 126 and
Corporate
Responsibility
Report, see
page 91.
No material issues or breaches have arisen
from the Group’s adherence to the existing
Conflicts of Interest Policy and processes.
As a financial services provider, we face
the risk of actual and potential conflicts of
interest periodically. We recognise that there
may be instances where conflicts of interest
are unavoidable and that a conflict may
exist even if no unethical or improper act
or outcome results from it. Where it is not
possible to avoid a potential conflict of
interest, we are committed to ensuring
that any conflicts of interest that arise
are managed fairly and in the best interests
of our customers.
Group Compliance maintains the conflict
register, which is reviewed annually by the
Risk Management Committees. In addition,
the Group Nomination and Governance
Committee reviews Executive and
Director conflicts.
OSB GROUP PLC Annual Report and Accounts 2020
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GovernanceFinancial statementsAppendicesStrategic reportOverview Non-Financial Information Statement (Continued)
Description of policies/statement
Due diligence undertaken
Outcomes/Impacts/Risks
Further information
Corporate
Responsibility
Report, see
page 90.
The Policy is subject to an annual review
with approval provided by the Group
Audit Committee.
Fraud awareness training forms part of the
wider Financial Crime training package that
is mandatory for each employee to complete
on an annual basis.
External stakeholders, customers, clients and
relevant third parties are made aware of our
robust stance towards fraud management
through literature or similar communication
channels.
The Risk Management Committees and the
Group Risk Committee regularly review and
monitor fraud reporting.
As a financial services provider, we recognise
that we are inherently exposed to the risk of
fraud and that incidents will occur as a result
of doing business. In order to mitigate these
risks we have appropriate systems and
controls in place.
Key risk and performance indicators are
agreed by senior management and reviewed
on a regular basis. Management information
on fraud-related activity is presented on a
regular basis to senior management in order
to provide visibility of our fraud exposure and
any associated loss.
All potential fraud incidents are investigated
by a dedicated Financial Crime team that is
specifically trained in identifying and
reporting fraudulent behaviour.
All employees are required to complete
annual training.
The policy is subject to an annual review
process with approval provided by the Group
Audit Committee.
We have documented processes and procedures
in place to identify the Group’s customers prior to
entering into a relationship. Systems and controls
have been adopted to highlight activity deemed
to be suspicious.
All suspicious activity is investigated by a
dedicated Financial Crime team who are
specifically trained in identifying and reporting
suspicious behaviour.
No material issues or breaches have arisen
from the Group’s adherence to the existing
Anti-Money Laundering and Counter
Terrorist Financing Policy and processes.
Group Audit
Committee
Report, see
page 139.
As a financial services provider, the Group
recognises that it is inherently exposed to
the risk of financial crime.
Key risk and performance indicators are
agreed by senior management and reviewed
on a regular basis. Management information
on financial crime related activity is
presented to senior management in order
to provide visibility of our exposure to
financial crime.
Our Fraud Policy outlines our
duty to comply with prevailing
legal and regulatory
requirements and to have
appropriate systems and
controls in place to mitigate the
risk of fraud. This includes
ensuring appropriate monitoring
and escalation procedures are in
place and are operating
effectively.
Our strategy for managing fraud
risk is to adopt a zero-tolerance
approach towards any form of
fraud; however, we accept that
incidents of fraud will occur
as a result of doing business.
The purpose of the policy and
supporting procedures is to
provide a consistent approach
throughout the Group to the
prevention, detection and
investigation of fraud. The policy
forms an integral part of the
Group Financial Crime
Framework.
Our Anti-Money Laundering
and Counter Terrorist
Financing Policy seeks to
explain the responsibility of
senior managers, the Money
Laundering and Reporting
Officer (MLRO) and all
employees. The policy requires
that the highest ethical
standards are met and requires
all employees to act with
integrity at all times. We have no
appetite for breaching legislation
or regulation regarding
anti-money laundering or
counter terrorist financing.
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OSB GROUP PLC Annual Report and Accounts 2020
Description of policies/statement
Due diligence undertaken
Outcomes/Impacts/Risks
Further information
Our Group Operational
Resilience Policy documents
the approach and expectations
of the Group in establishing and
maintaining the appropriate
levels of operational resilience
as well as the level of impact
tolerance that the Group is
willing to accept in respect
of incidents or events that
may impact the provision
of its services.
The policy is closely linked with
our Business Continuity Plan.
The policy is subject to an annual review process
with approval provided by the Risk Management
Committees.
In March 2020, the UK Government
announced a UK-wide lockdown due to
COVID-19.
Risk Report,
see page
86.
We analyse the probability and consequences of
an unplanned event that could affect the Group.
We also identify the key risks faced by the Group
and put measures and controls in place to protect
the Group against these risks.
In September 2020, a data centre recovery
exercise took place which involved a full
shutdown of primary servers. As a result,
further enhancements will be worked through,
during 2021.
Whilst we believe that we have taken
appropriate actions and have an operating
model that is well positioned to support the
Group throughout the crisis, we remain on
alert to respond to any further changes in
circumstances.
Failing to be resilient could have
a devastating effect on the business
to the extent that it becomes difficult
or even impossible to carry out business
as usual activities.
Description of the business model
A description of the business model is set out on pages 12 to 15 and includes non-financial KPIs.
Principal risks and uncertainties
A description of the principal risks and uncertainties is set out on pages 70 to 80.
This Strategic report was approved by the Board and signed on its behalf by:
Jason Elphick
Group General Counsel and Company Secretary
8 April 2021
OSB GROUP PLC Annual Report and Accounts 2020
113
GovernanceFinancial statementsAppendicesStrategic reportOverview Governance
Directors’ Report
Board of Directors
Group Executive team
Corporate Governance Report
Group Nomination and Governance
Committee Report
Group Audit Committee Report
Group Risk Committee Report
Other Committees
Directors’ Remuneration Report
Directors’ Report: Other information
Statement of Directors’ Responsibilities
116
118
120
130
134
142
145
146
168
171
How our Board and Executive team
set the strategic direction and
provide oversight and control.
Key reads within this section:
Corporate Governance Report
“ We are pleased to report
full compliance”
For more information
See page 120
Group Risk Committee Report
“ We continued to enhance and
integrate the Strategic Risk
Management Framework”
For more information
See page 142
Directors’ Remuneration Report
“ Extensive engagement
with shareholders”
For more information
See page 146
114114
OSB GROUP PLC Annual Report and Accounts 2020
OSB GROUP PLC Annual Report and Accounts 2020
115115
OverviewStrategic reportGovernanceFinancial statementsAppendicesOverviewStrategic reportGovernanceFinancial statementsAppendices Board of Directors (biographies)
Appointment
David was appointed to the
OSB Board in September 2017
and held the position of
Chairman until October 2019.
He was re-appointed as
Chairman on 4 February 2020.
Appointment
Andy was appointed to the OSB
Board in December 2011.
David Weymouth
Chairman
Committee membership
Chair of the Board Integration and
Group Nomination and Governance
Committees; a member of the Group
Remuneration Committee.
Experience and qualifications
David was previously Chief Information Officer
at Barclays Bank plc and Chief Risk Officer
at RSA Insurance Group plc. He sat on the
Executive Committee of both companies. His
experience as an executive includes a wide
range of senior roles in operations, technology,
risk and leadership. David is also Chairman of
Mizuho International Plc and his other current
non-executive directorships include Fidelity
International Holdings (UK) Limited and The
Royal London Mutual Insurance Society.
He also served as a Non-Executive Director
on the board of Bank of Ireland (UK) plc.
Key skills
David has over 40 years’ experience
in the financial services industry and
has a degree in Modern Languages
from University College London and an
MBA from the University of Exeter.
Andy Golding
Chief Executive Officer
Committee membership
Member of the Board Integration Committee.
Experience and qualifications
Prior to joining OSB, Andy was CEO of
Saffron Building Society, where he had
been from 2004. Prior to that, he held senior
positions at National Westminster Bank
plc, John Charcol Limited and Bradford &
Bingley plc. Andy served as a Non-Executive
Director for Kreditech Holding SSL GmbH
and Northamptonshire Healthcare NHS
Foundation Trust. Andy is a director of the
Building Societies Trust Limited. He served as a
member of the Building Societies Association’s
Council and the Financial Conduct Authority’s
Smaller Business Practitioner Panel.
Key skills
Andy has over 30 years’ experience
in financial services.
Appointment
Noël was appointed to the
OSB Board and the position of
Senior Independent Director in
October 2019.
Appointment
April joined OSB in May 2012
and was appointed to the OSB
Board in June 2012.
Noël Harwerth
Senior Independent Director
Committee membership
Member of the Group Audit, Group
Nomination and Governance, Group
Remuneration and Group Risk Committees.
Experience and qualifications
Noël was appointed to the Board of CCFS in
June 2017 and was its Senior Independent
Director from August 2017. Noël is a Non-
Executive Director of Scotiabank Europe
plc. She is also a member of the UK Export
Finance Board. She is a former Non-Executive
Director of Sirius Minerals plc, Standard Life
Aberdeen plc and RSA Insurance Group plc,
prior to which she held a variety of senior roles
with Citicorp for 15 years, latterly serving
as the Chief Operating Officer of Citibank
International plc. Noël has held non-executive
roles with GE Capital Bank Limited, Sumitomo
Mitsui Banking Corporation Europe Limited,
Avocet Mining plc, Alent plc, Corus Group
plc, Logica plc, The London Metal Exchange
and Standard Life Assurance Limited.
Key skills
Noël has extensive experience in both the
public sector with government bodies and
the private sector with global banking
companies, which brings valuable
insight to the boardroom debate.
April Talintyre
Chief Financial Officer
Committee membership
Member of the Group Models
and Ratings Committee.
Experience and qualifications
April was previously an Executive Director
in the Rothesay Life pensions insurance
business of Goldman Sachs Group and
worked for Goldman Sachs International
for over 16 years, including as an Executive
Director in the Controllers Division in London
and New York. April began her career at
KPMG LLP in a general audit department.
Key skills
April has broad financial services
experience and has been a member of
the Institute of Chartered Accountants
in England and Wales since 1992.
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OSB GROUP PLC Annual Report and Accounts 2020
Appointment
Graham was appointed to the
OSB Board in May 2014.
Appointment
Sarah was appointed to the
OSB Board in February 2019.
Graham Allatt
Independent Non-Executive Director
Committee membership
Chair of the Group Risk Committee and
the Group Models and Ratings Committee;
a member of the Group Audit Committee.
Experience and qualifications
Graham was previously Acting Group
Credit Director at Lloyds TSB plc and
Chief Credit Officer at Abbey National plc.
Prior to this, he spent 18 years at National
Westminster Bank plc culminating in the
role of Managing Director, Credit Risk at
NatWest Markets plc. A Fellow of the Institute
of Chartered Accountants; Graham was
involved with housing associations for nearly
30 years as Treasurer and Board member
in the North of England and in London.
Key skills
Graham has significant banking, credit
risk and financial services experience.
Sarah Hedger
Independent Non-Executive Director
Committee membership
Member of the Group Audit,
Group Remuneration and Board
Integration Committees.
Experience and qualifications
Sarah previously held leadership positions at
General Electric Company for 12 years in its
Corporate, Aviation and Capital business
development teams, leaving General Electric
Company as Leader of Business Development
and M&A for its global GE Capital division.
Prior to General Electric Company, Sarah
worked at Lazard & Co. Limited for 11 years,
leaving as Director, Corporate Finance and
also spent five years as an auditor at
PricewaterhouseCoopers LLP (PwC). She
is an Independent Non-Executive Director
of Balta Group NV, a Belgian company listed
on Euronext.
Key skills
Sarah has significant capital management
and mergers and acquisitions
experience in financial services. She is
a qualified chartered accountant.
Appointment
Rajan was appointed to the
OSB Board in October 2019.
Appointment
Mary was appointed to the OSB
Board in May 2014.
Rajan Kapoor
Independent Non-Executive Director
Committee membership
Chair of the Group Audit Committee and
member of the Board Integration, Group
Remuneration, Group Risk and Group
Models and Ratings Committees.
Experience and qualifications
Rajan was appointed to the Board of CCFS in
September 2016. He was Financial Controller
of the Royal Bank of Scotland (RBS) Group
plc and held a number of senior finance
positions during a 28-year career with RBS.
Key skills
Rajan has extensive experience of financial
and regulatory reporting in the UK and US
with a strong background in internal financial
controls, governance and compliance.
Rajan is a Fellow of the Institute of Chartered
Accountants and of the Chartered
Institute of Bankers in Scotland.
Mary McNamara
Independent Non-Executive Director
Committee membership
Chair of the Group Remuneration
Committee and member of the Group
Nomination and Governance Committee.
Experience and qualifications
Mary is Chair of the Group Remuneration
Committee and Senior Independent Director
at Motorpoint plc. She served as a Non-
Executive Director of Dignity plc and Chair
of its Remuneration Committee. She was
the CEO of the Commercial Division and
a Director of the Banking Division at Close
Brothers Group PLC. Prior to that, Mary was
interim Chief Operating Officer of Skandia, the
European arm of Old Mutual Group, and prior
to that, spent 17 years at GE Capital, running
a number of businesses including GE Fleet
Services Europe and GE Equipment Finance.
Key skills
Mary has broad senior management
experience in the banking and finance sectors.
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Group Executive team (biographies)
A strong
core team
Alan Cleary
Group Managing Director, Mortgages
Experience and qualifications
Alan joined OSB in October 2019, following
the Combination with CCFS.
Alan was the Managing Director at Precise
Mortgages, as well as being a co-founder
of that business, and is responsible for
Group mortgage product development,
marketing and mortgage originations.
Alan has worked in the mortgage industry for over
25 years. He was Head of Sales at BM Solutions
from inception in 2001 to 2005 when he became
Director of Halifax Intermediaries, the largest
intermediary mortgage brand in the UK at the time.
Peter Elcock
Chief Risk Officer, CCFS
Experience and qualifications
Peter joined OSB in October 2019, following
the Combination with CCFS.
Peter is responsible for the CCFS Risk and
Compliance teams. He has over 39 years’
experience in financial services, having held
a number of senior positions in financial
institutions, including 27 years at Barclays
PLC in a variety of roles and most latterly at
director level leading risk management strategy
and change. He was previously the Chief
Risk Officer at Coventry Building Society.
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OSB GROUP PLC Annual Report and Accounts 2020
Jens Bech
Group Commercial Director
Experience and qualifications
Jens joined OSB as Chief Risk Officer in 2012, before
becoming Group Commercial Director in 2014.
Jens joined from the Asset Protection Agency,
an executive arm of HM Treasury, where he
held the position of Chief Risk Officer. Prior
to joining the Asset Protection Agency, Jens
spent nearly a decade at management
consultancy Oliver Wyman Limited where he
advised a global portfolio of financial services
firms and supervisors on strategy and risk
management. Jens led Oliver Wyman Limited’s
support of Iceland during the financial crisis.
Jason Elphick
Group General Counsel and
Company Secretary
Experience and qualifications
Jason joined OSB in June 2016. He has over
25 years of legal private practice and in-
house financial services experience.
Jason’s private practice experience was primarily in
Australia with King & Wood Mallesons and in New York
with Sidley Austin LLP and he has been admitted to
practice in Australia, New York and England and Wales.
Jason’s previous in-house financial services experience
was as Director and Head of Bank Legal at Santander
Group in London. Prior to this, he held various
roles at National Australia Bank Limited, including
General Counsel Capital and Funding, Head of
Governance, Company Secretary and General
Counsel Product, Regulation and Resolution.
John Gaunt
Group Chief Information Officer
Experience and qualifications
John joined OSB in October 2019, following
the Combination with CCFS.
John held the position of Director of IT and Change
Management at CCFS and had responsibility for
the operational and tactical delivery of all business
matters relating to information technology,
information security and change management.
With over 19 years’ experience in information
technology, information security and
change management within the financial
services sector, John has held a number of
senior IT roles within Nationwide Building
Society and Derbyshire Building Society.
Hasan Kazmi
Chief Risk Officer, OSB
Experience and qualifications
Hasan joined OSB in September
2015 as Chief Risk Officer.
Hasan has over 25 years of risk experience
having worked at several financial institutions,
including Barclays Capital, Royal Bank of Canada
and Standard Chartered Bank. Prior to joining
OSB, he was a Senior Director at Deloitte LLP
within the Risk and Regulatory practice with
responsibility for leading the firm’s enterprise
risk, capital, liquidity, recovery and resolution
practice. Hasan graduated from the London
School of Economics with a MSc in Systems
Design and Analysis and a BSc in Management.
Lisa Odendaal
Group Chief Internal Auditor
Experience and qualifications
Lisa joined OSB in April 2016. Prior to joining
OSB, she worked for Grant Thornton LLP where
she was an Associate Director responsible for
leading several outsourced audit functions
within its Business Risk Services division.
Lisa is a qualified Chartered Internal Auditor
and has over 25 years of internal audit and
operational experience gained in the UK, UAE
and Switzerland, having worked at several
financial institutions, including PwC, Morgan
Stanley Group, HSBC and Man Group plc.
Richard Wilson
Group Chief Credit Officer
Experience and qualifications
Richard joined OSB in 2013.
Prior to joining OSB, Richard was head of the
credit function for Morgan Stanley Group’s UK
origination business and subsequently looked
after the Credit and Collections strategy within
its UK, Russian and Italian businesses. Between
1988 and 2006, Richard held various roles at
Yorkshire Building Society, including the position
of Mortgage Application Centre Manager.
Clive Kornitzer
Group Chief Operating Officer
Experience and qualifications
Clive joined OSB in 2013. Clive has over 25
years of financial services experience, having
worked at several financial organisations
including Yorkshire Building Society, John
Charcol Limited and Bradford and Bingley plc.
Prior to joining OSB, Clive spent six years at
Santander Group where he was the Chief Operating
Officer for the intermediary mortgage business. He
has also held positions at the European Financial
Management Association and has been the Chair of
the FS Forums Retail Banking Sub-Committee. Clive
is a Fellow of the Chartered Institute of Bankers.
Paul Whitlock
Group Managing Director, Savings
Experience and qualifications
Paul joined OSB in October 2019, following
the Combination with CCFS.
Paul was an Executive of Charter Savings
Bank. Paul brings specialist knowledge of the
savings market and is responsible for all aspects
of the Group’s savings strategy, products,
propositions, sales, distribution and operations.
With over 20 years of UK and international
experience in the retail banking industry,
including senior positions at First Direct,
HSBC and Shawbrook Bank Limited, Paul
has extensive experience delivering banking
products to the consumer market.
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Corporate Governance Report
Good corporate
governance is essential to
provide the Executive team
with the environment and
culture in which to drive the
success of the business.
David Weymouth
Chairman
The statement of corporate governance practices,
including the Reports of the Committees, set out
on pages 120 to 167 and information incorporated
by reference, constitutes the Corporate
Governance Report of OSB Group.
UK Corporate Governance Code (the Code)
Compliance Statement
During 2020, the Company applied the principles
and complied with the applicable provisions of
the Code. The Code is available
at www.frc.org.uk.
120120
OSB GROUP PLC Annual Report and Accounts 2020
Dear Shareholder,
I am pleased to present to you the Company’s Corporate
Governance Report for 2020 and to report full compliance
throughout the year with the Code.
You will have seen that we have made some governance changes
since my last report.
OSB GROUP PLC was inserted as the ultimate holding company
and became the listed entity (to which the Code applies) at the end
of November 2020. The reports that follow therefore relate to our
governance position prior to and since the insertion of OSB GROUP
PLC as the listed entity.
The Board continues to be committed to the highest standards
of corporate governance and considers that good corporate
governance is essential to provide the Executive team with the
environment and culture in which to drive the success of the
business. This is against a backdrop of considerable uncertainty
relating to COVID-19 and the terms of the UK’s exit from the
European Union. In addition, a key focus of the Board has been
to continue with the integration of OSB and CCFS. Governance
has been, and will continue to be, a key aspect of this process.
During the year, the Board and its Committees undertook an
internal evaluation, details of which are set out in the report
on page 128. The review concluded that the Board and its
Committees continue to operate effectively. We intend to
undertake an externally-facilitated Board evaluation in 2021.
There have been no further Board changes since my last report
to you. All current members of the Board will be seeking re-election
at the 2021 Annual General Meeting (AGM).
Our preference is to welcome shareholders in person to the
AGM, particularly given the constraints we faced in 2020
due to the COVID-19 pandemic. At present, however, public
health guidance and legislation issued by the UK Government
in relation to the pandemic mean that there are restrictions
on public gatherings and travel. Should a physical meeting
be possible, this will be held at our offices at 90 Whitfield
Street, Fitzrovia, London W1T 4EZ on 27 May 2021 at 11am.
Further details are set out in the Notice of AGM.
The Investor Relations function continues to assist the Board
in developing a programme of meetings and presentations
to both institutional and private shareholders, details
of which are also set out in the report that follows.
David Weymouth
Chairman
8 April 2021
The role and structure of the Board
The Board of Directors (the Board) is responsible for the long-term
success of the Company and provides leadership to the Group.
The Board focuses on setting strategy, monitoring performance
and ensures that the necessary financial and human resources are
in place to enable the Company to meet its objectives. In addition,
it ensures appropriate financial and business systems and controls
are in place to safeguard shareholders’ interests and to maintain
effective corporate governance. The Board had a particular focus
on integration matters and responding to COVID-19 in 2020.
The Board is responsible for setting the tone from the top in
relation to conduct, culture and values, for ensuring continuing
commitment to treating customers fairly, carrying out business
honestly and openly and preventing bribery, corruption, fraud
or the facilitation of tax evasion.
The Board operates in accordance with the Company’s Articles of
Association (the Articles) and its own written terms of reference. The
Board has established a number of Committees, as indicated in the
chart on page 123, which each have their own terms of reference
which are reviewed at least annually. Details of each Committee’s
activities during 2020 are shown in the Group Nomination and
Governance, Group Audit, Group Risk, Group Models and Ratings,
Board Integration and Directors’ Remuneration reports on pages
130 to 167.
The Board retains specific powers in relation to the approval of the
Group’s strategic aims, policies and other matters, which must be
approved by it under legislation or the Articles. These powers are
set out in the Board’s written terms of reference and Matters
Reserved to the Board, which are reviewed at least annually.
Accountability
In line with the Code provisions, the Board ensures that a fair,
balanced and understandable assessment of the Group’s position
and prospects is presented in all financial and business reporting.
The Board is responsible for determining the nature and extent of
the principal risks it is willing to take in achieving its strategic
objectives and maintains sound risk management and internal
control systems. The Board has established formal and transparent
arrangements for considering how it should apply the corporate
reporting, risk management and internal control principles and for
maintaining an appropriate relationship with the Group’s auditors.
A summary of the matters reserved for decision by the Board is
set out below:
Strategy and management
} Overall strategy of the Group
} Approval of long-term objectives
} Approval of annual operating and capital
expenditure budgets
} Review of performance against strategy and objectives
Structure and capital
} Changes to the Group’s capital or corporate structure
} Changes to the Group’s management and control structure
Risk management
} Overall risk appetite of the Group
} Approval of the Strategic Risk Management Framework
(SRMF)
Financial reporting and controls
} Approval of financial statements
} Approval of dividend policy
} Approval of significant changes in accounting policies
} Ensuring maintenance of a sound system of internal control
and risk management
Remuneration
} Determining the Remuneration Policy for the Executive
Directors and senior management (including Material
Risk Takers)
} Overseeing the introduction of new share incentive plans
or major changes to existing plans
Corporate governance
} Review of the Group’s overall governance structure
} Determining the independence of Directors
Board members
} Changes to the structure, size and composition of the Board
} Appointment or removal of the Chairman, Chief Executive
Officer, Senior Independent Director and Company
Secretary
Other
} The making of political donations
} Reviewing the overall levels of insurance for the Group
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Control environment
The Group is organised along the ‘three lines of defence’
model to ensure at least three stages of independent
oversight to protect the customer and the Group from
undue influence, conflict of interest and poor controls.
The first line of defence is provided by the operational business
lines which identify, measure, assess and control risks through
the day-to-day activities of the business within the frameworks
set by the second line of defence. The second line of defence
is provided by the Risk, Compliance and governance functions
which include the Board and Group Executive Committee. As
noted in this report, the Board sets the Company’s risk appetite
and is ultimately responsible for ensuring an effective SRMF is
in place. The Compliance function maintains the ‘key controls
framework’ which tracks and reports on key controls within the
business to ensure compliance with the main provisions of the
Financial Conduct Authority (FCA) and the Prudential Regulation
Authority (PRA) handbooks. Policy documents also include
key controls that map back to the key controls framework.
The third line of defence is the Internal Audit function.
The Board is committed to the consistent application of
appropriate ethical standards and the Conduct Risk Framework
sets out the basic principles to be followed to ensure ethical
considerations are embedded in all business processes and
decision-making forums. The Group also maintains detailed
policies and procedures in relation to the prevention of
bribery and corruption, as well as a Whistleblowing Policy.
Directors
The Directors who served during the year are listed in the table
on page 123. Graham Allatt, Noël Harwerth, Sarah Hedger, Rajan
Kapoor, Mary McNamara and David Weymouth were appointed
to the Board of the new holding Company on 28 February 2020.
The Board currently consists of eight Directors; the
Chairman, two Executive Directors and five independent
Non-Executive Directors (NEDs). The biographies of
the Directors can be found on pages 116 and 117.
Corporate Governance Report (Continued)
Financial and business reporting
The Board is committed to ensuring that all external financial
reporting presents a fair, balanced and understandable
assessment of the Group’s position and prospects. To achieve
this, the Board reviews each report and considers the level of
consistency throughout; whether there is a balanced review
of the competitive landscape; the use of sufficiently simple
language; the analysis of risks facing the business; and that
there is equal prominence given to statutory and alternative
performance measures. The Board has established a Group Audit
Committee to assist in making its assessment. The activities of
the Group Audit Committee are set out on pages 134 to 141.
Risk management and internal control
The Board retains ultimate responsibility for setting the
Group’s risk appetite and ensuring that there is an effective
Strategic Risk Management Framework (SRMF) to maintain
levels of risk within the risk appetite. The Board regularly
reviews its procedures for identifying, evaluating and
managing risk, acknowledging that a sound system of
internal control should be designed to manage rather than
eliminate the risk of failure to achieve business objectives.
The Board has carried out a robust assessment of the principal
risks facing the business, including those that would threaten its
business model, future performance, solvency or liquidity. Further
details are contained in the Viability Statement on pages 88 and 89.
The Board has established a Group Risk Committee to which
it has delegated authority for oversight of the Group’s risk
appetite, risk monitoring and capital management. The Group
Risk Committee provides oversight and advice to the Board
on current risk exposures and our future risk strategy. The
Committee also assists the Board in fostering a culture within
the Group which emphasises and demonstrates the benefits of
a risk-based approach to internal control and management.
Further details of the Group’s risk management approach,
structure and principal risks are set out in the Group
Risk Committee Report on pages 142 to 145.
The Board has delegated authority to the Group Audit Committee
for reviewing the effectiveness of the Company’s internal control
systems including oversight of financial reporting processes.
The Group Audit Committee is supported by the Internal Audit
function in discharging this responsibility and receives regular
reports from the Group Chief Internal Auditor as to the overall
effectiveness of the internal control system within the Group.
The Group Audit Committee also receives reports from the
external auditor on control matters. Details of the review of the
effectiveness of the Company’s internal control systems are
set out in the Group Audit Committee Report on page 139.
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OSB GROUP PLC Annual Report and Accounts 2020
Board meetings and attendance
The Board met 15 times during the year, which was more than
usual due to COVID-19. The Board has a formal meeting schedule
with ad hoc meetings called as and when circumstances require.
The Board held additional meetings during the first wave of
COVID-19, meeting weekly in order to discuss the impact on the
Group as a whole; those meetings are not included in table below.
There is an annual calendar of agenda items to ensure that all
matters are given due consideration and are reviewed at the
appropriate point in the regulatory and financial cycle. The Board
has established a number of Committees as shown in the table
below. The table also shows each Director’s attendance at Board
and Committee meetings they were eligible to attend in 2020.
Director
David Weymouth (Chairman)
Graham Allatt
Andy Golding
Noël Harwerth
Sarah Hedger
Rajan Kapoor
Mary McNamara
April Talintyre
Group Audit
Committee
Group
Remuneration
Committee
Group
Nomination
and
Governance
Committee
Group Risk
Committee
Board
Integration
Committee
n/a
8/8
n/a
4/4
8/8
8/8
n/a
n/a
7/8
n/a
n/a
8/8
5/5
8/8
8/8
n/a
8/8
n/a
n/a
8/8
n/a
n/a
6/6
n/a
n/a
10/10
n/a
10/10
n/a
10/10
n/a
n/a
8/8
n/a
8/8
n/a
8/8
8/8
n/a
n/a
Board
14/15
14/15
15/15
14/15
15/15
15/15
15/15
15/15
1 The number of meetings set out within the attendance schedule includes those that were held for OneSavings Bank plc, before the listed entity changed to OSB GROUP PLC on 30 November 2020.
All Directors are expected to attend all meetings of the Board, any
Committees of which they are members and to devote sufficient
time to the Company’s affairs to fulfil their duties as Directors.
Where Directors are unable to attend a meeting, they are
encouraged to submit any comments on the meeting materials in
advance to the Chair, to ensure that their views are recorded and
taken into account during the meeting. David Weymouth, Graham
Allatt and Noël Harwerth provided comments for the meetings they
were not able to attend.
As a result of COVID-19, all meetings since March 2020 have been
held by telephone or videoconference. In October 2020, the Board
trialled meeting (socially distanced) using split sites in Chatham,
London and Wolverhampton. Since then, stricter COVID-19
measures have been imposed by the UK Government and the
Board has reverted to meeting virtually.
Key Board activities during the year included:
} Strategy – the Board convened a mini-strategy session in
October 2020
} Regular updates relating to performance in light of COVID-19
} Risk monitoring and review
} Governance and compliance
} External affairs and competitor analysis
} Talent review/succession planning
} Annual, interim and quarterly reporting
} Customer/brand/product review
} Policy review and update
} Investment proposals
} Culture – Purpose, Vision and Values
The Board assesses and monitors culture through regular updates
from management, interactions with employees (informally and
through OneVoice), reviewing and discussing the results of the
Banking Standards Board (BSB) and Best Companies to Work For
surveys. A representative from the BSB is invited to explain the
results to the Directors, whether they are in line with other firms of
a similar size and provide independent observations for potential
areas of focus. During 2020, the Board requested and received
regular updates from management regarding the levels of
engagement of employees, particularly as measures responding to
COVID-19 were implemented. The Board annually reviews regretted
leaver analysis for signs of poor culture. The Board also oversees
community activities undertaken by employees.
Roles of the Chairman and Chief Executive Officer
The roles of Chairman and Chief Executive Officer (CEO) are
distinct and held by different people. There is a clear division of
responsibilities, which has been agreed by the Board and is
formalised in a schedule of responsibilities for each.
The Chairman, David Weymouth, is responsible for setting the
‘tone at the top’ and ensuring that the Board has the right mix of
skills, experience and development so that it can focus on the key
issues affecting the business and for leading the Board and
ensuring it acts effectively. Andy Golding, as CEO, has overall
responsibility for managing the Group and implementing the
strategies and policies agreed by the Board. A summary of the key
areas of responsibility of the Chairman and CEO and how these
have been discharged during the year, are set out on page 124.
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Chairman’s responsibilities
Activities carried out in 2020
Chairing the Board and general meetings of the Company.
Setting the Board agenda and ensuring that adequate time is
available for discussion of all agenda items.
David Weymouth chaired 14 out of the 15 Board meetings held during 2020.
Unusually, he did not chair the AGM, which was held with the minimum
quorum present due to COVID-19, in line with the restrictions on public
gatherings imposed by the UK Government.
The Chairman liaised with the Company Secretary to set the annual
calendar of Board business and the agenda for each meeting. Time is
allocated for each item of business at meetings.
Promoting the highest standards of integrity, probity and corporate
governance throughout the Company.
The Board received regular updates from its Committees on changes
in corporate governance and its application to the Company.
Ensuring that the Board receives accurate, timely and clear
information in advance of meetings.
Promoting a culture of openness and debate by facilitating the
effective contribution of all NEDs.
Ensuring constructive relations between Executives and NEDs and
the CEO in particular.
Regularly considering succession planning and the composition of
the Board.
Ensuring training and development needs of all Directors are met
and that all new Directors receive a full induction.
Ensuring effective communication with shareholders and
stakeholders.
Chief Executive Officer’s responsibilities
Andy Golding’s responsibilities as CEO are to ensure that the
Group operates effectively at strategic, operational and
administrative levels. He is responsible for all the Group’s activities;
he provides leadership and direction to encourage others to effect
strategies agreed by the Board; channels expertise, energy and
enthusiasm; builds individual capabilities within the team; develops
and encourages talent within the business; identifies commercial
and business opportunities for the Group, building strengths in key
areas; and is responsible for all commercial activities of the Group,
liaising with regulatory authorities where appropriate. He is
responsible for the quality and financial well-being of the Group,
represents the Group to external organisations and builds
awareness of the Group externally.
The Chairman, in liaison with the Company Secretary and the CEO, agreed
the information to be distributed to the Board in advance of each meeting.
Weekly updates were provided to the Board during the first wave of
COVID-19.
The Chairman ran meetings in an open and constructive way, encouraging
contribution from all Directors and regularly met with NEDs without
management present so that any concerns could be expressed. The
Chairman adapted his approach to ensure that virtual meetings were
conducted in a manner that allowed all Directors to participate fully.
The Board received regular updates from the Group Nomination and
Governance Committee. Details of the Committee’s activities are explained
in the Group Nomination and Governance Committee report on pages 130
to 133.
The Chairman, in liaison with the Company Secretary, has reviewed the
Directors’ training requirements. Details of induction and training held
during the year are given on page 127.
The Chairman, along with the Board and assisted by the CEO, CFO and
Investor Relations team, agreed a schedule of investor relations meetings.
Details of meetings held during the year are shown on page 129. Some of
these meetings were held virtually during the first wave of COVID-19, due
to social distancing measures put in place by the UK Government.
In addition, Andy also has a specific focus on the delivery of
integration objectives, as well as providing leadership and direction
in response to COVID-19 and its impact on the business and
employees throughout 2020 and beyond.
An experienced Group Executive team, comprising specialists
in finance, banking, risk, legal and IT matters, assist the CEO in
carrying out his responsibilities. The biographies for the Group
Executive team are set out on pages 118 and 119.
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OSB GROUP PLC Annual Report and Accounts 2020
Group Executive Committee
The CEO chairs the Group Executive Committee, whose members
also include the Chief Financial Officer (CFO), Group Chief
Operating Officer, Chief Risk Officers (CROs) of OSB and CCFS,
Group General Counsel and Company Secretary, Group
Commercial Director, Group Chief Information Officer, Group
Chief Credit Officer, Group Managing Director for Mortgages,
Group Managing Director for Savings and the Group Chief
Internal Auditor. The Group Executive Committee is supported by
a number of Management Committees. The purpose of the Group
Executive Committee is to assist the CEO in the performance of
his duties, including:
} The development and implementation of the strategic plan
as approved by the Board.
} The development, implementation and oversight of a strong
operating model that supports the strategic plan.
} The development and implementation of systems and controls
to support the strategic plan.
} To review and oversee operational and financial performance.
} To prioritise and allocate the Group’s resources in accordance
with the strategic plan.
} To oversee the development of a high-performing senior
management team.
} To oversee the customer proposition and experience to
ensure consistency with the Group’s obligation to treat
customers fairly.
} To oversee the appropriate protection and control of private
and confidential data.
} To review and oversee the key and strategic business risks.
} To oversee how the Purpose, Vision and Values are
being embedded.
} To implement the integration of CCFS, including overseeing
the Risk and Compliance functions, with a view to ensuring the
effective management of risks across the individual entities and
on an aggregated basis.
The Group Executive Committee’s activities during the
year included:
} The impact of COVID-19
} Business review
} Capital and funding
} Human resources and succession planning
} Governance, control and risk environment – current and
forward looking
} Integration
} Monitoring target operating model progress
} Culture – Purpose, Vision and Values
Senior Independent Director
Noël Harwerth is the Senior Independent Director (SID). The SID’s
role is to act as a sounding board for the Chairman and to support
him in the delivery of his objectives. This includes ensuring that the
views of all other Directors are communicated to, and given due
consideration by, the Chairman. In addition, the SID is responsible
for leading the annual appraisal of the Chairman’s performance.
The SID is also available to shareholders should they wish to
discuss concerns about the Company other than through the
Chairman and CEO.
Company Secretary
The Company Secretary, Jason Elphick, plays a key role within
the Company, advising on good governance and assisting the
Board to discharge its responsibilities, acting with integrity and
independence to protect the interests of the Company, its
shareholders and employees of the Group. Jason advises the
Company to ensure that it complies with all statutory and
regulatory requirements and he works closely with the Chairman,
CEO and Chairs of the Committees of the Board so that Board
procedures (including setting agendas and the timely distribution
of papers) are complied with and that there is a good
communication flow between the Board, its Committees, senior
management and NEDs. Jason also provides the Directors with
advice and support, including facilitating induction programmes
and training, in conjunction with the Chairman.
OSB GROUP PLC Annual Report and Accounts 2020
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Corporate Governance Report (Continued)
Effectiveness
Balance and independence
The effectiveness of the Board and its Committees in discharging
their duties is essential for the success of the Company. In order
to operate effectively, the Board and its Committees comprise
a balance of skills, experience, independence and knowledge
to encourage constructive debate and challenge to the decision-
making process.
The Board comprises five NEDs, the Chairman and two Executive
Directors. All of the NEDs, including the Chairman, have been
determined by the Board to be independent in character and
judgement and free from relationships or circumstances which
may affect, or could appear to affect, the relevant individual’s
judgement. The independence of the NEDs is reviewed
continuously, including a formal annual review. Any NED who
does not meet the independence criteria will not stand for election
or re-election at the AGM.
The size and composition of the Board is kept under review by the
Group Nomination and Governance Committee and the Board
to ensure an appropriate balance of skills and experience are
represented. An external skills review was undertaken by Bvalco1
during 2020. The Board is satisfied that its current composition
allows it to operate effectively and that all Directors are able to
bring specific insights and make valuable contributions to the
Board, due to their varied commercial backgrounds. The NEDs
provide constructive challenge to the Executives and the Chairman
ensures that the views of all Directors are taken into consideration
in the Board’s deliberations. The Directors’ biographies can be
found on pages 116 and 117.
Non-Executive Directors’ terms of appointment
NEDs are appointed for terms of three years, subject to annual
re-election by shareholders. The initial term may be renewed up
to a maximum of three terms (a total of nine years). The terms of
appointment of NEDs specify the amount of time they are expected
to devote to the business, which is a minimum of two and half days
per month, calculated based on the time required to prepare for
and attend Board and Committee meetings, the AGM, meetings
with shareholders and training. NEDs are also committed to
working additional hours as may be required in exceptional
circumstances, such as COVID-19.
NEDs are required to confirm annually that they continue to have
sufficient time to devote to the role.
1 Bvalco has no other connection with the Company or individual Directors.
Appointment, retirement and re-election
of Directors
The Board may appoint a Director, either to fill a vacancy or as
an addition to the existing Board. All appointments are subject to
a formal, rigorous and transparent procedure; succession is also
considered. Appointments and succession planning are based
on merit and objective criteria and, within this context, promotes
diversity of gender, social and ethnic backgrounds, cognitive and
personal strengths. Any new Director must then retire at the next
AGM and is put forward for election by the shareholders.
All other Directors are put forward for re-election annually. In
addition to any power of removal conferred by the Companies Act,
any Director may be removed by special resolution, before the
expiration of his or her period of office and, subject to the Articles,
another person who is willing to act as a Director may be
appointed by ordinary resolution in his or her place.
Conflicts of interest
The Company’s Articles set out the policy for dealing with
Directors’ conflicts of interest and are in line with the Companies
Act 2006. The Articles permit the Board to authorise conflicts and
potential conflicts, as long as the potentially conflicted Director is
not counted in the quorum and does not vote on the resolution to
authorise the conflict.
Directors are required to complete an annual confirmation
including a fitness and propriety questionnaire, which requires
declarations of external interests and potential conflicts. In
addition, all Directors are required to declare their interests in the
business to be discussed at each Board and Committee meeting.
The interests of new Directors are reviewed during the recruitment
process and authorised, if appropriate, by the Board at the time
of their appointment. The Group Nomination and Governance
Committee reviews conflicts of interest relating to Directors at least
annually; periodic reviews are also undertaken as required. The
Group has adopted a Conflicts of Interest Policy, which includes
a procedure for identifying potential conflicts of interest within
the Group.
No Director had a material interest in any contract of significance
in relation to the Group’s business at any time during the year or
at the date of this report.
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OSB GROUP PLC Annual Report and Accounts 2020
Directors’ indemnities
The Articles provide, subject to the provisions of UK legislation,
an indemnity for Directors and Officers of the Group in respect
of liabilities they may incur in the discharge of their duties or in
the exercise of their powers, including any liabilities relating to the
defence of any proceedings brought against them, which relate
to anything done or omitted, or alleged to have been done or
omitted, by them as Officers or employees of the Group. Directors’
and Officers’ Liability Insurance cover is in place in respect of
all Directors.
Directors’ powers
As set out in the Articles, the business of the Company is managed
by the Board, which may exercise all the powers of the Company.
In particular, save as otherwise provided in company law or in the
Articles, the Directors may allot (with or without conferring a right
of renunciation), grant options over, offer, or otherwise deal with
or dispose of shares in the Company to such persons at such
times and generally on such terms and conditions as they may
determine. The Directors may at any time after the allotment of
any share but before any person has been entered in the Register
as the holder, recognise a renunciation thereof by the allottee in
favour of some other person and may accord to any allottee of a
share, a right to effect such renunciation upon and subject to such
terms and conditions as the Directors may think fit to impose.
Subject to the provisions of company law, the Company may
purchase any of its own shares (including any redeemable shares).
Training and development
The Chairman ensures that all Directors receive a tailored induction
on joining the Board, with the aim of providing a new Director with
the information required to allow him or her to contribute to the
running of the Group as soon as possible. The induction
programme is facilitated and monitored by the Company
Secretary to ensure that all information provided is fully
understood by a new Director and that any queries are dealt
with. Typically, the induction programme will include a combination
of key documents and face-to-face sessions covering the
governance, regulatory and other arrangements of the Group.
As senior managers, under the Senior Managers Regime operated
by the PRA and FCA, all Directors have had to maintain the skills,
knowledge and expertise required to meet the demands of their
positions of ‘significant influence’ within the Group. As part of the
annual fitness and propriety assessment, Directors are required to
complete a self-certification that they have undertaken sufficient
training during the year to maintain their skills, knowledge and
expertise and to make declarations as to their fitness and
propriety. The Company Secretary supports the Directors
to identify relevant internal and external courses to ensure
Directors are kept up to date with key regulatory changes,
their responsibilities as senior managers and other matters
impacting the business.
Information and support
The Company Secretary and the Chairman agree an annual
calendar of matters to be discussed at each Board meeting to
ensure that all key Board responsibilities are discharged over the
year. Board agendas are then distributed with accompanying
detailed papers to Directors in advance of each Board and
Committee meeting. These include reports from Executive Directors
and other members of senior management. All Directors have
direct access to senior management should they require additional
information on any of the items to be discussed. The Board and
Group Audit Committee also receive further regular and specific
reports to allow the monitoring of the adequacy of the Group’s
systems and controls.
The information supplied to the Board and its Committees is kept
under review and formally assessed on an annual basis as part of
the Board evaluation exercise to ensure it is fit for purpose and that
it enables sound decision-making. Additional and more frequent
information was provided to the Board during the first wave of
COVID-19.
There is a formal procedure through which Directors may obtain
independent professional advice at the Group’s expense. The
Directors also have access to the services of the Company
Secretary as described on page 125.
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Corporate Governance Report (Continued)
Board evaluation
The Board undertakes an evaluation of its performance and that
of its Committees and individual Directors annually. An internal
evaluation was conducted during 2020 using questionnaires.
The Board was satisfied that no individual or group of Directors
dominated the discussions or had undue influence in the decision-
making process and the conclusion was that overall, the Board
remained effective.
The Board is always looking at areas to improve and identified
that it may benefit from an additional NED with specific
experience such as Risk. The main focus for 2020 was the
integration and navigation of the COVID-19 pandemic in a
virtual environment. The Board has now redirected its efforts
towards the longer-term strategy for the Group and will use
lessons learnt from the pandemic to inform its approach.
An update of the actions taken since the last external evaluation
is included in the table below.
Suggestion
Action taken
Explore ways in which NEDs can be increasingly equipped to provide
more wide-ranging strategic challenge as the business grows.
The Chairman has reviewed Board and individual NED challenge as part of
his regular one-to-one sessions with each NED. Action is taken, if required.
Increase the opportunities for NEDs to interact with each other,
with Executives and with counterparts from the combined entity.
Informal catch-ups have been scheduled around some meetings.
Ensure that a skills matrix is in place (and adjusted following the
Combination) for NEDs and Executives, with input from the Group
Nomination and Governance Committee.
A skills matrix was developed by an external firm, details of which
are outlined below. It was reviewed by the Group Nomination and
Governance Committee.
Continue to monitor closely the implementation and integration
of the new culture.
Consider dedicating additional time on Board meeting days to cover
the extra workload of the combined Board.
Consider additional support for the HR function, such
as appointing a remuneration specialist.
Continue to monitor risk reporting to the Board, to ensure it gives a
clear and effective summary of the debate and encourages NEDs to
focus on the overarching risk picture.
The Group Nomination and Governance Committee could be more
proactive on succession, feeding back more detailed reports to
the Board to fuel the creation of a skills matrix for NEDs, which
acknowledges the value of the Board as a combined entity which
can be stronger than the sum of its parts.
Workshops comprising employees from both OSB and CCFS were held
with the aim of establishing the values of the combined Group. The Group
Nomination and Governance Committee and the Board also receive an
annual update on the results of the BSB survey; usually by a representative
from BSB.
50% extra time has been allocated to Board meetings. A number of
additional meetings were held to discuss the impact of COVID-19. This
will continue to be monitored and adjusted, as appropriate.
A new Head of Reward has been recruited into the HR team.
Risk-based management information (MI) provided to the Board was
enhanced to reflect increased alignment of risk assessment processes
across the individual banking entities and to reflect the recently
established Group risk appetite.
An external review was commissioned, which involved interaction with
each Board member to create a detailed skills matrix of the existing Board.
A revised skills matrix was presented to the Committee during 2020. The
Committee discussed the skills matrix and whether there were sufficient
skills on the Board and also considered Board succession, particularly, for
the chairs of Board Committees. Changes were made to the Board and
a succession plan activated. An externally-facilitated Board effectiveness
review will be commissioned in 2021, which will continue to work on this
and review the effectiveness of the Board as a whole.
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OSB GROUP PLC Annual Report and Accounts 2020
Annual General Meeting
Our preference is to welcome shareholders in person to the AGM,
particularly given the constraints we faced in 2020 due to the
COVID-19 pandemic. At present, however, public health guidance
and legislation issued by the UK Government in relation to the
pandemic mean that there are restrictions on public gatherings
and travel. Should a physical meeting be possible, this will be
held at our offices at 90 Whitfield Street, Fitzrovia, London W1T
4EZ on 27 May 2021 at 11am. Where possible, the Chairs of
each of the Committees of the Board will be present to answer
questions put to them by shareholders. The Annual Report and
Accounts and Notice of the AGM will be sent to shareholders
at least 20 working days prior to the date of the meeting.
Shareholders are encouraged to participate in the AGM
process and all resolutions will be proposed and voted on
at the meeting on an individual basis by shareholders or
their proxies. Voting results will be announced and made
available on the Company’s website, www.osb.co.uk.
Shareholders may require the Directors to call a general
meeting other than an AGM as provided by the Companies
Act 2006. Requests to call a general meeting may be made by
members representing at least 5% of the paid-up capital of the
Company as carries the right of voting at general meetings of
the Company (excluding any paid-up capital held as treasury
shares). A request must state the general nature of the business
to be dealt with at the meeting and may include the text of a
resolution that may properly be moved and is intended to be
moved at the meeting. A request may be in hard copy form or
in electronic form and must be authenticated by the person
or persons making it. A request may be made in writing to the
Company Secretary to the registered office or by sending an
email to company.secretariat@osb.co.uk. At any general meeting
convened on such request, no business shall be transacted,
except that stated by the requisition or proposed by the Board.
Whistleblowing
The Group has established procedures by which employees may,
in confidence, raise concerns relating to possible improprieties in
matters of financial reporting, financial control or any other matter.
The Whistleblowing Policy applies to all employees of the Group
and is benchmarked against industry standards. The Group Audit
Committee is responsible for monitoring the Group’s whistleblowing
arrangements and the policy. The Group Audit Committee
regularly reports to the Board on its activities.
The Group is confident that the arrangements are effective,
facilitate the proportionate and independent investigation of
reported matters and allow appropriate follow-up action to be
taken. Further details are provided in the Group Audit Committee
Report on page 139.
Relations with shareholders
Dialogue with shareholders
The Group has a dedicated Investor Relations function which
maintains regular, open and transparent dialogue with institutional
investors and sell-side analysts. The team has access to the CEO
and CFO who are available for meetings with shareholders and
frequently attend industry conferences. Twice each year, post
year-end and half-year results, the CEO and the CFO participate
in roadshows, meeting larger investors; however, due to the
restrictions imposed by the UK Government in response to
COVID-19, such meetings have been held via video conference.
In 2020, the Investor Relations team and management met
a total of 113 individual existing and potential investors.
The Board’s primary contact with institutional shareholders and
sell-side analysts is through the CEO and the CFO. The Board is
also regularly presented with shareholders’ feedback, analysts’
recommendations and market views via Investor Relations updates,
topics which are frequently on the Board agenda.
Further details can be found in the section 172 statement on page
18.
As a result of the Combination with CCFS and becoming a PRA
Level 2 firm, the Group consulted the top ten shareholders on
proposed changes to the remuneration of the CEO and CFO.
Meetings were attended by the Chairman, David Weymouth,
providing an opportunity to discuss the proposed remuneration
but also any other topics of interest to our investors.
OSB GROUP PLC Annual Report and Accounts 2020
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Group Nomination and Governance Committee Report
Dear Shareholder,
I am pleased to present this report to you as Chair of the Group
Nomination and Governance Committee.
The Committee is responsible for leading the process for the
appointment of new members of the Board and to provide
oversight and guidance to the Board on all matters of Corporate
Governance relating to the Group. This includes ensuring that:
} the Board sets the tone from the top in relation to the
values, ethics and culture of the Group leading to
a sustainable business;
} the Board, its Committees and the boards of the subsidiary
companies operate effectively and have an appropriate
balance of diversity, skills, experience, availability,
independence and knowledge of the Group to enable them
to discharge their respective responsibilities effectively; and
} the Group adheres to best practice in relation to Corporate
Governance in a manner that is proportionate to the size
and complexity of the Group, in line with the Code and the
requirements of the PRA and FCA.
The main focus of the Committee this year has been on the Board
skills assessment and subsequent resizing of the Board. Following
this, the Committee commenced the process for the appointment
of a new NED with the right skills to bolster Board succession
options. Per Ardua1 has been appointed to assist in this process
with a remit to provide a diverse list of candidates. The search
process is continuing.
A number of other items were also considered by the Committee
during 2020, including the Group’s progress in terms of achieving
the commitments set out in the Women in Finance Charter
and various diversity and inclusion initiatives including
the establishment of the Group’s Diversity and Inclusion
Working Group.
I am pleased to confirm that the Group had 29.8% of senior roles
occupied by women during 2020, which was very close to the
target of 30%. The target has been increased to achieve 33% by
the end of 2023.
Further details on areas considered by the Committee are provided
on the following pages.
David Weymouth
Chair of the Group Nomination and Governance
Committee and Chairman of the Board
8 April 2021
1 Per Ardua has no other connection with the Company or individual Directors.
The main focus of the
Committee this year has
been on the Board skills
assessment and subsequent
resizing of the Board.
David Weymouth
Chair of the Group Nomination and Governance
Committee
Committee member
Meetings attended
David Weymouth (Chair)
Noël Harwerth
Mary McNamara
8/8
8/8
6/6
130
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OSB GROUP PLC Annual Report and Accounts 2020
Membership and meetings
The Committee met a total of eight times during 2020. The
members of the Committee are Noël Harwerth, Mary McNamara,
who was re-appointed with effect from 4 March 2020, and
David Weymouth. Rod Duke and Sir Malcolm Williamson
were members of the Committee until 4 February 2020 when
they ceased to be members of the Board. David Weymouth
was appointed Chair of the Committee with effect from
4 March 2020 and continued to serve throughout the year.
Diversity
The Group recognises and embraces the benefits of having
a diverse Board and workforce; and sees diversity at Board level
as an essential element in maintaining a competitive advantage.
We believe that a truly diverse Board and workforce will include
and make good use of differences in the skills, regional and
industry experience, age, background, race, gender and other
distinctions between people. The Board recognises that diversity
is the key to better decision-making and avoiding ‘group think’.
Responsibilities
The specific responsibilities and duties of the Committee are set
out in its terms of reference which are available on our website,
www.osb.co.uk.
Composition of the Board and its Committees
The Committee conducted a review of the composition of the
Group Audit, Group Remuneration and Group Risk Committees
and its own composition during 2020, carefully considering the
skills of the existing members and looking at any skills gaps
applicable to each Committee.
A number of changes had been made following the Combination
with CCFS. The membership of the Committees was refreshed
as a result of the departure of some NEDs. Sarah Hedger
became a member of the Group Audit and Group Remuneration
Committees; Noël Harwerth was appointed to the Group
Audit Committee; and Mary McNamara was re-appointed
to this Committee.
These differences are considered in determining the optimum
composition of the Board and, where possible, will be balanced
appropriately. All Board appointments are made on merit, in the
context of the skills, experience, independence and knowledge
which the Board as a whole requires to be effective.
The Committee regularly reviews diversity initiatives including
its annual review of the Diversity and Inclusion Policy. The Board
remains committed to the Women in Finance Charter and has
introduced measurable objectives with the Group committing
to increase the percentage of female employees in senior
management positions within the Group’s UK population to
33% by the end of 2023. Currently, 17% of the Group Executive
Committee and 50% of our Board are female. One of the eight
Directors is from an ethnic minority. The Board recognises and
embraces the benefits that diversity can bring; diversity and
inclusion at Board level is an essential element in maintaining
a competitive advantage. It is hoped that a diverse candidate
list will be sourced as part of the search for a new NED.
Succession planning
The Committee considered both Board and Executive level
succession planning during 2020, including ways in which existing
skills could be developed further and any recent additional skills
which it was felt would complement the Board and its Committees.
The Combination with CCFS provided an opportunity for
a wholesale review of the balance of skills required on the Board
with an external firm engaged to assist with this process. The
findings were then used to discuss the optimum composition of the
Board. The Committee also undertook a deep dive of succession
planning for the Group Executive Committee.
A search is underway for a new NED with the right skills to bolster
Board succession options.
Jason Elphick is the appointed Diversity and Inclusion Champion.
His role is to promote diversity initiatives such as our commitment
to those with a disability, mental health in the workplace and
unconscious bias training. During 2020, the Diversity and Inclusion
Working Group was established, consisting of volunteer
representatives from across the Group, with the objective of
developing and delivering the Group’s Diversity and Inclusion
agenda in order to promote, champion and encourage diversity,
inclusion and equality within the workplace. The Diversity and
Inclusion Working Group reports to the Group Executive
Committee, who in turn provide information to the Committee
and the Board on all matters relating to diversity, inclusion
and equality.
Further details relating to diversity and inclusion are set out on
pages 97 to 98
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Group Nomination and Governance Committee Report (Continued)
Governance
The Committee reviewed changes in the regulatory landscape,
particularly the remit and composition of the Committees and the
operation of two banking licences within the Group.
Activities during 2020
In last year’s report the Committee identified eight key priorities.
A summary of actions taken and outcomes are set out in the
table below.
Objective
Action taken
Ensuring that the composition and size of the Board and Board
Committees remains appropriate post Combination with CCFS.
The Board size has been reduced from 14 to eight. A search is underway for
a new NED to supplement skills on the Board.
Overseeing the development of succession plans for Group Executive
Committee members and key Board roles.
Oversee the development of the revised Purpose, Vision and Values
for the combined Group, along with the strategy to embed them.
Review and agree the new combined diversity initiatives and
reduction of the gender pay gap.
External Board and Committee effectiveness review.
Oversee progress with the Group’s combined purpose and
sustainability initiatives.
Oversee the development of the talent pipeline and its relationship
to succession planning.
Provide oversight of the newly-established employee forum,
OneVoice.
A review of Board skills has led to a search for a new NED, which in turn will
bolster Board succession options. A deep dive of succession planning
relating to the Group Executive Committee was undertaken and further
actions are planned for 2021.
The Committee endorsed a revised Purpose, Vision and Values which were
launched in early 2021. As part of this launch, the Values were shared with
employees using examples of how behaviours will be assessed as part of
the performance appraisal process.
A new Diversity and Inclusion Working Group has been established and
has delivered various campaigns throughout the year such as celebrating
cultural heritage, International Women’s Day, Black History Month and our
own virtual PRIDE event. The Committee continued to review the gender
pay gap in 2020, by overseeing and challenging the management
initiatives in response to it and also in achieving Women in Finance
Charter targets.
An externally-facilitated Board evaluation will be undertaken in 2021.
An internal evaluation was undertaken for 2020 and the Board concluded
that it remained effective.
An Environmental Working Group was established during the latter half of
2020. An update on the first meeting of the Environmental Working Group
was presented to the Committee at the December 2020 meeting outlining
its purpose, which is to drive initiatives and improve employee engagement
with environmental initiatives.
The succession planning deep dive identified potential internal succession
talent over a five-year horizon. This work will be developed and refined by
the People Development team in 2021, as part of building a strong internal
talent pipeline.
Mary McNamara attends OneVoice meetings on a quarterly basis as the
designated NED to represent employees at Board level. She provides a
verbal update to the Committee following each meeting. A summary of the
topics discussed at OneVoice is presented to the Committee. All Directors
are encouraged to attend at least one meeting of OneVoice during the year.
Further details on the activities of OneVoice can be found on page 169.
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OSB GROUP PLC Annual Report and Accounts 2020
Priorities for 2021
} Monitoring the application and embedding of corporate
governance in the new Group.
} Overseeing the roll-out of the revised Purpose, Vision
and Values.
} Continuing the work on Board succession planning – the
current NED recruitment process.
} Overseeing the effective roll-out of the new Diversity and
Inclusion Working Group and continued oversight/
involvement with OneVoice.
} Bring together environmental, social and governance
initiatives and develop a robust oversight framework.
} Overseeing the development and implementation of
Executive succession plans.
OSB GROUP PLC Annual Report and Accounts 2020
133
OverviewStrategic reportGovernanceFinancial statementsAppendices Group Audit Committee Report
The Committee is
responsible for monitoring
and reviewing the Group’s
financial reports and
disclosures.
Rajan Kapoor
Chair of the Group Audit Committee
Committee member
Rajan Kapoor (Chair)
Graham Allatt
Noël Harwerth
Sarah Hedger
Meetings attended
8/8
8/8
4/4
8/8
134
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OSB GROUP PLC Annual Report and Accounts 2020
Dear Shareholder,
I am pleased to present the report of the Group Audit Committee
for 2020. The Committee is responsible for monitoring and
reviewing the Group’s financial reports and disclosures, its
accounting policies and practices and systems of internal controls,
including internal financial controls. The Committee manages
the relationship with the external auditor and oversees the work
of the Internal Audit function.
The COVID-19 pandemic has significantly affected the Group’s
operations and its financial performance. It has been a key
consideration for the Committee in 2020. A considerable amount
of time and effort was spent on the accounting judgements and
estimates relating to the calculation of expected credit losses
(ECL) and effective interest rate (EIR) in accordance with IFRS 9.
Modelling the likely impact on ECL and EIR has been challenging
in light of the unprecedented effect of the pandemic on the UK
economy and the extensive support the government has provided
to those affected. In common with other banks, the Group
has no historical data points to model the impacts of these
macroeconomic factors on ECL in particular. The Committee
therefore considered benchmark information from external
parties to inform its reviews. The changing economic conditions
necessitated overlay judgements to modelled outputs. These are,
by their nature, subjective; however, the Committee was satisfied
that the approach taken by management to apply overlay and
post model adjustments was robust and consistent. The
Committee noted and took comfort from the work undertaken
by the external auditor.
Following the identification of potential fraudulent activity by
a third party in relation to a funding line provided by the Group,
secured against lease receivables and the underlying hard assets,
the Group undertook an internal review of all other funding lines
and believes that this is an isolated incident. The Board has also
commissioned an external review into internal processes and
controls in its funding lines business and the Group Audit
Committee and Group Risk Committee will oversee the
implementation of recommendations following its completion.
Taken as a whole, the Committee has an appropriate balance
of skills, including recent and relevant financial experience.
In addition to members, standing invitations to Committee
meetings are extended to the Chairman of the Board, Executive
Directors, Chief Risk Officers, the Group Chief Internal Auditor and
the external audit partner, all of whom attend meetings as a matter
of practice. Other non-members may be invited to attend all or
part of any meeting as and when appropriate.
The Company Secretary acts as Secretary to the Committee.
The external auditor attended all meetings during the year and
also met in private with the Committee. I discuss and agree the
agenda with the Chief Financial Officer (CFO) and the Secretary
in advance of each meeting and receive a full briefing on the key
agenda items.
As well as being Chair of this Committee, I am also the Group
Whistleblowers’ Champion. The Committee oversees the
framework and its operational effectiveness and reports to the
Board on such matters. I have specific responsibility for overseeing
the integrity, effectiveness and independence of the Group’s
policies and procedures on whistleblowing.
I would like to thank all Committee members for their diligent
contribution during 2020. Noël Harwerth joined the Committee
on 1 August 2020 and brings with her a wealth of experience.
Further details on the activities of the Committee during the
year and how it discharged its responsibilities are provided in the
report below.
Membership and meetings
The Committee met eight times during the year. The current
members of the Committee are Rajan Kapoor (Chair), Graham
Allatt, Noël Harwerth and Sarah Hedger. Noël became a member
of the Committee on 1 August 2020. Eric Anstee and Tim Brooke
Thom were members until 4 February 2020 and 7 May 2020,
respectively, when they ceased to be members of the Board.
Rajan Kapoor served as Chair of the Group Audit Committee
throughout the year and has wide-ranging financial experience in
the banking industry. The members are all independent NEDs who
also sit on other Board Committees (in addition to this Committee).
The common membership facilitates effective governance across
all finance, risk and remuneration matters; and ensures that
agendas are aligned and duplication of responsibilities is avoided.
Rajan Kapoor
Chair of the Group Audit Committee
8 April 2021
Responsibilities
The primary role of the Committee is to assist the Board
in overseeing the systems of internal control and external
financial reporting across the Group. The Committee’s
specific responsibilities are set out in its terms of reference,
which are reviewed at least annually. These are available
on the Company’s website, www.osb.co.uk, and cover
external and internal audit, financial reporting, compliance,
whistleblowing, fraud and internal controls.
In addition, the Chair of the Group Audit Committee is available
to meet with the Company’s investors on request, in accordance
with the Financial Reporting Council’s (FRC) Stewardship Code.
Activities during 2020
The principal activities undertaken by the Committee during the
year are described below.
Significant areas of judgement and estimates
considered by the Committee
The following significant accounting judgements and estimates
were considered by the Committee in relation to the interim and
full-year results of the Group. In its assessment, the Committee
considered and challenged reports from management, explaining
each area of significant judgement and management’s
recommended approach. The Committee also received reports
from the external auditor setting out their views on the accounting
treatment and judgements underpinning the financial statements.
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Group Audit Committee Report (Continued)
Loan book expected credit losses
The Committee received and challenged reports from
management prior to each reporting date, explaining the
approach taken to provisioning and the resulting changes in
provision levels during the period. All members of the Group Risk
Committee, who are not members of the Committee, were invited
to join discussions on expected credit losses during the year.
As a result of COVID-19, the Committee received reports from
the Group’s economic adviser and management, with a focus
on identifying appropriate macroeconomic scenarios and
proposed probability weightings. The Committee reviewed
management’s proposals on how probabilities attached to the
economic scenarios and approved the final weightings utilised
within the Group’s impairment calculations. The Group continued
to utilise four scenarios; an upside, base case and two further
downside scenarios. The Group undertakes regular industry
benchmarking of the economic scenarios, weightings and the
resulting overall coverage. These benchmarks, in addition to
insight from the Group’s economic advisers, support management
in the selection and weighting of economic scenarios.
As COVID-19 is without precedent, the Group has regularly
reviewed the key assumptions and judgements to ensure
these appropriately reflect the unique economic and social
environment. The Group has made adjustments to strengthen the
identification of Significant Increases in Credit Risk in addition
to making adjustments for model limitations due to either the
impacts of, or government policy responses to, COVID-19.
In addition, the Committee also considered the impairment
charge of £20m in relation to potentially fraudulent activity
by a third party on one of the Group’s secured funding lines,
following an initial report from the Administrator appointed
by the Group. Based on this initial report, the Committee has
satisfied itself that the impairment charge is appropriate.
Loan book acquisition accounting and income
recognition
The Group did not acquire any loans inorganically during the
year. However, it has acquired portfolios of loans in prior years.
Acquired loan books are initially recognised at fair value with
interest recognised at the EIR. Significant judgement is required
in calculating their EIR, using cash flow models, which include
assumptions on the likely macroeconomic environment, including
House Price Index (HPI), unemployment levels and interest rates, as
well as loan level and portfolio attributes and history used to derive
prepayment rates, the probability and timing of defaults and the
amount of incurred losses. The EIRs on loan books purchased at
significant discounts are particularly sensitive to the prepayment
and default rates assumed, as the purchase discount is recognised
over the expected life of the loan book through the EIR. New
defaults are modelled at zero loss (as losses will be recognised in
profit and loss as impairment losses) and therefore have the same
impact on EIR as prepayments. Incurred losses at acquisition
are calculated using the Group’s collective provision model. The
Committee reviewed and challenged reports from management
before each reporting date on the approach taken. Particular
focus was given to loan books where performance varied from
expectation. The Committee reviewed a comparison of actual
cash flows to those assumed in the cash flow models by book,
to challenge management’s assessment of the need to update
cash flow projections and adjust carrying values accordingly.
The Committee considered the impact of COVID-19, and the
associated government restrictions and support measures,
on observed customer prepayment behaviour; whether it
was temporary or permanent in nature and whether it was
appropriate to reset future cash flow expectations. The
Committee reviewed sensitivities provided by management
illustrating the impact of extending or shortening the expected
weighted average lives of acquired loan portfolios. Based on
this work, the Committee is satisfied that the approach taken
and judgements and estimates made were reasonable.
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OSB GROUP PLC Annual Report and Accounts 2020
Effective interest rate
A number of assumptions are made when calculating the EIR
for newly-originated loan assets. These include their expected
lives, likely redemption profiles and the anticipated level of any
early redemption charges (ERCs). Certain mortgage products
offered by the Group include significant directly-attributable
fee income, in particular certain Buy-to-Let products and/
or those that transfer to a higher revert rate after an initial
discount or fixed period. Judgement is used in assessing the
expected rate of prepayment during the discounted or fixed
period and during the period post rate reversion. The Group uses
historical experience of customer behaviour in its assessment
along with economic outlook and market conditions.
OSB applies a period spent on the higher reversion rate in the EIR
for two, three and five-year fixed products. The assumed period
spent on the revert rate is based on a careful consideration of past
behavioural data and the potential impact of the economic and
regulatory outlook. The Committee also reviewed and challenged
other assumptions used in the EIR calculations, in particular
prepayment curves applied in the redemption profile. Prepayment
curves for fixed rate mortgages were approved by the Group
Assets and Liabilities Committee (ALCO) prior to implementation.
CCFS applies a period spent on the higher reversion rate for all
products based on observed historical behaviour of similar cohorts
of products. Management closely monitor observed behaviour and
compare these to assumptions applied in financial and accounting
models. Proposals on changes to prepayment assumptions are
considered and approved by ALCO on a quarterly basis. The
Committee received information on the prepayment curve change
proposals and supporting analysis to enable it to independently
challenge the approach and conclusions.
The Committee considered the impact of COVID-19 and the
associated government restrictions and support measures on
observed customer prepayment behaviour; whether it was
temporary in nature and whether forward-looking assumptions
should be updated. The Committee received and reviewed
sensitivities illustrating the impact of extending or shortening the
expected weighted average lives of organically originated loan
portfolios, which influence the expectation of income at higher
reversionary rates, the period over which fees are recognised
and the expectations of early repayment income. Having
considered all the evidence, the Committee is satisfied that the
approach taken and judgements made were reasonable.
Further details of the above significant areas of judgement and
estimation can be found in note 3 to the financial statements.
Hedge accounting
Hedge accounting has been an area of focus for the Committee
during the year. The Committee reviewed management’s activities
to develop the basis of hedge effectiveness testing and the
introduction of new processes to support hedge accounting for
Sterling Overnight Index Average (SONIA)-linked derivatives. The
Committee also received regular reports on the selection and
implementation of a new Group hedge accounting system solution.
The Committee was updated on the results of management’s
regular reviews of the amortisation profile of fair value adjustments
on hedged assets associated with cancelled swaps in OSB, against
the roll-off of the underlying legacy back book of long-dated fixed
rate mortgages. The Committee endorsed the decision to
accelerate the amortisation of fair value adjustments on hedged
assets during the year, in line with the mortgage asset run-off,
due to faster than expected prepayments.
Intangibles and investments in subsidiaries
The Committee reviewed management’s assessment of whether
the impact of the COVID-19 pandemic on the UK economy and
the Group’s business plans was an impairment assessment trigger
for the Group’s intangible assets and significant investments in
subsidiaries at the Company level. The Committee challenged
and satisfied itself on the appropriateness of the key underlying
assumptions to the impairment assessments. This review resulted
in the recognition of an impairment of £7.0m in respect of the
intangible asset relating to broker relationships recognised on
the Combination. This reflects the lower new business volumes in
2020 and expected in subsequent years, due to the pandemic.
Insertion of new holding company
The Committee reviewed and approved the basis of
accounting for the insertion of OSB GROUP PLC as the new
holding company for the Group in November 2020.
Financial reporting
The Committee’s review of financial reporting during the
year included the Annual Report and Accounts, the Interim
Results, quarterly trading updates, analysts presentations
and Pillar 3 disclosures. As part of its review, the Committee
assessed management’s application of key accounting policies,
significant accounting judgements and compliance with
disclosure requirements to ensure that these were consistent
and appropriate to satisfy the relevant requirements. In
particular, the Committee carefully considered the presentation
of results on a statutory, underlying and pro forma underlying
basis to ensure transparency and consistency throughout.
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Group Audit Committee Report (Continued)
Viability and going concern
The Committee considered the current position of the Group,
along with principal and emerging risks, and assessed the
prospects of the Group before recommending the Group’s
long-term viability statement to the Board. The Committee
also undertook a review, before recommending to the
Board, that the going concern basis should be adopted in
preparing the annual and interim financial statements.
Fair, balanced and understandable
The Committee considered, on behalf of the Board, whether the
2020 Annual Report and Accounts taken as a whole are fair,
balanced and understandable and whether the disclosures are
appropriate. The Committee reviewed the Group’s procedures
around the preparation, review and challenge of the Annual
Report and Accounts and the consistency of the narrative
sections with the financial statements and the use of alternative
performance measures and associated disclosures.
Following its review, the Committee is satisfied that the Annual
Report and Accounts is fair, balanced and understandable;
and provides the information necessary for shareholders
and other stakeholders to assess the Group’s position and
performance, business model and strategy in line with
section 172 requirements as outlined on pages 16 to 23;
the Committee has advised the Board accordingly.
Alternative performance measures
The Combination with CCFS in October 2019 significantly
increased the size and scale of the Group. In order to show
the performance of the Group on a consistent basis and
to make comparisons between the years meaningful, the
Group presents alternative performance measures (APMs)
on an underlying and pro forma basis, alongside the
statutory basis. See pages 272 to 274 for further details.
As these are important measures of how the Group performed,
the Committee asked the external auditor, Deloitte, to provide
assurance on their computation. Deloitte was selected as
the Committee considered that they could perform the work
efficiently and economically. The Committee was satisfied
that this assignment did not affect Deloitte’s independence
as external auditor. A copy of Deloitte’s independent
assurance statement can be found on pages 270 and 271.
Pillar 3 disclosures
The Committee approved the Group’s Pillar 3 regulatory
disclosures for publication on the Group’s website, following
a review of the governance and control procedures around
their preparation.
Internal Audit
The Committee is responsible for approving the remit of Internal
Audit, together with the annual plan and ensuring that it has
adequate resources and appropriate access to information to
enable it to perform its function effectively and in accordance with
the relevant professional standards. The Committee also ensures
that the Internal Audit function has adequate standing and is free
from management, or other restrictions, which may impair its
independence and objectivity.
The primary role of the Internal Audit function is to provide
independent, objective assurance and consulting services
designed to add value and protect the assets, reputation and
sustainability of the Group. It assists the Group in accomplishing
its objectives by bringing a systematic and disciplined approach to
evaluate and improve the effectiveness of the Group’s governance,
risk management and control processes. The Internal Audit
Charter, which formally defines Internal Audit’s purpose, authority
and responsibility, was approved by the Committee in October
2020 and can be found on our website, www.osb.co.uk.
The Group Chief Internal Auditor regularly updated the Committee
on progress against the 2020 Internal Audit Plan, particularly the
impact of COVID-19, the results of audit assignments and any
outstanding audit action points. Significant findings and themes
were reviewed and discussed at meetings of the Committee
throughout the year. Additionally, the Committee was kept
informed of Internal Audit’s review of the integration programme
and its response to COVID-19.
The Committee also considered and approved the 2021 Internal
Audit Plan which is based on an assessment of the key risks faced
by the Group. During the year, the Committee, together with the
Executives and external auditor, received written reports following
the conclusion of each Internal Audit engagement. Management
actions on all Internal Audit recommendations are tracked and
reported to the Committee.
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OSB GROUP PLC Annual Report and Accounts 2020
The Internal Audit function is resourced with an in-house team
supported by a panel of third party accountancy firms that
provide expert resource (on a co-source basis) for specific
technical/specialist audits.
On an annual basis, the Committee assesses the effectiveness
of the Internal Audit function. In 2020, this was facilitated by
a survey completed by Committee members, the Executives
(excluding the Group Chief Internal Auditor) and the external
auditor, who maintains a close relationship with the Internal
Audit function. In addition, the Committee considered the output
of an internal audit quality assurance review performed by an
independent consultant. The Committee was satisfied that the
function had operated effectively during the year. An independent
external evaluation is planned to take place in 2021 in line with the
recommendations of the Chartered Institute of Internal Auditors.
Systems of internal control and risk management
The Committee approved the annual review of the Compliance
Risk Assessment and Assurance Plan and received regular reports
from the Group’s Compliance function. The Committee used the
Internal Audit and Compliance Reports for its assessment of the
effectiveness of the Group’s system of internal controls and risk
management. The Committee also received a report on the
effectiveness of the Group’s system of controls from the CEO,
which was based on a self-assessment process completed by
senior managers and Executives.
The Committee received and reviewed reports from management
on the status of the substantiation of balance sheet general ledger
accounts at the reporting date. The systems of internal control
and risk management have been in place throughout the year
under review and up to the date of approval of the Annual Report
and Accounts.
The Committee reviewed and approved a number of policies
following their annual update, including: Pillar 3 disclosures,
anti-bribery and corruption, data protection, data retention
and record management, fraud, sanctions, loan impairment
provisioning, whistleblowing, anti-money laundering and
prevention of terrorist financing. The Committee received reports
on fraud prevention arrangements, fraud incidents, whistleblowing
and an annual report from the Money Laundering Reporting
Officers for the two Banks during the year.
Whistleblowing
The Committee is responsible for monitoring the Group’s
Whistleblowing Policy and arrangements. Where concerns have
been raised, a detailed report is provided on the investigation,
actions taken, lessons learnt and changes made as a result.
The Chair of the Committee has overall responsibility for
whistleblowing arrangements with oversight from the Board.
Training and periodic updates are provided to all employees who
are encouraged to use the multiple channels available to raise any
concerns they may have. No concerns were raised that required
a report to be made to the regulators.
External auditor
The Committee is responsible for overseeing the Group’s
relationship with its external auditor, Deloitte. This includes the
ongoing assessment of the auditor’s independence and the
effectiveness of the external audit process, the results of which
inform the Committee’s recommendation to the Board relating
to the auditor’s appointment (subject to shareholder approval)
or otherwise.
Appointment and tenure
The Committee confirms that the Group has complied with the
Statutory Audit Services for Large Companies Market Investigation
(mandatory use of competitive tender processes and Audit
Committee Responsibilities) Order 2014, which requires FTSE 350
companies to put their statutory audit services out to tender
no less frequently than every ten years.
New EU legislation adopted by the UK in 2016 set a maximum
audit tenure of 20 years and also requires a tender at least every
ten years. The new legislation is effective for financial periods
commencing on or after 17 June 2016. Against this backdrop, the
Group put the external audit contract out for tender for the 2019
financial year. There are no restrictive contractual provisions
limiting the Company’s choice of auditor. The next external audit
tender is expected to be 2028 for the financial year 2029. Robert
Topley has been the lead audit partner since 2019.
A resolution to re-appoint Deloitte as external auditor will be
presented at the AGM.
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Group Audit Committee Report (Continued)
Effectiveness
The Committee assesses the effectiveness of the external audit
function on an annual basis. In 2020, the review was facilitated
through a survey completed by members of the Committee,
the Executive Directors and other key employees who had
significant interaction with the external audit team during the
year. The survey assessed the effectiveness of the lead partner
and audit team, the audit approach and execution, the role of
management in the audit process, communication, reporting
and support to the Committee as well as the independence and
objectivity of the external auditor. The assessment concluded
that the external audit process was effective and objective,
with some minor areas for improvement suggested.
External audit reports
Rob Topley, the lead external audit partner, attended all
meetings of the Committee during 2020. He reported to the
Committee at the half year and full year on the audit-related
work and conclusions. This included Deloitte’s view on accounting
judgements made by management, compliance with IFRSs and
observations on controls. The Committee also received helpful
benchmark data from Deloitte during the year, especially relating
to accounting for the impacts of the COVID-19 pandemic.
Non-audit services
The engagement of the external auditor to provide non-audit
services to the Group could impact the assessment of its
independence and objectivity. The Group has therefore
established a policy governing the use of the external auditor
for non-audit services.
The Group maintains active relationships with several other large
firms and any decision to appoint the external auditor for non-
audit services is taken in the context of its understanding of the
Group, which can place it in a better position than other firms to
undertake the work, and includes an assessment of the cost-
effectiveness and practicality of using an alternative firm.
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OSB GROUP PLC Annual Report and Accounts 2020
The EU statutory audit market reform legislation adopted in the
UK applies a cap on permissible non-audit services of 70% of the
preceding three-year average of audit fees for UK incorporated
Public Interest Entities (PIEs). The Revised Ethical Standard
issued by the FRC in December 2019 contained a ‘whitelist’ of
permitted non-audit services, distinguishing between those
which fall under the cap, including extended assurance work,
and those not subject to the cap, being services required by a
competent authority or regulator by law. The cap is applicable
for financial periods commencing on or after 17 June 2019. As a
result of the Combination with CCFS and the insertion of a new
holding company in 2020, the Group contains multiple PIEs and
the application of the rules needs to be considered carefully
for each PIE. The rules on capping non-audit services will be
applicable to the Company for the first time in 2023 (based on
the average audit fees for 2020, 2021 and 2022), to OSB for
the first time in 2022 (based on the average audit fees for 2019,
2020 and 2021) and applied to CCFS for the first time in 2020
(based on the average audit fees for 2017, 2018 and 2019).
Notwithstanding the above effective dates, the Committee has
set a cap for non-audit services in 2020 of 50% of audit services.
The Committee pre-approved a number of non-audit services in
2020, including interim profit verifications, the half-year review
and an assurance review of certain key performance indicators
in the Annual Report and Accounts. The Committee also agreed
mandates for the CFO and the Chair of the Committee to approve
additional permitted engagements subject to agreed thresholds.
The Committee closely monitors and receives regular reports on
non-audit services.
The fees paid to the external auditor in respect of non-audit
services during 2020 totalled £363,000, representing 16% of 2020
Group audit services of £2,263,000 (2019: £329,000 representing
16% of 2019 Group audit services of £2,115,000) and are
summarised in the table below.
Fees payable to the Company’s auditor for the
audit of the Company’s annual accounts
Fees payable to the Company’s auditor for the
audit of the accounts of subsidiaries
Total audit fees
Audit-related assurance services
Other assurance services
Other non-audit services
Total non-audit fees
Group 2020
£’000
Group 2019
£’000
65
1,269
2,198
846
2,263
2,115
217
45
101
363
187
142
-
329
Total fees payable to the Group’s auditor
2,626
2,444
Audit-related assurance services include the interim review
and profit verifications. Other assurance services in 2020
comprise an assurance review of APMs (2019: work related to
the Combination and agreed-upon procedures in respect of
securitisations). Other non-audit services primarily comprise
work related to the insertion of the new holding company.
The Committee is satisfied that Deloitte is independent; in making
this assessment, it took into account the non-audit services
provided during the year and confirmations given by Deloitte
as to its continued independence at various stages in the year.
Taxation
The Committee received an update on the Group’s tax position
and discussed matters such as the relationship with HMRC and tax
compliance status. The Committee approved the Group’s UK tax
strategy which is available on the Company’s website.
Training
The Committee undertook training during the year, including
making extensive use of the Audit Committee Institute and training
programmes run by the major accountancy firms. The members
of the Committee attended webinars and update meetings held
by the FRC. In addition, Committee members attended a number
of in-house workshops on specific areas. Some members of the
Committee also interacted with key employees during the year
to increase their knowledge and understanding of the business.
Effectiveness
The Committee formally considers its effectiveness
annually. In 2020, the assessment was facilitated using
a survey completed by members of the Committee and
other attendees, including the external auditor. The review
concluded that the Committee operated effectively throughout
2020 with no significant improvements required.
Group Audit Committee – key responsibilities
Internal control and risk management
} Review internal financial control systems to identify, assess
and monitor financial risks and other internal control and risk
management systems
} Review and approve systems and controls for the prevention
of bribery and procedures for detecting fraud including
conduct risk and related activities
} Review the adequacy and effectiveness of anti-money
laundering systems and controls
} Review the adequacy and security of the Group’s
whistleblowing arrangements and procedures
Financial reporting
} Monitor the integrity of the financial statements, including
annual and interim reports, trading updates, Pillar 3
disclosures and any other formal announcements relating
to financial performance
} Provide challenge and oversight on the consistency, quality
and appropriateness of significant accounting policies and
on the methods used to account for significant or unusual
transactions
} Ensure appropriate accounting standards, estimates and
judgements have been followed, taking into account the view
of the external auditor
} Recommend significant changes to accounting policy
to the Board
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OverviewStrategic reportGovernanceFinancial statementsAppendices Group Risk Committee Report
Supporting the Board
to oversee and manage the
Group’s risk profile during
the COVID-19 pandemic.
Graham Allatt
Chair of the Group Risk Committee
Committee member
Graham Allatt (Chair)
Noël Harwerth
Rajan Kapoor
Meetings attended
10/10
10/10
10/10
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OSB GROUP PLC Annual Report and Accounts 2020
Dear Shareholder,
I am pleased to present the Group Risk Committee report for the
financial year ended 31 December 2020.
During 2020, the Committee exercised appropriate oversight
of the Group and its banking entity level risk profiles against
the backdrop of the pandemic-related business, economic and
regulatory uncertainties. The Committee actively monitored
the underlying drivers impacting the Group’s business and risk
performance objectives; and assessed the appropriateness of
management actions in the context of the inherent risk culture
and appetite.
The Committee played an active and supportive role in assessing
the implications of the COVID-19 pandemic on credit provisions,
funding and liquidity positions and capital buffers to enable the
Group and its banking entities to remain resilient to extreme but
plausible shocks. Timely and granular information was provided
relating to customer behaviours and outcomes, business forecasts,
expected and stressed loan portfolio performance and credit
provisions. Capital and funding requirements and operational
performance thresholds were also subject to regular reporting.
The Group Audit and Risk Committees worked collaboratively
in approving the IFRS 9-based credit provisions in the context of
the emerging regulatory guidance, evolving economic scenarios
(base and stressed) and the appropriateness of the underlying
modelling-based judgements and estimates. The Risk function
developed innovative ways of identifying segments of the portfolio
showing early signs of stress because of the impact of COVID-19.
The Committee spent considerable time discussing the results, the
impact on IFRS 9 provisions and any appropriate corrective actions
which the Group might take.
The Group’s operational capacity and contingency arrangements
were continuously assessed with a view to maintaining customer
service quality standards.
The post-Combination integration agenda continued to be
an important area of focus with a view to escalating identified
risks to and from the integration programme to the Board
Integration Committee.
Significant time was allocated to reviewing, challenging and
shaping the development process of the Group and banking
entity level risk frameworks, policies and appetite statements.
The Group and banking entity Internal Capital Adequacy
Assessment Processes (ICAAPs) were also subject to extensive
focus with respect to risk and capital-based assessments,
judgements and conclusions.
The Committee also discharged its duties relating to the ongoing
Group Internal Ratings-Based (IRB) programme, providing Board
level oversight, review and approval of model development,
performance monitoring and governance.
On a forward-looking basis, the Committee discussed the Group’s
plans and response to emerging risks such as climate change,
London Interbank Offered Rate (LIBOR) reform and the potential
for the Bank of England setting base rate at a negative level.
On behalf of the Committee, I would like to extend my appreciation
to all colleagues and in particular the Risk and Compliance
functions, who ensured that the Group’s risk profile was managed
in a prudent manner, whilst our customers continued to receive
fair outcomes.
Further information on the role and activities of the Committee
is provided in the following pages.
Graham Allatt
Chair of the Group Risk Committee
8 April 2021
Membership and meetings
The Committee met 10 times during the year, which included
an additional ad hoc meeting to discuss the ICAAP. The current
members are Graham Allatt as Chair, Noël Harwerth and Rajan
Kapoor. Graham Allatt served as Chair of the Group Risk
Committee throughout the year. Tim Brooke Thom ceased
to be a member on 7 May 2020.
In addition to the members of the Committee, the Chairman of the
Board has a standing invitation to the Committee, along with the
CEO, CFO, CROs and Group Chief Credit Officer, unless the
Chairman of the Committee informs any of them that they should
not attend a particular meeting or discussion.
Responsibilities
The primary objective of the Committee is to support the Board
in discharging its risk oversight and governance responsibilities.
In particular, the Committee enables the Board to:
} Set a clear tone from the top in relation to a risk-based culture
which fosters individual and collective accountability for
risk management.
} Continuously review, challenge and recommend enhancements
to the Group’s Risk Management Framework (RMF).
} Ensure the Group organises and resources its risk management
and oversight functions across the first and second line
effectively.
} Actively assess performance against risk appetite and challenge
management to ensure that the Board’s strategic, business and
regulatory objectives are not put at unacceptable levels of risk.
The Committee’s specific responsibilities are set out in its terms
of reference, which are available on the Company’s website
at www.osb.co.uk.
Activity during 2020
The key areas of the Committee’s focus during 2020 are outlined
in the following pages.
Risk appetite
The Committee played an active role in shaping and assessing
the design of the Group’s risk appetite in the context of economic
and business outlook and uncertainties, the strategic growth
agenda of the Group and regulatory developments. Members of
the Committee participated in a risk appetite workshop in which
risk appetite statements, risk metrics, limits and triggers were
discussed and challenged prior to being recommended to the
Board for approval. The Committee also ensured that the proposed
risk appetite was subject to appropriate alignment to the Group’s
strategic agenda, business plans and stress testing capabilities.
Risk appetites were set at both Group and banking entity levels.
The Committee also reviewed the Group’s position against risk
appetite across all principal risks and escalated issues to the
Board, where appropriate.
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Group Risk Committee Report (Continued)
Internal Ratings-Based Programme
The Committee reviewed regular project updates including a
detailed plan to merge the OSB and CCFS-specific IRB projects
which incorporated an approach to develop and implement
enhanced model governance arrangements.
Market risk and liquidity risk
Market risk and liquidity risk are continually monitored by ALCO,
which provides reports to the Committee. The Committee reviewed
ALCO’s regular assessments of the UK macroeconomic environment
and potential impacts on the Group’s assets and liquidity.
Credit risk
The Committee has monitored the performance of the Group’s
loan book on both aggregated and asset class sub-segment
bases by assessing the key indicators of credit quality, security
coverage, affordability and borrower risk profile. The Committee
also assessed forward-looking credit risk indicators in the form
of bureau data on customer credit scores, mover alerts and
indebtedness, business and economic early warning indicators.
The Committee challenged and approved updates to policies
including the Group Lending Policy, the Arrears Management and
Forbearance Policy and the Loan Impairment Provisioning Policy,
as well as the credit risk appetite. The Committee also exercised
oversight over credit risk models and provided an appropriate
level of challenge in relation to model construction and validation
to ensure that the models are appropriate, robust and fit for the
purpose for which they are intended. The Committee has also
directed management on how to monitor model performance.
During 2020, the Committee (jointly with the Group Audit
Committee) oversaw plans for the alignment of IFRS 9
methodologies and approaches across OSB and CCFS which
included the alignment of the default definition, staging criteria
and exceptional COVID-19 assumptions and judgements for model
overlays and the identification of significant increases in credit risk.
The Committees also assessed and approved the Group’s provision
adequacy levels throughout the year.
The Group recognised an impairment provision of £20m in relation
to potential fraudulent activity by a third party on a funding line
provided by the Group, secured against lease receivables and
the underlying hard assets. The Group’s funding line business is
primarily secured against property-related mortgages1 and
following an internal review, the Group believes that this is an
isolated incident. The Board has commissioned an external review
of processes and controls in relation to the funding lines business
and the Group Audit Committee and Group Risk Committee will
review and jointly oversee the implementation of recommendations
following its completion.
1. The Group’s gross loans to customers include £175.7m in relation to funding lines of which 66%
is secured on property-related mortgages.
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OSB GROUP PLC Annual Report and Accounts 2020
The Committee also reviewed and recommended the market and
liquidity risk appetite to the Board for approval. The Committee
oversaw the Group’s liquidity management plans during COVID-19,
ensuring that liquidity positions remained appropriate against the
uncertain economic backdrop arising from the pandemic.
Solvency risk and ICAAP
The Committee was involved with the design and approval of
appropriate macroeconomic scenarios to be used in the Group’s
and solo banking entity ICAAPs. The ICAAP demonstrates how the
Group would manage its capital resources and requirements
during a plausible but severe period of stress. The Committee
assessed the results of all the risk-based capital assessments and
stress testing outcomes before finally recommending the ICAAP
documents to the Board for approval.
The Committee also reviewed and challenged the Group Capital
Plan and monitored total capital and Common Equity Tier 1 (CET1)
forecasts throughout the year, ensuring risks were understood
and managed appropriately. The Committee also reviewed and
recommended the solvency risk appetite to the Board for approval.
The Committee additionally started to consider moving towards
a combined ICAAP for OSB and CCFS and sought external advice
on the best approach for alignment.
Operational risk
The Committee received reports on operational risks at each of
its meetings. The reports covered risk incidents that had arisen
to allow the Committee to assess management’s response and
remedial action proposed. The reports also covered key risk
indicators (KRIs), which can be quantitative or qualitative and
provided insights regarding changes in the Group’s operational
risk profile. The Committee also reviewed and recommended the
operational risk appetite to the Board for approval.
The Committee requested a detailed analysis of operational
incidents that occurred during the course of 2020 to further
understand any causes and trends. The Committee was satisfied
that the actions taken were appropriate and that the control of
operational incidents continued to improve.
Compliance and regulatory risk
The Committee received reports covering compliance and financial
crime KRIs, which can be quantitative or qualitative and provide
insights regarding changes in the Group’s compliance and
regulatory risk profile. The Committee also assessed and
recommended enhancements to the compliance and financial
crime risk appetite before recommending it for approval by
the Board.
Other Committees
Group Models and Ratings Committee
The Group Models and Ratings Committee was established as
a sub-committee of the Group Risk Committee in January 2020.
The Committee met eight times during the year.
The primary purpose of the Committee is to act as the designated
Committee for the purpose of material aspects of the rating and
estimation processes (as articulated in Article 189 of the EU Capital
Requirements Regulation) and provide assurance of the Group’s
models and ratings systems.
The Committee is chaired by the Chair of the Group Risk
Committee, Graham Allatt. Rajan Kapoor and April Talintyre are
members of the Committee.
Board Integration Committee
The Board Integration Committee was established soon after the
Combination with CCFS. The Committee met eight times during
the year.
The primary objective of the Committee is to oversee planning and
execution of the integration of OSB and CCFS, including oversight
of synergies realisation. David Weymouth is the Chair of the
Committee; Andy Golding, Sarah Hedger and Rajan Kapoor are
members. Further details on the progress of the integration are set
out on page 56.
Risk Management Framework integration
The Committee considered the Integration Plan and harmonisation
of the Risk Management Frameworks and functions of OSB and
CCFS. An external firm assisted the Group with the creation of
the Integration Plan which sets out the key components of the
respective firms’ frameworks. The scope of all components is
broken down into three distinct groupings, namely; ‘business as
usual’, ‘regulatory requirements’ and ‘risk projects’ and sets out a
summary of workstreams and timelines to achieve harmonisation.
Other risk types
The Committee reviewed the Group profiles of conduct risk,
reputational risk, climate change risk and business and strategic
risk against their respective risk appetites.
Group Risk Committee – key responsibilities
Risk appetite and assessment
} Advise the Board on overall risk appetite, tolerance and strategy
} Review risk assessment processes that inform the Board’s
decision-making
} Consider the Group’s capability to identify and manage
new risks
} Advise the Board on proposed strategic transactions,
including acquisitions or disposals, ensuring risk aspects and
implications for risk appetite and tolerance are considered
Risk monitoring and framework
} Review credit risk, interest rate risk, liquidity risk, market risk,
compliance and regulatory risks, solvency risk, conduct risk,
reputational risk and operational risk exposures by reference
to risk appetite
} Challenge and endorse the SRMF
} Provide challenge and oversight to the ICAAP framework
} Monitor actual and forecast risk and regulatory capital positions
} Recommend changes to capital utilisation
} Provide challenge and oversight to the Internal Liquidity
Adequacy Assessment Process (ILAAP) framework
} Monitor the actual and forecast liquidity position
} Review reports on risk appetite thresholds, identify where a
risk of a material breach of risk limits exists and ensure
proposed actions are adequate
} Provide challenge and oversight to the Recovery Plan framework
CROs and risk governance structure
} Consider and approve the remit of the Risk function
} Recommend to the Board, the appointment and removal
of the CROs
} Review promptly, all reports from the CROs
} Review and monitor management’s responsiveness to the
findings of the CROs
} Receive reports from ALCO and the Risk Management
Committees
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OverviewStrategic reportGovernanceFinancial statementsAppendices Directors’ Remuneration Report
Annual Statement by the Chair of the Group Remuneration Committee
Dear Shareholder,
I am pleased to present the 2020 Directors’ Remuneration Report
which sets out details of our Directors’ Remuneration Policy (the
Remuneration Policy), Directors’ remuneration in respect of 2020
and how we intend to operate the Remuneration Policy in 2021.
The primary objective of the Group Remuneration Committee is to
advise the Board on developing an overall Remuneration Policy
that is aligned with the business strategy and objectives, risk
appetite, values and long-term interests of the Group, recognising
the interests of all stakeholders, taking into account applicable
laws, regulations and principles of good practice.
New Remuneration Policy
During the year, a new holding company structure was adopted
which introduced OSB GROUP PLC as the new holding company
of the OSB Group; the shares commenced trading on 30 November
2020. Under the relevant UK Directors’ remuneration regulations,
this constitutes a new company and therefore the approval of the
Remuneration Policy must be refreshed by a shareholder vote
at the 2021 Annual General Meeting (AGM). No changes are
being proposed.
Accordingly, the Remuneration Policy set out in this report is, in all
material respects, a roll-over of the Remuneration Policy that was
set out in the 2019 Directors’ Remuneration Report and which was
approved at the 2020 AGM of OneSavings Bank plc (OSB) on
7 May 2020 by over 94% of shareholders. We are comfortable that
the Remuneration Policy remains in line with our business strategy,
the UK Corporate Governance Code, the CRD Regulations as
applied by the PRA and FCA to a Level 2 firm and the remuneration
guidelines from the main institutional investor groups.
We will continue to apply the Remuneration Policy robustly to
ensure that there remains a strong link between the remuneration
received by Executives and employees and the performance of the
business, whilst being cognisant of our wider stakeholders and the
role of financial service institutions within society as a whole.
Overview of 2020 performance and incentive outcomes
2020 was a challenging year for the Group with the integration of
CCFS with OSB being undertaken against the backdrop of a global
pandemic. It was pleasing to see the Executive team continue to
lead the Group through this period taking all stakeholders into
account in their decisions.
Our colleagues’ safety was an absolute business priority as the
pandemic hit and, as such, employees quickly adapted to working
from home during most of 2020. Employee engagement remains
strong and we harmonised the reward policies across the Group
during the year, which was positively received.
Financial performance was resilient with strong return on equity
delivered despite significant impairment charges. The focus on our
customers remains paramount and Net Promoter Scores (NPS)
We will continue to
apply the Remuneration
Policy robustly to ensure that
there remains a strong link
between the remuneration
received by Executives and
employees and the
performance of the business.
Mary McNamara
Chair of the Group Remuneration Committee
8 April 2021
Committee member
Meetings attended
Mary McNamara (Chair)
Noël Harwerth
Sarah Hedger
Rajan Kapoor
David Weymouth
8/8
8/8
5/5
8/8
7/8
146
146
OSB GROUP PLC Annual Report and Accounts 2020
across the business in 2020 continued to reflect this, providing
a strong base for future performance.
people in the UK communities in which the Group is based and to
provide medical equipment to a local hospital in India.
Operational performance was also delivered with appropriate
checks and balances continuing to operate effectively despite the
vast majority of employees working from home for the majority of
the year.
The 2020 Executive Bonus Scheme was based 90% on the
Balanced Business Scorecard, which measures corporate
performance against Financial, Customer, Quality and Staff
metrics, and 10% on personal objectives. Targets for each measure
were set at the start of the year and assessed by the Committee
following the end of the financial year.
Despite resilient business performance over the year, given the
economic impact of the pandemic, there is only a relatively modest
payout under the financial portion. There has, however, been
strong delivery against the Customer, Quality and Staff categories.
Under the Customer metric, the Group’s customer and broker NPS
scores were both outstanding with low levels of customer
complaints, meaning that 11.2% out of the 15% was earned. The
achievements against the Quality metrics were also particularly
pleasing, given the operational changes, following the onset of the
COVID-19 pandemic early in the year. Performance against the
Staff metrics for employee engagement and gender diversity were
also robust. Strong performance against these non-financial KPIs
represent crucial building blocks for the foundation of future
shareholder value, particularly in a year when the business has
been digesting the Combination with CCFS.
This performance resulted in the Executive Directors earning
34.7% out of the 90% of bonus assessed against the scorecard.
Performance against personal targets was also considered by the
Board and Committee to be exemplary, with strong leadership
throughout a challenging and uncertain year. This resulted in
a payout of 6.5% out of a maximum 10% of bonus for both the
CEO and CFO. The Committee believe that this payout was
appropriate, reflecting the underlying performance of the Group
and wider stakeholder experience. This payout is also consistent
with the payout under employee bonus plans throughout
the business.
As the results show, the Company has been very resilient in the
face of the economic impact of COVID-19 on our markets and
some of our stakeholders. However, recognising the broader
societal impact of COVID-19 on our communities and the prudent
cancellation of the final dividend for 2019, the Executive Directors
and other members of the Group Executive Committee volunteered
to waive their potential entitlement to the cash element of their
2020 bonus. The Board subsequently decided that half of the
resultant saving would be retained in the business and the
remaining half would be donated to charity. The minimum
donation has been underwritten at £250,000 by the Group, with
a £100,000 donation to Shelter which offers support and advice to
those facing housing issues or homelessness across the UK. The
remainder has been donated to charities that serve homeless
As a result of performance during the year and after the voluntary
waiver of the cash element of the bonus, payouts for 2020
performance are 20.6% of maximum for the CEO and CFO. The
bonus will be paid in shares which must be held for a minimum of
three years. Full details of the performance conditions and bonus
payments are provided later in this report.
The 2018 award under the Performance Share Plan (PSP) will vest
in May 2021 at 62.74% of maximum based on performance over
the three-year performance period ending on 31 December 2020.
Performance was based 40% on Earnings Per Share (EPS) growth,
40% on Total Shareholder Return (TSR) versus the companies in the
FTSE 250 Index (excluding Investment Trusts) and 20% on Return
On Equity (ROE). Given that the Combination with CCFS
completed with more than a year left to run in the performance
period, the Committee determined immediately following the
Combination that the EPS and ROE targets should be assessed on
a combined basis against targets adjusted to ensure that they
were no tougher or easier to achieve based on the business plan
immediately before and after the Combination. Performance
against the EPS target range was between the threshold and
maximum targets and so 63.7% of the EPS part of the award
vested. The TSR of -1.9%, whilst slightly down over the period,
placed OSB between the median and upper quartile of the FTSE
250 peer group and therefore 52.9% of the TSR part of the award
vested. The average ROE over the performance period was 24.0%
resulting in 80.5% of the ROE part of the award vesting. In total,
62.74% of the award vested and the Committee is comfortable that
there has been a clear and strong link between reward and
performance and that discretion was not required to adjust the
incentive outcome. In line with the Remuneration Policy at the time
of grant, shares received by the Executives on vesting (net of tax)
will be held for a further two years before they can be sold.
Overall, the Committee believes that the Remuneration Policy is
operating as intended and that the payouts under the incentive
plans are appropriate. As such, no change to the Remuneration
Policy is required at this time.
Implementation of the Remuneration
Policy in 2021
Following the Combination with CCFS and as disclosed in last
year’s report, the Committee agreed that the CEO’s salary should
be increased to £815,000 to reflect the increase in scope of the role
and the regulatory requirement to rebalance the pay package by
reducing the variable pay opportunity. It was agreed, taking into
account feedback from shareholders, that the increase would be
phased over 2020 and 2021, with the second stage validated
against specific integration objectives. The Committee has
considered the achievement against these criteria (see page 165
for further details) and has confirmed that the second stage of the
increase will be implemented with effect from 1 January 2021. The
Committee is aware that this represents a significant increase,
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Annual Statement by the Chair of the Group Remuneration Committee (Continued)
however, continues to believe that this is the appropriate rate
for the role. The Group has performed resiliently through the
pandemic, as seen in operational and financial results and
reflected in the share performance. Furthermore, given that there
has been no impact on the salary review process throughout the
Group, the Committee does not believe that it is necessary to
change its original proposals. The rebalancing of the CFO’s
package was implemented in one step in 2020 as the overall
increase was lower. As such, the CFO’s salary will be increased
in 2021 by 2%, in line with the average increase applicable to
the workforce.
Consideration of shareholder views and response to the
new UK Corporate Governance Code
Following extensive engagement with shareholders during the
review of the Remuneration Policy in 2019 and early 2020, we
again engaged with investors to confirm that they remained
comfortable with the Remuneration Policy and how it is being
operated, including in relation to the second stage salary increase
for the CEO, which was subject to the specific integration targets in
relation to the Combination with CCFS. We were pleased to receive
ongoing investor support both in relation to the Remuneration
Policy and its operation.
The pension contribution remains at 8% of salary, which is aligned
to the rate for the majority of the workforce.
The 2021 annual bonus will be subject to a maximum limit of 110%
of salary and will continue to be based 90% on performance
against the Balanced Business Scorecard and 10% on personal
objectives. 50% of any bonus will be deferred in shares, which
may not be sold for at least three years.
PSP awards of 110% of salary will be made to the Executive
Directors with performance being measured over the period to
31 December 2023. Performance will continue to be based on TSR
(35% weighting), EPS growth (35% weighting), ROE (15% weighting)
and risk (15% weighting). Furthermore, when assessing the
performance outcome, the Committee may adjust the formulaic
vesting outcome to ensure it is aligned with the underlying
performance, risk appetite and individual conduct over the period.
The targets for each measure are set out in this report and the
Committee is satisfied that these provide the appropriate stretch,
taking into account the business plan, external operating
environment, market expectations and the impact of the COVID-19
pandemic on the business.
In line with the changes implemented in 2020, the 2021 PSP awards
will vest 20% each year between three and seven years after grant,
with each vested tranche subject to a one-year holding period.
Consideration of employee policies and views
As the NED responsible for representing the workforce on the
Board, I regularly meet with employees, individually and through
forums such as OneVoice, to understand their views, including
those on remuneration, and report these views to the Board. An
overview of the Group reward policies and pay governance is
provided to OneVoice, which includes an explanation of how
executive pay aligns with the wider reward policy. Further details
on the activities of OneVoice can be found on page 169.
Concluding remarks
I look forward to your support for the binding resolution to approve
the new Remuneration Policy and the advisory resolution to
approve the Annual Report on Remuneration at the 2021 AGM.
Mary McNamara
Chair of the Group Remuneration Committee
8 April 2021
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OSB GROUP PLC Annual Report and Accounts 2020
Remuneration Policy
This section describes our Directors’ Remuneration Policy (the
Remuneration Policy) for which shareholder approval will be sought
at the AGM on 27 May 2021 and which will formally come into
effect from that date. It is intended that this Policy will last for three
years from the 2021 AGM date. There are no changes to the OSB
Remuneration Policy that was approved at the 2020 AGM;
however, certain factual data has been updated where applicable.
Policy overview
This Remuneration Policy has been prepared in accordance with
the Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008, as subsequently amended. The
Remuneration Policy has been developed taking into account a
number of regulatory and governance principles, including:
} The 2018 UK Corporate Governance Code
} The regulatory framework applying to the Financial Services
Sector (including the Dual-Regulated firms Remuneration Code
and provisions of the EU Capital Requirements Directive)
} The executive remuneration guidelines of the main institutional
investors and their representative bodies
Principle
Committee approach
Approach to designing the Remuneration Policy
The Committee is responsible for the development, implementation
and review of the Directors’ Remuneration Policy. In addressing
this responsibility, the Committee works with management and
external advisers to develop proposals and recommendations.
The Committee considers the source of information presented
to it, takes care to understand the detail and ensures that
independent judgement is exercised when making decisions.
The Group Risk Committee considers whether the Remuneration
Policy and practices are in line with the risk appetite and the
Group Audit Committee confirms incentive plan performance
results, where appropriate.
The Code sets out principles against which the Committee should
determine the Remuneration Policy for Executive Directors. These
are shown in the first column of the table below, together with the
Committee’s approach, in the second column:
Clarity – remuneration arrangements
should be transparent and promote
effective engagement with shareholders
and the workforce.
Simplicity – remuneration structures
should avoid complexity and their rationale
and operation should be easy to
understand.
Risk – remuneration arrangements should
ensure reputational and other risks arising
from excessive rewards and behavioural risks
that can arise from target-based incentive
plans are identified and mitigated.
Predictability – the range of possible
values of rewards to individual Directors
and any other limits or discretions should
be identified and explained at the time of
approving the Remuneration Policy.
Proportionality – the link between
individual awards, the delivery of strategy
and the long-term performance of the
Company should be clear. Outcomes
should not reward poor performance.
} We aim to set out our approach to remuneration in this report as transparently as possible.
} We will engage with our Workforce Advisory Forum (OneVoice) to explain the alignment of the Executive
Directors’ Remuneration Policy with that of the workforce.
} Within the required regulatory framework and in line with investor guidance, we have structured the
Remuneration Policy to be as simple as possible.
} We have a simple policy offering pension at the same rate as employees, an annual bonus plan which
cascades to most employees and, for senior employees, performance shares to provide alignment with
longer-term performance.
} There is, however, a degree of complexity required for Executive Director packages to ensure a robust
link to performance and to avoid reward for failure and to comply with investor and Code requirements.
} We have mitigated these risks through careful policy design, including long-term performance
measurement, the use of specific risk-based measures, deferral and shareholding requirements
(including post cessation of employment) and discretion and clawback provisions if incentive payment
levels are inappropriate.
} We look carefully each year at the range of likely performance outcomes for incentive plans when
setting performance target ranges for threshold, target and maximum payouts and would use
discretion where necessary where this leads to an inappropriate pay outcome.
} Incentive plans are determined based on a proportion of base salary so there is a sensible balance
between fixed pay and performance-linked elements.
} There are provisions to override the formula-driven outcome of incentive plan deferrals and clawbacks
to ensure that poor performance is not rewarded or if incentive payments are too high for the
performance delivered, in the view of the Committee.
} As illustrated by the chart showing our TSR performance and historical CEO remuneration on pages
161-162, we believe that there has been a strong link between Executive Directors’ pay and performance.
Alignment to culture – incentive schemes
should drive behaviours consistent with
Company purpose, values and strategy.
} The Balanced Business Scorecard used for the annual bonus is based on a wide range of measures
linked to financial performance, customer, quality and employees, to ensure that payments are aligned
to Company culture and values.
} Bonus plans operate widely throughout the Company and are approved by the Committee to ensure
consistency with Company purpose, values and strategy.
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Directors’ Remuneration Report (Continued)
Remuneration Policy (Continued)
How the views of employees and shareholders are taken into account
The Chair is the designated Non-Executive Director in relation to employee matters; she regularly meets with employees, including
through OneVoice. The Chair attends OneVoice to provide an overview of executive pay and governance within the Group and to provide
the opportunity to give feedback, which is communicated to the Committee. The Committee also receives updates in relation to the
remuneration structure throughout the Group, salary and bonus reviews each year. As set out in the Remuneration Policy table, in setting
remuneration for the Executive Directors, the Committee takes note of the overall approach to reward for employees in the Group and
salary increases will ordinarily be in line (in percentage of salary terms) with those of the wider workforce. Thus, the Committee is satisfied
that the decisions made in relation to Executive Directors’ pay are made with an appropriate understanding of the wider workforce.
The Committee undertook extensive engagement with shareholders during the review of the Remuneration Policy in late 2019 and
early 2020 and has again consulted with shareholders prior to the Remuneration Policy being re-presented to shareholders at
the 2021 AGM to confirm that they remain supportive. The Committee will seek to engage with major shareholders and the main
shareholder representative bodies and proxy advisory firms when it is proposed that any material changes are to be made to the
Remuneration Policy or its implementation. In addition, we will consider any shareholder feedback received in relation to the AGM.
The table below and the accompanying notes describe the Remuneration Policy for Executive Directors.
Element
Salary
Purpose and link to strategy
Operation and performance conditions
Maximum
To reward Executive
Directors for the role and
duties required.
Recognises individual’s
experience,
responsibility and
performance.
Paid monthly.
Base salaries are usually reviewed annually, with any changes usually
effective from 1 January.
No performance conditions apply to the payment of salary. However,
when setting salaries, account is taken of an individual’s specific role,
duties, experience and contribution to the Company.
As part of the salary review process, the Committee takes account of
individual and corporate performance, increases provided to the wider
workforce and the external market for UK listed companies both in the
financial services sector and across all sectors.
Benefits
To provide market
competitive benefits to
ensure the well-being
of employees.
The Company currently provides:
} car allowance
} life assurance
} income protection
} private medical insurance
} other benefits as appropriate for the role
Pension
To provide a contribution
to retirement planning.
Executive Directors may participate in a defined contribution plan or, if
they are in excess of the HM Revenue & Customs (HMRC) annual or lifetime
allowances for contributions, may elect to receive cash in lieu of all or
some of such benefit.
In line with the rate
receivable by the majority
of the workforce, which is
currently 8% of salary.
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OSB GROUP PLC Annual Report and Accounts 2020
Increases will generally be
broadly in line with the
average of the workforce.
Higher increases may be
awarded in exceptional
circumstances such as
a material increase in the
scope of the role, following
the appointment of a new
Executive Director (which
could also include internal
promotions) to bring an
initially below-market
package in line with the
market over time or in
response to market factors.
There is no maximum
cap on benefits, as the
cost of benefits may
vary according to the
external market.
Maximum
The maximum bonus
opportunity is 110% of
salary per annum.
The threshold level for
payment is 25% of
maximum for any measure.
Element
Purpose and link to strategy
Operation and performance conditions
Annual bonus
To incentivise and
reward individuals
for the achievement
of pre-defined,
Committee-approved,
annual financial,
operational and
individual objectives
which are closely
linked to the
corporate strategy.
The annual bonus targets will have a 90% weighting based on
performance in line with an agreed balanced scorecard which includes an
element of risk appraisal. Within the scorecard, at least 50% of the bonus
will be based on financial performance. 10% of the bonus will be based on
personal performance targets.
The objectives in the scorecard, and the weightings on each element, will
be set annually and may be flexed according to role. Each element will
be assessed independently, but with Committee discretion to vary the
payout (including to zero) to ensure there is a strong link between payout
and performance.
On top of this, there is a general discretion to adjust the outturn to
reflect other exceptional factors at the discretion of the Committee.
50% of any bonus earned will be delivered in shares, subject to
a three-year holding period.
In exceptional circumstances of high bonus payments, there may be
a requirement to defer a proportion of bonus with vesting staggered over
three to seven years, in line with the deferral arrangements for the PSP
described below.
Updated clawback and malus provisions apply, as described in
note 1 overleaf.
Performance
Share Plan
To incentivise and
recognise execution of
the business strategy
over the longer term.
Rewards strong financial
performance over
a sustained period.
PSP awards will typically be made annually at the discretion of the
Committee, usually following the announcement of full-year results.
Usually, awards will be based on a mixture of internal financial
performance targets, risk-based measures and relative TSR. At least
50% of the PSP award will ordinarily be based on financial and relative
TSR metrics.
The performance targets will usually be measured over three years.
The maximum PSP grant
limit is 110% of salary in
respect of grants in any
financial year.
The threshold level for
payment is 25% of
maximum for any measure.
Any vesting will be subject to an underpin, whereby the Committee must
be satisfied:
(i) that the vesting reflects the underlying performance of the Company;
(ii) that the business has operated within the Board’s risk appetite
framework; and
(iii) that individual conduct has been satisfactory.
On top of this, there is a general discretion to adjust the outturn to reflect
other exceptional factors at the discretion of the Committee.
Awards granted after 1 January 2020 will vest in five equal tranches
of 20%, following the Committee’s determination of performance. At the
time each tranche vests, a one-year holding period will apply. (Awards
granted before this date will vest in accordance with the terms of the
previous Policy.)
Clawback and malus provisions apply as described in note 1 below.
All-employee
share plan
(Sharesave Plan)
All employees, including
Executive Directors, are
encouraged to become
shareholders through
the operation of an
all-employee share plan.
Tax-favoured plan under which regular monthly savings may be made
over a three or five-year period and can be used to fund the exercise of an
option, where the exercise price is discounted by up to 20%.
Maximum permitted
savings based on
HMRC limits.
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Directors’ Remuneration Report (Continued)
Remuneration Policy (Continued)
Element
Purpose and link to strategy
Operation and performance conditions
Maximum
Share ownership
guidelines
To increase alignment
between Executive
Directors and
shareholders.
Executive Directors are expected to build and maintain a minimum holding
of shares.
Executive Directors must retain at least 50% of the shares acquired
on vesting of any share awards (net of tax) until the required holding
is attained.
On cessation of employment, Executive Directors must retain the lower of
the in-service shareholding requirement, or the Executive Directors’ actual
shareholding, for two years.
At least 250% of salary for
the CEO and at least 200%
of salary for the CFO or
such higher level as the
Committee may determine
from time to time.
The net of tax value of any
unvested deferred awards
(which are not subject to
any future performance
condition) may count
towards the definition
of a shareholding for
this purpose.
1. Clawback and malus provisions apply to both the annual bonus, including amounts deferred into shares and PSP awards. These provide for the recovery of incentive payments within seven years in
the event of: (i) a material misstatement of results, (ii) an error, (iii) a significant failure of risk management, (iv) regulatory censure, (v) in instances of individual gross misconduct, (vi) corporate
failure, (vii) reputational damage or (viii) any other exceptional circumstance as determined by the Board. A further three years may be applied following such a discovery, in order to allow for the
investigation of any such event. In order to effect any such clawback, the Committee may use a variety of methods: withhold deferred bonus shares, future PSP awards or cash bonuses, or seek to
recoup cash or shares already paid.
Choice of performance measures for Executive
Directors’ awards
The use of a balanced scorecard for the annual bonus reflects the
balance of financial and non-financial business drivers across the
Group. The combination of performance measures ties the bonus
plan to both the delivery of corporate targets, risk measures and
strategic/personal objectives. This ensures there is an appropriate
focus on the balance between financial and non-financial targets
and risk, with the scorecard composition being set by the
Committee from year to year depending on the corporate plan.
The PSP is based on a mixture of financial and risk measures and
relative TSR, in line with our key objectives of sustained growth in
earnings leading to the creation of shareholder value over the long
term within an appropriate risk framework. TSR provides a close
alignment between the relative returns experienced by our
shareholders and the rewards to Executives.
There is an underpin in place on the PSP to ensure that the payouts
are aligned with underlying performance, financial and non-
financial risk and individual conduct.
Annual bonus and PSP targets are set taking into account the
business plans, shareholder expectations, the external market and
regulatory requirements.
In line with HMRC regulations for such schemes, the Sharesave
Plan does not operate performance conditions.
How the Group Remuneration Committee operates the
variable pay policy
The Committee operates the share plans in accordance with their
respective rules, the Listing Rules and HMRC requirements, where
relevant. The Committee, consistent with market practice, retains
discretion over a number of areas relating to the operation and
administration of certain plans, including:
} Who participates in the plans.
} The form of the award (for example, conditional share award or
nil cost option).
} When to make awards and payments; how to determine the size
of an award; a payment; and when and how much of an award
should vest.
} Whether share awards will be eligible to receive dividend
equivalents and the method of calculation.
} The testing of a performance condition over a shortened
performance period.
} How to deal with a change of control or restructuring of the
Group.
} Whether a participant is a good/bad leaver for incentive plan
purposes; what proportion of an award vests at the original
vesting date or whether and what proportion of an award may
vest at the time of leaving.
} How and whether an award may be adjusted in certain
circumstances (e.g. for a rights issue, a corporate restructuring
or for special dividends).
} What the weighting, measures and targets should be for the
annual bonus plan and PSP from year to year.
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OSB GROUP PLC Annual Report and Accounts 2020
The Committee also retains the discretion within the Remuneration
Policy to adjust existing targets and/or set different measures for
the annual bonus. For the PSP, if events happen that cause it to
determine that the targets are no longer appropriate, an
amendment could be made so they can achieve their original
intended purpose and ensure the new targets are not materially
less difficult to satisfy.
Any use of the above discretions would, where relevant, be
explained in the Annual Report on Remuneration and may, as
appropriate, be the subject of consultation with the Company’s
major shareholders.
The Group operates in a heavily regulated sector, the rules of
which are subject to frequent evolution. The Committee therefore
also retains the discretion to make adjustments to payments under
this Policy as required by financial services regulations.
Conflicts of interest
The Committee ensures that no Director is present when their
remuneration is being discussed and considers any potential
conflicts prior to meeting materials being distributed and at the
beginning at each meeting.
Awards granted prior to the effective date
Any commitments entered into with Directors prior to the effective
date of this Policy will be honoured. Details of any such payments
will be set out in the Annual Report on Remuneration as they arise.
Remuneration Policy for other employees
The Committee has regard to pay structures across the wider
Group when setting the Remuneration Policy for Executive
Directors and ensures that policies at and below the Executive level
are coherent. There are no significant differences in the overall
remuneration philosophy, although pay is generally more variable
and linked more to the long term for those at more senior levels.
The Committee’s primary reference point for the salary reviews for
the Executive Directors is the average salary increase for the
broader workforce.
A highly collegiate approach is followed in the assessment of the
annual bonus, with our Balanced Business Scorecard being used to
assess bonus outcomes throughout the Group, with measures
weighted according to role, where relevant.
Overall, the Remuneration Policy for the Executive Directors is more
heavily weighted towards performance-related pay than for other
employees. In particular, performance-related long-term incentives
are not provided outside of the most senior management
population as they are reserved for those considered to have the
greatest potential to influence overall levels of performance.
Although PSPs are awarded only to the most senior managers in
the Group, the Company is committed to widespread equity
ownership and a Sharesave Plan is available to all employees.
Executive Directors are eligible to participate in this plan on the
same basis as other employees.
Illustrations of application of Remuneration Policy
The chart below illustrates how the composition of the Executive Directors’ remuneration packages (as it is intended the Remuneration
Policy will be implemented in 2021) would vary under various performance scenarios.
3,500
3,000
2,500
2,000
1,500
1,000
500
0
£3,143k
42.8%
£2,695k
33.3%
33.3%
28.5%
£1,575k
14.2%
28.5%
57.3%
33.4%
28.7%
£902k
100%
£1,689k
33.2%
33.2%
33.6%
£1,969k
42.7%
28.5%
28.8%
100%
£567k
100%
£988k
14.2%
14.2%
28.4%
57.4%
Minimum
Target
Maximum
Share price
growth
Minimum
Target
Maximum
Share price
growth
CEO
CFO
Fixed pay
Annual bonus
LTIP
1. Minimum performance assumes no award is earned under the annual bonus plan and no vesting is achieved under the PSP – only fixed pay (salary, benefits and pension are payable).
2. At on-target, half of the annual bonus is earned (i.e. 55% of salary) and 25% of maximum is achieved under the PSP (i.e. 27.5% of salary).
3. At maximum, full vesting is achieved under both plans (i.e. 110% of salary under the bonus and PSP).
4. As at maximum, but illustrating the effect of a 50% increase in the share price on PSP awards.
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Directors’ Remuneration Report (Continued)
Remuneration Policy (Continued)
Other than as noted in the chart on page 153, share price growth and all-employee share plan participation are not considered in these
scenarios.
The terms and provisions that relate to remuneration in the Executive Directors’ service agreements are set out below. Service contracts
are available for inspection at the Company’s registered office.
Provision
Policy
Notice period
12 months on either side.
Termination payments
Remuneration
Post-termination
A payment in lieu of notice may be made on termination to the value of the Executive Director’s basic salary at the time of
termination. Such payments may be made in instalments and in such circumstances can be reduced to the extent that the
Executive Directors mitigate their loss. Rights to DSBP and PSP awards on termination are shown below. The employment of
each Executive Director is terminable with immediate effect without notice in certain circumstances, including gross
misconduct, fraud or financial dishonesty, bankruptcy or material breach of obligations under their service agreements.
Salary, pension and core benefits are specified in the agreements. There is no contractual right to participate in the annual
bonus plan or to receive long-term incentive awards.
These include six months post termination restrictive covenants against competing with the Company; nine months
restrictive covenants against dealing with clients or suppliers of the Company; and nine months restrictive covenants
against soliciting clients, suppliers and key employees.
Contract date
Andy Golding, 12 February 2020; April Talintyre, 12 February 2020.
Unexpired term
Rolling contracts.
Payments for loss of office
On termination, other than for gross misconduct, the Executive
Directors will be contractually entitled to salary, pension and
contractual benefits (car allowance, private medical cover, life
assurance and income protection) over their notice period. The
Company may make a payment in lieu of notice equivalent to the
salary for the remaining notice period. Payments in lieu of notice
would normally be phased and subject to mitigation, by offsetting
the payments against earnings elsewhere.
The Company may also pay reasonable legal costs in respect
of any compromise settlement.
Performance Share Plan awards on termination
Awards normally lapse on termination of employment. However, in
certain good leaver situations, awards may vest on the normal
vesting date and to the extent that the performance conditions are
met. The Committee is, however, permitted under the PSP rules
and FCA regulations to allow early vesting of the award to the
extent it considers appropriate, taking into account performance
to date. Unless the Committee determines otherwise, awards
vesting in good leaver situations will be pro-rated for time
employed during the performance period. Shares which are
subject to a post-vesting holding period will ordinarily be released
at the normal time.
Annual bonus on termination
There is no automatic/contractual right to bonus payments and the
default position is that the individual will not receive a payment.
The Committee may determine that an individual is a ‘good leaver’
and may elect to pay a pro-rated bonus for the period of
employment at its discretion and based on full-year performance.
Deferred bonus awards on termination
In respect of outstanding awards made under the previous policy,
deferred bonus awards normally lapse on termination of
employment. However, in certain good leaver situations, awards
may instead vest on the normal vesting date (or on cessation of
employment in exceptional circumstances). Good leaver scenarios
include: (i) death; (ii) injury, ill-health or disability; (iii) retirement
with the agreement of the Company; (iv) redundancy; (v) the
employing company ceasing to be a member of the Group; or (vi)
any other circumstance the Committee determines good leaver
treatment is appropriate. Shares which are subject to a holding
period will ordinarily be released at the normal time. Where a
portion of the annual bonus is required to be deferred in line with
FCA regulations, the treatment on cessation will be in line with
deferred awards made under the previous policy (as above).
Approach to recruitment and promotions
The ongoing remuneration package for a new Executive Director
would be set in accordance with the terms of the Company’s
approved Remuneration Policy.
On recruitment, the salary may (but need not necessarily) be set
at a lower rate, with phased increases (which may be above the
average for the wider employee population) as the Executive
Director gains experience. The salary would in all cases be set to
reflect the individual’s experience and skills and the scope of the
role. Annual bonus and PSP award levels would be in line with the
Remuneration Policy.
The Company may take into account and compensate for
remuneration foregone upon leaving a previous employer using
cash awards, the Company’s share plans or awards under Listing
Rule 9.4.2, as may be required. This would include: taking into
account the quantum foregone; the extent to which performance
conditions apply; the form of award; and the time left to vesting.
These would be structured in line with any regulatory requirements
(such as the PRA Rulebook).
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OSB GROUP PLC Annual Report and Accounts 2020
For all appointments, the Committee may agree that the Company will meet certain appropriate relocation costs.
For an internal appointment, including the situation where an Executive Director is appointed following corporate activity, any variable
pay element awarded in respect of their prior role would be allowed to pay out broadly according to its terms.
Should an individual be appointed to a role (Executive or Non-Executive) on an interim basis, the Company may provide additional
remuneration, in line with the Remuneration Policy for the specific role, for the duration the individual holds the interim role.
For the appointment of a new Chairman or NED, the fee arrangement would be in accordance with the approved Remuneration Policy
in force at that time.
External appointments
Executive Directors may accept one directorship of another company with the consent of the Board, which will consider the time
commitment required. The Executive Director would normally be able to retain any fees from such an appointment.
The Remuneration Policy for the Chairman and Non-Executive Directors
Element
Fees
Purpose and link to strategy
Operation
Maximum opportunity
To attract and retain a high-calibre
Chairman and NEDs by offering
a market competitive fee.
The Chairman and NEDs are entitled to an annual
fee, with supplementary fees payable for additional
responsibilities including the Chair of the Group Audit,
Group Nomination and Governance, Group
Remuneration and Group Risk Committees and
for acting as the SID.
Fees are reviewed periodically.
The Chairman and NEDs are entitled to
reimbursement of travel and other reasonable
expenses incurred in the performance of their duties.
There is no prescribed maximum
annual increase. The Committee is
guided by the general increase in
the non-executive market but on
occasion may need to recognise, for
example, change in responsibility
and/or time commitments.
Letters of appointment
The NEDs are appointed by letters of appointment that set out their duties and responsibilities. The key terms are:
Provision
Policy
Period of
appointment
Notice periods
Payment in lieu
of notice
Initial three-year term, subject to annual re-election by shareholders. On expiry of the initial term and subject to the needs of the
Board, NEDs may be invited to serve a further three years. NEDs appointed beyond nine years will be at the discretion of the Group
Nomination and Governance Committee.
Three months on either side.
The appointments are also terminable with immediate effect and without compensation or payment in lieu of notice if the Chairman
or NEDs are not elected or re-elected to their position as a Director of the Company by shareholders.
The Company is entitled to make a payment in lieu of notice on termination.
Letters of appointment are available for inspection at the Company’s registered office. The effective dates of the current NEDs’
appointments are shown in the table below.
Non-Executive Director
Graham Allatt
Noël Harwerth
Sarah Hedger
Rajan Kapoor
Mary McNamara
David Weymouth
Date of appointment1
6 May 2014
4 October 2019 (appointed to the CCFS Board in June 2017)
1 February 2019
4 October 2019 (appointed to the CCFS Board in September 2016)
6 May 2014
1 September 2017
1. These dates reflect the date that each NED joined OneSavings Bank plc (prior to the insertion of OSB GROUP PLC as the holding company and listed entity).
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Directors’ Remuneration Report (Continued)
2020 Annual Report on Remuneration
Introduction
This section outlines details of the remuneration received by
Executive Directors and Non-Executive Directors in respect of the
financial year ended 31 December 2020. This Annual Report on
Remuneration will, in conjunction with the Annual Statement of the
Committee Chair on pages 146 to 148, be proposed for an advisory
vote by shareholders at the forthcoming AGM to be held on
27 May 2021.
Where required, the data provided has been audited by Deloitte,
which is indicated where applicable.
Membership and meetings
The Committee met a total of eight times during 2020. The
members of the Committee are Mary McNamara (Chair), Noël
Harwerth, Sarah Hedger (appointed with effect from 4 March
2020), Rajan Kapoor and David Weymouth. Sir Malcolm
Williamson was a member of the Committee until 4 February 2020
when he ceased to be a member of the Board. The attendance of
individual Committee members is set out in the Corporate
Governance Report.
The Board considers each of the members of the Committee
to be independent in accordance with the UK Corporate
Governance Code.
Responsibilities
The Committee’s responsibilities are set out in its terms of
reference, which are available on the Company’s website.
In summary, the responsibilities of the Committee include:
} Pay for employees under the Committee’s scope:
– Setting the Remuneration Policy.
– Determining total individual remuneration (including salary
increases, bonus opportunities and outcomes and long-term
incentive plan (LTIP) awards).
– Ensuring that contractual terms on termination, and any
payments made, are fair to the individual and the Company,
that failure is not rewarded and that the duty to mitigate loss
is fully recognised.
} Approving the design of, and determining targets for, any
performance-related pay schemes operated by the Company
and approving total payments made under such schemes.
Employees under the Committee’s scope include Executive
Directors, the Chairman of the Board, the Company Secretary
and all employees that are identified as Material Risk Takers for
the purposes of the PRA and FCA’s Dual Regulated Remuneration
Code (Code Staff).
Key matters considered by the Committee
Key issues reviewed and discussed by the Committee during the
year included:
} Updates on the performance of in-flight PSP awards.
} Regular shareholder updates, as well as the approach and
strategy in respect of shareholder engagement.
} CEO and CFO remuneration arrangements for 2021.
} Approval of the 2021 personal objectives for the CEO, CFO and
Group Executive team.
} Summary of agreed NED remuneration arrangements.
} Annual review of the costs and performance of the external
remuneration consultant.
} Review of the proposals from Group HR in respect of the
harmonisation of grades, benefits, terms and conditions across
the Group.
} Considering the impact of COVID-19 on the operation of the
Remuneration Policy for Executives and all employees.
} Leaving arrangements for senior employees.
} All business as usual matters for employees under the
Committee’s scope.
} Review and approval of salary increases.
} Review and approval of bonus awards.
} Determining the grants under the PSP.
} Considering and recommending the Directors’ Remuneration
Report to the Board for approval.
Advisers to the Committee
Korn Ferry provided independent advice to the Committee during
2020, having been appointed following a competitive tender
process in 2017. The total fees paid to Korn Ferry in 2020 were
£148,810 and were charged on a time and materials basis. This
figure includes a significant amount in respect of support for the
Committee and management in relation to the integration.
Korn Ferry has no other connection with the Group or any
individual Director and therefore the Committee is satisfied
that it provides objective and independent advice. Korn Ferry is
a member of the Remuneration Consultants Group and abides
by the voluntary code of conduct of that body, which is designed
to ensure objective and independent advice is given to
remuneration committees.
The Committee consults with the CEO (as appropriate) and
seeks input from the Group Risk Committee to ensure that any
remuneration or pay scheme reflects the Company’s risk appetite
and profile and considers current and potential future risks.
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OSB GROUP PLC Annual Report and Accounts 2020
The Committee also receives input on senior management remuneration from the CFO and Group HR Director. The Group General
Counsel and Company Secretary acts as Secretary to the Committee and advises on regulatory and technical matters, ensuring that the
Committee fulfils its duties under its terms of reference.
No individual is present in discussions directly relating to their own pay.
Directors’ pay outcomes for 2020
Remuneration and fees payable for 2020 – (audited)
The table below sets out a single figure for the total remuneration received by each Executive Director and NED for the years ending
31 December 2020 and 31 December 2019.
Executive Directors
Andy Golding
April Talintyre
Basic salary
£’000
Taxable
benefits1
£’000
Pension2
£’000
Annual
bonus paid3
£’000
735
516
500
347
21
21
16
16
59
67
40
45
-
296
-
199
Year
2020
2019
2020
2019
Amount
bonus
deferred3
£’000
167
296
113
199
LTIP4
£’000
406
186
272
98
Total
fixed pay
£’000
Total
variable pay
£’000
816
604
556
408
572
778
385
496
Total
£’000
1,388
1,382
941
904
1. Taxable benefits received include car allowance (CEO £20,000; CFO £15,000) and private medical cover.
2. Executive Directors currently receive pension contributions (or cash in lieu thereof) of 8% of salary, which is in line with the majority of the workforce.
3. 50% of bonus is payable in cash and 50% in shares deferred for three years. The cash portion of the 2020 bonus was waived prior to the Executive Directors becoming entitled to it.
4. The LTIP figure for the year ended 31 December 2019 has been restated based on the share price on vesting of £1.721785 for the 2017 PSP.
Total fees £’000
Chairman
David Weymouth1
Non-Executive Directors
Graham Allatt
Noël Harwerth2
Sarah Hedger3
Rajan Kapoor2
Mary McNamara
Former Non-Executive Directors
Eric Anstee4
Tim Brooke Thom5
Rod Duke6
Margaret Hassall5
Ian Ward5
Sir Malcolm Williamson1, 4
Total7
2019
2020
250
292
91
31
67
29
90
88
26
89
71
28
63
114
109
84
120
105
8
50
122
45
48
27
923
1,124
NEDs cannot participate in any of the Company’s share schemes and are not eligible to join the Company pension scheme.
1. David Weymouth served as Chairman until 4 October 2019, his fee remained unchanged due to additional responsibilities; Sir Malcolm Williamson became Chairman from that date and
subsequently stepped down on 4 February 2020. David Weymouth was re-appointed Chairman on 4 February 2020.
2. Appointed to the Board of OSB on completion of the Combination with CCFS on 4 October 2019.
3. Appointed to the Board of OSB on 1 February 2019.
4. Ceased to be a Director of OSB on 4 February 2020.
5. Ceased to be a Director of OSB on 7 May 2020.
6. Ceased to be a Director of OSB on 4 February 2020 and became Chairman of CCFSL on the same date (paid a fee of £125,000 as Chairman of CCFSL).
7. In 2019, an additional amount of £5,000 was payable to each NED for significant extra time spent on matters relating to the Combination.
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices
Directors’ Remuneration Report (Continued)
2020 Annual Report on Remuneration (Continued)
Executive bonus scheme
The performance against the measures for 2020 is set out below. Despite resilient business performance over the year, given the
economic impact of the pandemic, there is only a relatively modest payout under the financial portion. There has, however, been strong
delivery against the Customer, Quality and Staff categories. Under the Customer metric, the Group’s customer and broker NPS scores
were both outstanding with low levels of customer complaints, meaning that 11.2% out of the 15% was earned. The achievements against
the Quality metrics were also particularly pleasing, given the operational changes following the onset of the COVID-19 pandemic early
in the year. Performance against the Staff metrics for employee engagement and gender diversity was also robust.
Strong performance against these non-financial KPIs represents crucial building blocks for the foundation of future shareholder value,
particularly in a year when the business has been digesting the Combination with CCFS.
2020 performance against the Balanced Business Scorecard
Category
Key performance indicator
Financial (50%)
Customer (15%)
Quality (15%)
Underlying PBT (£m)
All-in ROE (%)
Cost to income ratio (%)
Net loan book growth (%)
Customer satisfaction
Broker satisfaction
Complaints (%)
Overdue actions (#)
Arrears (%)
High-severity incidents (#)
Staff (10%)
Diversity (%)2
Employee engagement3
Weighting
Threshold
(25%)
25%
10%
7.5%
7.5%
6%
4%
5%
5%
5%
5%
4%
6%
389m
19.3%
30.6%
13%
60
22.5
0.10%
6
1.2%
4
29%
690
Targets1
Budget
(50%)
409m
21.3%
28.6%
15%
65
27.5
0.09%
4
1.0%
2
29.5%
700
Personal (10%)
Vary by Executive – see section below
10%
Max
(100%)
Actual
result4
Outcome
CEO
Outcome
CFO
429m 346.2m
19.0%
23.3%
26.8%
26.6%
9.4%
17%
70
32.5
0.08%
66.5
48.9
0.087%
2
0.8%
1
30%
710
1.6
1.01%
2
29.8%
700.9
0.0%
0.0%
7.1%
0.0%
3.9%
4.0%
3.3%
5.0%
2.4%
2.5%
3.2%
3.3%
6.5%
0.0%
0.0%
7.1%
0.0%
3.9%
4.0%
3.3%
5.0%
2.4%
2.5%
3.2%
3.3%
6.5%
Total (before cash waiver)
41.2%
41.2%
1. Targets – based on a sliding scale between threshold, target and maximum.
2. Diversity – based on the Group’s commitment to the Women in Finance Charter and the gender diversity of 151 employees in senior roles.
3. Employee engagement – Sunday Times Top 100 Best Companies to Work For survey score – targets set at the start of the year were based on position in the list; however, as the publication has
been delayed due to the impact of the pandemic, the Committee agreed to assess the target on an absolute basis against the survey score.
4. The impact of the £20m impairment charge has been reflected in the figures, where relevant.
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OSB GROUP PLC Annual Report and Accounts 2020
2020 personal performance
The Executive Directors were allocated up to a maximum of 10% of their bonus based on their personal performance against
agreed objectives.
The priorities for 2020 were identified in our 2019 Annual Report and objectives built around these. Performance against the objectives
for both Executive Directors was also considered by the Board and Committee to be exemplary, with strong leadership throughout
a challenging and uncertain year.
The objectives set at the start of the year and the Committee’s assessment of performance against them are set out below:
Objectives
Key achievements
CEO
Embed a combined Purpose, Vision and Values across the
Group whilst demonstrating role model behaviours
considering the perspective of all stakeholders
Lived the OSB Group Values, leading by example and ensuring employees
understood the behaviours expected of them through the pandemic.
Integrate new Executive team in line with desired
organisation structure and ensure a highly effective
operation
Managed the new combined Executive team, ensuring clear division of
responsibilities and a highly effective team culture, which has performed
admirably through the exceptional circumstances over the year.
Develop and maintain strong relationships with key
stakeholders including regulators and investors
Transparent relationship with regulators with requests promptly actioned.
Successful investor roadshow in the final quarter of 2020 was well received.
Deliver strategic objectives in line with Board-approved
operating plan
Ensure cost synergies for the Combination with CCFS are
delivered in line with strategic plan
Delivered strategic objectives set out in the Strategic Report from page 56.
Integration of CCFS with OSB is on track, including with respect to cost
synergies. This has been delivered despite employees operating remotely
for the majority of the year.
CFO
Progress against integration objectives including
combining accounting systems and HR policies
Delivered integration objectives beyond expectations, including oversight of
combined accounting systems and the roll-out of harmonised HR policies.
Implement internal reorganisation to insert new holding
company, OSB GROUP PLC, as the holding company for
the Group
Ensured the smooth implementation of the insertion of the new holding
company and the corresponding change in listed legal entity.
Strengthen the Banks’ capital and funding management Capital and funding management processes have been reviewed and
improved to strengthen the Banks for the future.
Develop and maintain strong relationships with key
stakeholders including regulators and investors
Transparent relationship with regulators with requests promptly actioned.
Successful investor roadshow in the final quarter of 2020 was well received.
Deliver strategic objectives in line with Board-approved
operating plan
Ensure cost synergies for the combination with CCFS are
delivered in line with strategic plan
Delivered strategic objectives set out in the Strategic Report from page 56.
Integration of CCFS with OSB is on track, including with respect to cost
synergies. This has been delivered despite employees operating remotely
for the vast majority of the year.
Based on this performance, the Committee determined that 6.5% of a possible 10% for the individual element of the bonus should be paid
to each of the CEO and CFO.
2020 bonus scheme payout
Taking into account the performance against the Balanced Business Scorecard and individual objectives, the CEO and CFO therefore
each earned 41.2% of maximum (45.3% of salary). Half of the bonus would normally be paid in cash with the remainder deferred into
shares for three years; however, as mentioned in the Chairman’s statement, in response to the COVID-19 pandemic during the year and
to recognise the cancelled final dividend for 2019, the Executive Directors chose to forgo the cash opportunity for the bonus (i.e. 50%
of the total). The Board subsequently decided that half of the resultant saving will be retained in the business and the remaining half be
donated to charity. As such, no cash bonus will be received by the Executives, with the share portion representing 22.7% of salary being
subject to a three-year holding period. This assessment and payout is consistent with the payout under employee plans throughout
the business.
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Directors’ Remuneration Report (Continued)
2020 Annual Report on Remuneration (Continued)
Long-term incentive plan (audited)
The 2018 LTIP award was granted on 24 May 2018 and measured performance over the three financial years to 31 December 2020.
Awards will vest after publication of this report, based on the EPS, TSR and ROE performance, at 62.74% of maximum, as set out below.
Given that the Combination with CCFS completed with more than a year left to run in the performance period (c. 21 months into a 36-month
performance period), the Committee determined that the EPS and ROE targets should be assessed on a combined basis against targets
that were no tougher or easier to achieve based on the business plan immediately before and after the Combination (the adjustments
were agreed by the Committee and the Chair of the Group Audit Committee).
Performance level
Percentage of
that part of
the award
vesting
EPS element1 (40%
of total award)
EPS
performance
Vesting of EPS
part (40% of
total award)
Relative TSR
(40% of total
award)
Relative TSR
performance
versus FTSE
250
constituents
58.1p
63.7%
Below
median
71 out of
172
Vesting of TSR
part (40% of
total award)
Average ROE2,3
(20% of total
award)
Average ROE
performance
Vesting of ROE
part (20% of
total award)
52.9%
20.3%
24.0%
80.5%
Below ‘threshold’
0%
‘Threshold’
‘Stretch’
25%
100%
Less than
52.5p
(6% CAGR)
52.5p
(6% CAGR)
63.4p
(12% CAGR)
Median
Upper
quartile
20.3%
25.3%
1. EPS targets were set in 2018 prior to the Combination with CCFS based on a ‘Threshold’ target of 6% CAGR and a ‘Stretch’ target of 12% CAGR measured from the 2017 base year.
2. ROE targets were set in 2018 prior to the Combination with CCFS based on achieving average ROE over 2018, 2019 and 2020 of between 20% for ‘Threshold’ vesting and 25% for ‘Stretch’ vesting.
3. The ROE performance condition is based on the average ROE over the three-year performance period and is subject to an underpin requiring that the CET1 ratio is not below the Board-approved
minimum requirement.
The Committee is comfortable that the level of vesting is in line with underlying performance, risk appetite, individual conduct and
shareholder experience over the performance period. As such, the awards will vest in May 2021, with the shares subject to a two-year
holding period.
The 2018 PSP awards will therefore vest as follows:
Executive Directors
Andy Golding
April Talintyre
Number of
shares
granted
Number of
shares due to
vest
Number of
shares lapsed
Value from
share price
increase/
(decrease)1
Total value
vesting2
180,439
121,005
113,207
75,918
67,232
45,087
(£69,107) £405,865
(£46,344) £272,178
1. Value of share price increased/(decreased) based on a £4.1956 share price at the time of grant of the award compared to the three-month average share price of £3.5852 to 31 December 2020.
2. Value of shares based on a three-month average share price of £3.5852 to 31 December 2020. This value will be restated next year based on the actual share price on the date of vesting. Dividend
equivalents are not paid under the Performance Share Plan.
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OSB GROUP PLC Annual Report and Accounts 2020
Executive pay outcomes in context
Percentage change in the remuneration of the Directors (audited)
The table below sets out the percentage change in base salary, value of taxable benefits and bonus for all the Directors compared
with the average percentage change for employees. For these purposes, UK employees who have been employed for over a year
(and therefore eligible for a salary increase) have been used as a comparator group as they are the analogous population (based
on service and location). The percentage change for Executive and Non-Executive Directors is calculated based on the remuneration
disclosed in the single figure tables on page 157. The changes to salary/fees between 2019 and 2020 are as a result of changes made
to pay arrangements following the Combination with CCFS. The percentage is not included for Non-Executive Directors who joined
the Board in 2019 as the disclosure would not be meaningful. There have been no changes to the benefits between 2019 and 2020.
The change in bonus for Executive Directors and employees is as a result of the pandemic impacting the 2020 Balanced Business
Scorecard performance as detailed on page 158.
CEO
CFO
Graham Allatt
Noël Harwerth1
Sarah Hedger2
Rajan Kapoor1
Mary McNamara
David Weymouth
Former Non-Executive Directors
Eric Anstee3
Tim Brooke Thom4
Rod Duke3
Margaret Hassall4
Ian Ward4
Sir Malcolm Williamson3
UK employees
1. Noël Harwerth and Rajan Kapoor joined the Board in October 2019.
2. Sarah Hedger joined the Board in February 2019.
3. Ceased to be a Director of OSB on 4 February 2020.
4. Ceased to be a Director of OSB on 7 May 2020.
Average percentage change 2019–2020
Salary
42.4%
44.1%
25.3%
n/a
n/a
n/a
16.2%
16.7%
n/a
n/a
n/a
n/a
n/a
n/a
5.5%
Taxable
benefits
0%
0%
0%
n/a
n/a
n/a
0%
0%
n/a
n/a
n/a
n/a
n/a
n/a
0%
Annual
bonus
-71.9%
-71.5%
0%
n/a
n/a
n/a
0%
0%
n/a
n/a
n/a
n/a
n/a
n/a
-27.5%
Comparison of Company performance and CEO remuneration (audited)
The following table summarises the CEO single figure for total remuneration, annual bonus and LTIP payout as a percentage of maximum
opportunity for the period between 2013 and 2020.
2013
2014
2015
2016
2017
2018
2019
20201
Annual bonus
(as a percentage of maximum opportunity)
LTIP vesting
(as a percentage of maximum opportunity)
CEO single figure of remuneration
(£’000)
92.5%
92.63%
93.00%
88.75%
85%
91.75%
75.89%
20.60%
–
–
–
–
100%
50%
75.1%
62.74%
518
777
848
910
1,614
1,602
1,382
1,388
1. The cash portion of the 2020 bonus was waived by the Executive Directors before they became entitled to it. As such, only the share portion of the 2020 bonus was payable (i.e. half of the bonus of
41.2% of maximum).
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices
Directors’ Remuneration Report (Continued)
2020 Annual Report on Remuneration (Continued)
Total shareholder return
The chart below shows the TSR performance of the Company over the period from listing to 31 December 2020 compared to the
performance of the FTSE All Share Index. This index is considered to be the most appropriate index against which to measure
performance as the Company has been a member of this index since Admission of OneSavings Bank plc to the London Stock Exchange.
Total shareholder return
)
d
e
s
a
b
e
r
(
)
£
(
e
u
a
V
l
350
300
250
200
150
100
50
5 June
2013
31 December
2014
31 December
2015
31 December
2016
31 December
2017
31 December
2018
31 December
2019
31 December
2020
OSB GROUP PLC
FTSE All Share Index
This graph shows the value, at 31 December 2020, of £100 invested in OneSavings Bank plc on Admission (5 June 2014) and following the
insertion of a new holding company in November 2020, the shares of OSB GROUP PLC, compared with the value of £100 invested in the
FTSE All Share Index on the same date. The other points plotted are the values at intervening financial year ends.
Source: Datastream (Thomson Reuters)
CEO pay ratios
The ratio of the CEO’s single figure of total pay to median employee pay is set out in the table on page 163. The ratio has been calculated
in accordance with methodology B as it is the same pay data for employees as is used for the Gender Pay Gap analysis and is based on
pay and benefits as at 5 April each year. Full-time equivalent pay for individuals that do not work full time has been calculated by
increasing their pay pro-rata to that of a full-time individual. No further estimates or adjustments have been made. The employees
identified are considered to be representative of the quartile positions as their total pay is in line with expected positioning and the
proportion of fixed pay to variable pay is also in line with other individuals at those levels.
The median ratio has increased between 2019 and 2020 largely as a result of the decrease in the total pay for the median employee.
This is primarily as a result of OSB’s combination with CCFS, which resulted in the UK employee population, with whom the CEO is
compared, doubling in size. The median ratio has decreased between 2018 and 2019 as a result of a combination of factors, which
resulted in the total pay for the median individual within the workforce increasing, including positive changes to the Group’s pay policy
and changes in the employee population between 2018 and 2019. The decrease in the ratio between 2017 and 2018 was as a result of
the above factors. Additionally, the total pay for the CEO decreased between 2017 and 2018.
There has been no change to the Company’s employment models during this two-year period and the median ratio is consistent with the
pay, reward and progression policies within the Company. The Directors’ pay is set by the Committee with reference to both the internal
relativities across the Group and taking into account external market benchmarks. As such, the pay ratio is considered appropriate and
is not considered excessive, particularly when compared to other listed financial services companies.
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OSB GROUP PLC Annual Report and Accounts 2020
CEO pay ratio
Method
CEO single figure
Upper quartile
Median
Lower quartile
2020
CEO
Lower quartile – Employee A
Median – Employee B
Upper quartile – Employee C
2017
B
2018
B
2019
B
2020
B
1,614
1,602
1,382
1,388
62.1
46.1
24.8
59.5
40.1
22.3
54.6
32.0
22.5
47.4
38.7
25.8
Basic salary
(£’000)
Total pay
(£’000)
735
25
31
47
1,388
29
36
54
Relative importance of the spend on employee pay (audited)
The table below shows the Company’s total employee remuneration (including the Directors) compared to distributions to shareholders
and operating profit before tax for the year under review and the prior year. In order to provide context for these figures, underlying
operating profit as a key financial metric used for remuneration purposes, is shown.
2020
2019
Total employee costs
Distributions to shareholders1
Underlying profit before tax (PBT)
Total employee costs vs PBT
Average headcount
Average PBT per employee
1. See note 17 to the financial statements.
£86.0m
£64.9m
£60.5m
£12.0m
£346.2m £199.1m
30.4%
1,278
£190,639 £155,790
24.8%
1,816
Other disclosures relating to 2020 executive remuneration
Scheme interests awarded during the financial year (audited)
The table below shows the conditional share awards made to Executive Directors in 2020 under the PSP and the performance conditions
attached to these awards. The Committee considered whether to reduce the grant level of the PSP awards in light of the share price fall
at the time of grant, or whether to delay the grant. However, acknowledging that the pandemic was impacting the stock market generally
and the performance conditions had been significantly adversely impacted by the pandemic, it determined that the 2020 awards should
be granted at the normal grant level under the Remuneration Policy. It also decided against delaying the grant as it was not possible to
forecast when the stock market was likely to stabilise. The Committee, however, has discretion to adjust the vesting level to ensure that
the reward level reflects underlying performance, risk and individual conduct and in doing so will consider whether there have been any
windfall gains in the event of a swift recovery in the stock market and the Company's share price. There will be full disclosure of the
Committee’s deliberations on this matter in the 2022 Directors’ Remuneration Report:
Executive
Andy Golding
April Talintyre
Face value of
award
(percentage of
salary)
Face value of
award
Number of
shares1
110% £808,500
312,935
110% £550,000
212,881
Percentage of
awards
released for
achieving
threshold
targets
End of performance
period
Performance conditions2
(weighting)
25% 31 December 2022
EPS (35%)
TSR (35%)
ROE (15%)
Non-financial/Risk (15%)
1. The number of shares awarded was calculated using a share price of £2.5836 (the average mid-market quotation for the preceding five days before grant on 19 March 2020).
2. Performance conditions are: (i) 35% TSR versus the FTSE 250 (25% vesting for median performance increasing to maximum vesting for upper quartile performance); (ii) 35% EPS (25% vesting for
growth in EPS of 5% per annum increasing to maximum vesting for 12% per annum); (iii) 15% ROE (25% vesting for average ROE of 19% increasing to maximum vesting for an average of 25%) and (iv)
15% non-financial/risk scorecard, performance for which is commercially sensitive (full disclosure will be provided retrospectively).
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Directors’ Remuneration Report (Continued)
2020 Annual Report on Remuneration (Continued)
All-employee share plans (audited)
Executive
Andy Golding
April Talintyre
Date of grant
Exercise price
Market price
31 December
2020
Exercisable from
Exercisable to
1 November 20191
28 October 2020
£2.65496
£2.29013
–
£4.2360
1 December 2022
1 December 2023
1 June 2023
1 June 2024
1 November 20191
28 October 2020
£2.65496
£2.29013
–
£4.2360
1 December 2022
1 December 2023
1 June 2023
1 June 2024
Number of
options
granted
Number of
options as at
31 December
2020
6,779
7,859
6,779
7,859
–
7,859
–
7,859
1. The options were cancelled on 14 and 15 October 2020, respectively.
Statement of Directors’ shareholdings and share interests (audited)
Total shares owned by Directors:
Executive Directors
Andy Golding
April Talintyre
Non-Executive Directors
Rajan Kapoor
Mary McNamara3
David Weymouth
Graham Allatt
Noël Harwerth
Sarah Hedger
Interest in shares
Interest in share awards
Shareholding requirements
Beneficially
owned at
1 January
2020
Beneficially
owned at
31 December
2020
Without
performance
conditions at
31 December
20201
Subject to
performance
conditions
as at
31 December
2020
Shareholding
requirement
(percentage of
basic salary)
Current
shareholding
(percentage of
basic salary)2
512,941
220,346
595,895
268,122
261,556
177,622
693,333
468,589
250% 425% (Met)
200% 310% (Met)
8,970
22,350
13,178
-
-
-
19,970
66,850
18,678
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1. Includes DSBP awards granted on 19 March 2020 at a price of £2.5836 (CEO 114,558 shares and CFO 77,172 shares).
2. Shareholding based on the closing share price on 31 December 2020 (£4.2360) and year-end salaries; it also includes interest in share awards without performance conditions (net of tax).
3. Includes 27,500 shares that are owned by spouse.
The Company operates an anti-hedging policy under which individuals are not permitted to enter into any personal hedging strategies in
relation to shares subject to a vesting and/or retention period.
External appointments
Andy Golding is a Director/Trustee of the Building Societies Trust Limited. He receives no remuneration for this position.
Payments to departing Directors (audited)
Tim Brooke Thom, Margaret Hassall and Ian Ward stood down as Non-Executive Directors during the year and received a payment equal
to three months’ fee in lieu of the unexpired period of notice. This equated to £20,625, £18,750 and £20,000, respectively.
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OSB GROUP PLC Annual Report and Accounts 2020
How we will implement the Remuneration Policy for Directors in 2021
Following significant changes to the Remuneration Policy and its operation for the 2020 financial year, there are no material changes
proposed for the operation of the Remuneration Policy in the full year for 2021, which will be as follows:
Salary
Following the Combination with CCFS, the Committee agreed that the CEO’s salary should be increased to £815,000 to reflect the
increase in scope of the role and the regulatory requirement to rebalance the pay package by reducing the variable pay opportunity.
It was agreed, taking into account feedback from shareholders, that the increase would be phased over 2020 and 2021, with the second
stage validated against specific integration objectives. The objectives and assessment are as follows:
i. performance against the integration plan – the Board’s assessment is that to date, the integration of the two businesses has been
successful, including achievement of operational integration objectives, low regretted attrition and strong support from shareholders.
ii. the level of cost savings against published guidance – integration cost savings are ahead of plan.
iii. whether the desired culture and customer focus has been delivered across the whole organisation – consistent focus on customer and
culture delivered across the Group, with no material customer or employee concerns during 2020.
iv. performance against the compliance plan – regulatory and compliance environment remained robust throughout the integration.
The Committee has considered the achievement against these criteria and has confirmed that the second stage of the increase to
£815,000 be implemented with effect from 1 January 2021. The Committee is aware that this represents a significant increase; however,
this remains the appropriate rate for the role. The Group has performed resiliently through the pandemic, as seen in operational and
financial results and reflected in the share price performance. Furthermore, given that there has been no impact on the salary review
process throughout the Group, the Committee does not believe it is necessary to change its original proposals. The rebalancing of the
CFO’s package was implemented in one step in 2020 as the overall increase was lower. As such, the CFO’s salary will be increased in
2021 by 2% to £510,000, in line with the average workforce percentage increase.
Annual bonus
The 2021 annual bonus will be subject to a maximum limit of 110% of salary. The performance measures have been set in line with the
Balanced Business Scorecard. Accordingly, the balance of the metrics is as follows:
Financial
Customer
Quality
Staff
Personal objectives
50% of bonus opportunity
15% of bonus opportunity
15% of bonus opportunity
10% of bonus opportunity
10% of bonus opportunity
Underlying PBT
All-in ROE
Cost to income ratio
Net loan book growth
Customer satisfaction
Broker satisfaction
Complaints
Overdue management
actions
Arrears
High-severity incidents
Diversity
Employee engagement
Vary by Executive
Details of objectives
(and performance against
these) will be disclosed
retrospectively in next
year’s report
Performance targets are considered to be commercially sensitive so will not be published in advance. However, there will be full disclosure
of the targets set and the extent of their achievement in the 2021 Annual Report on Remuneration. The Committee may apply discretion
to adjust the resultant bonus from the Balanced Business Scorecard if the result fails to reflect broader performance and the wider
shareholder experience.
Half of any bonus will be delivered in shares and cannot be sold for three years.
OSB GROUP PLC Annual Report and Accounts 2020
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2020 Annual Report on Remuneration (Continued)
Performance Share Plan
PSP awards of 110% of salary will be made to the Executive Directors with performance being measured over the three-year period to
31 December 2023.
The EPS and ROE target ranges have been set taking into account the business plan, external operating environment, market
expectations. As such, the Threshold target for EPS has been increased from 5% CAGR to 7% CAGR and the Stretch target for EPS has
been increased from 12% CAGR to 16% CAGR to ensure that there is appropriate stretch when measuring from the 2020 base year, which
was adversely impacted by COVID-19 and other factors. Accordingly, in future years, the range may need to be reduced, if measured
from a base point more reflective of business as usual. Similarly, the average ROE target which determines the vesting of 15% of the
award has been set with a 17% average required for threshold vesting and a 23% average for Stretch vesting. These remain market
leading levels of return.
The Committee agreed an increase to the EPS targets taking into account feedback from shareholders received during consultation.
Overall, the Committee is comfortable that these targets provide the appropriate stretch and link between pay and performance
delivered.
Performance level
Below ‘threshold’
‘Threshold’
‘Stretch’
EPS element (35% of total award)
TSR element
(35% of total award)
Less than 7% CAGR
7% CAGR
16% CAGR
Below median
Median
Upper quartile
Pro rata vesting in between the above points
Return on equity
(15% of total
award)
Below 17%
17%
23%
Non-financial/risk scorecard
(15% of total award)
Commercially sensitive
Percentage of
that part of the
award vesting
0%
25%
100%
For the risk-based measure, the Committee will assess the risk management performance with regard to all relevant risks including, but
not limited to, conduct, credit, funding, liquidity, market, operational and regulatory risk. There will be full retrospective disclosure of the
Committee’s assessment.
When assessing the performance outcome, the Committee may adjust the formulaic vesting outcome to ensure it is aligned with the
underlying performance, risk appetite and individual conduct over the period. Awards will vest 20% each year between three and seven
years after grant, with each vested tranche subject to a one-year holding period.
Share ownership guidelines
The CEO and the CFO are required to accumulate and maintain a holding in ordinary shares in the Company equivalent to no less than
250% of salary and 200% of salary, respectively. This is calculated on the basis of the value of beneficially-owned shares plus the net of
tax value of deferred bonus shares or any other unvested share awards which are not subject to performance. Half of any vested share
awards must be retained until the guideline is achieved. Based on the current share price, the CEO and CFO hold shares in excess of
these levels. From 2020, the guidelines apply for two years following cessation of employment.
Chairman and Non-Executive Director fees
There are no changes to the NED fees for 2021:
Base fees
Chairman
Non-Executive Director
Senior Independent Director
Additional Board Committee fees
Group Nomination and Governance Committee
Board Integration Committee
Group Audit Committee
Group Remuneration Committee
Group Risk Committee
Group Models and Ratings Committee
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OSB GROUP PLC Annual Report and Accounts 2020
£’000
300
70
20
Chair
Member
20
n/a
30
30
30
10
5
5
5
5
5
5
Statement of voting at the Annual General Meeting
Shareholders of OSB were asked to approve the 2019 Annual Report on Remuneration at the 2020 AGM. The Directors’ Remuneration
Policy was approved at the 2020 AGM. The votes received are set out below:
Resolution
Votes for % of votes cast
Votes against % of votes cast
Total votes cast
Votes withheld
To approve the 2019 Remuneration Report (2020 AGM)
To approve the Remuneration Policy (2020 AGM)
346,107,741
362,457,659
89.80%
94.37%
39,302,760
21,608,346
10.20% 385,410,501
5.63% 384,066,005
3,400
927,854
Major shareholders and shareholder advisory bodies were consulted in early 2021, to offer an opportunity for them to provide the
Committee with feedback on the proposed approach for 2021 and with respect to the fact the same Remuneration Policy is being
resubmitted in line with legal requirements, following the insertion of a new legal entity as the listed entity and holding company for the
Group. There were no concerns raised.
Approval
This report was approved by the Board of Directors (on the recommendation of the Group Remuneration Committee) and signed on its
behalf by:
Mary McNamara
Chair of the Group Remuneration Committee
8 April 2021
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OverviewStrategic reportGovernanceFinancial statementsAppendices Directors’ Report: Other Information
Share capital and rights attaching to shares
The Company had 447,312,780 ordinary shares of £3.04 each
in issue as at 31 December 2020.
On 17 November 2020, the share capital of the Company was
subdivided from 2 shares of £1.00 each into 200 shares of £0.01
each. On the same date, a further 408 shares of £0.01 each were
allotted and issued; the nominal value of the shares increased from
£0.01 to £3.04 each; and 608 shares were consolidated into 2
shares of £3.04 each.
Results, dividends and dividend waiver
The results for the year are set out in the Statement of
Comprehensive Income on page 188. Our dividend policy for 2021
remains a payout ratio of at least 25% of underlying profit after
taxation to ordinary shareholders. The Directors recommend the
payment of a final dividend of 14.5 pence per share payable on
2 June 2021, subject to approval at the AGM on 27 May 2021,
with an ex-dividend date of 15 April 2021 and a record date of
16 April 2021 (2019: 4.9 pence total dividend).
On 27 November 2020, 49,998 deferred shares of £0.01 each were
redeemed. On the same date 447,304,196 shares were issued at the
nominal value of £3.04 each as part of a scheme of arrangement.
Since that date, a further 8,582 shares were issued in relation to
share plans at a price of £3.1454.
The OSB GROUP PLC employee benefit trust, which
holds 1,001,238 shares in the Company in connection
with the operation of the Group’s share plans, has lodged
standing instructions to waive dividends on shares held
by it that have not been allocated to employees. The total
amount of dividends waived during 2020 was nil.
Further details relating to share capital can be found in note 43.
Without prejudice to any special rights previously conferred on
the holders of any existing shares or class of shares, any share in
the Company may be issued with such rights (including preferred,
deferred or other special rights) or such restrictions, whether in
regard to dividend, voting, return of capital or otherwise as the
Company may from time to time by ordinary resolution determine
(or, in the absence of any such determination, as the Directors
may determine).
Authorities to allot and pre-emption rights
On 17 November 2020, shareholders re-established the general
authority (that was approved at the AGM of OneSavings Bank plc
(OSB) on 7 May 2020) for the Directors to allot up to £1,487,339
of the nominal value of ordinary shares of £0.01 each. In addition,
shareholders gave authority for the Directors to grant rights to
subscribe for, or to convert any security into, regulatory capital
convertible instruments up to £535,442 of the nominal value of
ordinary shares equivalent to 12% of issued share capital.
Repurchase of shares
The Company has an unexpired authority to repurchase ordinary
shares up to a maximum of 44,620,136 ordinary shares. The
Company did not repurchase any of its ordinary shares during
2020 (2019: none).
Employee share schemes
The details of the Company’s employee share schemes are set
out on page 151 in the Directors’ Remuneration Report and in the
Employee engagement section on page 169.
Directors and Directors’ interests
The names of the Directors who served during the year can be
found in the attendance chart on page 123.
Directors’ interests in the shares of the Company are set out
on page 164 in the Directors’ Remuneration Report. None of the
Directors had interests in shares of the Company greater than
0.35% of the ordinary shares in issue. There have been no changes
to Directors’ interests in shares since 31 December 2020.
Equal opportunities
The Group is committed to applying its Diversity and Inclusion
Policy at all stages of recruitment and selection. Short-listing,
interviewing and selection will always be carried out without regard
to gender, gender reassignment, sexual orientation, marital or civil
partnership status, colour, race, nationality, ethnic or national
origins, religion or belief, age, pregnancy or maternity leave or
trade union membership. Any candidate with a disability will not
be excluded unless it is clear that the candidate is unable to
perform a duty that is intrinsic to the role, having taken into
account reasonable adjustments. Reasonable adjustments to
the recruitment process will be made to ensure that no applicant
is disadvantaged because of his/her disability. Line Managers
conducting recruitment interviews will ensure that the questions
they ask job applicants are not in any way discriminatory or
unnecessarily intrusive. This commitment also applies to existing
employees, with the necessary adjustments made, where there
is a change in circumstances.
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OSB GROUP PLC Annual Report and Accounts 2020
Employee engagement
Employees are kept informed of developments within the business
and in respect of their employment through a variety of means,
such as employee meetings, briefings and the intranet. Employee
involvement is encouraged and views and suggestions are taken
into account when planning new products and projects.
Further details can be found in the Corporate Responsibility
Report on pages 97 to 98.
Greenhouse gas emissions
Information relating to greenhouse gas emissions can be found
on pages 100 to 101 in the Corporate Responsibility Report.
Political donations
Shareholder authority to make aggregate political donations
not exceeding £50,000 was obtained at a general meeting
on 17 November 2020. Neither the Company nor any of its
subsidiaries made any political donations during the year.
Notifiable interests in share capital
At 31 December 2020, the Company had received the following
notifications of major holdings of voting rights pursuant to the
requirements of Rule 5 of the Disclosure Guidance and
Transparency Rules:
Jupiter Fund Management Plc1
Elliot Capital Advisors L.P.
Standard Life Aberdeen
GLG Partners LP2
Eleva Capital SAS3
Norges Bank4
No. of ordinary
shares
% of issued
share capital
71,392,487
31,039,235
25,088,457
23,565,776
14,851,300
13,494,048
15.99
6.94
5.61
5.26
3.32
3.01
Since 31 December 2020, the Company received the following
notifications:
Norges Bank4
No. of ordinary
shares
% of issued
share capital
13,384,341
2.99
1. Jupiter Fund Management Plc gave notice prior to the insertion of OSB GROUP PLC as the
holding company and the listed entity (includes 0.09 per cent of financial instruments).
2. Includes 0.70 per cent of financial instruments.
3. Includes 1 per cent of financial instruments.
4. Includes 0.01 per cent of financial instruments.
GLG Partners LP gave notice on 11 March 2021 that its
shareholding fell below the notifiable threshold.
The Sharesave ‘save as you earn’ Scheme is an all-employee
share option scheme which is open to all UK-based employees.
The Sharesave Scheme allows employees to purchase options
by saving a fixed amount of between £5 and £500 per month
over a period of either three or five years, at the end of which
the options, subject to leaver provisions, are usually exercisable.
The Sharesave Scheme has been in operation since June 2014
and options are granted annually, with the exercise price set
at a 20% discount of the share price on the date of grant.
The Workforce Advisory Forum (known as OneVoice) was
established in 2019 to gather the views of the workforce to enable
the Board and Group Executive Committee to consider a broadly
representative range of stakeholder perspectives to guide strategic
decisions for the future of the Company and its subsidiaries.
OneVoice consists of volunteer representatives (of which there are
21 in total) from each of the various business areas and locations,
as well as permanent members consisting of a designated NED,
Mary McNamara; a member of the Group Executive Committee,
Jason Elphick; and a representative from HR Management. Other
NEDs and members of the Group Executive Committee are invited
to attend meetings on a rotational basis.
Members of the Board are keen to engage with our employees
across all locations and find the experience of visiting our branches
and offices within the UK and India invaluable; however, due to
travel restrictions in place throughout 2020 as a result of COVID-19,
these visits have not been physically possible. It is hoped that once
restrictions are lifted and, provided it is safe to do so, visits to
branches and offices will resume.
During 2020, three OneVoice meetings were held. In advance of
each meeting, employee representatives are encouraged to engage
with employees within their nominated business areas and across
all Group locations to identify topics impacting the workforce,
which it is felt should be brought to the attention of the Board and
Group Executive Committee. A number of items were considered
and discussed by OneVoice, including communication, HR
harmonisation activities, integration, technology, as well as the
impact of COVID-19, particularly, in relation to employee well-being.
The Group is committed to diversity and to making sure everyone
in our business feels included, this year we introduced a Diversity
and Inclusion Working Group. This working group brings together
a broad mix of employees from across the UK business to drive
our diversity and inclusion agenda. Jason Elphick, our Diversity
Champion, delivered a Q&A session for employees to understand
more about the Group’s diversity and inclusion agenda.
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Directors’ Report: Other Information (Continued)
Annual General Meeting
Accompanying this report is the Notice of the AGM which sets out
the resolutions to be proposed to the meeting, together with an
explanation of each. Our preference is to welcome shareholders
in person to the AGM, particularly given the constraints we faced
in 2020 due to the COVID-19 pandemic. At present, however, public
health guidance and legislation issued by the UK Government in
relation to the pandemic mean that there are restrictions on public
gatherings and travel. Should a physical meeting be possible, this
will be held at our offices at 90 Whitfield Street, Fitzrovia, London
W1T 4EZ on 27 May 2021 at 11am.
Other information
Likely future developments in the Group are contained in the
Strategic Report on pages 12 to 113.
Information on financial instruments including financial risk
management objectives and policies including the policy for
hedging the exposure of the Group to price risk, credit risk, liquidity
risk and cash flow risk can be found in the Risk review on pages
81 to 87.
Details on how the Company has complied with section 172 can
be found throughout the Strategic and Directors’ Reports and on
page 16 to 23.
Details relating to post-balance sheet events are set out in note 52.
Going concern statement
The Board undertakes regular rigorous assessments, in accordance
with the ‘Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting’, published by the
Financial Reporting Council in September 2014, 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 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 assessments were significantly influenced by COVID-19
implications, covering the Group’s capital, liquidity and operational
resilience, including the following:
} The 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 result in the Group utilising its regulatory capital
buffers in full and breaching the Group’s minimum prudential
requirements along with analysis and insight from the Group’s
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OSB GROUP PLC Annual Report and Accounts 2020
ICAAP. 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.
} The Group continues to assess the resilience of its business
operating model and supporting infrastructure in the context of
the emerging economic, business and regulatory environment.
The key areas of focus continue to be on the provision of critical
services to customers, employee health and safety and the
evolving governmental policies and guidelines. The Group has
assessed and enhanced its information technology platforms
to support its employees with flexible working and homeworking
across all locations, ensuring stable access to core systems,
data and communication devices. The response to the
pandemic demonstrates the inherent resilience of the Group’s
critical processes and infrastructure. It also reflects the
necessary agility in responding to future operational demands.
The operational dependencies on third party vendors and
outsourcing arrangements continues to be an important area
of focus.
The Group’s financial projections, supported by the COVID-19
assessments, demonstrate 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, it is appropriate to prepare these
Financial Statements on a going concern basis.
Key information in respect of the Group’s SRMF and objectives
and processes for mitigating risks, including liquidity risk, are set
out in detail on pages 64 to 69.
Approved by the Board and signed on its behalf by:
Jason Elphick
Group General Counsel and Company Secretary
OSB GROUP PLC
Registered number: 11976839
8 April 2021
Statement of Directors’ Responsibilities
in respect of the Annual Report and the financial statements
The Directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements
in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements
in accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU) and
applicable law and have elected to prepare the parent Company
financial statements on the same basis.
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent Company and
of their profit or loss for the year. In preparing each of the Group
and parent Company financial statements, the Directors are
required to:
} select suitable accounting policies and then apply them
consistently;
} make judgements and estimates that are reasonable, relevant
and reliable;
} state whether they have been prepared in accordance with
IFRSs as adopted by the EU;
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect
of the annual financial report
Each of the persons who is a Director at the date of approval
of this report confirms, to the best of their knowledge, that:
} the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation
taken as a whole; and
} the Strategic Report/Directors’ Report includes a fair review of
the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face.
Each of the persons who is a Director at the date of approval of this
report confirms that:
} assess the Group and parent Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern; and
} use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to
cease operations, or have no realistic alternative but to do so.
} so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
} they have taken all the steps they ought to have taken as a
Director in order to make themselves aware of any relevant
audit information and to establish that the Company’s auditors
are aware of that information.
Approved by the Board and signed on its behalf by:
Jason Elphick
Group General Counsel and Company Secretary
8 April 2021
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent Company and the
Group enabling them to ensure that the financial statements
comply with the Companies Act 2006. They are responsible for
such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
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OverviewStrategic reportGovernanceFinancial statementsAppendices Financial statements and notes
Independent Auditor’s Report
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
174
188
189
190
191
192
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Annual Report and Accounts 2020
OSB GROUP PLC
Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendicesOverviewStrategic reportGovernanceFinancial statementsAppendices Independent Auditor’s Report
To the Members of OSB GROUP PLC
Report on the audit of the financial statements
1. Opinion
} the related notes 1 to 4 of the parent company financial
statements.
In our opinion:
} the financial statements of OSB GROUP PLC (the ‘parent
company’) and its subsidiaries (the ‘Group’) give a true and
fair view of the state of the Group’s and of the parent
company’s affairs as at 31 December 2020 and of the
Group’s profit for the year then ended;
} the Group financial statements have been properly prepared
in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006
and International Financial Reporting Standards (IFRSs) as
adopted by the European Union;
} the parent company financial statements have been
properly prepared in accordance with international
accounting standards in conformity with the requirements of
the Companies Act 2006; and
} the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
} the consolidated statement of comprehensive income;
} the consolidated and parent company statements of financial
position;
} the consolidated and parent company statements of changes in
equity;
} the consolidated and parent company statements of cash flows;
} the related notes 1 to 54 of the consolidated financial
statements; and
The financial reporting framework that has been applied in the
preparation of the Group and parent company financial
statements is applicable law and international accounting
standards in conformity with the requirements of the Companies
Act 2006.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the Group and the parent company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the Financial
Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to
listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We confirm
that non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the parent company.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
} loan impairment provisions; and
} effective interest rate income recognition.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
Scoping
The materiality that we used for the Group financial statements was £14m which was determined by
reference to normalised profit before tax and net assets. Normalised profit before tax is explained on
page 182.
Our Group audit scope focused primarily on three subsidiaries subject to a full scope audit.
The subsidiaries selected for a full scope audit were OneSavings Bank plc, Charter Court Financial
Services Limited and Interbay ML Ltd. These three subsidiaries account for 98% of the Group’s total
assets, 98% of the Group’s total liabilities, 96% of the Group’s interest receivable and similar income and
98% of the Group’s profit before tax.
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OSB GROUP PLC Annual Report and Accounts 2020
Significant changes
in our approach
As explained in Note 1, OSB GROUP PLC is a recently incorporated entity which is the new ultimate
holding company and listed entity of the Group. OneSavings Bank plc was the ultimate parent
company of the Group until 27 November 2020 at which point it became a 100% subsidiary of OSB
GROUP PLC. The consolidated financial statements of OSB GROUP PLC for the year ended
31 December 2020 are presented as if the new legal structure had existed in both current and prior
years. The key audit matters presented in our report similarly reflect the activity of the whole Group for
the year. The comparative information was audited as part of our opinion on the consolidated financial
statements of OneSavings Bank plc for the year ended 31 December 2019.
In the prior year we identified the accounting for the acquisition of the Charter Court Financial Services
Group and the classification of exceptional items and integration costs to be key audit matters. In the
current year, due to the Group undertaking no acquisitions and a reduction in exceptional items and
integration costs, these areas have not been identified as key audit matters for the year ended
31 December 2020.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and parent company’s ability to continue to adopt the going concern basis of
accounting included:
} We obtained and read management’s going concern assessment, which included specific consideration of the impacts of the Covid-19
pandemic and the Group’s operational resilience, in order to understand, challenge and evidence the key judgements made by
management;
} We obtained an understanding of relevant controls around management’s going concern assessment;
} We obtained management’s income statement, balance sheet and capital and liquidity forecasts and challenged key assumptions
and their projected impact on capital and liquidity ratios, particularly with respect to loan book growth and potential credit losses;
} Supported by our in-house prudential risk specialists, we read the most recent ICAAP and ILAAP submissions, assessed management’s
capital and liquidity projections, assessed the results of management’s capital reverse stress testing, challenged key assumptions and
methods used in the capital reverse stress testing models and tested the mechanical accuracy of the capital reverse stress testing
models;
} We read correspondence with regulators to understand the capital and liquidity requirements imposed by the Group’s regulators, and
evidence any changes to those requirements;
} We met with the Group’s lead regulators, the Prudential Regulation Authority and the Financial Conduct Authority, and discussed their
views on existing and emerging risks to the Group and we considered whether these were reflected appropriately in management’s
forecasts and stress tests;
} We assessed the historical accuracy of forecasts prepared by management; and
} We assessed the appropriateness of the disclosures made in the financial statements in view of the FRC guidance.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Group’s and parent company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
OSB GROUP PLC Annual Report and Accounts 2020
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OverviewStrategic reportGovernanceFinancial statementsAppendices Independent Auditor’s Report (Continued)
To the Members of OSB GROUP PLC
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
In the prior year we identified the accounting for the acquisition of the Charter Court Financial Services Group and the classification of
exceptional items and integration costs to be key audit matters. In the current year, due to the Group undertaking no acquisitions and the
reduction in exceptional items and integration costs from £20.8m in 2019 to £13.1m in 2020, these areas have not been identified as key
audit matters for the year ended 31 December 2020.
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OSB GROUP PLC Annual Report and Accounts 2020
5.1. Loan impairment provisions
Refer to the judgements in applying accounting policies and critical accounting estimates on page 205 and Note 24 on page 219.
Key audit matter description IFRS 9 requires loan impairment provisions to be recognised on an expected credit loss (ECL) basis.
The estimation of ECL provisions in the Group’s loan portfolios is inherently uncertain and requires
management to make significant judgements and estimates. ECL provisions as at 31 December 2020 were
£111.0m (2019: £42.9m), which represented 0.58% (2019: 0.23%) of loans and advances to customers. ECLs
are calculated both for individually significant loans and collectively on a portfolio basis which require the
use of statistical models incorporating loss data and assumptions on the recoverability of customers’
outstanding balances.
Covid-19 has increased the complexity in estimating ECLs, particularly with regards to determining
appropriate forward looking macroeconomic scenarios and appropriately identifying significant increases
in credit risk. The ECL provision requires management to make significant judgements and estimates.
We therefore consider this to be a key audit matter due to the risk of fraud or error in respect of the
Group’s ECL provision.
We identified five specific areas in relation to the ECL that require significant management judgement or
relate to assumptions to which the overall ECL provision is particularly sensitive.
} Significant increase in credit risk (SICR): The assessment of whether there has been a significant
increase in credit risk between the date of origination of the exposure and 31 December 2020. There is a
risk that management’s staging criteria does not capture SICR and/or are applied incorrectly.
} Macroeconomic scenarios: As set out on page 205, the Group sourced economic forecasts from a third
party economics expert and considered four probability weighted scenarios, including base, upside,
downside and severe downside scenarios. Due to the economic uncertainty arising from Covid-19, there
have been significant changes to the economic assumptions in each of the scenarios, as well as a
change to the weightings applied to each scenario. The key economic variables were determined to be
the house price index (HPI) and unemployment. There is significant judgement in determining the
probability weighting of each scenario and the assumptions and characteristics of each scenario
applied.
} Probability of Default (PD) for accounts which have taken Covid-19 payment holidays: Management
applies significant judgement in determining the PD for borrowers who have taken Covid-19 payment
holidays. There are limited observed behavioural data for accounts which took payment holidays in
2020, and these data are likely to have been distorted by current government support measures and
therefore may not be an accurate reflection of the underlying credit risk of the Covid-19 payment
holiday population as at 31 December 2020.
} Propensity to go into possession following default (PPD) and forced sale discount (FSD) assumptions:
PPD measures the likelihood that a defaulted loan will progress into repossession. FSD measures the
difference in sale proceeds between a sale under normal conditions and sale at auction. The loss given
default (LGD) by loan assumed in the ECL provision calculation is highly sensitive to the PPD and FSD
assumptions.
} Commercial and individually assessed collateral valuations: In 2020, management implemented a
blended approach to value semi commercial properties held by the Group, using a combination of both
residential and commercial index movements. The use of a blended commercial property index involves
management judgement in determining the weightings assigned to the residential and commercial
components of the blended commercial property index. In addition, management uses an in-house real
estate team to estimate the market value of collateral on a case by case basis for individually assessed
loans.
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How the scope of our audit
responded to the key audit
matter
We obtained an understanding of the relevant financial controls over the ECL provision with particular
focus on controls over significant management assumptions and judgements used in the ECL
determination.
To challenge the Group’s SICR criteria, we:
} Evaluated the Group’s SICR policy and assessed whether it complies with IFRS 9;
} Assessed the PD thresholds used in the SICR assessment by reference to standard validation metrics
including the proportion of transfers to stage two driven solely by being 30 days past due, the volatility
of loans in stage two and the proportion of loans that spend little or no time in stage two before moving
to stage three;
} Challenged the appropriateness of changes made to management’s staging framework in response to
Covid-19 during the year against the requirements of IFRS 9 and, supported by our modelling
specialists, assessed the appropriateness of the changes made in the staging model;
} Tested whether the PD thresholds set by management had been appropriately applied in practice as at
31 December 2020; and
} Performed an independent assessment for a sample of loan accounts, including a focused sample of
Covid-19 payment holiday accounts which exited forbearance, to determine whether they have been
appropriately allocated to the correct stage.
To challenge the Group’s macroeconomic scenarios and the probability weightings applied we:
} Agreed the macroeconomics scenarios used in the ECL model to reports prepared by the third party
economics expert;
} Assessed the competence, capability and objectivity of the third party economics expert, which
included making specific inquiries to understand their approach and modelling assumptions to derive
the scenarios;
} Supported by our economic specialists, assessed and challenged management’s assessment of
scenarios considered and the probability weightings assigned to them in light of the economic position
as at 31 December 2020;
} Involved our economic specialists to challenge the Group’s economic outlook by reference to other
available economic outlook data;
} Performed a benchmarking exercise to compare the appropriateness of selected macroeconomic
variables and weightings to those used by peer lenders. The key economic variables were the house
price index (HPI) and unemployment;
} Supported by our analytics and modelling specialists, assessed and challenged the changes made to
the model methodology and computer code in the macroeconomics overlay model which applies the
scenarios to the relevant ECL components; and
} For a sample of loans, we independently recalculated the ECL using the macroeconomic variables to
check they were being applied appropriately.
To challenge the Group’s PDs for accounts which took Covid-19 payment holidays in 2020 we:
} Evaluated the Group’s staging framework and, considering PRA guidance, assessed whether the
treatment of accounts which took Covid-19 payment holidays in 2020 complies with IFRS 9;
} Supported by our analytics and modelling specialists, assessed and challenged the computer code
script to determine whether the PD adjustments for accounts which took Covid-19 payment holidays in
2020 had been implemented within the model correctly;
} Performed an independent assessment for a sample of loan accounts which took Covid-19 payment
holidays in 2020 and those which had not taken such holidays to challenge the completeness and
accuracy of the recording of payment holiday forbearance in the lending systems;
} Assessed the recent performance of borrowers who were granted payment holidays in order to
challenge the PDs applied;
} Performed a peer benchmarking exercise to industry peers to compare the Group’s ECL coverage ratio
on the Covid-19 payment holiday population.
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To challenge the Group’s PPD and FSD assumptions we:
} Supported by our analytics and modelling specialists, challenged the changes made to computer code
in the LGD models;
} Recalculated the PPD rates observed on defaulted cases and compared them with the rates used by
the Group in the ECL models;
} Recalculated the FSD observed on recent property sales on the defaulted accounts and compared
them with the rates used by the Group in the ECL models;
} Assessed the appropriateness of PPD and FSD assumptions adopted by management through
benchmarking to industry peers; and
} Assessed the impact of findings raised in management’s independent model validation conducted in
2020.
We performed the following procedures to challenge the Group’s blended commercial property index used
for commercial property valuations and the case by case estimate of the market value of collateral for
individually assessed loans:
} Supported by our property valuation specialists, examined management’s valuation policies,
challenged the use of a blended commercial property index approach and tested a sample of collateral
valuations for commercial properties and individually assessed loans by reference to available market
data; and
} Tested the mechanical accuracy of management’s blended commercial property index calculation and
that the indexed valuation was appropriately applied in the ECL determination.
We determined that the methodology used and the SICR criteria, PDs applied to accounts which took
Covid-19 payment holidays in 2020, and PPD and FSD assumptions management have made in
determining the ECL provision as at 31 December 2020 were reasonable. We determined management’s
collateral valuations to be reasonable and the blended commercial property index to be appropriately
determined and applied.
Notwithstanding that estimating the probability and impact of future economic outcomes is inherently
judgemental and that there is heightened economic uncertainty due to Covid-19, on balance, we consider
that the macroeconomic scenarios selected by the Directors and the probability weightings applied
generate an appropriate portfolio loss distribution. We therefore determined that loan impairment
provisions are appropriately stated.
Key observations
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5.2. Effective interest rate income recognition
Refer to the judgements in applying accounting policies and critical accounting estimates on page 206, the accounting policy on pages
194 and 195 and Notes 4 and 5 on page 207.
Key audit matter description
In accordance with the requirements of IFRS 9, management is required to spread directly attributable
fees, discounts, incentives and commissions on a constant yield basis (effective interest rate, EIR) over
the shorter of the expected and contractual life of the loan assets. EIR is complex and the Group’s
approach to determining the EIR involves the use of models and significant estimation in determining the
behavioural life of loan assets. Given the complexity and judgement involved in accounting for EIR and
given that revenue recognition is an area susceptible to fraud, there is an opportunity for management
to manipulate the amount of interest income reported in the financial statements.
The Group’s net interest income for the year ended 31 December 2020 was £472.2m (2019: £344.7m).
EIR adjustments arise from revisions to estimated cash receipts or payments for loan assets that occur
for reasons other than a movement in market interest rates or credit losses. They result in an adjustment
to the carrying amount of the loan asset, with the adjustment recognised in the income statement in
interest income and similar income. As the EIR adjustments reflect changes to the timing and volume of
forecast customer redemptions, they are inherently judgemental. The level of judgement exercised by
management is increased given the limited availability of historical repayment information. For two of
the loan portfolios, KRBS and Precise, the EIR adjustments are sensitive to changes in the behavioural
life ‘curves’. Covid-19 introduces additional uncertainty with regards to forecasting expected
behavioural lives and prepayment rates due to its significant impact on the UK economy and housing
market, as well as the measures taken by the UK government to stimulate the economy in response to
Covid-19, such as the furlough scheme, payment holidays and the stamp duty holiday. We therefore
identified the estimation of the behavioural life for these portfolios as a focus area of our audit.
We also identified a key audit matter in relation to EIR adjustments on the Group’s legacy acquired
portfolios. EIR on acquired loan portfolios is inherently more judgemental than originated loan portfolios
as it involves modelling the expected cash flows on acquisition and comparing to actual and forecast
cash flows at each balance sheet date. These loan portfolios are also underwritten outside of the
Group’s standard processes and therefore may have different profiles than self-originated loans.
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How the scope of our audit
responded to the key audit
matter
We obtained an understanding of the relevant controls over EIR, focusing on the calculation and review
of EIR adjustments and the determination of prepayment curves.
For the two portfolios where the EIR adjustments were most significant and sensitive to changes in
behavioural life, we involved our in-house analytics and modelling specialists to run the Group’s loan
data for all products through our own independent EIR model, using the behavioural life curves derived
by the Group. We compared our calculation of the EIR adjustment required to the amount recorded by
management.
For the same portfolios, we involved our in-house modelling specialists to independently derive a
behavioural life curve using the Group’s loan data over recent years. We used these curves in our own
independent EIR model to derive an independent output showing the EIR adjustments that should have
been recorded in 2020. We compared this output to the amounts recorded by management.
We also tested the completeness and accuracy of a sample of inputs into the EIR model for originated
loans.
For the legacy acquired portfolios, supported by our analytics and modelling specialists, we challenged
the assumptions and modelling approach taken to determine the EIR adjustments, tested the
completeness and accuracy of a sample of inputs to the modelling, re-performed the discounted cash
flow calculations and challenged whether forecasts were consistent with historical performance and our
understanding of the nature of the cash flows.
In challenging the Group’s assumptions over the estimated life of loan accounts, we also independently
considered whether behavioural data since the start of the first national lockdown in March 2020 were
indicative of future behaviour. We considered factors such as the significant impact that Covid-19 has
had on the UK economy and housing market, and the measures taken by the UK government to
stimulate the economy, such as the furlough scheme, payment holidays and the stamp duty holiday.
Notwithstanding that estimating the future behaviour of loan assets is inherently judgemental and that
there is heightened economic uncertainty due to Covid-19, we determined that the EIR models and
assumptions used were appropriate and that net interest income for the period is appropriately stated.
Key observations
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of
a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
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Materiality
Basis for determining
materiality
Group financial statements
£14.0m (2019: £14.0m)
Parent company financial statements
£13.3m
We determined materiality for the parent company
by reference to 1% of net assets, capped at 95% of
Group materiality.
We determined materiality for the Group by
reference to 5% of normalised profit before tax
of £271.1m (£13.6m), and 1% of net assets of
£1,676.9m (£16.8m), capped at prior year
materiality of £14m.
Normalised profit before tax is statutory profit
before tax of £260.4m for the year ended
31 December 2020 (2019: £209.1m) excluding
integration costs of £9.8m (2019: £5.2m) and
exceptional items of £3.3m (2019: £15.6m). In
prior year the normalised profit before tax also
excluded the negative goodwill credit of £10.8m.
Rationale for the
benchmark applied
We considered both a profit based measure and
net assets as benchmarks for determining
materiality. This is consistent with the prior year
approach.
The parent company is principally a holding
company and we have therefore determined net
assets to be the most relevant benchmark to
determine materiality.
The emergence of Covid-19 has caused
significant economic uncertainty and we
therefore capped the materiality at the prior year
level of £14m.
In the prior year we determined materiality for the
Group by reference to a range of £11m to £15m
based on 5% of normalised profit before tax of
£219.1m and 1% of net assets of £1,477.0m as at
31 December 2019.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Performance materiality
60% of Group materiality (2019: 70%)
60% of parent company materiality
Group financial statements
Parent company financial statements
Basis and rationale for
determining performance
materiality
Group performance materiality was set at 60% of Group materiality (2019: 70%). In determining
performance materiality, we considered a number of factors, including: our understanding of the
control environment; our understanding of the business; and the low number of uncorrected
misstatements identified in the prior year. We reduced performance materiality from the prior year in
response to the potentially pervasive impact of Covid-19 on the control environment and financial
reporting.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £700k (2019: £700k), as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee
on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls and
assessing the risks of material misstatement at the Group level.
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Our Group audit scope focused primarily on three subsidiaries: the two main banking entities OneSavings Bank plc and Charter Court
Financial Services Limited, as well as Interbay ML Ltd, another significant lending subsidiary. These three subsidiaries were significant
components and subject to a full scope audit (2019: three significant components subject to a full scope audit). They represent 96% (2019:
96%) of the Group’s interest receivable and similar income, 98% (2019: 97%) of profit before tax, 98% (2019: 98%) of total assets and 98%
(2019: 98%) of total liabilities. The subsidiaries were selected to provide an appropriate basis of undertaking audit work to address the risks
of material misstatement including those identified as key audit matters above. Our audits of each of the subsidiaries were performed
using lower levels of materiality based on their size relative to the Group. The materiality for each subsidiary audit ranged from £5.3m to
£11.1m (2019: £5.4m to £10.2m).
Interest receivable and
similar income
Total assets
Total liabilities
Profit before tax
Full audit scope
96%
Review at group level 4%
Full audit scope
98%
Review at group level 2%
Full audit scope
98%
Review at group level 2%
Full audit scope
98%
Review at group level 2%
We tested the Group’s consolidation process and carried out analytical procedures to confirm that there were no significant risks of
material misstatement in the aggregated financial information of the remaining subsidiaries not subject to a full scope audit or specified
audit procedures.
7.2. Our consideration of the control environment
We identified the key IT systems relevant to the audit to be those used in the financial reporting, lending and savings businesses. For these
controls we involved our IT specialists to perform testing over the general IT controls, including testing of user access and change
management systems.
In the current year we relied on controls for some of the lending business and related interest income. For the areas where we relied on
controls, we performed walkthroughs with management to understand the process and controls, identified and tested relevant controls
that address risks of material misstatement in financial.
7.3 Oversight of the audit teams
All audit work for the purposes of the Group audit was performed by Deloitte LLP in the UK. The audit team for the Group and the parent
company were based in London. There was a component audit team for the component audit of Charter Court Financial Services Limited
which is based in Wolverhampton. The Senior Statutory Auditor has responsibility for directing and supervising all aspects of the audit
work of the component auditor. In discharging this responsibility, the Group audit team held regular meetings with local management
and had regular virtual meetings with the component audit team to oversee the component audit. The Group audit team maintained
dialogue with the component auditor throughout all phases of the audit and performed a remote file review of the component audit
team’s work.
8. Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor’s report
thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
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We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
} the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration
policies, key drivers for directors’ remuneration, bonus levels and performance targets;
} the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or error that was approved by the
Board;
} results of our enquiries of management, internal audit and the Audit Committee about their own identification and assessment of the
risks of irregularities;
} any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud. As set
out on page 261, the Directors recorded an impairment provision of £20m in relation to potential fraudulent activity by a third-party
on a secured funding line provided by the Group;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
} the matters discussed among the audit engagement team including the component audit team and involving relevant internal
specialists, including tax, valuations, real estate, IT and analytics and modelling specialists regarding how and where fraud might
occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas: loan impairment provisions, effective interest rate income recognition and
the classification of exceptional items and integration costs. In common with all audits under ISAs (UK), we are also required to perform
specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The
key laws and regulations we considered in this context included the relevant provisions of the UK Companies Act 2006, Listing Rules and
tax legislation.
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OSB GROUP PLC Annual Report and Accounts 2020
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the Group’s
prudential regulatory requirements and capital, liquidity and conduct requirements.
11.2. Audit response to risks identified
As a result of performing the above, we identified loan impairment provisions and effective interest rate income recognition using the
effective interest rate as key audit matters related to the potential risk of fraud. The key audit matters section of our report explains the
matters in more detail and also describes the specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
} reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
} enquiring of management, the Audit Committee and in-house and external legal counsel concerning actual and potential litigation
and claims;
} performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
due to fraud;
} reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
the Prudential Regulation Authority, the Financial Conduct Authority and HMRC;
} in addressing the risk of fraud in the classification of exceptional items and integration costs, testing the appropriateness of the
classification for a sample of these items;
} in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business; and
} to address the risk of material misstatement in expected credit losses due to fraud, our work included testing the existence of a sample
of collateral related to funding lines, including collateral related to the recently identified potential fraud by a third party funding
line borrower.
We also communicated relevant identified laws, regulations and potential fraud risks to all engagement team members including internal
specialists and the component audit team and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
} the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
} the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the parent company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code
specified for our review.
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Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
} the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified as set out on page 170;
} the directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is
appropriate as set out on pages 88 and 89;
} the directors’ statement on fair, balanced and understandable as set out on page 138;
} the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks as set out on page 122;
} the section of the annual report that describes the review of effectiveness of risk management and internal control systems as set
out on pages 122 and 139; and
} the section describing the work of the Audit Committee as set out on pages 134 to 141.
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
} we have not received all the information and explanations we require for our audit; or
} adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
} the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not
been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the shareholders of the OSB GROUP plc on 17 November
2020 to audit the Group financial statements for the year ended 31 December 2020 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and reappointments of the firm is one year, covering the year ended 31 December
2020. Prior to our appointment to the parent company we have been the auditor of the Group headed by OneSavings Bank plc.
15.2. Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).
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16. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Robert Topley FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
8 April 2021
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OverviewStrategic reportGovernanceFinancial statementsAppendices Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
Interest receivable and similar income
Interest payable and similar charges
Net interest income
Fair value gains/(losses) on financial instruments
Gain/(loss) on sale of financial instruments
Other operating income
Total income
Administrative expenses
Provisions
Impairment of financial assets
Impairment of intangible assets
Gain on Combination with CCFS
Integration costs
Exceptional items
Profit before taxation
Taxation
Profit for the year
Other comprehensive income
Items which may be reclassified to profit or loss:
Fair value changes on financial instruments measured as Fair Value through Other Comprehensive Income:
Arising in the year
Revaluation of foreign operations
Tax on items in other comprehensive income
Other comprehensive income
Total comprehensive income for the year
Attributable to:
Equity shareholders of the company
Non-controlling interest
Dividend, pence per share
Earnings per share, pence per share
Basic
Diluted
The above results are derived wholly from continuing operations.
The notes on pages 192 to 263 form part of these accounts.
The financial statements on pages 188 to 263 were approved by the Board of Directors on 8 April 2021.
Note
4
5
6
7
8
9
39
25
10
13
14
15
17
16
16
2020
£m
2019
£m
711.9
(239.7)
539.9
(195.2)
472.2
7.4
20.0
9.0
508.6
(157.0)
(0.1)
(71.0)
(7.0)
–
(9.8)
(3.3)
260.4
(64.1)
344.7
(3.3)
(0.1)
2.1
343.4
(108.7)
–
(15.6)
–
10.8
(5.2)
(15.6)
209.1
(50.3)
196.3
158.8
1.0
–
(0.5)
0.5
0.8
(0.6)
(0.2)
–
196.8
158.8
191.3
5.5
196.8
153.3
5.5
158.8
–
16.1
42.8
42.4
52.6
52.2
188
OSB GROUP PLC Annual Report and Accounts 2020
Consolidated Statement of Financial Position
As at 31 December 2020
Note
2020
£m
2019
£m
Assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Fair value adjustments on hedged assets
Derivative assets
Other assets
Current taxation asset
Deferred taxation asset
Property, plant and equipment
Intangible assets
Total assets
Liabilities
Amounts owed to credit institutions
Amounts owed to retail depositors
Fair value adjustments on hedged liabilities
Amounts owed to other customers
Debt securities in issue
Derivative liabilities
Lease liabilities
Other liabilities
Provisions
Current taxation liability
Deferred taxation liability
Subordinated liabilities
Perpetual subordinated bonds
Equity
Share capital
Share premium
Retained earnings
Other reserves
Shareholders’ funds
Non-controlling interest
Total equity and liabilities
19
20
21
27
26
28
29
31
32
33
34
27
35
36
26
37
38
39
30
40
41
43
43
44
0.5
2,676.2
471.2
0.4
2,204.6
635.3
19,230.7 18,446.8
16.8
21.1
14.3
–
4.8
41.6
31.4
181.6
12.3
9.1
8.4
4.7
39.2
20.6
22,654.5
21,417.1
3,570.2
3,068.8
16,603.1 16,255.0
8.2
72.9
421.9
163.6
11.7
27.8
1.8
–
48.3
10.5
37.6
(5.1)
29.7
296.3
92.8
13.3
34.9
1.6
41.5
63.1
10.6
37.6
20,977.6
19,940.1
1,359.8
–
1,608.6
(1,351.5)
4.5
864.2
553.2
(4.9)
1,616.9
1,417.0
60.0
60.0
22,654.5
21,417.1
The notes on pages 192 to 263 form part of these accounts. The financial statements on pages 188 to 263 were approved by the Board of
Directors on 8 April 2021 and signed on its behalf by
Andy Golding
Chief Executive Officer
Company number: 11976839
April Talintyre
Chief Financial Officer
OSB GROUP PLC Annual Report and Accounts 2020
189
OverviewStrategic reportGovernanceFinancial statementsAppendices
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Own
shares1
£m
Foreign
exchange
reserve
£m
FVOCI
reserve
£m
Share-
based
payment
reserve
£m
Non-
controlling
interest
securities
£m
Retained
earnings
£m
Total
£m
–
–
(0.4)
–
(0.1)
–
4.7 439.3
– 158.8
60.0 658.4
– 158.8
–
(3.7)
–
–
–
–
–
–
(6.4)
–
– 700.7
(3.7)
–
–
–
–
–
–
–
–
(0.6)
–
–
–
–
0.8
–
(0.2)
–
(5.5)
– (37.3)
–
–
4.3
(0.2)
–
1.1
–
(5.5)
– (37.3)
0.2
–
4.5
–
0.9
–
–
–
–
–
–
–
–
Share
capital
£m
Share
premium
£m
Capital
contribution
£m
2.4 158.8
–
–
6.5
–
Transfer
reserve
£m
(12.8)
–
2.0 705.1
–
–
–
–
–
0.1
–
–
–
–
0.3
–
–
–
–
–
–
–
–
–
–
–
2.6
–
–
–
–
–
–
–
–
–
–
6.5
–
–
–
–
–
(6.5)
–
At 31 December 2018
Profit for the year
Shares issued as consideration
for CCFS Combination
Own shares1
Coupon paid on non-controlling
interest securities
Dividends paid
Other comprehensive income
Share-based payments
Tax recognised in equity
Profit for the year
Coupon paid on non-controlling
interest securities
Other comprehensive income
Share-based payments
Tax recognised in equity
Transfer between reserves
Own shares1
Cancellation of OneSavings Bank
plc share capital and share
premium
Issuance of OSB GROUP PLC
share capital
At 31 December 2020
–
–
–
–
–
–
12.8
–
–
–
–
–
–
(0.3)
–
–
–
–
–
–
–
–
–
–
– 196.3
– 196.3
–
1.0
–
(0.5)
–
–
–
–
2.4
(0.2)
–
–
(5.5)
–
3.2
0.5
(6.3)
0.4
–
–
– 866.8
–
–
–
–
–
–
–
–
–
–
(5.5)
1.0
8.2
(0.2)
–
0.1
(4.5)
4.5
(4.5) (866.8)
–
–
1,359.8
1,359.8
–
–
– (1,355.3)
–
–
– (1,355.3)
(4.0)
(1.0)
1.0
7.8 1,608.6
60.0 1,676.9
At 31 December 2019
4.5 864.2
(12.8)
(3.7)
(1.0)
0.5
5.6 553.2
60.0 1,477.0
1. The Group has adopted look-through accounting (see note 2) and recognised the Employee Benefit Trusts within OSB GROUP PLC (2019: OneSavings Bank plc).
The reserves are further disclosed in note 44.
190
OSB GROUP PLC Annual Report and Accounts 2020
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
Cash flows from operating activities
Profit before taxation
Expenses recognised in equity
Adjustments for non-cash items
Changes in operating assets and liabilities
Cash used in operating activities
Provisions refunded/(paid)
Net tax paid
Net cash used in operating activities
Cash flows from investing activities
Unencumbered cash acquired on CCFS Combination
Maturity and sales of investment securities
Purchases of investment securities
Interest received on investment securities
Sales of financial instruments
Purchases of equipment and intangible assets
Cash generated from investing activities
Cash flows from financing activities
Financing received
Financing repaid
Cash held in deconsolidated special purpose vehicles
Interest paid on financing
Coupon paid on non-controlling interest securities
Dividends paid
Proceeds from issuance of shares under employee SAYE schemes
Cash payments on lease liabilities
Cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Movement in cash and cash equivalents
Note
2020
£m
2019
£m
51
51
39
20
20
7
32,31
260.4
–
79.2
(1,537.2)
(1,197.6)
0.1
(128.8)
209.1
(6.4)
26.2
(711.8)
(482.9)
(0.2)
(53.0)
(1,326.3)
(536.1)
–
407.3
(190.9)
7.0
539.9
(7.5)
870.4
357.7
(389.9)
–
–
(11.6)
755.8
826.6
42
42
17
43
37
1,991.2
(1,103.6)
(23.0)
(21.4)
(5.5)
–
2.6
(2.0)
838.3
267.8
872.7
(338.5)
–
(2.6)
(5.5)
(37.3)
0.4
(1.1)
488.1
778.6
18
18
2,102.8
2,370.6
1,324.2
2,102.8
267.8
778.6
OSB GROUP PLC Annual Report and Accounts 2020
191
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements
For the year ended 31 December 2020
1. Insertion of OSB GROUP PLC
As part of the Group’s integration strategy, following the Combination with CCFS, a new holding company, OSB GROUP PLC (OSBG),
was inserted as the new ultimate holding company and listed entity of the Group. OneSavings Bank plc (OSB) was both a banking entity
and the ultimate parent company of the Group until 27 November 2020, at which point it became a 100% subsidiary of the new ultimate
parent company, OSBG.
As part of the insertion of OSBG, the existing listed share capital and share premium of OSB was cancelled on 27 November 2020 and the
share capital and share premium amounts of OSB transferred to retained earnings. OSB subsequently issued the same number of new
unlisted £0.01 ordinary shares from retained earnings to OSBG. Each cancelled £0.01 OSB share was replaced with one OSBG share with
a nominal value of £3.04 each. The difference in the value of share capital in issue of the OSBG shares compared to the cancelled OSB
shares is recognised in the transfer reserve within equity.
The insertion of OSBG has been treated as a business combination under common control, with the Group controlled by the same parties
both before and after the insertion. Combinations under common control are outside the scope of IFRS 3 Business Combinations and
accordingly, the insertion has not been recognised at fair value and no goodwill or fair value acquisition adjustments have been
recognised. The Group’s consolidated financial statements have been presented to include OSB’s consolidated assets, liabilities, income
and expenses prospectively from the date of the insertion without restating pre-combination information, as if OSBG had been the parent
company throughout the current and prior years.
2. Accounting policies
a) Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union (EU) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).
The financial statements have been prepared on a historical cost basis, as modified by the revaluation of investment securities held at fair
value through other comprehensive income (FVOCI) and derivative contracts and other financial assets held at fair value through profit or
loss (FVTPL) (see note p(vi)).
As permitted by section 408 of the Companies Act 2006, no Statement of Comprehensive Income is presented for the Company.
b) 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 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 assessments were significantly influenced by COVID-19 implications, covering the Group’s capital, liquidity and operational resilience,
including the following:
} 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 result in the Group utilising its regulatory capital buffers in full
and breaching the Group’s minimum prudential requirements along with analysis and insight from the Groups Internal Capital
Adequacy Assessment Process (ICAAP). 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.
} The Group continues to assess the resilience of its business operating model and supporting infrastructure in the context of the
emerging economic, business and regulatory environment. The key areas of focus continue to be on the provision of critical services to
customers, employee health and safety and the evolving governmental policies and guidelines. The Group has assessed and enhanced
its information technology platforms to support its employees with flexible working and homeworking across all locations, ensuring
stable access to core systems, data and communication devices. The response to the pandemic demonstrates the inherent resilience of
the Group’s critical processes and infrastructure. It also reflects the necessary agility in responding to future operational demands. The
Accounting policies continued operational dependencies on third-party vendors and outsourcing arrangements continue to be an
important area of focus.
192
OSB GROUP PLC Annual Report and Accounts 2020
2. Accounting policies continued
The Group’s financial projections, supported by the COVID-19 assessments, demonstrate 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, it is appropriate to prepare these Financial Statements on a going concern basis.
c) Basis of consolidation
The Group’s consolidated financial statements have been presented to include OSB’s consolidated assets, liabilities, income and expenses
prospectively from the date of insertion of OSBG without restating pre-insertion information, as if OSBG had been the parent company
throughout the current and prior years.
The Group accounts include the results of the Company and its subsidiary undertakings. Subsidiaries are fully consolidated from the date
on which control is transferred to the Group and are deconsolidated from the date that control ceases. Upon consolidation, intercompany
transactions, balances and unrealised gains on transactions are eliminated. Unrealised losses are also eliminated unless the transaction
provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to
ensure consistency, so far as is possible, with the policies adopted by the Group.
Subsidiaries are those entities, including structured entities, over which the Group has control. The Group controls an entity when it is
exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power
over the investee. The Group has power over an entity when it has existing rights that give it the current ability to direct the activities that
most significantly affect the entity’s returns. Power may be determined on the basis of voting rights or, in the case of structured entities,
other contractual arrangements.
Where the Group does not retain a direct ownership interest in a securitisation entity, but the Directors have determined that the Group
controls those entities, they are treated as subsidiaries and are consolidated. Control is determined to exist if the Group has the power to
direct the activities of each entity (for example, managing the performance of the underlying mortgage assets and raising debt on those
mortgage assets which is used to fund the Group) and, in addition to this, control is exposed to a variable return (for example, retaining
the residual risk on the mortgage assets). Securitisation structures that do not meet these criteria are not treated as subsidiaries and are
excluded from the consolidated accounts. The Company applies the net approach in accounting for securitisation structures where it
retains an interest in the securitisation, netting the loan notes held against the deemed loan balance.
The Group’s Employee Benefit Trust (EBT) is controlled and recognised by the Company using the look-through approach, i.e. as if the
EBT is included within the accounts of the Company.
The Group is not deemed to control an entity when it exercises power over an entity in an agency capacity. In determining whether the
Group is acting as an agent, the Directors consider the overall relationship between the Group, the investee and other parties to the
arrangement with respect to the following factors: (i) the scope of the Group’s decision-making power; (ii) the rights held by other parties;
(iii) the remuneration to which the Group is entitled; and (iv) the Group’s exposure to variability of returns. The determination of control is
based on the current facts and circumstances and is continuously assessed. In some circumstances, different factors and conditions may
indicate that different parties control an entity depending on whether those factors and conditions are assessed in isolation or in totality.
Judgement is applied in assessing the relevant factors and conditions in totality when determining whether the Group controls an entity.
Specifically, judgement is applied in assessing whether the Group has substantive decision-making rights over the relevant activities and
whether it is exercising power as a principal or an agent.
d) Business combinations
The Group uses the acquisition method to account for business combinations, other than business combinations under common control
(see note 1). The Group recognises the identifiable assets acquired and liabilities assumed at their acquisition date fair values. The Group
recognises deferred tax on the difference between fair value and the acquisition date carrying value in accordance with International
Accounting Standard (IAS) 12. The consideration transferred for each business combination is measured at fair value and, comprises the
sum of equity interest issued by the Group. Acquisition-related costs are recognised as exceptional items within profit or loss.
OSB GROUP PLC Annual Report and Accounts 2020
193
OverviewStrategic reportGovernanceFinancial statementsAppendices Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
2. Accounting policies continued
The Group recognises goodwill on business combinations when the fair value of consideration transferred exceeds the fair value of
identifiable assets acquired less the fair value of liabilities assumed. The Group recognises a gain within profit or loss when the fair value
of consideration transferred is less than the fair value of identifiable assets acquired less the fair value of liabilities assumed.
The Group reports provisional amounts for business combinations when the accounting is incomplete at the reporting date following the
combination. During the measurement period, the Group adjusts provisional amounts recognised at the acquisition date to reflect new
information obtained that existed as of the acquisition date and would have affected the measurement of the amounts recognised as at
that date. The Group also recognises additional assets or liabilities during the reporting period if new information is obtained that existed
as of the acquisition date and would have resulted in the recognition of those assets or liabilities as at that date. The Group adjusts the
gain taken to profit or loss where there is negative goodwill, or adjusts goodwill recognised on the balance sheet, when provisional
amounts are finalised or additional assets and liabilities are recognised during the measurement period. The measurement period shall
not exceed one year from the acquisition date.
The Group finalised the acquisition date fair values of assets acquired and liabilities assumed in the Combination with CCFS prior
to 3 October 2020. There were no changes to the provisional fair values recognised on the assets or liabilities.
e) Foreign currency translation
The consolidated financial statements are presented in Pounds Sterling which is the presentation currency of the Group. The financial
statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which
the subsidiary operates (the functional currency). Foreign currency transactions are translated into the functional currencies using
the exchange rates prevailing at the date of the transactions. Monetary items denominated in foreign currencies are retranslated at
the rate prevailing at the period end.
Foreign exchange (FX) gains and losses resulting from the retranslation and settlement of these items are recognised in profit or loss.
Non-monetary items measured at cost in the foreign currency are translated using the spot FX rate at the date of the transaction.
The assets and liabilities of foreign operations with functional currencies other than Pounds Sterling are translated into the presentation
currency at the exchange rate on the reporting date. The income and expenses of foreign operations are translated at the rates on the
dates of transactions. Exchange differences on foreign operations are recognised in other comprehensive income and accumulated
in the foreign exchange reserve within equity.
f) 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 provides loans and asset finance within the UK and the Channel Islands only.
The Group segments its lending business and operates under two segments:
} OneSavings Bank (OSB)
} Charter Court Financial Services (CCFS)
The Group has disclosed the risk management tables in note 46 at a sub-segment level to provide detailed analysis of the Group’s core
lending business.
g) Interest income and expense
Interest income and interest expense for all interest-bearing financial instruments measured at amortised cost are recognised in profit or
loss using the effective interest rate (EIR) method. The EIR is the rate which discounts the expected future cash flows, over the expected life
of the financial instrument, to the net carrying value of the financial asset or liability.
When calculating the EIR, the Group estimates cash flows considering all contractual terms of the instrument and behavioural aspects
(for example, prepayment options) but not considering future credit losses. The calculation of the EIR includes transaction costs and fees
paid or received that are an integral part of the interest rate, together with the discounts or premiums arising on the acquisition of loan
portfolios. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial instrument.
194
OSB GROUP PLC Annual Report and Accounts 2020
2. Accounting policies continued
The Group monitors the actual cash flows for each acquired book and where they diverge significantly from expectation, the future cash
flows are reset. In assessing whether to adjust future cash flows on an acquired portfolio, the Group considers the cash variance on an
absolute and percentage basis. The Group also considers the total variance across all acquired portfolios. Where cash flows for an
acquired portfolio are reset, they are discounted at the EIR to derive a new carrying value, with changes taken to profit or loss as
interest income.
The EIR is adjusted where there is a change to the reference interest rate (LIBOR or base rate) affecting portfolios with a variable interest
rate which will impact future cash flows. The revised EIR is the rate which exactly discounts the revised cash flows to the net carrying value
of the loan portfolio.
Interest income on investment securities is included in interest receivable and similar income. Interest on derivatives is included in interest
receivable and similar income or interest expense and similar charges following the underlying instrument it is hedging.
Coupons paid on non-controlling interest securities are recognised directly in equity in the period in which they are paid.
h) Fees and commissions
Fees and commissions which are an integral part of the EIR of a financial instrument are recognised as an adjustment to the EIR and
recorded in interest income. The Group includes early redemption charges within the EIR.
Fees received on mortgage administration services and mortgage origination activities, which are not an integral part of the EIR, are
accounted for in accordance with IFRS 15 Revenue from Contracts with Customers, with income recognised when the services are
delivered and the benefits are transferred to clients and customers.
Other fees and commissions are recognised on the accruals basis as services are provided or on the performance of a significant act,
net of VAT and similar taxes.
i) Integration costs and exceptional items
Integration costs and exceptional items are those items of income or expenses that do not relate to the Group’s core operating activities,
are not expected to recur and are material in the context of the Group’s performance. These items are disclosed separately within the
Statement of Comprehensive Income and the Notes to the Financial Statements.
j) Taxation
Income tax comprises current and deferred tax. It is recognised in profit or loss, other comprehensive income or directly in equity,
consistent with the recognition of items it relates to. The Group recognises tax on the non-controlling interest securities directly in profit
or loss.
Current tax is the expected tax charge on the taxable income for the year and any adjustments in respect of previous years.
Deferred tax is the tax expected to be payable or recoverable in respect of temporary differences between the carrying amounts
of assets or liabilities for accounting purposes and carrying amounts for tax purposes.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available to utilise the asset.
The recognition of deferred tax is mainly dependent on the projections of future taxable profits and future reversals of temporary
differences. The current projections of future taxable income indicate that the Group will be able to utilise its deferred tax asset within
the foreseeable future.
The Company’s subsidiaries are in a group payment arrangement for corporation tax and show a net corporation tax liability and
deferred tax asset accordingly. In 2019, the Group’s CCFS subsidiaries were not part of the group payment arrangement and the
corporation tax liability and deferred tax asset were not netted.
k) Dividends
Dividends are recognised in equity in the period in which they are paid or, if earlier, approved by shareholders.
OSB GROUP PLC Annual Report and Accounts 2020
195
OverviewStrategic reportGovernanceFinancial statementsAppendices Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
2. Accounting policies continued
l) Cash and cash equivalents
For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents comprise cash, non-restricted balances with
central banks and highly liquid financial assets with original maturities of less than three months subject to an insignificant risk of changes
in their fair value.
m) Intangible assets
Purchased software and costs directly associated with the development of computer software are capitalised as intangible assets where
the software is a unique and identifiable asset controlled by the Group and will generate future economic benefits. Costs to establish
technological feasibility or to maintain existing levels of performance are recognised as an expense. The Group only recognises internally-
generated intangible assets if all of the following conditions are met:
} an asset is being created that can be identified after establishing the technical and commercial feasibility of the resulting product;
} it is probable that the asset created will generate future economic benefits; and
} the development cost of the asset can be measured reliably.
Subsequent expenditure on an internally generated intangible asset, after its purchase or completion, is recognised as an expense in the
period in which it is incurred. Where no internally generated intangible asset can be recognised, development expenditure is recognised
as an expense in the period in which it is incurred.
Intangible assets are reviewed for impairment annually, and if they are considered to be impaired, are written down immediately to their
recoverable amounts.
Intangible assets are amortised in profit or loss over their estimated useful lives as follows:
Software and internally generated assets
Development costs, brand and technology
Broker relationships
Bank licence
5 year straight line
4 year straight line
5 year profile
3 year straight line
The Group reviews the amortisation period on an annual basis. If the expected useful life of assets is different from previous assessments,
the amortisation period is changed accordingly.
n) Property, plant and equipment
Property, plant and equipment comprise freehold land and buildings, major alterations to office premises, computer equipment and
fixtures measured at cost less accumulated depreciation. These assets are reviewed for impairment annually, and if they are considered
to be impaired, are written down immediately to their recoverable amounts.
Items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful economic lives as follows:
Buildings
Leasehold improvements
Equipment and fixtures
50 years
10 years
5 years
Land, deemed to be 25% of purchase price of buildings, is not depreciated.
The cost of repairs and renewals is charged to profit or loss in the period in which the expenditure is incurred.
o) Investment in subsidiaries
In the Company’s financial statements, investments in subsidiary undertakings are stated at cost less provision for any impairment. A full
list of the Company’s subsidiaries which are included in the Group’s consolidated financial statements can be found in note 2 to the
Company’s financial statements on page 267.
196
OSB GROUP PLC Annual Report and Accounts 2020
2. Accounting policies continued
The Company performs an annual impairment assessment of its investment in subsidiary undertakings, assessing the carrying value
of the investment in each subsidiary against the subsidiaries’ net asset values at the reporting date for indication of impairment. Where
there is indication of impairment, the Company estimates the subsidiaries value in use by estimating future profitability and the impact
on the net assets of the subsidiary. The Company recognises an impairment directly in profit or loss when the recoverable amount, which
is the greater of the value in use or the fair value less costs to sell, is less than the carrying value of the investment. Impairments are
subsequently reversed if the recoverable amount exceeds the carrying value.
p) Financial instruments
i. Classification
The Group classifies financial instruments based on the business model and the contractual cash flow characteristics of the financial
instruments. Under IFRS 9, the Group classifies financial assets into one of three measurement categories:
} Amortised cost – assets in a business model to hold financial assets in order to collect contractual cash flows, where the contractual
terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the
principal amount outstanding.
} Fair value through other comprehensive income (FVOCI) – assets held in a business model which collects contractual cash flows
and sells financial assets where the contractual terms of the financial assets give rise on specified dates to cash flows that are SPPI on
the principal amount outstanding.
} Fair value through profit or loss (FVTPL) – assets not measured at amortised cost or FVOCI. The Group measures derivatives and
an acquired mortgage portfolio under this category.
The Group classifies non-derivative financial liabilities as measured at amortised cost.
The Group has no financial assets and liabilities classified as held for trading.
The Group reassesses its business models each reporting period.
The Group classifies certain financial instruments as equity where they meet the following conditions:
} the financial instrument includes no contractual obligation to deliver cash or another financial asset on potentially unfavourable
conditions;
} the financial instrument is a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own
equity instruments; or
} the financial instrument is a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial
asset for a fixed number of its own equity instruments.
Equity financial instruments comprise own shares and non-controlling interest securities. Accordingly, the coupon paid on the non-
controlling interest securities is recognised directly in retained earnings when paid.
ii. Recognition
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which they
are originated or acquired. All other financial instruments are accounted for on the trade date which is when the Group becomes a party
to the contractual provisions of the instrument.
For financial instruments classified as amortised cost, the Group initially recognises financial assets and financial liabilities at fair value
plus transaction income or costs that are directly attributable to its origination, acquisition or issue. These financial instruments are
subsequently measured at amortised cost using the effective interest rate.
Transaction costs relating to the acquisition or issue of a financial instrument at FVOCI and FVTPL are recognised in the profit or loss
as incurred.
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2. Accounting policies continued
iii. Derecognition
The Group derecognises financial assets when the contractual rights to the cash flows expire or the Group transfers substantially all risks
and rewards of ownership of the financial asset. In assessing the Group’s retention programmes the principles of IFRS 9 and relevant
guidance in IAS 8 in respect of debt issuance, results in the original mortgage asset being derecognised with a new financial
asset recognised.
The forbearance measures offered by the Group are considered a modification event as the contractual cash flows are renegotiated or
otherwise modified. The Group considers the renegotiated or modified cash flows are not wholly different from the contractual cash flows
and does not consider that forbearance measures give rise to a derecognition event.
Financial liabilities are derecognised only when the obligation is discharged, cancelled or has expired.
iv. Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the Consolidated Statement of Financial Position
when, and only when, the Group currently has a legally enforceable right to offset the amounts and it intends either to settle them on
a net basis or to realise the asset and settle the liability simultaneously.
The Group’s derivatives are covered by industry standard master netting agreements. Master netting agreements create a right of set-off
that becomes enforceable only following a specified event of default or in other circumstances not expected to arise in the normal course
of business. These arrangements do not qualify for offsetting and as such the Group reports derivatives on a gross basis.
Collateral in respect of derivatives is subject to the standard industry terms of International Swaps and Derivatives Association (ISDA)
Credit Support Annex. This means that the cash received or given as collateral can be pledged or used during the term of the transaction
but must be returned on maturity of the transaction. The terms also give each counterparty the right to terminate the related transactions
upon the counterparty’s failure to post collateral. Collateral paid or received does not qualify for offsetting and is recognised in loans and
advances to credit institutions and amounts owed to credit institutions respectively.
v. Amortised cost measurement
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured
at initial recognition, plus or minus the cumulative amortisation using the EIR method of any difference between the initial amount
recognised and the maturity amount, minus any reduction for impairment.
vi. Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access
at that date.
When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument.
A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing
information on an ongoing basis. The Group measures the fair value of its investment securities and Perpetual Subordinated Bonds (PSBs)
using quoted market prices.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable
inputs and minimise the use of unobservable inputs.
The Group uses a combination of LIBOR and SONIA curves to value its derivatives however, using overnight index swap (OIS) curves would
not materially change their value. The fair value of the Group’s derivative financial instruments incorporates credit valuation adjustments
(CVA) and debit valuation adjustments (DVA). The DVA and CVA take into account the respective credit ratings of the Bank and
counterparty and whether the derivative is collateralised or not. Derivatives are valued using discounted cash flow models and observable
market data and are sensitive to benchmark interest and basis rate curves.
vii. Identification and measurement of impairment of financial assets
The Group assesses all financial assets for impairment.
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2. Accounting policies continued
Loans and advances to customers
The Group uses the IFRS 9 three-stage expected credit loss (ECL) approach for measuring impairment. The three impairment stages are
as follows:
} Stage 1 – a 12-month ECL allowance is recognised where there is no significant increase in credit risk (SICR) since initial recognition.
} Stage 2 – a lifetime loss allowance is held for assets where a SICR is identified since initial recognition. The assessment of whether
credit risk has increased significantly since initial recognition is performed for each reporting period for the life of the loan.
} Stage 3 – requires objective evidence that an asset is credit impaired, at which point a lifetime ECL allowance is recognised.
The Group measures impairment through the use of individual and modelled assessments.
Individual assessment
The Group’s provisioning process requires individual assessment for high exposure or higher risk loans, where Law of Property Act (LPA)
receivers have been appointed, the property is taken into possession or there are other events that suggest a high probability of credit
loss. Loans are considered at a connection level, i.e. including all loans connected to the customer.
The Group estimates cash flows from these loans, including expected interest and principal payments, rental or sale proceeds, selling
and other costs. The Group obtains up-to-date independent valuations for properties put up for sale.
If the present value of estimated future cash flows discounted at the original EIR is less than the carrying value of the loan, a provision is
recognised for the difference. Such loans are classified as impaired. If the present value of the estimated future cash flows exceeds the
carrying value, no provision is recognised.
The Group applies a modelled assessment to all loans with no individually-assessed provision.
IFRS 9 modelled impairment
Measurement of ECL
The assessment of credit risk and the estimation of ECL are unbiased and probability weighted. ECL is measured on either a 12 month
(stage 1) or lifetime basis depending on whether a SICR has occurred since initial recognition (stage 2) or where an account meets the
Group’s definition of default (stage 3).
The ECL calculation is a product of an individual loan’s probability of default (PD), exposure at default (EAD) and loss given default (LGD)
discounted at the EIR. The ECL drivers of PD, EAD and LGD are modelled at an account level. The assessment of whether a significant
increase in credit risk has occurred is based on quantitative relative PD thresholds and a suite of qualitative triggers.
In accordance with PRA COVID-19 guidance, the Group does not automatically consider the take up of customer payment deferrals
during the pandemic to be an indication of a 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.
Significant increase in credit risk (movement to stage 2)
The Group’s transfer criteria determine what constitutes a SICR, which results in an exposure being moved from stage 1 to stage 2.
At the point of initial recognition, a loan is assigned a PD estimate. For each monthly reporting date thereafter, an updated PD estimate is
computed. The Group’s transfer criteria analyses relative changes in PD versus the PD assigned at the point of origination, together with
qualitative triggers using both internal indicators and external credit bureau information to assess for SICR. In the event that given early
warning triggers have not already identified SICR, an account more than 30 days past due has experienced a SICR.
A borrower will move back into stage 1 only if the SICR definition is no longer triggered.
Definition of default (movement to stage 3)
The Group uses a number of quantitative and qualitative criteria to determine whether an account meets the definition of default and
therefore moves to stage 3. The criteria currently include:
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2. Accounting policies continued
} If an account is more than 90 days past due.
} Accounts that have moved into an unlikely to pay position, which includes forbearance, bankruptcy, repossession and interest-only
term expiry.
A borrower will move out of stage 3 when its credit risk improves such that it no longer meets the 90 days past due and unlikeliness to pay
criteria and following this has completed an internally-approved probation period. The borrower will move to stage 1 or stage 2 dependent
on whether the SICR applies.
Forward-looking macroeconomic scenarios
The risk of default and expected credit loss assessments take into consideration expectations of economic changes that are deemed
to be reasonably possible.
The Group conducts analysis to determine the most significant factors which may influence the likelihood of an exposure defaulting
in the future. The macroeconomic factors relate to the House Price Index (HPI), unemployment rate (UR), Gross domestic product (GDP),
Commercial Real Estate Index (CRE) and the BoE Base Rate (BBR).
The Group has derived an approach for factoring probability-weighted macroeconomic forecasts into ECL calculations, adjusting PD
and LGD estimates. The macroeconomic scenarios feed directly into the ECL calculation, as the adjusted PD, lifetime PD and LGD
estimates are used within the individual account ECL allowance calculations.
The Group currently does not have an in-house economics function and therefore sources economic forecasts from an appropriately
qualified third party. The Group considers four probability-weighted scenarios, base, upside, downside and severe downside scenarios.
The base case is also utilised within the Group’s impairment forecasting process which in turn feeds the wider business planning
processes. The ECL models are also used to set the Group’s credit risk appetite thresholds and limits.
Period over which ECL is measured
Expected credit loss is measured from the initial recognition of the asset which is the date at which the loan is originated or the date a loan
is purchased and at each balance sheet date thereafter. The maximum period considered when measuring ECL (either 12 months or
lifetime ECL) is the maximum contractual period over which the Group is exposed to the credit risk of the asset. For modelling purposes,
the Group considers the contractual maturity of the loan product and then considers the behavioural trends of the asset.
Purchased or originated credit impaired (POCI)
Acquired loans that meet the Group’s definition of default (90 days past due or an unlikeliness to pay position) at acquisition are treated
as a POCI asset. These assets attract a lifetime ECL allowance over the full term of the loan, even when the loan no longer meets the
definition of default post acquisition. The Group does not originate credit-impaired loans.
Intercompany loans
Intercompany receivables in the Company financial statements are assessed for ECL based on an assessment of the PD and LGD,
discounted to a net present value.
Other financial assets
Other financial assets comprise cash balances with the BoE and other credit institutions and high grade investment securities.
The Group deems the likelihood of default across these counterparties as low and, hence does not recognise a provision against
the carrying balances.
q) Loans and receivables
Loans and receivables are predominantly mortgage loans and advances to customers with fixed or determinable payments that are not
quoted in an active market and that the Group does not intend to sell in the near term. They are initially recorded at fair value plus any
directly attributable transaction costs and are subsequently measured at amortised cost using the EIR method, less impairment losses.
Where exposures are hedged by derivatives, designated and qualifying as fair value hedges, the fair value adjustment for the hedged risk
to the carrying value of the hedged loans and advances is reported in fair value adjustments for hedged assets.
Loans and the related provision are written off when the underlying security is sold. Subsequent recoveries of amounts previously written
off are taken through profit or loss.
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2. Accounting policies continued
Loans and advances over which the Group transfers its rights to the collateral thereon to the BoE under the TFS, TFSME and Indexed
Long-Term Repo (ILTR) schemes are not derecognised from the Statement of Financial Position, as the Group retains substantially all the
risks and rewards of ownership, including all cash flows arising from the loans and advances and exposure to credit risk. The Group
classifies TFS, TFSME and ILTR as amortised cost under IFRS 9 Financial Instruments.
Loans and advances include a small acquired mortgage portfolio where the contractual cash flows include payments that are not solely
payments of principal and interest and as such are measured at fair value through profit or loss. The Group initially recognises these
loans at fair value, with direct and incremental costs of acquisition recognised directly in profit or loss and, subsequently measures them
at fair value.
Loans and receivables contain the Group’s asset finance lease lending. Finance leases are initially measured at an amount equal to the
net investment in the lease, using the interest rate implicit in the finance lease. Direct costs are included in the initial measurement of the
net investment in the lease and reduce the amount of income recognised over the lease term. Finance income is recognised over the lease
term, based on a pattern reflecting a constant periodic rate of return on the net investment in the lease.
r) Investment securities
Investment securities comprise securities held for liquidity purposes (UK treasury bills and Residential Mortgage-Backed Securities
(RMBS)). These assets are non-derivatives that are designated as FVOCI or classified as amortised cost.
Assets classified as amortised cost are originally recognised at fair value and subsequently measured at amortised cost using the EIR
method, less impairment losses.
Assets held at FVOCI are measured at fair value with movements taken to other comprehensive income and accumulated in the FVOCI
reserve within equity, except for impairment losses which are taken to profit or loss. When the instrument is sold, the gain or loss
accumulated in equity is reclassified to profit or loss.
s) Deposits, debt securities in issue and subordinated liabilities
Deposits, debt securities in issue and subordinated liabilities are the Group’s sources of debt funding. They comprise deposits from retail
customers and credit institutions, including collateralised loan advances from the BoE under the TFS, TFSME and ILTR, asset-backed loan
notes issued through the Group’s securitisation programmes and subordinated liabilities. Subordinated liabilities include the Sterling PSBs
where the terms allow no absolute discretion over the payment of interest. These financial liabilities are initially measured at fair value less
direct transaction costs, and subsequently held at amortised cost using the EIR method.
Cash received under the TFS, TFSME and ILTR is recorded in amounts owed to credit institutions. Interest is accrued over the life of the
agreements on an EIR basis.
t) Sale and repurchase agreements
Financial assets sold subject to repurchase agreements (repo) are retained in the financial statements if they fail derecognition criteria of
IFRS 9 described in paragraph p (iii) above. The financial assets that are retained in the financial statements are reflected as loans and
advances to customers or investment securities and the counterparty liability is included in amounts owed to credit institutions or other
customers. Financial assets purchased under agreements to resell at a predetermined price where the transaction is financing in nature
(reverse repo) are accounted for as loans and advances to credit institutions. The difference between the sale and repurchase price is
treated as interest and accrued over the life of the agreement using the EIR method.
u) Derivative financial instruments
The Group uses derivative financial instruments (interest rate swaps and basis swaps) to manage its exposure to interest rate risk.
In accordance with its Treasury Policy, the Group does not hold or issue derivative financial instruments for proprietary trading.
Derivative financial instruments are recognised at their fair value with changes in their fair value taken to profit or loss. Fair values are
calculated by discounting cash flows at the prevailing interest rates. All derivatives are classified as assets when their fair value is positive
and as liabilities when their fair value is negative. If a derivative is cancelled, it is derecognised from the Statement of Financial Position.
The Group also uses derivatives to hedge the interest rate risk inherent in irrevocable offers to lend. This exposes the Group to movements
in the fair value of derivatives until the loan is drawn. The changes to fair value are recognised in profit or loss in the period.
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2. Accounting policies continued
The Group is party to a limited number of options and warrants. These are recognised as a derivative financial instruments as applicable
where a trigger event takes place and the fair value of the option or warrant can be reliably measured.
v) Hedge accounting
The Group has chosen to continue to apply the hedge accounting requirements of IAS 39 instead of the requirements in Chapter 6 of IFRS
9. The Group uses fair value hedge accounting for a portfolio hedge of interest rate risk.
Portfolio hedge accounting allows for hedge effectiveness testing and accounting over an entire portfolio of financial assets or
liabilities. To qualify for hedge accounting at inception, the hedge relationship is clearly documented and the derivative must be expected
to be highly effective in offsetting the hedged risk. In addition, effectiveness must be tested throughout the life of the hedge relationship.
The Group applies fair value portfolio hedge accounting to its fixed rate portfolio of mortgages and saving accounts. The hedged
portfolio is analysed into repricing time periods based on expected repricing dates, utilising the Group Assets and Liabilities Committee
(ALCO) approved prepayment curve. Interest rate swaps are designated against the repricing time periods to establish the hedge
relationship. Hedge effectiveness is calculated as a percentage of the fair value movement of the interest rate swap against the fair value
movement of the hedged item over the period tested.
The Group considers the following as key sources of hedge ineffectiveness:
} the mismatch in maturity date of the swap and hedged item, as swaps with a given maturity date cover a portfolio of hedged items
which may mature throughout the month;
} the actual behaviour of the hedged item differing from expectations, such as early repayments or withdrawals and arrears;
} minimal movements in the yield curve leading to ineffectiveness where hedge relationships are sensitive to small value changes; and
} the transition relating to LIBOR reforms whereby some hedged instruments and hedged items are based on different benchmark rates.
Where there is an effective hedge relationship for fair value hedges, the Group recognises the change in fair value of each hedged item in
profit or loss with the cumulative movement in their value being shown separately in the Statement of Financial Position as fair value
adjustments on hedged assets and liabilities. The fair value changes of both the derivative and the hedge substantially offset each other
to reduce profit volatility.
The Group discontinues hedge accounting when the derivative ceases through expiry, when the derivative is cancelled or the underlying
hedged item matures, is sold or is repaid.
If a derivative no longer meets the criteria for hedge accounting or is cancelled whilst still effective, the fair value adjustment relating to
the hedged assets or liabilities within the hedge relationship prior to the derivative becoming ineffective or being cancelled remains on the
Statement of Financial Position and is amortised over the remaining life of the hedged assets or liabilities. The rate of amortisation over the
remaining life is in line with expected income or cost generated from the hedged assets or liabilities. Each reporting period, the
expectation is compared to actual with an accelerated run-off applied where the two diverge by more than set parameters.
w) Debit and credit valuation adjustments
The DVA and CVA are included in the fair value of derivative financial instruments. The DVA is based on the expected loss a counterparty
faces due to the risk of the Group’s default. The CVA reflects the Group’s risk of the counterparty’s default.
The methodology is based on a standard calculation, taking into account:
} the one-year PD, updated on a regular basis;
} the expected exposure at default;
} the expected LGD; and
} the average maturity of the swaps.
x) Provisions and contingent liabilities
A provision is recognised when there is a present obligation as a result of a past event, it is probable that the obligation will be settled and
the amount can be estimated reliably.
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2. Accounting policies continued
Provisions include ECLs on the Group’s undrawn loan commitments.
Contingent liabilities are possible obligations arising from past events, whose existence will be confirmed only by uncertain future events,
or present obligations arising from past events which are either not probable or the amount of the obligation cannot be reliably measured.
Contingent liabilities are not recognised but disclosed unless they are not material or their probability is remote.
y) Employee benefits – defined contribution scheme
The Group contributes to defined contribution personal pension plans or defined contribution retirement benefit schemes for all qualifying
employees who subscribe to the terms and conditions of the schemes’ policies.
Obligations for contributions to defined contribution pension arrangements are recognised as an expense in profit or loss as incurred.
z) Share-based payments
Equity-settled share-based payments to employees providing services are measured at the fair value of the equity instruments at the
grant date in accordance with IFRS 2. The fair value excludes the effect of non-market-based vesting conditions.
The cost of the awards are charged on a straight-line basis to profit or loss (with a corresponding increase in the share-based payment
reserve within equity) over the vesting period in which the employees become unconditionally entitled to the awards. The cumulative
expense within the share-based payment reserve is reclassified to retained earnings upon exercise.
The amount recognised as an expense for non-market conditions and related service conditions is adjusted each reporting period to
reflect the actual number of awards expected to be met. The amount recognised as an expense for awards subject to market conditions
is based on the proportion that is expected to meet the condition as assessed at the grant date. No adjustment is made to the fair value
of each award calculated at grant date.
Share-based payments that are not subject to further vesting conditions (i.e. the Deferred Share Bonus Plan (DSBP) for senior managers)
are expensed in the year services are received with a corresponding increase in equity. Awards granted to Executive Directors in March
2020 are subject to service conditions through to vesting and are expensed over the vesting period. Awards granted to Executive Directors
in April 2021 are not subject to future service conditions and are expensed in 2020 where the service is deemed to have been provided.
Where the allowable cost of share-based options or awards for tax purposes is greater than the cost determined in accordance with IFRS
2, the tax effect of the excess is taken to the share-based payment reserve within equity. The tax effect is reclassified to retained earnings
upon vesting.
Employer’s national insurance is charged to profit or loss at the share price at the reporting date on the same service or vesting schedules
as the underlying options and awards.
Own shares are recorded at cost and deducted from equity and represent shares of OSBG that are held by the Employee Benefit Trust.
aa) Leases
The Group recognises right-of-use assets and lease liabilities for leases over 12 months long. Right-of-use assets and lease liabilities are
initially recognised at the net present value of future lease payments, discounted at the rate implicit in the lease or, where not available,
the Group’s incremental borrowing cost. Subsequent to initial recognition, the right-of-use asset is depreciated on a straight-line basis
over the term of the lease. Future rental payments are deducted from the lease liability, with interest charged on the lease liability using
the incremental borrowing cost at the time of initial recognition. The Group recognises lease liability payments within financing activities
in the Consolidated Statement of Cash Flows.
The Group assesses the likely impact of early terminations in recognising the right-of-use asset and lease liability where an option
to terminate early exists.
Leases with low future payments or terms less than 12 months are recognised on an accruals basis directly in profit or loss.
bb) Adoption of new standards
International financial reporting standards issued and adopted for the first time in the year ended 31 December 2020
The following financial reporting standard amendments and interpretations were in issue and have been applied in the financial
statements from 1 January 2020.
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2. Accounting policies continued
} Amendments to the Conceptual Framework for Financial reporting, including amendments to references to the Conceptual Framework
in IFRS Standards.
} Amendments to IFRS 3 – Definition of a business.
} Amendments to IAS 1 and IAS 8 – Definition of material.
There has been no material impact on the financial statements of the Group from the adoption of these financial reporting standard
amendments and interpretations.
International financial reporting standards issued but not yet adopted which are applicable to the Group
The following financial reporting standards were in issue but have not been applied in the financial statements, as they were yet effective
on 31 December 2020.
Effective for accounting periods beginning on or after 1 June 2020:
} Amendments to IFRS 16 – COVID-19 related rent concessions
Effective for accounting periods beginning on or after 1 January 2021:
} Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2
} Amendments to IAS 1 – Classification of liabilities as current or non-current.
} Annual improvements to IFRS Standards 2018-2020 – Minor amendments to IFRS 1, IFRS 9 and IFRS 16.
The Group does not expect that the adoption of the financial reporting standards listed above will have a material impact on the financial
statements of the Group in future periods.
3. Judgements in applying accounting policies and critical accounting estimates
In preparing these financial statements, the Group has made judgements, estimates and assumptions which affect the reported amounts
within the current and next financial year. Actual results may differ from these estimates.
Estimates and judgements are regularly reviewed based on past experience, expectations of future events and other factors.
Judgements
The Group has made the following key judgements in applying the accounting policies:
(i) Loan book impairments
Significant increase in credit risk for classification in stage 2
The Group’s Significant Increase in Credit Risk (SICR) rules, prior to the COVID-19 pandemic, considered changes in default risk, internal
impairment measures, changes in customer credit bureau files, or whether forbearance measures had been applied. The Group took
steps to adjust the SICR criteria through the pandemic to account for the changes in risk profile and specifically for payment deferrals
granted, noting that not all of the instances of a payment deferral would be a significant increase in credit risk. Payment deferrals
granted due to COVID-19 alone were not automatically considered as a SICR event in line with issued guidance, and adjustments
to the rules were as follows:
} Payment deferrals considered as a SICR event where other significant high risk factors are identified on customer’s credit files;
} Payment deferrals considered as a SICR event where an account also had recent arrears; and
} Customers with stress to their income considered as a SICR event.
(ii) IFRS 9 classification
The Group has applied judgement in determining whether the contractual terms of a financial asset give rise on specified dates to cash
flows that are solely payments of principal or interest (SPPI) on the principal amount outstanding when applying the classification criteria
of IFRS 9. The main area of judgement is over the Group’s loans and advances to customers which have been accounted for under
amortised cost with the exception of one acquired mortgage book of £19.1m (2019: £22.1m) that is recognised at FVTPL.
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3. Judgements in applying accounting policies and critical accounting estimates continued
Estimates
The Group has made the following estimates in the application of the accounting policies that have a significant risk of material
adjustment to the carrying amount of assets and liabilities within the next financial year:
(i) Loan book impairments
Set out below are details of the critical accounting estimates which underpin loan impairment calculations. Less significant estimates are
not discussed as they do not have a material effect. The Group has recognised total impairments of £111.0m (2019: £42.9m) at the
reporting date as disclosed in note 24.
Modelled impairment
Modelled provision assessments are also subject to estimation uncertainty, underpinned by a number of estimates being made by
management which are utilised within impairment calculations. Key areas of estimation within modelled provisioning calculations include
those regarding the PD, the LGD and forward-looking macroeconomic scenarios.
Loss given default model
The Group has a number of LGD models, which include a number of estimated inputs including propensity to go to possession given
default (PPD), forced sale discount (FSD), time to sale (TTS) and sale cost estimates. The LGD is sensitive to the application of the HPI. For
the OSB segment at 31 December 2020 a 10% fall in house prices would result in an incremental £25.6m (2019: £13.6m) of provision being
required. For the CCFS segment at 31 December 2020 a 10% fall in house prices would result in an incremental £13.9m (2019: £3.8m) of
provision being required. The combined impact across both OSB and CCFS businesses of a 10% fall in house prices would result in an
increase in total provisions of £39.5m (2019: £17.4m) as at 31 December 2020.
Forward-looking macroeconomic scenarios
The forward-looking macroeconomic scenarios affect both the PD and LGD estimates. Therefore the expected credit losses calculations
are sensitive to both the scenarios utilised and their associated probability weightings.
The Group sources economic forecasts from an appropriately qualified, independent third party. The Group considers four probability-
weighted scenarios: base, upside, downside and severe downside scenarios. Due to the current uncertainty in relation to the ongoing
COVID-19 global pandemic and the recently agreed Brexit trade agreement the choice of scenarios and weightings are subject to a
significant degree of estimation. The Group’s macroeconomic scenarios can be found in the Credit risk section of the Risk profile
performance overview on page 81.
The following tables detail the 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:
As at
31-Dec-20
Total loans before provisions, £m
Modelled ECL, £m
Non-modelled ECL, £m
Total ECL, £m
ECL Coverage, %
As at
31-Dec-19
Total loans before provisions, £m
Modelled ECL, £m
Non-modelled ECL, £m
Total ECL, £m
ECL Coverage, %
100% Base
case scenario
100% Upside
scenario
100%
Downside
scenario
100% Severe
downside
scenario
19,322.6
54.6
39.4
19,322.6
40.1
39.4
19,322.6
113.5
39.4
19,322.6
166.7
39.4
94.0
0.49
79.5
0.41
152.9
206.1
0.79
1.07
Weighted
19,322.6
71.6
39.4
111.0
0.57
18,467.6
37.4
5.5
18,467.6
24.4
5.5
18,467.6
14.6
5.5
18,467.6
48.1
5.5
18,467.6
62.5
5.5
42.9
0.23
29.9
0.16
20.1
0.11
53.6
0.29
68.0
0.37
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Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
3. Judgements in applying accounting policies and critical accounting estimates continued
(ii) Loan book acquisition accounting and income recognition
Acquired loan books are initially recognised at fair value. Significant estimation is required in calculating their EIR using cash flow models
which include assumptions on the likely macroeconomic environment, including HPI, unemployment levels and interest rates, as well as
loan level and portfolio attributes and history used to derive prepayment rates and the amount of incurred losses. Through the Combination
in 2019, the Precise Mortgages book is treated as an acquired book with a fair value uplift to book value, at the point of initial recognition, of
£301.0m, reflecting a premium applied to the book. Fair value sensitivities have been completed on the Precise Mortgages book, including the
market rate applied to the discounted cash flows, being one month LIBOR plus a margin (margin blended average used 2.91%). Where the
margin applied is increased/decreased by 25bps the initial premium recognised on the book increases/decreases by £66.0m/£67.0m.
The EIR on loan books purchased at significant discounts or premiums is particularly sensitive to the weighted average life of the loan
book through the constant prepayment rate (CPR) and the constant default rate (CDR) estimates assumed, as the purchase discount or
premium is recognised over the expected life of the loan book through the EIR. New defaults are modelled at zero loss (as losses will be
recognised in profit or loss as impairment losses) and therefore have the same impact on the EIR as prepayments.
Incurred losses at acquisition are calculated using the Group’s modelled provision assessment (see (i) Loan book impairments above for
further details).
The EIR calculated at acquisition is not changed for subsequent variances in actual to expected cash flows, unless the variance is due to
changes in expectations of market rates of interest. The Group monitors the actual cash flows for each acquired book, and where they
diverge significantly from expectation, the revised future cash flows are discounted at the original EIR, with any resulting change in carry
value creating a corresponding gain or loss in the Statement of Comprehensive Income as Interest Income. In assessing whether to adjust
future cash flows on an acquired portfolio, the Group considers the cash variance on an absolute and percentage basis. The Group also
considers the total variance across all acquired portfolios and the economic outlook. The Group recognised a £3.5m loss in 2020 as a
result of resetting cash flows on acquired books (2019: gain of £0.5m). The largest acquired book is Precise with sensitivities completed
on increasing/reducing the life of the book by six months which results in a reset gain/loss of c. £33m/£37m (2019: c.£48m/£50m).
(iii) Effective interest rate on organic lending
Estimates are made when calculating the EIR for newly-originated loan assets. These include the likely customer redemption profiles.
Mortgage products offered by the Group include directly attributable net fee income and a period on reversion rates after the fixed/
discount period. Products revert to the standard variable rate (SVR) or Base plus a margin for the Kent Reliance brand or a LIBOR/Base
plus a margin for the Precise brand. The Group uses historical customer behaviours, expected take-up rate of retention products and
macroeconomic forecasts in its assessment of prepayment rates. Customer prepayments in a fixed rate or incentive period can give rise
to Early Repayment Charge (ERC) income.
Estimation is used in assessing whether and for how long mortgages that reach the end of the initial product term stay on reversion rates,
and to the quantum and timing of prepayments that incur ERCs. The estimate of customer weighted average life will determine the period
over which net fee income and expected reversionary income is recognised.
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. An extension of the expected life will typically result in increased expectations of post
reversionary income, less ERCs and a recognition of net fee income over a longer period. A shortening of the expected life will lead to
reduced post reversionary income, more ERCs and a recognition of net fees over a shorter period.
The potential duration of a change in customer behaviour as a result of COVID-19 remains uncertain. However, a period of six months’
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 national lockdown experienced in 2020. 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 organic loan books, would result in a gain of c. £22.6m (2019:
£23.6m) recognised in Net Interest Income. It includes a c. £13.8m (2019: £19.5m) gain in relation to the Kent Reliance loan book, where the
impact of the proactive Choices programme, which offers borrowers a new product as an alternative to paying the Bank’s higher
Standard Variable Rate (SVR), may significantly reduce the likelihood of borrowers extending the period of time paying SVR and reduce
the amount of the potential reset gain.
Applying a six month reduction in the expected weighted average life of the loan books, would result in a reset loss of c. £6.9m (2019:
£4.6m) recognised in Net Interest Income. This includes c. £2.0m (2019: £0.4m) gain in relation to the Kent Reliance loan book.
206
OSB GROUP PLC Annual Report and Accounts 2020
4. Interest receivable and similar income
At amortised cost:
On OSB mortgages
On CCFS mortgages
On investment securities
On other liquid assets
Amortisation of fair value adjustments on CCFS Combination1
Amortisation of fair value adjustments on hedged assets2
At fair value through profit or loss:
Net expense on derivative financial instruments – lending activities
On CCFS mortgages
At FVOCI:
On investment securities
1. Amortisation of fair value adjustments on CCFS loan book at Combination.
2. The amortisation relates to hedged assets where the hedges were terminated before maturity and were effective at the point of termination.
5. Interest payable and similar charges
On retail deposits
On BoE borrowings
On perpetual subordinated bonds
On subordinated liabilities
On wholesale borrowings
On debt securities in issue
On lease liabilities
Amortisation of fair value adjustments on CCFS Combination1
Net income on derivative financial instruments – savings activities
1. Amortisation of fair value adjustments on CCFS customer deposits at Combination.
6. Fair value gains/(losses) on financial instruments
Fair value changes in hedged assets
Hedging of assets
Fair value changes in hedged liabilities
Hedging of liabilities
Ineffective portion of hedges
Net (losses)/gains on unmatched swaps
Amortisation of inception adjustments
Amortisation of acquisition related inception adjustments
Amortisation of de-designated hedge relationships
Fair value movements on mortgages at FVTPL
Amortisation of fair value adjustments on hedged assets
Debit and credit valuation adjustment
2020
£m
2019
£m
500.6
331.9
2.5
5.3
(67.8)
(17.9)
(47.7)
–
5.0
480.5
80.2
0.6
12.2
(22.6)
–
(14.0)
0.3
2.7
711.9
539.9
2020
£m
245.5
8.4
1.7
0.8
1.3
3.4
0.3
(3.3)
(18.4)
2019
£m
177.3
13.3
1.8
0.7
1.9
3.7
0.1
(1.0)
(2.6)
239.7
195.2
2020
£m
107.3
(116.8)
(4.1)
6.8
(6.8)
(18.0)
13.0
17.0
2.4
(0.2)
–
–
7.4
2019
£m
70.1
(75.1)
(4.6)
4.8
(4.8)
3.5
–
3.3
–
–
(5.5)
0.2
(3.3)
OSB GROUP PLC Annual Report and Accounts 2020
207
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
6. Fair value gains/(losses) on financial instruments continued
Amortisation of inception adjustments relates in part to hedged assets and liabilities recognised on the Combination where pre-existing
hedge relationships ceased on the date of Combination. The inception adjustment is being amortised over the life of the derivative
instruments acquired on Combination and recognises an offsetting asset or liability to the fair value of the derivative instruments on the
date of Combination. The remainder of the amortisation of inception adjustment relates to the amortisation of the hedging adjustments
arising when hedge accounting commences, primarily on derivative instruments previously taken out against the mortgage pipeline and
also on derivative instruments previously taken out against new retail deposits.
7. Gain/(loss) on sales of financial instruments
On 17 January 2020, the Group sold the Canterbury A2 note for proceeds of £225.4m. After incurring costs of £0.2m, a gain on sale
of £1.9m was recognised.
On 23 January 2020, the Group sold the F note and residual certificates of the Canterbury securitisation for proceeds of £23.6m.
Following the sale the Group had no remaining interest in the Canterbury securitisation. As a result, consolidation of Canterbury into
the Group ceased on disposal. The Group recognised a gain on sale of £16.0m upon deconsolidation.
On 23 January 2020, the Group securitised £375.5m of mortgage loans through Precise Mortgage Funding 2020-1B plc (PMF 2020-1B),
issuing £388.9m of Sterling floating rate notes. The Group retained the class A2 notes, with all other note classes and the residual
certificates being sold to the external market. As such, the Group has not consolidated PMF 2020-1B as substantially all of the risks
and rewards have been transferred. The Group recognised a gain on sale of £2.0m on disposal. Excluding the impact of the fair value
adjustment on the mortgages on Combination with OSB of £13.1m, the underlying gain on sale was £15.1m.
On 14 September 2020, the Group sold £150.0m of Canterbury 3 A2 notes for £150.1m, resulting in a gain on sale of £0.1m.
In 2019, the Group identified an additional £0.1m of customer receipts due to the purchaser of the personal loan portfolio in the prior year,
recognising an additional loss on sale of £0.1m.
8. Other income
Interest received on mortgages held at FVTPL1
Fees and commissions receivable
Other operating costs2
1. In 2019, £0.3m interest received on mortgages held at FVTPL was included in interest receivable and similar income (see note 4).
2. Other operating costs includes commission expense incurred on retail savings generated from the branch network which is included in administration expenses from 2020.
9. Administrative expenses
Staff costs
Facilities costs
Marketing costs
Support costs
Professional fees
Other costs1
Depreciation (see note 31)
Amortisation (see note 32)
2020
£m
0.6
8.4
–
9.0
2020
£m
86.0
5.7
5.1
18.4
22.3
5.7
5.6
8.2
2019
£m
–
3.4
(1.3)
2.1
2019
£m
60.5
3.6
4.0
12.7
10.4
9.3
3.9
4.3
1. In 2019, other costs mainly comprised irrecoverable VAT. In 2020, the Group included irrecoverable VAT within the underlying expense.
157.0
108.7
208
OSB GROUP PLC Annual Report and Accounts 2020
9. Administrative expenses continued
Included in professional fees are amounts paid to the Company’s auditor as follows:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor for the audit of the accounts of subsidiaries
Total audit fees
Audit-related assurance services1
Other assurance services2
Other non-audit services3
Total non-audit fees
2020
£’000
65
2,198
2,263
217
45
101
363
2019
£’000
1,269
846
2,115
187
142
–
329
Total fees payable to the Company’s auditor
2,626
2,444
1. Includes review of interim financial information and profit verifications.
2. 2020 costs comprise an assurance review of APMs, 2019 costs related to the Combination and agreed upon procedures in respect of securitisations.
3. Primarily comprises work related to the insertion of a new holding company.
Staff costs comprise the following:
Salaries, incentive pay and other benefits
Share-based payments
Social security costs
Other pension costs
2020
£m
68.5
5.1
8.1
4.3
86.0
2019
£m
49.1
4.0
4.4
3.0
60.5
The average number of people employed by the Group (including Executive Directors) during the year is analysed below. For 2019, the
average for CCFS is based on the post Combination period.
OSB
Operations
Support functions
CCFS
Operations
Support functions
2020
2019
835
297
579
105
812
286
530
161
1,816
1,789
10. 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 CCFS anticipated lending volumes over three years post combination
which have been revised due to COVID-19 impacts, with an impairment of £7.0m recognised. The remaining carrying value of the broker
relationships intangible asset at 31 December 2020 is £5.8m (2019: £16.1m).
OSB GROUP PLC Annual Report and Accounts 2020
209
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
11. Directors’ emoluments and transactions
Short-term employee benefits1
Post-employment benefits
Share-based payments2
2020
£’000
2,675
99
425
3,199
2019
£’000
2,334
112
632
3,078
1. Short-term employee benefits comprise Directors’ salary costs, Non-Executive Directors’ fees and other short-term incentive benefits, which are disclosed in the Annual Report on Remuneration.
2. Share-based payments represent the amounts received by Directors for schemes that vested during the year.
In addition to the total Directors’ emoluments above, the Executive Directors were granted deferred bonuses of £495k (2019: £511k) in the
form of shares. The DSBP awards that will be granted in April 2021 will have a holding period of three years with no further conditions
attached other than standard clawback situations. In March 2020 and prior, the DSBP awards were subject to either a three or five year
vesting period with conditions attached, notably if the Director leaves prior to vesting, the award is forfeited unless a good leaver reason
applies such as redundancy, retirement or ill health.
The Executive Directors received a further share award under the PSP with a grant date fair value of £1,359k (2019: £1,305k) using a share
price of £2.58 (2019: £3.90) (the average mid-market quotation for the preceding five days before grant). These shares vest annually from
year three in tranches of 20 per cent, subject to performance conditions discussed in note 12 and the Annual Report on Remuneration.
The Directors of the Company are employed and compensated by OneSavings Bank plc.
Some Non-Executive Directors who left office during the year, received a payment equal to three months’ fee in lieu of the unexpired
period of notice, totalling £59k. There was no compensation for loss of office during 2019.
There were no outstanding loans granted in the ordinary course of business to Directors and their connected persons as at 31 December
2020 and 2019.
The Annual Report on Remuneration and note 12 Share-based payments provide further details on Directors’ emoluments.
12. Share-based payments
Following the insertion of OSB GROUP PLC as the holding company on 27 November 2020, the share awards and options over
OneSavings Bank plc shares were automatically transferred to OSB GROUP PLC shares.
The Group operates the following share-based schemes:
Sharesave Scheme
The Save As You Earn (SAYE) or Sharesave Scheme is a share option scheme which is available to all UK-based employees. The Sharesave
Scheme allows employees to purchase options by saving a fixed amount of between £5 and £500 per month over a period of either three
or five years at the end of which the options, subject to leaver provisions, are usually exercisable. If not exercised, the amount saved is
returned to the employee. The Sharesave Scheme has been in operation since 2014 and an invitation to join the scheme is usually
extended annually, with the option price calculated using the mid-market price of an OSB GROUP PLC ordinary share over the three
dealing days prior to the Invitation Date and applying a discount of 20%.
Deferred Share Bonus Plan (DSBP)
The DSBP applies to Executive Directors and certain senior managers with 50% of their performance bonuses to be deferred in shares for
three years for Executive Directors and one or five years for senior managers. There are no further performance or vesting conditions
attached to deferred awards for senior managers, which also applies to Executive Directors for awards granted from April 2021; the share
awards are subject to clawback provisions. The DSBP awards are expensed in the year services are received with a corresponding
increase in equity. Awards granted to Executive Directors in March 2020 and prior, are subject to vesting conditions and are expensed
over the vesting period.
DSBP awards for senior managers carry entitlements to dividend equivalents, which are paid when the awards vest. DSBP awards
granted from April 2021 to Executive Directors are entitled to dividend equivalents; awards granted in prior years were not entitled to
dividend equivalents.
210
OSB GROUP PLC Annual Report and Accounts 2020
12. Share-based payments continued
Performance Share Plan (PSP)
Executive Directors and certain senior managers are also eligible for a PSP award based on performance conditions and vest in tranches
over three to seven years.
The performance conditions that apply to PSP awards from 2020 are based on a combination of earnings per share (EPS) weighting of
35%, total shareholder return (TSR) 35%, risk-based 15% and return on equity (ROE) 15%. Prior to 2020, PSP awards were based on a
combination of EPS weighting of 40%, TSR 40% and ROE 20%. The PSP conditions are assessed independently. For the EPS element,
growth targets are linked to the Company’s three-year growth plan, measuring growth from the base figure for the prior year. For the TSR
element, the Company’s ordinary shares relative performance is measured against the FTSE 250 (excluding investment trusts). The
risk-based measure is assessed against the risk management performance with regard to all relevant risks including, but not limited to, an
assessment of regulatory risk, operational risk, conduct risk, liquidity risk, funding risk, marketing risk and credit risk. For the ROE element,
growth rates are assessed against OSB GROUP PLC’s underlying profit after taxation as a percentage of average shareholders’ equity.
As part of the Combination, the Group granted mirror PSP awards for the 2018 and 2019 CCFS schemes that terminated upon the
Combination. The mirror PSP schemes follow the same performance conditions as the Group’s 2018 and 2019 PSP awards.
The share-based expense for the year includes a charge in respect of the Sharesave Scheme, DSBP and PSP. All charges are included
in employee expenses within note 9 Administrative expenses.
The share-based payment expense during the year comprised the following:
Sharesave Scheme
Deferred Share Bonus Plan
Performance Share Plan
Movements in the number of share awards and their weighted average exercise prices are set out below:
2020
£m
0.5
3.9
0.7
5.1
2019
£m
0.2
1.3
2.5
4.0
At 1 January 2020
Granted
Exercised/Vested
Forfeited
At 31 December 2020
Exercisable at:
31 December 2020
At 1 January 2019
Granted
CCFS mirror/roll over schemes
Exercised/Vested
Forfeited
At 31 December 2019
Exercisable at:
31 December 2019
Sharesave Scheme
Deferred Share
Bonus Plan
Performance
Share Plan
Weighted
average
exercise
price, £
Number
Number
738,473 3,096,371
839,735 2,756,176
2.63
2.29
2.32 (449,608) (383,205)
(8,843) (482,815)
2.79
Number
2,869,146
1,483,202
(1,080,430)
(526,586)
2,745,332
2.53 1,119,757 4,986,527
118,402
2.89
–
–
841,629
1,261,307
1,183,475
(154,963)
(262,302)
2.93 1,258,712 1,737,997
476,933 1,079,392
2.65
931,853
2.42
1.96 (920,891) (235,241)
(76,281) (417,630)
3.23
–
2,869,146
2.63
738,473 3,096,371
–
–
–
–
For the share-based awards granted during the year, the weighted average grant date fair value was 188 pence (2019: 208 pence).
OSB GROUP PLC Annual Report and Accounts 2020
211
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
12. Share-based payments continued
The range of exercise prices and weighted average remaining contractual life of outstanding awards are as follows:
Exercise price
Sharesave Scheme
227-335 pence (2019: 134 – 335 pence)
Deferred Share Bonus Plan
Nil
Performance Share Plan
Nil
Sharesave Scheme
Contractual life, years
Share price at issue, £
Exercise price, £
Expected volatility, %
Dividend yield, %
Grant date fair value, £
2020
2019
Weighted
average
remaining
contractual
life (years)
Number
Weighted
average
remaining
contractual
life (years)
Number
2,745,332
2.5
2,869,146
1,119,757
4,986,527
8,851,616
0.7
2.5
2.3
738,473
3,096,371
6,703,990
2020
2019
2018
2017
2016
3
2.86
2.29
57.6
3.3
1.22
5
2.86
2.29
57.6
3.3
1.34
3
3.32
2.65
31.9
4.8
0.90
5
3.32
2.65
31.9
4.8
0.91
3
4.19
3.35
16.1
4.4
0.40
5
4.19
3.35
16.5
4.4
0.43
3
3.93
3.15
18.0
4.1
0.75
5
3.93
3.15
17.3
4.1
0.70
3
3.00
2.40
18.4
4.6
0.10
2.0
0.6
1.7
1.7
5
3.00
2.40
20.1
4.6
0.15
The share save schemes are not entitled to dividends between the option and exercise date. A Black Scholes model is used to determine
the grant date fair value with two inputs:
} Expected volatility – from 2019, the expected volatility is based on the Company’s share price. Prior to this the Group used the FTSE
350 diversified financials volatility as insufficient history was available for the Company’s share price.
} Dividend – based on the average dividend yield across external analyst reports for the quarter prior to scheme grant date.
Deferred Share Bonus Plan
Contractual life, years
Mid-market share price, £
Attrition rate, %
Dividend yield, %
Grant date fair value, £
2020
3
2.58
–
5.6
2.21
2019
3
3.96
8.4
4.7
3.47
2018
3
3.80
9.7
4.6
3.34
2017
3
4.04
11.8
4.0
3.61
5
4.04
11.8
4.0
3.37
For DSBP awards where conditions exist, an attrition rate is applied as an estimate of the actual number of awards that will meet the
related conditions at the vesting date. These schemes carry no rights to dividend equivalents and a Black Scholes model is used to
determine the grant date fair value with a dividend yield input applied – based on the average dividend yield across external analyst
reports for the quarter prior to scheme grant date.
Performance Share Plan
Performance awards are typically made annually at the discretion of the Remuneration Committee. Awards are based on a mixture of
internal financial performance targets, risk-based measures and relative TSR.
Performance conditions exist for the scheme notably that you are employed by the Company at the vesting date, with good leaver
exceptions, and an attrition rate is applied as an estimate of the actual number of awards that will meet the related conditions at the
vesting date.
212
OSB GROUP PLC Annual Report and Accounts 2020
12. Share-based payments continued
The awards are not entitled to a dividend equivalent between grant date and vesting and a Black Scholes model is used to determine
the grant date fair value with a dividend yield input applied – based on the average dividend yield across external analyst reports for
the quarter prior to scheme grant date.
The fair value of an option that is subject to market conditions (the relative share price element of the Performance Share Plan) is
determined at grant date using a Monte Carlo model at the time of grant.
The inputs into the models are as follows:
Contractual life, years
Mid-market share price, £
Attrition rate, %
Expected volatility, %
Dividend yield, %
Vesting rate – TSR %
Grant date fair value, £
CCFS PSP Mirror Schemes
Contractual life, years
Mid-market share price, £
Expected volatility, %
Attrition rate, %
Dividend yield, %
Vesting rate – TSR, %
Grant date fair value, £
13. Integration costs
Consultant fees
Staff costs
2020
3–7
2.58
7.3
43.9
5.6
27.8
2.06
2019
3
3.96
8.4
26.8
4.7
44.9
3.47
2018
3
4.11
9.7
29.1
4.6
54.0
3.61
2019
3
3.54
28.6
–
4.8
37.4
3.29
2020
£m
1.7
8.1
9.8
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.
14. Exceptional items
Consultant fees
Legal and professional fees
Success fees
2020
£m
2.0
1.3
–
3.3
2017
3
4.04
11.8
63.7
4.0
60.0
3.61
2018
2
3.54
28.6
–
4.8
37.4
3.17
2019
£m
3.0
2.2
5.2
2019
£m
4.0
4.6
7.0
15.6
Exceptional items for 2020 relate to the insertion of OSB GROUP PLC as the new holding company and listed entity of the Group. 2019
expenses relate to the all-share Combination with CCFS.
OSB GROUP PLC Annual Report and Accounts 2020
213
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
15. Taxation
The Group publishes its tax strategy on its corporate website. The table below shows the components of the Group’s tax charge for
the year:
Corporation taxation
Deferred taxation
Release of deferred taxation on CCFS Combination1
Total taxation
2020
£m
(79.7)
0.8
14.8
2019
£m
(57.1)
(0.2)
7.0
(64.1)
(50.3)
1. Release of deferred taxation on CCFS Combination relates to the fair value unwind of the CCFS assets and liabilities at the acquisition date.
The charge for taxation on the Group’s profit before taxation differs from the charge based on the standard rate of UK Corporation Tax
of 19% (2019: 19%) as follows:
Profit before taxation
Profit multiplied by the standard rate of UK Corporation Tax (19%)
Bank surcharge1
Taxation effects of:
Expenses not deductible for taxation purposes
Impact of deferred tax rate change
Negative goodwill on acquisition not taxable
Adjustments in respect of earlier years
Tax adjustments in respect of share-based payments
Impact of tax losses carried forward
Tax on coupons paid on non-controlling interest securities
Timing differences on capital items
Other
Total taxation charge
2020
£m
260.4
(49.5)
(11.0)
(1.6)
(4.4)
–
0.4
(0.8)
–
1.5
1.3
–
2019
£m
209.1
(39.7)
(8.5)
(3.0)
–
2.0
(2.7)
(0.7)
0.5
1.0
0.2
0.6
(64.1)
(50.3)
1. Tax charge for the two banking entities of £18.4m offset by the tax impact of unwinding CCFS Combination items of £5.8m (2019: Tax charge for the two banking entities of £10.4m offset by the tax
impact of unwinding CCFS Combination items of £1.9m).
Factors affecting tax charge for the year
The effective tax rate for the year ended 31 December 2020, excluding the impact of the deferred tax rate change and adjustments
in respect of earlier years, was 23.1% (2019: 22.8%).
The £(4.4)m impact of the deferred tax rate change relates predominantly to the deferred tax liability from the CCFS combination
(see note 30).
During the year a tax charge of £0.3m (2019: tax charge of £1.1m) of tax has been recognised directly within equity relating to the Group’s
share-based payment schemes.
During the year a tax credit of £0.5m (2019: tax credit of £0.2m) has been recognised within other comprehensive income relating to
investment securities classified as FVOCI.
Factors that may affect future tax charges
In the March 2020 Budget, it was announced that the cuts in corporation tax rate to 18% and then to 17% previously enacted would not
occur with the corporation tax rate held at 19%. As a result, closing deferred tax balances are calculated at 19% with the impact of the
increase from 17%/18% to 19% reflected in the period.
214
OSB GROUP PLC Annual Report and Accounts 2020
15. Taxation continued
On 3 March 2021, the government announced that the corporation tax rate will increase from 19% to 25% from 1 April 2023. This rate
change was not substantively enacted at the balance sheet date and so has not been reflected in these financial statements. The
government has also acknowledged that this increase in the main rate will result in an uncompetitive position for UK banks which also
currently pay the 8% Bank Surcharge, and so has also announced a review of the Bank Surcharge will take place in Autumn 2021. Given
that the majority of the Group’s deferred tax is recognised at the combined corporation tax and Bank Surcharge rate, we are not yet able
to estimate the impact of the combined rate changes on our deferred tax balances. We have assessed the impact of the increase of the
corporation tax rate in isolation and concluded that it will not have a material impact on the Group’s deferred tax balances.
16. Earnings per share
Earnings per share (EPS) are based on the profit for the year and the weighted average 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
year. Diluted EPS take into account share options and awards 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 year for the
coupons on non-controlling interest securities classified as equity:
Statutory profit after tax
Less: Coupon on non-controlling interest securities classified as equity
Statutory profit attributable to ordinary shareholders
Weighted average number of shares, millions
Basic
Dilutive impact of share-based payment schemes
Diluted
Earnings per share, pence per share
Basic
Diluted
2020
£m
2019
£m
196.3
(5.5)
158.8
(5.5)
190.8
153.3
2020
2019
446.2
4.0
450.2
42.8
42.4
291.6
1.8
293.4
52.6
52.2
17. Dividends
On 27 November 2020, OSB GROUP PLC became the ultimate parent company, and soon after the listed entity of Group, replacing
OneSavings Bank plc which is now a 100% subsidiary of OSB GROUP PLC. There were no dividends paid in the period since the ultimate
parent company was inserted.
Final dividend for the prior year
Interim dividend for the current year
OSB GROUP PLC &
OneSavings Bank plc
2020
OneSavings Bank plc
2019
Pence per
share
–
–
£m
–
–
–
£m
25.3
12.0
37.3
Pence per
share
10.3
4.9
The Directors recommend a final dividend of £64.9m, 14.5 pence per share (2019: nil, nil) payable on 2 June 2021 with an ex-dividend date
of 15 April 2021 and a record date of 16 April 2021. This dividend is not reflected in these financial statements as it is subject to approval by
shareholders at the AGM on 27 May 2021. This will make up the total dividend for 2020 of £64.9m, 14.5 pence per share (2019: £12.0m, 4.9
pence per share).
As at 31 December 2020 OSB GROUP PLC had no distributable reserves (2019: nil). The Company reduced the nominal value of OSB
GROUP PLC shares from 304 pence each to 1 penny each on 26 February 2021 (see note 52). The recommended dividend of £64.9m will
be made out of the distributable reserve position following this capital reduction exercise.
OSB GROUP PLC Annual Report and Accounts 2020
215
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
18. Cash and cash equivalents
The following table analyses the cash and cash equivalents disclosed in the Consolidated Statement of Cash Flows:
Cash in hand
Unencumbered loans and advances to credit institutions
Investment securities with original maturity less than 3 months
19. Loans and advances to credit institutions
Unencumbered:
BoE call account
Call accounts
Cash held in special purpose vehicles1
Term deposits
Encumbered:
BoE cash ratio deposit
Cash held in special purpose vehicles1
Cash margin given
1. Cash held in special purpose vehicles is ring-fenced for the use in managing the Group’s securitised debt facilities under the terms of securitisation agreements.
20. Investment securities
Held at FVOCI:
UK and EU Sovereign debt
RMBS loan notes
Held at amortised cost:
RMBS loan notes
Less: Expected credit losses
2020
£m
0.5
2,370.1
–
2019
£m
0.4
2,052.5
49.9
2,370.6
2,102.8
2020
£m
2019
£m
2,256.5
55.6
51.0
7.0
52.3
42.7
211.1
1,916.2
81.7
44.0
10.6
41.7
–
110.4
2,676.2
2,204.6
2020
£m
2019
£m
–
285.0
285.0
186.2
186.2
–
186.2
471.2
149.8
358.9
508.7
126.6
126.6
–
126.6
635.3
At 31 December 2020 the Group had £147.1m (2019: £173.0m) of FVOCI RMBS and £13.7m (2019: nil) of amortised cost RMBS loan notes
sold under repos.
The Directors consider that the primary purpose of holding investment securities is prudential. These securities are held as liquid assets
with the intention of use on a continuing basis in the Group’s activities and are classified as FVOCI and amortised cost in accordance with
the Group’s business model for each security.
216
OSB GROUP PLC Annual Report and Accounts 2020
20. Investment securities continued
Movements during the year of investment securities held by the Group are analysed as follows:
At 1 January
Additions1
CCFS Combination
Disposals and maturities2
Movement in accrued interest
Changes in fair value
At 31 December
2020
£m
2019
£m
635.3
291.6
–
(457.2)
0.5
1.0
58.9
439.8
493.5
(357.7)
–
0.8
471.2
635.3
1. Additions include £100.7m of retained RMBS loan notes following the deconsolidation of PMF 2020-1B.
2. Disposals and maturities include £49.9m of UK Sovereign debt which had an original maturity of less than three months.
At 31 December 2020, investment securities included investments in unconsolidated structured entities (note 46) of £100.7m (2019: nil)
notes in PMF 2020-1B and £285.0m (2019: £358.9m) notes in PMF 2019-1B. The investments represent the maximum exposure to loss from
unconsolidated structured entities.
21. Loans and advances to customers
Held at amortised cost:
Loans and advances (see note 22)
Finance leases (see note 23)
Less: Expected credit losses (see note 24)
Residential mortgages held at fair value
22. Loans and advances
Gross carrying amount
Stage 1
Stage 2
Stage 3
Stage 3 (POCI)
The mortgage loan balances pledged as collateral for liabilities are:
BoE under TFS, TFSME and ILTR
Securitisation
Warehouse funding
Master servicer for securitisation vehicle
2020
£m
2019
£m
19,257.1
65.5
18,419.9
47.7
19,322.6
18,467.6
(111.0)
(42.9)
19,211.6
19.1
18,424.7
22.1
19,230.7
18,446.8
2020
CCFS
£m
OSB
£m
Total
£m
OSB
£m
2019
CCFS
£m
Total
£m
9,310.8
1,362.0
344.5
48.6
6,749.5 16,060.3
2,689.6
1,327.6
392.6
48.1
114.6
66.0
9,999.2
442.4
277.7
53.6
7,240.0 17,239.2
749.5
294.4
136.8
307.1
16.7
83.2
11,065.9
8,191.2 19,257.1 10,772.9
7,647.0 18,419.9
2020
£m
5,203.2
435.4
–
–
2019
£m
4,458.3
366.7
97.4
40.4
5,638.6
4,962.8
OSB GROUP PLC Annual Report and Accounts 2020
217
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
22. Loans and advances continued
The Group’s securitisation programmes, use of TFS, TFSME and ILTR and Warehouse funding arrangements result in certain assets being
encumbered as collateral against such funding. As at 31 December 2020, the percentage of the Group’s gross customer loans and
receivables that are encumbered was 29% (2019: 27%).
At 31 December 2019, £40.4m of retention loans (i.e. loans in securitisation portfolios that are retained by the originator) were treated as
encumbered. For 2020, the Group has treated these as unencumbered as they are available to use to raise collateral as long as the risk
and rewards of the loans remain with the Group.
The tables below show the movement in loans and advances to customers by IFRS 9 stage during the year, based on the following
assumptions:
At 31 December 2018
Originations1
CCFS Combination3
Repayments and write-offs2
Transfers:
- To Stage 1
- To Stage 2
- To Stage 3
Incurred loss protection
At 31 December 2019
Originations1
Acquisitions
Disposals
Repayments and write-offs2
Transfers:
– To Stage 1
– To Stage 24
– To Stage 3
At 31 December 2020
Stage 1
£m
8,279.6
4,098.6
7,091.1
(1,825.2)
Stage 2
£m
436.8
–
43.5
(21.6)
176.9
(495.9)
(86.1)
0.2
(162.7)
517.7
(64.5)
0.3
Stage 3
£m
225.4
–
–
(47.5)
(14.2)
(21.8)
150.6
1.9
Stage 3
(POCI)
£m
56.2
–
94.4
Total
£m
8,998.0
4,098.6
7,229.0
(17.3) (1,911.6)
–
–
–
3.5
–
–
–
5.9
17,239.2
749.5
294.4
136.8
18,419.9
3,767.0
60.8
(787.3)
(2,119.1)
–
–
(16.1)
(3.9)
324.8
(2,300.3)
(124.8)
(293.5)
2,344.5
(90.9)
–
–
(1.0)
(41.0)
(31.3)
(44.2)
215.7
–
1.5
–
3,767.0
62.3
(804.4)
(23.7) (2,187.7)
–
–
–
–
–
–
16,060.3
2,689.6
392.6
114.6 19,257.1
1. Originations include further advances and drawdowns on existing commitments.
2. Repayments and write-offs include customer redemptions.
3. The mortgages acquired in the all-share Combination with CCFS are shown at the acquisition date fair value.
4. Increase from previous year due to the additional qualitative and quantitative tests applied in 2020 for loans with payment deferrals. Payment deferrals increased in 2020 notably through
COVID-19 initiatives and impacts.
During the year the Group purchased one external mortgage book at par. The Group did not purchase any external mortgage books
during 2019 other than those acquired in the Combination.
218
OSB GROUP PLC Annual Report and Accounts 2020
23. Finance leases
The Group provides asset finance lending through InterBay Asset Finance Limited.
Gross investment in finance leases, receivable
Less than one year
Between one and five years
More than 5 years
Unearned finance income
Net investment in finance leases
Net investment in finance leases, receivable
Less than one year
Between one and five years
More than five years
2020
£m
2019
£m
21.9
50.4
1.3
73.6
(8.1)
65.5
18.6
45.7
1.2
65.5
14.1
38.5
1.2
53.8
(6.1)
47.7
11.5
35.0
1.2
47.7
The Group has recognised £2.6m of ECLs on finance leases as at 31 December 2020 (2019: £0.3m).
24. Expected credit loss
The ECL has been calculated based on various scenarios as set out below:
At 31 December 2020
Scenarios
Upside
Base case
Downside scenario
Severe downside scenario
Total weighted provisions
Non-modelled provisions:
Individually-assessed provisions
Post model adjustments1
Total provision
ECL
provision
2020
£m
Weighting
2020
%
Weighted
ECL provision
2020
£m
ECL
provision
2019
£m
Weighting
2019
%
Weighted ECL
provision
2019
£m
40.1
54.6
113.5
166.7
–
–
30
40
23
7
–
–
12.0
21.8
26.1
11.7
71.6
29.0
10.4
111.0
14.6
24.4
48.1
62.5
–
–
10
40
35
15
–
–
1.5
9.7
16.8
9.4
37.4
4.2
1.3
42.9
1. COVID-19 post model adjustments – the Group implemented a number of post model adjustments to ensure that modelled estimates remained appropriate, in light of the impact that COVID-19
support measures, such as the repossession moratorium and the impact of payment deferrals on the credit bureau files, had on probability of default and loss given default estimates. In addition
updated model estimates were also aligned to recently observed actual performance. Additional information can be found in the Credit risk section of the Risk profile performance overview on
pages 81 to 87.
The Group’s ECL by segment and IFRS 9 stage is shown below:
Stage 1
Stage 2
Stage 3
Stage 3 (POCI)
2020
2019
OSB
£m
12.3
17.9
49.4
4.0
83.6
CCFS
£m
8.9
13.1
2.3
3.1
27.4
Total
£m
21.2
31.0
51.7
7.1
111.0
OSB
£m
3.5
3.6
23.4
5.1
35.6
CCFS
£m
2.1
2.0
0.4
2.8
7.3
Total
£m
5.6
5.6
23.8
7.9
42.9
OSB GROUP PLC Annual Report and Accounts 2020
219
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
24. Expected credit loss continued
The tables below show the movement in the ECL by IFRS 9 stage during the year. ECLs on originations reflect the IFRS 9 stage of loans
originated during the year as at 31 December and not the date of origination. Remeasurement of loss allowance relates to existing loans
which did not redeem during the year and includes the impact of loans moving between IFRS 9 stages.
At 31 December 2018
Originations
CCFS Combination
Repayments and write-offs
Remeasurement of loss allowance
Transfers:
– To Stage 1
– To Stage 2
– To Stage 3
Changes in assumptions and model parameters
Incurred loss protection
At 31 December 2019
Originations
Acquisitions
Disposals
Repayments and write-offs
Remeasurement of loss allowance
Transfers:
– To Stage 1
– To Stage 2
– To Stage 3
Changes in assumptions and model parameters
At 31 December 2020
Stage 1
£m
Stage 2
£m
Stage 3
£m
4.5
1.9
–
(0.6)
(3.4)
1.9
(0.2)
(0.1)
1.4
0.2
5.6
6.3
–
(0.1)
(0.7)
6.3
2.0
(1.0)
(0.1)
2.9
21.2
5.6
–
–
(0.4)
(0.5)
(1.6)
0.6
(1.0)
2.6
0.3
5.6
–
–
(0.2)
(0.3)
7.7
(1.4)
2.8
(1.2)
18.0
31.0
10.2
–
–
(4.3)
18.8
(0.3)
(0.4)
1.1
(3.2)
1.9
23.8
–
0.1
(0.1)
(4.1)
29.0
(0.6)
(1.8)
1.3
4.1
51.7
Stage 3
(POCI)
£m
1.6
–
3.6
(0.2)
(0.6)
–
–
–
–
3.5
7.9
–
–
–
(1.1)
(0.2)
–
–
–
0.5
7.1
Total
£m
21.9
1.9
3.6
(5.5)
14.3
–
–
–
0.8
5.9
42.9
6.3
0.1
(0.4)
(6.2)
42.8
–
–
–
25.5
111.0
The table below shows the stage 2 ECL balances by transfer criteria:
Criteria:
Relative PD movement
Qualitative measures
30 days past due backstop
Total
Carrying
value
2020
£m
946.9
1,680.7
63.4
2,691.0
ECL
2020
£m
17.0
12.7
1.3
31.0
Coverage
2020
%
1.80
0.76
2.05
1.15
Carrying
value
2019
£m
588.2
79.8
81.5
749.5
ECL
2019
£m
4.8
0.4
0.4
5.6
Coverage
2019
%
0.82
0.44
0.54
0.75
The Group has a number of qualitative measures to determine whether a SICR has taken place. These triggers utilise both internal
performance information, to analyse whether an account is in distress but not yet in arrears, and external credit bureau information,
to determine whether the customer is experiencing financial difficulty with an external credit obligation.
220
OSB GROUP PLC Annual Report and Accounts 2020
25. Impairment of financial assets
The charge for impairment of financial assets in the Consolidated Statement of Comprehensive Income comprises:
Write-offs in year
Disposals
CCFS Combination
Increase in ECL provision
2020
£m
1.9
0.4
–
68.7
71.0
2019
£m
4.1
–
3.6
7.9
15.6
The CCFS Combination losses relate to the initial ECL recognised on the CCFS loan book following the Combination in October 2019.
26. Derivatives
The table below reconciles the gross amount of derivative contracts to the carrying balance shown in the Consolidated Statement of
Financial Position:
At 31 December 2020
Derivative assets:
Interest rate risk hedging
Derivative liabilities:
Interest rate risk hedging
At 31 December 2019
Derivative assets:
Interest rate risk hedging
Derivative liabilities:
Interest rate risk hedging
Net amount
of financial
assets/
(liabilities)
presented in
the
Consolidated
Statement of
Financial
Position
£m
Contracts
subject to
master
netting
agreements
not offset in
the
Consolidated
Statement of
Financial
Position
£m
Cash
collateral
paid/
(received) not
offset in the
Consolidated
Statement of
Financial
Position
£m
Gross
amount of
recognised
financial
assets/
(liabilities)
£m
12.3
12.3
12.3
12.3
(11.8)
(11.8)
–
–
(163.6)
(163.6)
(163.6)
(163.6)
11.8
11.8
210.5
210.5
21.1
21.1
21.1
21.1
(9.8)
(9.8)
(8.0)
(8.0)
(92.8)
(92.8)
(92.8)
(92.8)
9.8
9.8
110.4
110.4
Net amount
£m
0.5
0.5
58.7
58.7
3.3
3.3
27.4
27.4
Included within the Group’s derivative liabilities is £0.1m (2019: £3.4m) relating to derivative contracts not covered by master netting
agreements and therefore no cash collateral has been paid.
OSB GROUP PLC Annual Report and Accounts 2020
221
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
26. Derivatives continued
The table below profiles the timing of nominal amounts for interest rate risk hedging derivatives based on contractual maturity:
At 31 December 2020
Derivative assets
Derivative liabilities
At 31 December 2019
Derivative assets
Derivative liabilities
Total
nominal
£m
Less than
3 months
£m
3 – 12 months
£m
1 – 5 years
£m
More than
5 years
£m
8,687.8
10,392.4
1,450.7
148.0
3,407.8
1,868.0
3,808.3
8,065.9
19,080.2
1,598.7
5,275.8
11,874.2
7,795.4
9,982.4
1,110.8
144.3
2,608.2
2,528.6
3,760.9
7,155.5
17,777.8
1,255.1
5,136.8
10,916.4
21.0
310.5
331.5
315.5
154.0
469.5
The Group has 925 (2019: 1,175) derivative contracts with an average fixed rate of 0.47% (2019: 0.91%).
27. Hedge accounting
Hedged assets
Current hedge relationships
Swap inception adjustment
Cancelled hedge relationships
Fair value adjustments on hedged assets
Hedged liabilities
Current hedge relationships
Swap inception adjustment
De-designated hedge relationships
Fair value adjustments on hedged liabilities
2020
£m
2019
£m
197.5
(100.5)
84.6
64.2
(67.8)
20.4
181.6
16.8
(11.8)
6.2
(2.6)
(8.2)
(2.9)
8.0
–
5.1
The swap inception adjustment relates in part to hedged assets and liabilities recognised on the Combination where pre-existing hedge
relationships ceased on the date of Combination. The swap inception adjustment is being amortised over the life of the derivative
instruments acquired on Combination and recognises an offsetting asset or liability to the fair value of the derivative instruments
on the date of Combination. The remainder of the swap inception adjustment relates to the hedging adjustments arising when hedge
accounting commences, primarily on derivative instruments previously taken out against the mortgage pipeline and also on derivative
instruments previously taken out against new retail deposits.
Cancelled hedge relationships predominantly represent the unamortised fair value adjustment for interest rate risk hedges that
have been cancelled and replaced due to IBOR transition, securitisation activities and legacy long-term fixed rate mortgages
(c. 25 years at origination).
The tables below analyse the Group’s portfolio hedge accounting for fixed rate loans and advances to customers:
Loans and advances to customers
Carrying amount of hedged item/nominal value of hedging instrument
Cumulative fair value adjustments
Fair value adjustments for the period
Cumulative fair value on cancelled hedge relationships
2020
2019
Hedged
item
£m
Hedging
instrument
£m
Hedged
item
£m
Hedging
instrument
£m
11,282.4
197.5
107.3
84.6
11,159.7
(156.9)
(117.4)
–
10,312.5
64.2
70.1
20.4
10,248.3
(75.6)
(75.1)
–
The cumulative fair value adjustments of the hedging instrument comprise £0.7m (2019: £13.2m) recognised within derivative assets and
£157.6m (2019: £88.8m) recognised within derivative liabilities.
222
OSB GROUP PLC Annual Report and Accounts 2020
27. Hedge accounting continued
The movement in cancelled hedge relationships is as follows:
At 1 January
New cancellations1
Amortisation
Derecognition of hedged item
At 31 December
2020
£m
20.4
86.1
(17.9)
(4.0)
84.6
2019
£m
17.3
8.6
(5.5)
–
20.4
1. Following the securitisation of mortgages during the year and LIBOR swaps transferred to SONIA swaps through the IBOR transition, the Group cancelled swaps which were effective prior to the
event, with the designated hedge moved to cancelled hedge relationships to be amortised over the original life of the swap.
The tables below analyse the Group’s portfolio hedge accounting for fixed rate amounts owed to retail depositors:
Customer deposits
Carrying amount of hedged item/nominal value of hedging instrument
Cumulative fair value adjustments
Fair value adjustments for the period
2020
2019
Hedged
item
£m
Hedging
instrument
£m
Hedged
item
£m
6,849.9
(11.8)
(4.1)
6,858.0
9.2
6.8
6,684.6
(2.9)
(4.6)
Hedging
instrument
£m
6,687.5
3.5
4.8
The cumulative fair value adjustments of the hedging instrument comprise £9.4m (2019: £5.9m) recognised within derivative assets and
£0.2m (2019: £2.4m) recognised within derivative liabilities.
28. Other assets
Prepayments
Other assets
29. Deferred taxation asset
At 31 December 2018
Profit or loss (charge)/credit
CCFS Combination
Transferred to corporation tax liability
Tax taken directly to OCI
Tax taken directly to equity
At 31 December 2019
Profit or loss credit/(charge)
Transferred to corporation tax liability
Tax taken directly to OCI
Tax taken directly to equity
At 31 December 2020
2020
£m
7.3
1.8
9.1
Others1
£m
–
(0.7)
1.4
–
(0.2)
–
0.5
(0.4)
–
(0.5)
–
(0.4)
2019
£m
9.3
5.0
14.3
Total
£m
3.5
(0.2)
1.9
(1.3)
(0.2)
1.1
4.8
0.8
(0.6)
(0.5)
0.2
4.7
Losses
carried
forward
£m
Accelerated
depreciation
£m
Share-based
payments
£m
IFRS 9
transitional
adjustments
£m
1.4
(0.5)
–
–
–
–
0.9
–
–
–
–
0.9
(0.1)
0.3
(0.1)
–
–
–
0.1
0.3
–
–
–
0.4
1.5
0.8
0.5
(1.3)
–
1.1
2.6
0.9
(0.6)
–
0.2
3.1
0.7
(0.1)
0.1
–
–
–
0.7
–
–
–
–
0.7
1. Others include deferred taxation assets recognised on financial assets classified as FVOCI, derivatives and short-term timing differences.
OSB GROUP PLC Annual Report and Accounts 2020
223
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
29. Deferred taxation asset continued
In 2020, the profit or loss credit/(charge) includes £(0.3)m impact of the deferred tax rate change (2019: nil).
As at 31 December 2020, the Group had £3.5m (2019: £3.5m) of losses for which a deferred tax asset has not been recognised as the
Group does not expect sufficient future profits to be available to utilise the losses.
30. Deferred taxation liability
The deferred tax liability recognised on the Combination relates to the timing differences of the recognition of assets and liabilities at fair
value, where the fair values will unwind in future periods in line with the underlying asset or liability. The deferred tax liability has been
measured using the relevant rates for the expected periods of utilisation.
At 31 December 2018
CCFS Combination
Profit or loss credit
At 31 December 2019
Profit or loss credit
At 31 December 2020
In 2020, the profit or loss credit includes £4.7m impact of the deferred tax rate change (2019: nil).
31. Property, plant and equipment
CCFS
Combination
£m
–
70.1
(7.0)
63.1
(14.8)
48.3
Freehold land
and buildings
£m
Leasehold
improvements
£m
Equipment
and fixtures
£m
Property
leases
£m
Other leases
£m
Total
£m
Right of use assets
16.0
3.1
–
–
0.2
19.3
–
–
(0.1)
19.2
0.8
0.3
–
–
1.1
0.3
–
1.4
17.8
18.2
0.9
1.5
0.3
–
–
2.7
0.3
–
–
3.0
0.3
0.2
–
–
0.5
0.4
–
0.9
2.1
2.2
11.0
2.4
2.1
(1.2)
0.1
14.4
2.5
(3.0)
(0.1)
13.8
5.0
2.3
–
(1.2)
6.1
2.9
(3.0)
6.0
7.8
8.3
3.8
2.5
6.4
–
–
12.7
0.6
(0.2)
–
13.1
–
1.0
–
–
1.0
1.8
(0.2)
2.6
10.5
11.7
–
0.1
1.2
–
–
1.3
–
–
–
1.3
–
0.1
–
–
0.1
0.2
–
0.3
1.0
1.2
31.7
9.6
10.0
(1.2)
0.3
50.4
3.4
(3.2)
(0.2)
50.4
6.1
3.9
–
(1.2)
8.8
5.6
(3.2)
11.2
39.2
41.6
Cost
At 1 January 2019
Additions
CCFS Combination
Disposals and write-offs1
Foreign exchange difference
At 31 December 2019
Additions
Disposals and write-offs¹
Foreign exchange difference
At 31 December 2020
Depreciation
At 1 January 2019
Charged in year
CCFS Combination
Disposals and write-offs
At 31 December 2019
Charged in year
Disposals and write-offs¹
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
1. During the year the Group wrote off fully depreciated assets.
224
OSB GROUP PLC Annual Report and Accounts 2020
32. Intangible assets
Cost
At 1 January 2019
Additions
CCFS Combination
Disposals and write-offs1
At 31 December 2019
Additions
Disposals and write-offs1
At 31 December 2020
Amortisation
At 1 January 2019
CCFS Combination
Charged in year
Disposals and write-offs1
At 31 December 2019
Charged in year
Impairment in the year
Disposals and write-offs1
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Development
costs
£m
Computer
software and
licences
£m
Assets
arising on
consolidation2
£m
Total
£m
13.6
4.3
23.6
(2.0)
39.5
4.4
(1.3)
42.6
5.8
–
4.3
(2.0)
8.1
8.2
7.0
(1.3)
22.0
13.6
3.8
–
(2.0)
15.4
2.6
(1.3)
16.7
5.8
–
3.0
(2.0)
6.8
3.6
–
(1.3)
–
–
23.6
–
23.6
–
–
23.6
–
–
1.3
–
1.3
4.5
7.0
–
9.1
12.8
7.6
8.6
10.8
22.3
20.6
31.4
–
0.5
–
–
0.5
1.8
–
2.3
–
–
–
–
–
0.1
–
–
0.1
2.2
0.5
1. During the year the Group wrote off fully amortised assets.
2. Assets arising on consolidation comprise broker relationships of £5.8m (2019: £16.1m), technology of £2.9m (2019: £3.2m), brand name of £1.2m (2019: £1.6m) and banking licence of £0.9m
(2019: £1.4m). The carrying value of the intangible assets are reviewed each reporting period with a £7.0m impairment recognised in relation to broker relationships due to impacts of the
COVID-19 pandemic.
33. Amounts owed to credit institutions
BoE TFS
BoE TFSME
BoE ILTR
Warehouse funding
Commercial repo
Cash margin received
Loans from credit institutions
2020
£m
2,568.6
1,000.1
–
–
0.1
–
1.4
2019
£m
2,632.8
–
290.6
93.6
41.4
8.0
2.4
3,570.2
3,068.8
OSB GROUP PLC Annual Report and Accounts 2020
225
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
34. Amounts owed to retail depositors
Fixed rate deposits
Variable rate deposits
35. Amounts owed to other customers
Fixed rate deposits
Variable rate deposits
36. Debt securities in issue
Asset backed loan notes at amortised cost
Amount due for settlement within 12 months
Amount due for settlement after 12 months
OSB
2020
£m
CCFS
2020
£m
Total
2020
£m
OSB
2019
£m
CCFS
2019
£m
Total
2019
£m
6,275.6
3,429.7
4,781.4
2,116.4
11,057.0
5,546.1
5,617.9
3,817.9
4,907.6
1,911.6
10,525.5
5,729.5
9,705.3
6,897.8
16,603.1
9,435.8
6,819.2
16,255.0
2020
£m
46.0
26.9
72.9
2020
£m
421.9
–
421.9
421.9
2019
£m
26.0
3.7
29.7
2019
£m
296.3
40.1
256.2
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 contractual 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.
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 31 December 2020, notes were issued through the following funding vehicles:
CMF 2020-1 plc
Canterbury Finance No.3 plc
Canterbury Finance No.1 plc
Precise Mortgage Funding 2015-1 plc
2020
£m
288.6
133.3
–
–
421.9
2019
£m
–
–
256.2
40.1
296.3
226
OSB GROUP PLC Annual Report and Accounts 2020
37. Lease liabilities
At 1 January
CCFS Combination
New leases
Lease terminated
Lease repayments
Interest accruals
At 31 December
2020
£m
13.3
–
0.1
–
(2.0)
0.3
11.7
2019
£m
3.8
7.7
3.6
(0.8)
(1.1)
0.1
13.3
During the year, the Group incurred expenses of £0.7m (2019: £0.7m) in relation to short-term leases and nil (2019: £0.1m) in relation to
low-value assets.
38. Other liabilities
Falling due within one year:
Accruals
Deferred income
Other creditors
2020
£m
19.7
0.6
7.5
27.8
2019
£m
23.1
1.1
10.7
34.9
39. Provisions and contingent liabilities
The Financial Services Compensation Scheme (FSCS) provides protection of deposits for the customers of authorised financial services
firms, should a firm collapse. FSCS protects retail deposits of up to £85k for single account holders and £170k for joint holders. As OSB
and CCFS both hold banking licences, the full FSCS protection is available to customers of each bank.
The compensation paid out to consumers is initially funded through loans from the BoE and HM Treasury. In order to repay the loans and
cover its costs, the FSCS charges levies on firms regulated by the PRA and the FCA. The Group is among those firms and pays the FSCS
a levy based on its share of total UK deposits.
The Group has reviewed its current exposure to Payment Protection Insurance (PPI) claims, following the FCA deadline for PPI claims on
29 August 2019 and has recognised a provision of £0.3m as at 31 December 2020 (2019: £0.3m). The Group has maintained its provision
for FCA conduct rules exposures of £1.2m (2019: £1.3m) to cover potential future claims.
An analysis of the Group’s FSCS and other provisions is presented below:
At 1 January
Refund/(paid) during the year
Charge/(credit)
At 31 December
2020
Other
regulatory
provisions
£m
ECL on
undrawn loan
facilities
£m
1.6
(0.2)
0.1
1.5
0.2
–
–
0.2
FSCS
£m
(0.2)
0.3
–
0.1
2019
Other
regulatory
provisions
£m
ECL on
undrawn loan
facilities
£m
1.7
(0.1)
–
1.6
–
–
0.2
0.2
Total
£m
1.6
0.1
0.1
1.8
FSCS
£m
0.1
(0.1)
(0.2)
(0.2)
Total
£m
1.8
(0.2)
–
1.6
In January 2020, the Group was contacted by the FCA in connection with a multi-firm thematic review into forbearance measures
adopted by lenders in respect of a portion of the mortgage market. The Group is responding to information requests from the FCA.
It is not possible to reliably predict or estimate the outcome of the review, if any, on the Group and is a contingent liability.
OSB GROUP PLC Annual Report and Accounts 2020
227
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
40. Subordinated liabilities
At 1 January
Repayment of debt at maturity
At 31 December
The Group’s outstanding subordinated liabilities are summarised below:
Linked to LIBOR:
Floating rate subordinated loans 2022 (LIBOR +5%)
Floating rate subordinated loans 2022 (LIBOR +2%)
Fixed rate:
Subordinated liabilities 2024 (7.45%)
2020
£m
10.6
(0.1)
10.5
2019
£m
10.8
(0.2)
10.6
2020
£m
0.1
0.2
10.2
10.5
2019
£m
0.2
0.2
10.2
10.6
The fixed rate subordinated liabilities are repayable at the dates stated or earlier, in full, at the option of the Group with the prior
consent of the PRA. All subordinated liabilities are denominated in Pounds Sterling and are unlisted.
The rights of repayment of the holders of these subordinated liabilities are subordinated to the claims of all depositors and all
other creditors.
41. Perpetual Subordinated Bonds
Sterling Perpetual Subordinated Bonds (4.5991%)
Sterling Perpetual Subordinated Bonds (4.6007%)
The bonds are listed on the London Stock Exchange.
2020
£m
22.3
15.3
37.6
2019
£m
22.3
15.3
37.6
The 4.5991% bonds were issued with a clause in the terms relating to the Board’s discretion over the payment of coupons being
conditional and are therefore classified as financial liabilities. The coupon rate is 4.5991% until the next reset date on 7 March 2021.
The 4.6007% bonds were issued with no discretion over the payment of interest and may not be settled in the Group’s own equity.
They are therefore classified as financial liabilities. The coupon rate is 4.6007% until the next reset date on 27 August 2024.
228
OSB GROUP PLC Annual Report and Accounts 2020
42. Reconciliation of cash flows for financing activities
The tables below show a reconciliation of the Group’s liabilities classified as financing activities within the Consolidated Statement
of Cash Flows:
Amounts owed to
credit institutions
(see note 33)
£m
Debt securities
in issue
(see note 36)
£m
Subordinated
liabilities
(see note 40)
£m
PSBs
(see note 41)
£m
Total
£m
1,584.0
–
10.8
37.6
1,632.4
587.7
(273.7)
1,168.4
2.4
3,068.8
1,505.0
(998.9)
–
(4.7)
3,570.2
285.0
(64.6)
75.1
0.8
296.3
486.2
(104.6)
(256.2)
0.2
421.9
–
(0.2)
–
–
–
–
–
–
10.6
37.6
872.7
(338.5)
1,243.5
3.2
3,413.3
1,991.2
(1,103.6)
(256.2)
(4.5)
–
–
–
–
37.6
4,040.2
–
(0.1)
–
–
10.5
At 31 December 2018
Cash movements:
Principal drawdowns
Principal repayments
Non-cash movements:
CCFS Combination
Accrued interest movement
At 31 December 2019
Cash movements:
Principal drawdowns
Principal repayments
Deconsolidation of special purpose vehicles
Non-cash movements:
Accrued interest movement
At 31 December 2020
43. Share capital
Ordinary shares
At 1 January 2019
Shares issued under OSB employee share plans
CCFS Combination
At 31 December 2019
Number of
shares authorised
and fully paid
244,487,537
1,312,862
199,643,055
445,443,454
Nominal
value
£m
2.4
0.1
2.0
4.5
1,860,744
(447,304,198)
447,304,198
8,582
–
(4.5)
1,359.8
–
447,312,780
1,359.8
Premium
£m
158.8
0.3
705.1
864.2
2.6
(866.8)
–
–
–
Shares issued under OSB employee share plans
Cancellation of OneSavings Bank plc £0.01 share capital and share premium
Issuance of OSB GROUP PLC £3.04 share capital
Shares issued under OSBG employee share plans
At 31 December 2020
The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share
at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.
All ordinary shares issued in the current and prior year were fully paid.
OSB GROUP PLC Annual Report and Accounts 2020
229
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
44. Other reserves
The Group’s other reserves are as follows:
Share-based payment
Capital contribution
Transfer
Own shares
FVOCI
Foreign exchange
Non-controlling interest securities
2020
£m
7.8
–
(1,355.3)
(4.0)
1.0
(1.0)
60.0
2019
£m
5.6
6.5
(12.8)
(3.7)
0.5
(1.0)
60.0
(1,291.5)
55.1
Capital contribution
The capital contribution reserve relates to one-off nil price share awards of shares in OSB granted to certain senior managers on OSB’s
admission to the London Stock Exchange in June 2014. The awards were granted by OSB’s major shareholder at the time of the IPO.
The reserve was transferred to retained earnings during the year following distribution of all the awards.
Transfer reserve
The transfer reserve in 2019 represented the difference between the value of net assets transferred to the Group from Kent Reliance
Building Society in 2011 and the value of shares issued to the A ordinary shareholders. The net assets transferred were predominantly
savings and mortgages that have now either been replaced by new products, which is a derecognition event of the initial net asset,
or are no longer with the Group. The balance was therefore transferred to retained earnings in 2020.
On 27 November 2020, a new ultimate parent company was inserted into the Group, being OSBG. The share capital generated from
issuing 447,304,198 nominal shares at £3.04 per share, replacing the nominal shares of £0.01 in OSB previously recognised in share
capital at the consolidation level, created a transfer reserve of £1,355.3m.
Own shares
The Company has adopted the look-through approach for the EBT, including the EBT within the Company. As at 31 December 2020, the
EBT held 1,001,238 OSBG shares (2019: 1,045,155 OSB shares). The Group and Company show these shares as a deduction from equity,
being the cost at which the shares were acquired of £4.0m (2019: £3.7m).
FVOCI reserve
The FVOCI reserve represents the cumulative net change in the fair value of investment securities measured at FVOCI.
Foreign exchange
The foreign exchange reserve relates to the revaluation of the Group’s Indian subsidiary, OSB India Private Limited.
Non-controlling interest securities
Non-controlling interest securities comprise £60.0m of Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities
issued by OSB. The securities previously qualified as Additional Tier 1 capital under the Capital Requirements Directive and Regulation
(CRD IV) for OSB; however, they do not qualify for OSBG under the CRD IV with the application of article 85 – 87 requirements where
there is an article 9 permission. The securities will be subject to full conversion into ordinary shares of OSB in the event that its CET1 capital
ratio falls below 7%. The securities will pay interest at a rate of 9.125% per annum until the first reset date of 25 May 2022, with the reset
interest rate equal to 835.9 basis points over the five-year semi-annual mid-swap rate for such a period. Interest is paid semi-annually
on 25 May and 25 November. OSB may, at any time, cancel any interest payment at its full discretion and must cancel interest payments
in certain circumstances specified in the terms and conditions of the securities. The securities are perpetual with no fixed redemption date.
OSB may, in its discretion and subject to satisfying certain conditions, redeem all (but not some) of the securities at the principal amount
outstanding plus any accrued but unpaid interest from the first reset date and on any interest payment date thereafter.
230
OSB GROUP PLC Annual Report and Accounts 2020
45. Financial commitments and guarantees
a) The Group did not have any contracted or anticipated capital expenditure commitments not provided for as at 31 December 2020
(2019: nil).
b) The Group’s minimum lease commitments under operating leases not subject to IFRS 16 are summarised in the table below:
Land and buildings: due within:
One year
c) Undrawn loan facilities:
OSB mortgages
CCFS mortgages
Asset Finance
2020
£m
0.1
0.1
2019
£m
0.6
0.6
2020
£m
547.2
420.8
11.5
2019
£m
639.2
568.1
3.6
979.5
1,210.9
Undrawn loan facilities are approved loan applications which have not yet been exercised. They are payable on demand and are usually
drawn down or expire within three months.
d) The Group did not have any issued financial guarantees as at 31 December 2020 (2019: nil).
46. Risk management
Overview
Financial instruments form the vast majority of the Group’s assets and liabilities. The Group manages risk on a consolidated basis and risk
disclosures that follow are provided on this basis.
Types of financial instrument
Financial instruments are a broad definition which includes financial assets, financial liabilities and equity instruments. The main financial
assets of the Group are loans to customers and liquid assets, which in turn consist of cash in the BoE call accounts, call accounts with
other credit institutions and UK and EU sovereign debt. These are funded by a combination of financial liabilities and equity instruments.
Financial liability funding comes predominantly from retail deposits and drawdowns under the BoE TFS, TFSME and ILTR, supported by
debt securities, subordinated debt, wholesale and other funding. Equity instruments include own shares and non-controlling interest
securities meeting the equity classification criteria. The Group’s main activity is mortgage lending; it raises funds or invests in particular
types of financial assets to meet customer demand and manage the risks arising from its operations. The Group does not trade in
financial instruments for speculative purposes.
The Group uses derivative instruments to manage its financial risks. Derivative financial instruments (derivatives) are financial instruments
whose value changes in response to changes in underlying variables such as interest rates. The most common derivatives are futures,
forwards and swaps. Of these, the Group only uses swaps.
Derivatives are used by the Group solely to reduce (hedge) the risk of loss arising from changes in market rates. Derivatives are not used
for speculative purposes.
Types of derivatives and uses
The derivative instruments used by the Group in managing its risk exposures are interest rate swaps. Interest rate swaps convert fixed
interest rates to floating or vice versa. As with other derivatives, the underlying product is not sold and payments are based on notional
principal amounts.
OSB GROUP PLC Annual Report and Accounts 2020
231
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
Unhedged fixed rate liabilities create the risk of paying above-the-market rate if interest rates subsequently decrease. Unhedged fixed
rate mortgages and liquid assets bear the opposite risk of income below-the-market rate when rates go up. While fixed rate assets
and liabilities naturally hedge each other to a certain extent, this hedge is usually never perfect because of maturity mismatches and
principal amounts.
The Group uses swaps to convert its instruments, such as mortgages, deposits and liquid assets, from fixed or base rate-linked rates
to reference linked variable rates. This ensures a guaranteed margin between the interest income and interest expense, regardless
of changes in the market rates.
Transition away from LIBOR
The PRA and FCA have continued to encourage banks to transition away from using LIBOR as a benchmark in all operations before the
end of 2021. Throughout the UK banking sector, LIBOR remains a key benchmark and, for each market impacted, solutions to this issue
are progressing through various industry bodies. The Group has closely monitored the market and the output from the various industry
working groups managing the transition to new benchmark interest rates. This includes announcements made by LIBOR regulators
(including the FCA) regarding the transition from GBP LIBOR to SONIA. The FCA has made clear that, at the end of 2021, it will no longer
seek to persuade, or compel, banks to submit to LIBOR.
In 2018, the Group set up an internal working group, comprising all of the key business lines that are involved with this change, including
work streams covering risk management, contracts, systems and conduct risk considerations, with strong oversight from the Compliance
and Risk functions. The programme is overseen by the LIBOR Transition Working Group which reports into ALCO. Risk assessments have
been completed to ensure this process is managed in a measured and controlled manner.
The Group no longer offers any LIBOR-linked loans and is transitioning new and back book swaps from a GBP LIBOR to a SONIA basis.
The Group has no exposure to existing IBORs, other than to GBP LIBOR.
The Group adopted the Phase 1 amendments ‘Interest Rate Benchmark reform: Amendments to IFRS 9/IAS 39 and IFRS 7’. These
amendments modified specific hedge accounting requirements to allow hedge accounting to continue for affected hedges during the
period of uncertainty before the hedged items or hedging instruments are amended as a result of the interest rate benchmark reform.
The Group has not early adopted ‘Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9 Financial Instruments, IAS 39
Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16
Leases’ which was issued in August 2020. These amendments will become mandatory for annual reporting periods beginning on or
after 1 January 2021. Adopting these amendments will enable the Group to reflect the effects of transitioning from IBOR to alternative
benchmark interest rates (also referred to as ‘risk free rates’ or RFRs) without giving rise to accounting impacts that would not provide
useful information to users of financial statements.
The application of the Phase 1 amendments impacts the Group’s accounting in the following ways. Hedge accounting relationships
will continue even when, for IBOR fair value hedges, the benchmark interest rate component may not be separately identifiable.
The Group will not discontinue portfolio hedge accounting should the retrospective assessment of hedge effectiveness for a hedging
relationship, that is subject to the interest rate benchmark reform, fall outside the 80-125 per cent range. For portfolio hedging
relationships that are not subject to the interest rate benchmark reform the entity continues to cease hedge accounting if retrospective
effectiveness is outside the 80-125 per cent range.
The Group will continue to apply the Phase 1 amendments to IFRS 9/IAS 39 until the uncertainty arising from the interest rate benchmark
reform, with respect to the timing and the amount of the underlying cash flows to which the Group is exposed, ends. The Group expects
this uncertainty will continue until the Group’s contracts that reference IBORs are amended to specify the date on which the interest rate
benchmark will be replaced and the basis for the cash flows of the alternative benchmark rate are determined, including any fixed
spread.
The phase 1 relief does not extend to the requirement that the designated interest rate risk component continues to be reliably measurable
and if the risk component is no longer reliably measurable, the hedging relationship is discontinued. The Group has determined that GBP
LIBOR interest rate risk components continue to be reliably measurable.
Mortgages
New loan product transition was completed for CCFS in 2019 and OSB launched new BBR-linked products during 2020 to replace loans
with a LIBOR component.
232
OSB GROUP PLC Annual Report and Accounts 2020
46. Risk management continued
At 31 December 2020, the Group had £8,001.7m of GBP LIBOR-linked lending, including funding lines and mortgages that will revert
to LIBOR in the future, out of a total mortgage balance of £19,257.1m. The Group continues to work through the back book transition
for existing loans which is planned to be completed before the end of 2021.
Investment securities
At 31 December 2020, the Group had £118.7m of GBP LIBOR-linked investment securities, comprising RMBS loan notes and the Group
is monitoring the issuers’ intentions in respect of IBOR transition with £40.0m transferred to SONIA coupons after the year end.
Retail savings
None of the OSB or CCFS current or back book retail savings products have a GBP LIBOR component within the product.
Non-controlling interest securities
The £60.0m non-controlling interest securities pay interest at a rate of 9.125% per annum until the first reset date on 25 May 2022.
In advance of the reset date, the Group will agree the benchmark rate to be adopted.
Derivatives
As at 31 December 2020, the derivatives in the CCFS segment have all transitioned across to a SONIA basis with the OSB segment yet
to complete. The total nominal amount of the Group’s derivatives was £19,080.2m, of which the Group had GBP LIBOR-linked swaps with
a nominal value of £8,020.0m and a fair value liability of £89.1m hedging assets and liabilities. It is planned that existing derivatives will
be actively transitioned onto alternative benchmarks before the end of 2021.
Types of risk
The principal financial risks to which the Group is exposed are credit, liquidity and market risks, the latter comprising interest and
exchange rate risk. In addition to financial risks, the Group is exposed to various other risks, most notably operational, conduct and
regulatory, which are covered in the Risk review on pages 70 to 80.
Credit risk
Credit risk is the risk that losses may arise as a result of the Group’s borrowers or market counterparties failing to meet their obligations
to repay.
The Group has adopted the Standardised Approach for assessment of credit risk regulatory capital requirements. This approach
considers risk weightings as defined under Basel II and Basel III principles.
The classes of financial instruments to which the Group is most exposed are loans and advances to customers, loans and advances
to credit institutions, cash in the BoE call account, call and current accounts with other credit institutions and investment securities.
The maximum credit risk exposure equals the total carrying amount of the above categories plus off-balance sheet undrawn committed
mortgage facilities.
Credit risk – loans and advances to customers
Credit risk associated with mortgage lending is largely driven by the housing market and level of unemployment. A recession and/or high
interest rates could cause pressure within the market, resulting in rising levels of arrears and repossessions.
All loan applications are assessed with reference to the Group’s Lending Policy. Changes to the policy are approved by the Group Risk
Committee, with mandates set for the approval of loan applications.
The Group Credit Committee and the ALCO regularly monitor lending activity, taking appropriate actions to reprice products and adjust
lending criteria in order to control risk and manage exposure. Where necessary and appropriate, changes to the Lending Policy are
recommended to the Group Risk Committee.
The following tables show the Group’s maximum exposure to credit risk 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.
OSB GROUP PLC Annual Report and Accounts 2020
233
OverviewStrategic reportGovernanceFinancial statementsAppendices Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
Stage 1
Stage 2
Stage 3
Stage 3 (POCI)
Stage 1
Stage 2
Stage 3
Stage 3 (POCI)
OSB
2020
CCFS
Gross
carrying
amount
£m
9,366.8
1,363.4
352.6
48.6
Capped
collateral
held
£m
9,303.4
1,359.8
323.3
48.4
Gross
carrying
amount
£m
6,749.5
1,327.6
48.1
66.0
Capped
collateral
held
£m
6,747.9
1,327.6
48.1
66.0
Total
Gross
carrying
amount
£m
Capped
collateral
held
£m
16,116.3
2,691.0
400.7
114.6
16,051.3
2,687.4
371.4
114.4
11,131.4
11,034.9
8,191.2
8,189.6
19,322.6
19,224.5
OSB
Gross
carrying
amount
£m
10,046.9
442.4
277.7
53.6
Capped
collateral
held
£m
9,987.1
441.8
275.2
50.1
2019
CCFS
Total
Gross
carrying
amount
£m
Capped
collateral
held
£m
Gross
carrying
amount
£m
Capped
collateral
held
£m
7,240.0
307.1
16.7
83.2
7,239.5
307.0
16.7
83.1
17,286.9
749.5
294.4
136.8
17,226.6
748.8
291.9
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 UK and the Channel Islands.
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 HPI. A breakdown of loans and advances to customers by indexed LTV is as follows:
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
2020
2019
OSB
£m
CCFS
£m
Total
£m
1,740.3
1,462.0
2,813.4
3,942.9
879.1
105.8
187.9
419.3
483.3
1,109.3
5,144.3
1,033.7
1.3
–
2,159.6
1,945.3
3,922.7
9,087.2
1,912.8
107.1
187.9
%
11
10
20
47
10
1
1
OSB
£m
CCFS
£m
Total
£m
1,732.6
1,301.8
2,435.7
4,182.1
946.0
91.1
131.3
567.8
612.3
1,588.5
4,236.3
641.5
0.6
–
2,300.4
1,914.1
4,024.2
8,418.4
1,587.5
91.7
131.3
%
12
10
22
46
9
–
1
Total loans before provisions
11,131.4
8,191.2
19,322.6
100
10,820.6
7,647.0
18,467.6
100
234
OSB GROUP PLC Annual Report and Accounts 2020
46. Risk management continued
The table below shows the LTV banding for the OSB segments’ two major lending streams:
OSB
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
2020
2019
BTL/SME
£m
Residential
£m
Total
£m
795.7
1,228.1
2,602.1
3,693.4
584.5
89.4
171.4
944.6
233.9
211.3
249.5
294.6
16.4
16.5
1,740.3
1,462.0
2,813.4
3,942.9
879.1
105.8
187.9
%
16
13
25
35
8
1
2
BTL/SME
£m
Residential
£m
Total
£m
905.9
1,062.8
2,240.2
3,993.5
621.4
45.1
114.3
826.7
239.0
195.5
188.6
324.6
46.0
17.0
1,732.6
1,301.8
2,435.7
4,182.1
946.0
91.1
131.3
%
16
12
23
38
9
1
1
Total loans before provisions
9,164.6
1,966.8
11,131.4
100
8,983.2
1,837.4
10,820.6
100
The tables below show the sub-segment LTV analysis of the OSB BTL/SME lending stream:
OSB
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
Total loans before provisions
OSB
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
Total loans before provisions
2020
Buy-to-Let
£m
Commercial
£m
Residential
development
£m
Funding
lines
£m
Total
£m
795.7
1,228.1
2,602.1
3,693.4
584.5
89.4
171.4
12.5
64.2
56.4
–
–
–
–
59.3
39.5
6.3
30.4
–
–
29.5
133.1
165.0
9,164.6
2019
Residential
development
£m
125.7
5.0
5.0
–
10.4
–
–
Funding
lines
£m
103.8
43.7
30.9
33.3
–
4.8
5.6
Total
£m
905.9
1,062.8
2,240.2
3,993.5
621.4
45.1
114.3
146.1
222.1
8,983.2
643.3
1,040.1
2,407.4
3,411.7
370.1
54.1
117.9
8,044.6
80.6
84.3
132.0
251.3
214.4
35.3
24.0
821.9
Buy-to-Let
£m
Commercial
£m
579.9
894.3
1,994.1
3,514.5
603.3
38.9
102.0
7,727.0
96.5
119.8
210.2
445.7
7.7
1.4
6.7
888.0
OSB GROUP PLC Annual Report and Accounts 2020
235
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
The tables below show the sub-segment LTV analysis of the OSB Residential lending stream:
2020
2019
OSB
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
First
charge
£m
Second
charge
£m
Funding
lines
£m
First
charge
£m
Second
charge
£m
Funding
lines
£m
Total
£m
944.6
233.9
211.3
249.5
294.6
16.4
16.5
3.7
2.2
1.5
1.5
0.5
0.4
0.9
708.0
158.1
122.3
137.0
291.7
40.0
9.5
835.8
167.2
151.7
208.1
274.8
12.4
10.7
105.1
64.5
58.1
39.9
19.3
3.6
4.9
295.4
Total loans before provisions
1,660.7
10.7
1,966.8
1,466.6
The table below shows the LTV banding for the CCFS segments’ four major lending streams:
CCFS
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
2020
Buy-to-Let
£m
Residential
£m
Bridging
£m
92.7
196.0
632.9
3,916.2
600.7
0.5
242.1
233.9
400.2
1,155.7
410.8
0.8
50.4
17.9
16.8
21.1
–
–
Total
£m
826.7
239.0
195.5
188.6
324.6
46.0
17.0
3.3
3.4
2.3
2.1
0.6
0.3
0.2
12.2
1,837.4
Total
£m
419.3
483.3
1,109.3
5,144.3
1,033.7
1.3
%
5
6
14
62
13
–
115.4
77.5
70.9
49.5
32.3
5.7
7.3
358.6
Second
charge
lending
£m
34.1
35.5
59.4
51.3
22.2
–
Total loans before provisions
5,439.0
2,443.5
106.2
202.5
8,191.2
100
CCFS
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
2019
Buy-to-Let
£m
Residential
£m
Bridging
£m
144.7
283.9
957.0
3,246.6
321.5
0.2
261.8
253.1
538.6
897.7
301.4
0.4
121.1
29.4
26.6
37.5
1.2
–
Second
charge
lending
£m
40.2
45.9
66.3
54.5
17.4
–
Total
£m
567.8
612.3
1,588.5
4,236.3
641.5
0.6
%
7
8
21
56
8
–
Total loans before provisions
4,953.9
2,253.0
215.8
224.3
7,647.0
100
236
OSB GROUP PLC Annual Report and Accounts 2020
46. Risk management continued
Analysis of mortgage 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.
Stage 1
Not past due
Past due <1 month
Stage 2
Not past due
Past due <1 month
Past due 1 to 3 months
Stage 3
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
Stage 3 (POCI)
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
OSB
2020
CCFS
Total
Loan
balance
£m
Capped
collateral
£m
Loan
balance
£m
Capped
collateral
£m
Loan
balance
£m
Capped
collateral
£m
9,322.8
44.0
9,259.7
43.7
6,744.8
4.7
6,743.2
4.7
16,067.6
48.7
16,002.9
48.4
9,366.8
9,303.4
6,749.5
6,747.9
16,116.3
16,051.3
1,126.4
177.6
59.4
1,123.0
177.5
59.3
1,249.6
55.9
22.1
1,249.6
55.9
22.1
2,376.0
233.5
81.5
2,372.6
233.4
81.4
1,363.4
1,359.8
1,327.6
1,327.6
2,691.0
2,687.4
130.1
16.9
56.9
51.0
33.9
23.5
40.3
352.6
22.5
4.0
5.7
3.4
6.0
7.0
–
48.6
100.9
16.9
56.8
51.0
33.9
23.5
40.3
323.3
22.3
4.0
5.7
3.4
6.0
7.0
–
48.4
15.3
4.0
9.1
9.0
3.9
1.4
5.4
48.1
31.9
6.0
9.4
5.6
4.2
2.4
6.5
66.0
15.3
4.0
9.1
9.0
3.9
1.4
5.4
48.1
31.9
6.0
9.4
5.6
4.2
2.4
6.5
66.0
145.4
20.9
66.0
60.0
37.8
24.9
45.7
400.7
54.4
10.0
15.1
9.0
10.2
9.4
6.5
116.2
20.9
65.9
60.0
37.8
24.9
45.7
371.4
54.2
10.0
15.1
9.0
10.2
9.4
6.5
114.6
114.4
Total loans before provisions
11,131.4 11,034.9
8,191.2
8,189.6 19,322.6 19,224.5
OSB GROUP PLC Annual Report and Accounts 2020
237
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
Stage 1
Not past due
Past due <1 month
Stage 2
Not past due
Past due <1 month
Past due 1 to 3 months
Stage 3
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
Stage 3 (POCI)
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
OSB
2019
CCFS
Total
Loan
balance
£m
Capped
collateral
£m
Loan
balance
£m
Capped
collateral
£m
Loan
balance
£m
Capped
collateral
£m
9,964.3
82.6
9,904.5
82.6
7,236.2
3.8
7,235.7
3.8
17,200.5
86.4
17,140.2
86.4
10,046.9
9,987.1
7,240.0
7,239.5
17,286.9
17,226.6
261.0
118.9
62.5
442.4
71.3
36.3
28.8
45.9
27.4
25.3
42.7
260.7
118.9
62.2
441.8
71.0
36.1
28.5
45.3
27.2
24.7
42.4
239.1
38.1
29.9
307.1
239.0
38.1
29.9
307.0
4.8
1.4
6.0
4.5
–
–
–
4.8
1.4
6.0
4.5
–
–
–
500.1
157.0
92.4
749.5
76.1
37.7
34.8
50.4
27.4
25.3
42.7
499.7
157.0
92.1
748.8
75.8
37.5
34.5
49.8
27.2
24.7
42.4
277.7
275.2
16.7
16.7
294.4
291.9
20.8
6.1
4.9
6.5
5.7
8.3
1.3
53.6
20.2
5.9
4.6
6.1
5.3
7.2
0.8
50.1
30.6
8.5
21.9
10.5
5.5
1.2
5.0
83.2
30.5
8.5
21.9
10.5
5.5
1.2
5.0
83.1
51.4
14.6
26.8
17.0
11.2
9.5
6.3
50.7
14.4
26.5
16.6
10.8
8.4
5.8
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
238
OSB GROUP PLC Annual Report and Accounts 2020
46. Risk management continued
The table below shows the analysis of mortgage portfolio by arrears for the OSB segments’ two major lending streams:
OSB
Stage 1
Not past due
Past due <1 month
Stage 2
Not past due
Past due <1 month
Past due 1 to 3 months
Stage 3
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
Stage 3 (POCI)
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
2020
2019
BTL/SME
£m
Residential
£m
Total
£m
BTL/SME
£m
Residential
£m
Total
£m
7,873.4
20.8
1,449.4
23.2
9,322.8
44.0
8,514.9
48.7
1,449.4
33.9
9,964.3
82.6
7,894.2
1,472.6
9,366.8
8,563.6
1,483.3
10,046.9
893.0
116.0
29.7
233.4
61.6
29.7
1,126.4
177.6
59.4
1,038.7
324.7
1,363.4
98.9
9.0
36.7
26.5
15.8
6.9
37.7
31.2
7.9
20.2
24.5
18.1
16.6
2.6
231.5
121.1
0.2
–
–
–
–
–
–
0.2
22.3
4.0
5.7
3.4
6.0
7.0
–
48.4
130.1
16.9
56.9
51.0
33.9
23.5
40.3
352.6
22.5
4.0
5.7
3.4
6.0
7.0
–
48.6
156.9
80.0
32.3
269.2
39.6
22.5
9.8
17.0
9.1
13.5
38.7
104.1
38.9
30.2
173.2
31.7
13.8
19.0
28.9
18.3
11.8
4.0
261.0
118.9
62.5
442.4
71.3
36.3
28.8
45.9
27.4
25.3
42.7
150.2
127.5
277.7
0.2
–
–
–
–
–
–
0.2
20.6
6.1
4.9
6.5
5.7
8.3
1.3
53.4
20.8
6.1
4.9
6.5
5.7
8.3
1.3
53.6
Total loans before provisions
9,164.6
1,966.8
11,131.4
8,983.2
1,837.4
10,820.6
OSB GROUP PLC Annual Report and Accounts 2020
239
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
The tables below show the sub-segment analysis of mortgage portfolio by arrears of the OSB BTL/SME lending stream:
OSB
Stage 1
Not past due
Past due <1 month
Stage 2
Not past due
Past due <1 month
Past due 1 to 3 months
Stage 3
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
Stage 3 (POCI)
Not past due
Buy-to-Let
£m
Commercial
£m
2020
Residential
development
£m
Funding
lines
£m
Total
£m
6,847.1
13.4
6,860.5
864.7
114.5
26.8
1,006.0
54.3
8.5
34.7
25.4
13.8
6.4
35.0
178.1
–
–
756.8
7.4
764.2
133.1
–
133.1
136.4
–
7,873.4
20.8
136.4
7,894.2
28.3
1.5
2.9
32.7
16.0
0.5
2.0
1.1
2.0
0.5
2.7
24.8
0.2
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
893.0
116.0
29.7
1,038.7
28.6
–
–
–
–
–
–
28.6
–
–
98.9
9.0
36.7
26.5
15.8
6.9
37.7
231.5
0.2
0.2
Total loans before provisions
8,044.6
821.9
133.1
165.0
9,164.6
240
OSB GROUP PLC Annual Report and Accounts 2020
46. Risk management continued
OSB
Stage 1
Not past due
Past due <1 month
Stage 2
Not past due
Past due <1 month
Past due 1 to 3 months
Stage 3
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
Stage 3 (POCI)
Not past due
Buy-to-Let
£m
Commercial
£m
2019
Residential
development
£m
Funding
lines
£m
Total
£m
7,317.3
32.8
7,350.1
128.6
78.5
29.2
236.3
37.1
21.0
9.8
16.1
8.0
13.1
35.5
140.6
–
–
829.4
15.9
845.3
28.3
1.5
3.1
32.9
2.5
1.5
–
0.9
1.1
0.4
3.2
9.6
0.2
0.2
146.1
–
222.1
–
8,514.9
48.7
146.1
222.1
8,563.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
156.9
80.0
32.3
269.2
39.6
22.5
9.8
17.0
9.1
13.5
38.7
150.2
0.2
0.2
Total loans before provisions
7,727.0
888.0
146.1
222.1
8,983.2
OSB GROUP PLC Annual Report and Accounts 2020
241
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
The tables below show the sub-segment analysis of mortgage portfolio by arrears of the OSB Residential mortgages lending stream:
OSB
Stage 1
Not past due
Past due <1 month
Stage 2
Not past due
Past due <1 month
Past due 1 to 3 months
Stage 3
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
Stage 3 (POCI)
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
2020
First
charge
£m
Second
charge
£m
Funding
lines
£m
Total
£m
1,226.5
19.4
1,245.9
212.2
3.8
216.0
10.7
–
1,449.4
23.2
10.7
1,472.6
207.2
56.0
24.6
287.8
26.4
6.8
15.8
19.1
13.1
13.8
2.6
97.6
15.5
2.8
3.3
2.0
3.4
2.4
26.2
5.6
5.1
36.9
4.8
1.1
4.4
5.4
5.0
2.8
–
23.5
6.8
1.2
2.4
1.4
2.6
4.6
29.4
19.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
233.4
61.6
29.7
324.7
31.2
7.9
20.2
24.5
18.1
16.6
2.6
121.1
22.3
4.0
5.7
3.4
6.0
7.0
48.4
Total loans before provisions
1,660.7
295.4
10.7
1,966.8
242
OSB GROUP PLC Annual Report and Accounts 2020
46. Risk management continued
OSB
Stage 1
Not past due
Past due <1 month
Stage 2
Not past due
Past due <1 month
Past due 1 to 3 months
Stage 3
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
Stage 3 (POCI)
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
2019
First
charge
£m
Second
charge
£m
Funding
lines
£m
Total
£m
1,164.8
27.7
1,192.5
86.1
34.4
24.4
144.9
28.1
11.2
13.8
20.7
14.5
9.8
3.3
272.4
6.2
278.6
18.0
4.5
5.8
28.3
3.6
2.6
5.2
8.2
3.8
2.0
0.7
101.4
26.1
13.4
4.2
2.0
3.2
2.6
2.3
0.1
7.2
1.9
2.9
3.3
3.1
6.0
1.2
27.8
25.6
12.2
–
1,449.4
33.9
12.2
1,483.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
104.1
38.9
30.2
173.2
31.7
13.8
19.0
28.9
18.3
11.8
4.0
127.5
20.6
6.1
4.9
6.5
5.7
8.3
1.3
53.4
Total loans before provisions
1,466.6
358.6
12.2
1,837.4
OSB GROUP PLC Annual Report and Accounts 2020
243
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
The table below shows the analysis of mortgage portfolio by arrears for the CCFS segments’ four major lending streams:
CCFS
Stage 1
Not past due
Past due <1 month
Stage 2
Not past due
Past due <1 month
Past due 1 to 3 months
Stage 3
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
Stage 3 (POCI)
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
2020
Buy-to-Let
£m
Residential
£m
Bridging
£m
4,652.5
2.1
1,846.4
1.9
4,654.6
1,848.3
727.6
13.3
7.9
748.8
469.6
39.6
12.8
522.0
6.7
1.3
1.0
2.3
1.0
0.8
4.3
7.9
2.7
7.9
6.3
2.7
0.5
1.1
17.4
29.1
8.8
1.2
2.0
0.1
0.1
0.6
5.4
18.2
21.0
4.7
7.1
5.3
3.7
1.4
0.9
44.1
72.6
–
72.6
30.0
1.7
0.2
31.9
0.2
–
–
0.3
–
–
–
0.5
0.3
–
–
–
0.4
0.4
0.1
1.2
Second
charge
lending
£m
Total
£m
173.3
0.7
6,744.8
4.7
174.0
6,749.5
22.4
1.3
1.2
24.9
1,249.6
55.9
22.1
1,327.6
0.5
–
0.2
0.1
0.2
0.1
–
1.1
1.8
0.1
0.3
0.2
–
–
0.1
2.5
15.3
4.0
9.1
9.0
3.9
1.4
5.4
48.1
31.9
6.0
9.4
5.6
4.2
2.4
6.5
66.0
Total loans before provisions
5,439.0
2,443.5
106.2
202.5
8,191.2
244
OSB GROUP PLC Annual Report and Accounts 2020
46. Risk management continued
CCFS
Stage 1
Not past due
Past due <1 month
Stage 2
Not past due
Past due <1 month
Past due 1 to 3 months
Stage 3
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Stage 3 (POCI)
Not past due
Past due <1 month
Past due 1 to 3 months
Past due 3 to 6 months
Past due 6 to 12 months
Past due over 12 months
Possessions
2019
Buy-to-Let
£m
Residential
£m
Bridging
£m
Second
charge
lending
£m
Total
£m
4,767.9
0.5
2,056.4
1.1
195.5
–
216.4
2.2
7,236.2
3.8
4,768.4
2,057.5
195.5
218.6
7,240.0
139.6
10.1
6.3
156.0
83.6
27.1
22.4
133.1
1.1
0.5
1.6
3.2
6.4
10.9
2.5
2.6
1.3
1.0
0.9
3.9
23.1
3.2
0.9
4.4
1.2
9.7
16.6
5.4
16.8
8.8
3.9
0.3
0.9
52.7
14.6
0.8
0.3
15.7
0.2
–
–
0.1
0.3
1.7
0.4
1.8
–
0.2
–
0.2
4.3
1.3
0.1
0.9
2.3
0.3
–
–
–
0.3
1.4
0.2
0.7
0.4
0.4
–
–
3.1
239.1
38.1
29.9
307.1
4.8
1.4
6.0
4.5
16.7
30.6
8.5
21.9
10.5
5.5
1.2
5.0
83.2
Total loans before provisions
4,953.9
2,253.0
215.8
224.3
7,647.0
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 in the Principal risks and uncertainties on pages 70 to 80.
OSB GROUP PLC Annual Report and Accounts 2020
245
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
A summary of the forbearance measures undertaken (excluding COVID-19 related payment deferrals) during the year is shown below.
The balances disclosed reflect the year end balance of the accounts where a forbearance measure was undertaken during the year.
Forbearance type
Interest-only switch
Interest rate reduction
Term extension
Payment deferral
Voluntary-assisted sale
Payment concession (reduced monthly payments)
Capitalisation of interest
Full or partial debt forgiveness
Total
Loan type
First charge owner-occupier
Second charge owner-occupier
Buy-to-Let
Commercial
Total
1. CCFS forbearance is included post Combination.
Number of
accounts
2020
At
31 December
2020
£m
Number of
accounts1
2019
At
31 December
20191
£m
108
22
430
447
2
34
2
11
1,056
570
372
113
1
1,056
14.1
2.2
27.0
38.7
0.1
1.7
0.1
0.2
84.1
54.0
15.0
14.9
0.2
84.1
59
35
30
87
26
73
–
6
8.4
1.6
6.6
4.1
1.0
3.6
–
–
316
25.3
85
198
32
1
316
10.5
7.4
7.4
–
25.3
As at 31 December 2020, active COVID-19 payment deferrals represented only 1.3% of the Group’s loan book by value.
Geographical analysis by region
An analysis of loans by region is provided below:
Region
East Anglia
East Midlands
Greater London
Guernsey
Jersey
North East
North West
Northern Ireland
Scotland
South East
South West
Wales
West Midlands
Yorks and Humberside
Group 2020
Group 2019
OSB
£m
CCFS
£m
Total
£m
407.6
455.5
4,851.9
35.8
122.9
140.1
635.4
12.9
47.0
2,419.8
757.0
249.2
744.5
251.8
866.2
463.4
2,837.4
–
–
208.4
674.8
–
214.2
1,316.7
478.5
209.9
529.2
392.5
1,273.8
918.9
7,689.3
35.8
122.9
348.5
1,310.2
12.9
261.2
3,736.5
1,235.5
459.1
1,273.7
644.3
%
7
5
40
–
1
2
7
–
1
19
6
2
7
3
OSB
£m
CCFS
£m
Total
£m
391.9
415.2
4,738.7
45.3
141.4
136.7
587.3
14.2
48.5
2,375.2
747.5
239.3
702.2
237.2
810.9
410.3
2,713.7
–
–
179.5
605.4
–
190.9
1,209.6
466.0
202.6
496.0
362.1
1,202.8
825.5
7,452.4
45.3
141.4
316.2
1,192.7
14.2
239.4
3,584.8
1,213.5
441.9
1,198.2
599.3
%
7
4
41
–
1
2
6
–
1
20
7
2
6
3
Total loans before provisions
11,131.4
8,191.2 19,322.6
100
10,820.6
7,647.0
18,467.6
100
246
OSB GROUP PLC Annual Report and Accounts 2020
46. 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 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.
The following tables disclose the credit risk quality ratings of loans and advances to customers by IFRS 9 stage:
2020
OSB
Excellent
Good
Satisfactory
Lower
Impaired
POCI
CCFS
Excellent
Good
Satisfactory
Lower
Impaired
POCI
2019
OSB1
Excellent
Good
Satisfactory
Lower
Impaired
POCI
CCFS
Excellent
Good
Satisfactory
Lower
Impaired
POCI
1. The Group has restated the prior year comparatives for OSB to include finance lease assets.
Stage 1
£m
Stage 2
£m
Stage 3
£m
Stage 3
(POCI)
£m
Total
£m
4,689.6
4,564.9
106.7
5.6
–
–
4,352.8
2,338.8
55.3
2.6
–
–
295.4
756.4
242.8
68.8
–
–
398.8
667.2
140.2
121.4
–
–
–
–
–
–
352.6
–
–
–
–
–
48.1
–
–
–
–
–
–
48.6
–
–
–
–
–
66.0
4,985.0
5,321.3
349.5
74.4
352.6
48.6
4,751.6
3,006.0
195.5
124.0
48.1
66.0
16,116.3
2,691.0
400.7
114.6 19,322.6
Stage 1
£m
Stage 2
£m
Stage 3
£m
5,033.6
4,859.3
147.3
6.7
–
–
3,632.7
3,359.7
222.8
24.8
–
–
11.0
200.5
154.8
76.1
–
–
20.5
93.7
39.1
153.8
–
–
–
–
–
–
277.7
–
–
–
–
–
16.7
–
Stage 3
(POCI)
£m
–
–
–
–
–
53.6
–
–
–
–
–
83.2
Total
£m
5,044.6
5,059.8
302.1
82.8
277.7
53.6
3,653.2
3,453.4
261.9
178.6
16.7
83.2
17,286.9
749.5
294.4
136.8 18,467.6
OSB GROUP PLC Annual Report and Accounts 2020
247
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
The tables below show the Group’s other financial assets by credit risk rating grade:
Group 2020
Investment securities
Loans and advances to credit institutions
Derivative assets
Group 2019
Investment securities
Loans and advances to credit institutions
Derivative assets
Excellent
£m
471.2
2,432.9
6.5
2,910.6
Excellent
£m
635.3
2,047.8
11.6
Good
£m
Satisfactory
£m
Total
£m
–
233.4
5.8
239.2
–
9.9
–
9.9
471.2
2,676.2
12.3
3,159.7
Good
£m
Satisfactory
£m
Total
£m
–
146.1
9.5
–
10.7
–
635.3
2,204.6
21.1
2,694.7
155.6
10.7
2,861.0
Credit risk – loans and advances to credit institutions and investment securities
The Group holds treasury instruments in order to meet liquidity requirements and for general business purposes. The credit risk arising
from these investments is closely monitored and managed by the Group’s Treasury function. In managing these assets, Group Treasury
operates within guidelines laid down in the Treasury Policy approved by ALCO and performance is monitored and reported to ALCO
monthly, including through the use of an internally developed rating model based on counterparty credit default swap spreads.
The Group has limited exposure to emerging markets (Indian operations) and non-investment grade debt. ALCO is responsible for
approving treasury counterparties.
During the year, the average balance of cash in hand, loans and advances to credit institutions and investment securities on a monthly
basis was £3,196.0m (2019: £2,016.2m).
The tables below show the industry sector of the Group’s loans and advances to credit institutions and investment securities:
BoE1
Other banks
Central government
Securitisation
Supranationals
Total
2020
£m
2,308.8
367.4
–
471.2
–
3,147.4
2019
£m
1,957.9
246.7
149.8
–
485.5
%
73
12
–
15
–
%
69
9
5
–
17
100
2,839.9
100
1. Balances with the BoE include £52.3m (2019: £41.7m) held in the cash ratio deposit.
The tables below show the geographical exposure of the Group’s loans and advances to credit institutions and investment securities:
United Kingdom
India
Total
2020
£m
3,137.5
9.9
3,147.4
2019
£m
2,829.2
10.7
%
100
–
100
2,839.9
%
100
–
100
The Group monitors exposure concentrations against a variety of criteria, including asset class, sector and geography. To avoid
refinancing risks associated with any one counterparty, sector or geographical region, the Board has set appropriate limits.
248
OSB GROUP PLC Annual Report and Accounts 2020
46. Risk management continued
Liquidity risk
Liquidity risk is the risk of having insufficient liquid assets to fulfil obligations as they become due or the cost of raising liquid funds
becoming too expensive.
The Group’s approach to managing liquidity risk is to maintain sufficient liquid resources to cover cash flow imbalances and fluctuations
in funding in order to retain full public confidence in the solvency of the Group and to enable the Group to meet its financial obligations as
they fall due. This is achieved through maintaining a prudent level of liquid assets and control of the growth of the business. The Group
has established a call account with the BoE and has access to its contingent liquidity facilities.
Liquidity management is the responsibility of ALCO, with day-to-day management delegated to Treasury as detailed in the Treasury
Policy. ALCO is responsible for setting limits over the level and maturity profile of wholesale funding and for monitoring the composition of
the Group financial position. For each material class of financial liability a contractual maturity analysis is provided below.
The Group also monitors a range of triggers, defined in the contingency funding plan and recovery and resolution plan, which are
designed to capture liquidity stresses in advance in order to allow sufficient time for management action to take effect. These are
monitored daily by the Risk team, with breaches immediately reported to the CRO, CEO, CFO and the Group Treasurer.
The tables below provide a contractual maturity analysis of the Group’s financial assets and liabilities:
2020
Financial liability by type
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Derivative liabilities
Debt securities in issue
Lease liabilities
Subordinated liabilities
Perpetual Subordinated Bonds
Total liabilities
Financial asset by type
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Derivative assets
Total assets
Cumulative liquidity gap
Carrying
amount
£m
On demand
£m
16,603.1
3,570.2
72.9
163.6
421.9
11.7
10.5
37.6
3,810.7
0.4
26.9
–
–
–
–
–
Less
than
3 months
£m
2,733.5
85.0
7.5
0.2
–
0.2
0.2
0.6
3 – 12 months
£m
1 – 5 years
£m
6,517.5
1,035.3
38.5
4.5
–
0.7
0.1
–
3,541.4
2,449.5
–
153.9
421.9
3.6
10.2
–
20,891.5
3,838.0
2,827.2
7,596.6
6,580.5
More
than
5 years
£m
–
–
–
5.0
–
7.2
–
37.0
49.2
0.5
2,676.2
471.2
19,230.7
12.3
0.5
2,512.8
–
4.1
–
22,390.9
2,517.4
–
111.1
0.3
316.7
1.3
429.4
–
18.3
–
266.4
3.7
–
–
470.9
1,239.7
7.1
–
34.0
–
17,403.8
0.2
288.4
1,717.7
17,438.0
(1,320.6) (3,718.4)(11,026.6)(15,889.4)
1,499.4
OSB GROUP PLC Annual Report and Accounts 2020
249
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
2019
Financial liability by type
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Derivative liabilities
Debt securities in issue
Lease liabilities
Subordinated liabilities
Perpetual Subordinated Bonds
Total liabilities
Financial asset by type
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Derivative assets
Total assets
Cumulative liquidity gap
Carrying
amount
£m
On demand
£m
16,255.0
3,068.8
29.7
92.8
296.3
13.3
10.6
37.6
4,050.7
10.2
3.7
–
–
–
–
–
Less
than
3 months
£m
2,411.9
232.0
2.8
–
–
0.3
0.2
0.6
3 – 12 months
£m
1 – 5 years
£m
6,579.3
193.5
23.1
2.3
40.1
1.0
0.1
–
3,213.1
2,633.1
0.1
83.4
256.2
3.8
10.3
–
19,804.1
4,064.6
2,647.8
6,839.4
6,200.0
More
than
5 years
£m
–
–
–
7.1
–
8.2
–
37.0
52.3
0.4
2,204.6
635.3
18,446.8
21.1
0.4
2,077.1
–
4.5
–
–
85.8
49.9
290.7
0.3
–
–
116.4
524.1
3.0
–
–
469.0
1,174.8
16.0
–
41.7
–
16,452.7
1.8
21,308.2
2,082.0
426.7
643.5
1,659.8
16,496.2
(1,982.6) (4,203.7)(10,399.6)(14,939.8)
1,504.1
Liquidity risk – contractual cash flows
The following tables provide an analysis of the Group’s gross contractual cash flows, derived using interest rates and contractual
maturities at the reporting date and excluding impacts of early payments or non-payments:
2020
Financial liability by type
Amounts owed to retail depositors
Amounts owed to credit institutions and other customers
Derivative liabilities
Debt securities in issue
Lease liabilities
Subordinated liabilities
Perpetual Subordinated Bonds
Carrying
amount
£m
Gross
inflow/
outflow
£m
Up to
3 months
£m
3 – 12 months
£m
1 – 5 years
£m
16,603.1
3,643.1
163.6
421.9
11.7
10.5
37.6
16,644.9
3,658.8
157.7
426.4
13.2
13.1
39.8
7,302.6
113.4
11.0
17.3
0.5
0.4
0.7
3,610.5
1,048.9
41.4
52.0
1.2
0.5
0.3
4,121.0
826.6
103.8
67.3
6.4
12.2
1.8
More
than
5 years
£m
1,610.8
1,669.9
1.5
289.8
5.1
–
37.0
Total liabilities
20,891.5
20,953.9
7,445.9
4,754.8
5,139.1
3,614.1
Off-balance sheet loan commitments
Financial asset by type
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Derivative assets
Total assets
979.5
979.5
979.5
–
–
–
0.5
2,676.2
471.2
19,230.7
12.3
0.5
2,676.2
494.9
36,156.7
12.1
0.5
2,623.9
1.2
373.4
3.2
–
18.3
4.0
1,132.4
4.6
–
–
483.8
4,960.5
4.3
–
34.0
5.9
29,690.4
–
22,390.9
39,340.4
3,002.2
1,159.3
5,448.6
29,730.3
250
OSB GROUP PLC Annual Report and Accounts 2020
46. Risk management continued
2019
Financial liability by type
Amounts owed to retail depositors
Amounts owed to credit institutions and other customers
Derivative liabilities
Debt securities in issue
Lease liabilities
Subordinated liabilities
Perpetual Subordinated Bonds
Total liabilities
Off-balance sheet loan commitments
Financial asset by type
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Derivative assets
Total assets
Carrying
amount
£m
Gross
inflow/
outflow
£m
Up to
3 months
£m
3 – 12 months
£m
1 – 5 years
£m
16,255.0
3,098.5
92.8
296.3
13.3
10.6
37.6
16,407.3
3,133.3
91.4
315.3
22.4
14.2
45.5
5,532.0
255.1
5.6
14.4
0.7
0.4
0.4
4,309.7
229.5
20.7
82.9
1.4
0.5
1.3
4,911.8
2,648.7
61.4
218.0
17.1
13.3
6.8
More
than
5 years
£m
1,653.8
–
3.7
–
3.2
–
37.0
19,804.1
20,029.4
5,808.6
4,646.0
7,877.1
1,697.7
1,210.9
1,210.9
1,210.9
–
–
–
0.4
2,204.6
635.3
18,446.8
21.1
0.4
2,204.6
672.4
37,024.4
23.4
0.4
2,162.9
52.1
371.6
2.4
–
–
123.2
1,423.6
5.7
–
–
497.1
5,032.4
15.1
–
41.7
–
30,196.8
0.2
21,308.2
39,925.2
2,589.4
1,552.5
5,544.6
30,238.7
The actual repayment profile of retail deposits may differ from the analysis above due to the option of early withdrawal with a penalty.
Perpetual Subordinated Bonds have been shown to the next interest rate reset date.
The actual repayment profile of loans and advances to customers may differ from the analysis above since many mortgage loans are
repaid prior to the contractual end date.
Liquidity risk – asset encumbrance
Asset encumbrance levels are monitored by ALCO. The following tables provide an analysis of the Group’s encumbered and
unencumbered assets:
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Derivative assets
Non-financial assets
2020
Encumbered
Unencumbered
Pledged as
collateral
£m
–
211.1
161.0
5,638.6
–
–
Other1
£m
–
95.0
–
–
–
–
Available as
collateral
£m
Other2
£m
Total
£m
0.5
2,256.5
310.2
2,752.0
–
–
–
113.6
–
10,840.1
12.3
263.6
0.5
2,676.2
471.2
19,230.7
12.3
263.6
6,010.7
95.0
5,319.2
11,229.6
22,654.5
OSB GROUP PLC Annual Report and Accounts 2020
251
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Derivative assets
Non-financial assets
2019
Encumbered
Unencumbered
Pledged as
collateral
£m
–
110.4
173.0
4,922.4
–
–
Other1
£m
–
41.7
–
40.4
–
–
Available as
collateral
£m
0.4
1,916.2
462.3
1,939.6
–
–
Other2
£m
Total
£m
–
136.3
–
11,544.4
21.1
108.9
0.4
2,204.6
635.3
18,446.8
21.1
108.9
5,205.8
82.1
4,318.5
11,810.7
21,417.1
1. Represents assets that are not pledged but that the Group believes it is restricted from using to secure funding for legal or other reasons.
2. Represents assets that are not restricted for use as collateral, but the Group treats as available as collateral once they are readily available to secure funding in the normal course of business.
Liquidity risk – liquidity reserves
The tables below analyse the Group’s liquidity reserves, where carrying value is considered to be equal to fair value:
Unencumbered balances with central banks
Unencumbered cash and balances with other banks
Other cash and cash equivalents
Unencumbered investment securities
2020
£m
2019
£m
2,256.5
113.6
0.5
310.2
1,916.2
136.3
0.4
462.3
2,680.8
2,515.2
Market risk
Market risk is the risk of an adverse change in the Group’s income or the Group’s net worth arising from movement in interest rates,
exchange rates or other market prices. Market risk exists, to some extent, in all the Group’s businesses. The Group recognises that the
effective management of market risk is essential to the maintenance of stable earnings and preservation of shareholder value.
Interest rate risk
The primary market risk faced by the Group is interest rate risk. Interest rate risk is the risk of loss from adverse movement in the overall
level of interest rates. It arises from mismatches in the timing of repricing of assets and liabilities, both on and off-balance sheet. The
Group does not run a trading book or take speculative interest rate positions and therefore all interest rate risk resides in the banking book
(interest rate risk in the banking book (IRRBB)). IRRBB is most prevalent in mortgage lending where fixed rate mortgages are not funded by
fixed rate deposits of the same duration, or where the fixed rate risk is not hedged by a fully matching interest rate derivative. Exposure is
mitigated on a continuous basis through the use of derivatives and reserve allocations.
Currently interest rate risk is managed separately for OSB and CCFS due to the use of different treasury management and asset and
liability management (ALM) systems. However, the methodology applied to the setting of risk appetites was aligned across the Group in
2020. Both Banks apply an economic value at risk approach as well as an earnings at risk approach for interest rate risk and basis risk.
The interest rate sensitivity is impacted by behavioural assumptions used by the Group; the most significant of which are prepayments
and reserve allocations. Expected prepayments are modelled based on historical analysis and current market rates. The reserve
allocation strategy is approved by ALCO and set to reflect the current balance sheet and future plans.
Economic value at risk is measured using the impact of six different internally derived interest rate scenarios. The internal scenarios are
defined by ALCO and are based on three ‘shapes’ of curve movement (shift, twist and flex). Historical data is used to calibrate the severity
of the scenarios to the Group’s risk appetite. The Board has set limits on interest rate risk exposure of 2.25% and 1% of CET1 for OSB and
CCFS, respectively. The table below shows the maximum decreases to net interest income under these scenarios after taking into
account the derivatives:
252
OSB GROUP PLC Annual Report and Accounts 2020
46. Risk management continued
OSB
CCFS
Group
2020
£m
5.6
0.7
6.3
2019
£m
4.3
3.7
8.0
Exposure for earnings at risk is measured by the impact of a +/-50bps parallel shift in interest rates on the expected profitability of the
Group in the next 12 months. The risk appetite limit is 2% of full year net interest income (NII). The table below shows the maximum
decreases after taking into account the derivatives:
OSB1
CCFS
Group
1. Due to product floors earnings increases in both the +50bps and -50bps scenarios.
2020
£m
(0.1)
2.2
2.1
2019
£m
2.5
0.6
3.1
The Group is also exposed to basis risk. Basis risk is the risk of loss from an adverse divergence in interest rates. It arises where assets
and liabilities reprice from different variable rate indices. These indices may be market rates (e.g. bank base rate, LIBOR or SONIA)
or administered (e.g. the Group’s SVR, other discretionary variable rates, or that received on call accounts with other banks).
The Group measures basis risk using the impact of five scenarios on net interest income over a one-year period including movements
such as diverging base, LIBOR and SONIA rates. Historical data is used to calibrate the severity of the scenarios to the Group’s risk
appetite. The Board has set a limit on basis risk exposure of 4% of full year net interest income. The table below shows the maximum
decreases to net interest income at 31 December 2020 and 2019:
OSB
CCFS
Group
2020
£m
5.4
8.0
2019
£m
9.3
9.7
13.4
19.0
Foreign exchange rate risk
The Group has limited exposure to foreign exchange risk in respect of its Indian operations. A 5% increase in exchange rates would result
in a £0.4m (2019: £0.4m) effect in profit or loss and £0.5m (2019: £0.4m) in equity.
Structured entities
The structured entities consolidated within the Group at 31 December 2020 were Canterbury Finance No.2 plc, Canterbury Finance No.3
plc and CMF 2020-1 plc. These entities hold legal title to a pool of mortgages which are used as a security for issued debt. The transfer of
mortgages fails derecognition criteria because the Group retained the subordinated notes and residual certificates issued and as such
did not transfer substantially the risks and rewards of ownership of the securitised mortgages. Therefore, the Group is exposed to credit,
interest rate and other risks on the securitised mortgages.
Cash flows generated from the structured entities are ring-fenced and are used to pay interest and principal of the issued debt securities
in a waterfall order according to the seniority of the bonds. The structured entities are self-funded and the Group is not contractually
or constructively obliged to provide further liquidity or financial support.
The structured entities consolidated within the Group at 31 December 2019 were Canterbury Finance No.1 plc and Precise Mortgage
Funding 2015-1 plc.
Unconsolidated structured entities
Structured entities, which were sponsored by the Group include Precise Mortgage Funding 2015-2B plc, Precise Mortgage Funding
2017-1B plc, Charter Mortgage Funding 2017-1 plc, Precise Mortgage Funding 2018-1B plc, Charter Mortgage Funding 2018-1 plc,
Precise Mortgage Funding 2019-1B plc, Canterbury Finance No.1 plc and Precise Mortgage Funding 2020-1B plc.
OSB GROUP PLC Annual Report and Accounts 2020
253
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
46. Risk management continued
These structured entities are not consolidated by the Group, as the Group does not control the entities and is not exposed to the risks and
rewards of ownership from the securitised mortgages. The Group has no contractual arrangements with the unconsolidated structured
entities other than the investments disclosed in note 20 and servicing the structured entities’ mortgage portfolios. The Group has not
provided any support to the unconsolidated structured entities listed and has no obligation or intention to do so.
During 2020 the Group received £5.0m interest income (2019: £2.7m) and £4.6m servicing income (2019: £1.1m) from unconsolidated
structured entities.
47. Financial instruments and fair values
i. Financial assets and financial liabilities
The following tables summarise the classification and carrying value of the Group’s financial assets and financial liabilities:
Assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Derivative assets
Liabilities
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Debt securities in issue
Derivative liabilities
Subordinated liabilities
Perpetual Subordinated Bonds
Assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Derivative assets
Liabilities
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Debt securities in issue
Derivative liabilities
Subordinated liabilities
Perpetual Subordinated Bonds
2020
Fair value
through
profit or loss
£m
Note
FVOCI
£m
Amortised
cost
£m
Total
carrying
amount
£m
19
20
21
26
34
33
35
36
26
40
41
–
–
–
19.1
12.3
31.4
–
–
–
–
163.6
–
–
163.6
–
–
285.0
0.5
2,676.2
186.2
– 19,211.6
–
–
0.5
2,676.2
471.2
19,230.7
12.3
285.0
22,074.5
22,390.9
– 16,603.1
3,570.2
–
72.9
–
421.9
–
–
–
10.5
–
37.6
–
16,603.1
3,570.2
72.9
421.9
163.6
10.5
37.6
– 20,716.2
20,879.8
2019
Fair value
through profit
or loss
£m
Note
FVOCI
£m
Amortised
cost
£m
Total carrying
amount
£m
19
20
21
26
34
33
35
36
26
40
41
–
–
–
22.1
21.1
43.2
–
–
–
–
92.8
–
–
92.8
–
–
508.7
0.4
2,204.6
126.6
– 18,424.7
–
–
0.4
2,204.6
635.3
18,446.8
21.1
508.7
20,756.3
21,308.2
– 16,255.0
3,068.8
–
29.7
–
296.3
–
–
–
10.6
–
37.6
–
16,255.0
3,068.8
29.7
296.3
92.8
10.6
37.6
– 19,698.0
19,790.8
The Group has no financial assets nor financial liabilities classified as held for trading.
254
OSB GROUP PLC Annual Report and Accounts 2020
47. Financial instruments and fair values continued
ii. Fair values
The following tables summarise the carrying value and estimated fair value of financial instruments not measured at fair value in the
Statement of Financial Position:
Assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Liabilities
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Debt securities in issue
Subordinated liabilities
Perpetual Subordinated Bonds
2020
2019
Carrying
value
£m
Estimated
fair value
£m
Carrying
value
£m
Estimated
fair value
£m
0.5
2,676.2
186.2
19,211.6
0.5
2,676.2
186.6
19,352.0
0.4
2,204.6
126.6
18,424.7
0.4
2,204.6
126.6
18,654.2
22,074.5
22,215.3
20,756.3 20,985.8
16,603.1
3,570.2
72.9
421.9
10.5
37.6
16,666.1
3,570.2
72.9
421.9
10.7
32.3
16,255.0
3,068.8
29.7
296.3
10.6
37.6
16,259.7
3,068.8
29.7
296.3
10.7
33.2
20,716.2
20,774.1
19,698.0 19,698.4
The fair values in these tables are estimated using the valuation techniques below. The estimated fair value is stated as at 31 December
and may be significantly different from the amounts which will actually be paid on the maturity or settlement dates of each
financial instrument.
Cash in hand
This represents physical cash across the Group’s branch network where fair value is considered to be equal to carrying value.
Loans and advances to credit institutions
This mainly represents the Group’s working capital current accounts and call accounts with central governments and other banks with
an original maturity of less than three months. Fair value is not considered to be materially different to carrying value.
Loans and advances to customers
This mainly represents secured mortgage lending to customers. The fair value of fixed rate mortgages has been estimated by discounting
future cash flows at current market rates of interest. Future cash flows include the impact of expected credit losses. The interest rate on
variable rate mortgages is considered to be equal to current market product rates and as such fair value is estimated to be equal to
carrying value.
Amounts owed to retail depositors
The fair value of fixed rate retail deposits has been estimated by discounting future cash flows at current market rates of interest.
Retail deposits at variable rates and deposits payable on demand are considered to be at current market rates and as such fair value
is estimated to be equal to carrying value.
Amounts owed to credit institutions
This mainly represents amounts drawn down under the BoE TFS, TFSME and ILTR, warehouse funding and commercial repos. Fair value
is considered to be equal to carrying value.
Amounts owed to other customers
This represents fixed rate saving products to corporations and local authorities with original maturities greater than three months. The fair
value is estimated by discounting future cash flows at current market rates of interest.
OSB GROUP PLC Annual Report and Accounts 2020
255
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
47. Financial instruments and fair values continued
Debt securities in issue
While the Group’s debt securities in issue are listed, the quoted prices for an individual note may not be indicative of the fair value of the
issue as a whole, due to the specialised nature of the market in such instruments and the limited number of investors participating in it.
Fair value is not considered to be materially different to carrying value.
Subordinated liabilities and Perpetual Subordinated Bonds
The fair value of subordinated liabilities is estimated by using quoted market prices of similar instruments at the reporting date. The PSBs
are listed on the London Stock Exchange with fair value being the quoted market price at the reporting date.
iii. Fair value classification
The following tables provide an analysis of financial assets and financial liabilities measured at fair value in the Statement of Financial
Position grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
2020
Financial assets
Investment securities
Loans and advances to customers
Derivative assets
Financial liabilities
Derivative liabilities
2019
Financial assets
Investment securities
Loans and advances to customers
Derivative assets
Financial liabilities
Derivative liabilities
Carrying
amount
£m
Principal
amount
£m
285.0
19.1
12.3
284.7
21.8
8,687.8
316.4
8,994.3
163.6
10,392.4
Carrying
amount
£m
Principal
amount
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
–
–
–
–
285.0
–
12.3
297.3
–
19.1
–
19.1
285.0
19.1
12.3
316.4
163.6
–
163.6
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
508.7
22.1
21.1
509.5
24.8
7,795.4
149.8
–
–
358.9
–
21.0
551.9
8,329.7
149.8
379.9
–
22.1
0.1
22.2
508.7
22.1
21.1
551.9
92.8
9,982.4
–
92.8
–
92.8
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.
256
OSB GROUP PLC Annual Report and Accounts 2020
47. Financial instruments and fair values continued
The following table provides an analysis of financial assets and financial liabilities not measured at fair value in the Statement of Financial
Position grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
2020
Financial assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Financial liabilities
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Debt securities in issue
Subordinated liabilities
Perpetual Subordinated Bonds
2019
Financial assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Financial liabilities
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Debt securities in issue
Subordinated liabilities
Perpetual Subordinated Bonds
Carrying
amount
£m
Principal
amount
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Estimated fair value
0.5
2,676.2
186.2
19,211.6
0.5
2,676.1
186.2
19,200.1
22,074.5
22,062.9
16,603.1
3,570.2
72.9
421.9
10.5
37.6
16,507.3
3,569.3
72.7
421.8
10.3
37.0
–
–
–
–
–
0.5
2,676.2
186.6
3,314.5
–
–
–
16,037.5
0.5
2,676.2
186.6
19,352.0
6,177.8
16,037.5
22,215.3
–
–
–
–
–
32.3
5,546.1
3,570.2
–
421.9
–
–
11,120.0
–
72.9
–
10.7
–
16,666.1
3,570.2
72.9
421.9
10.7
32.3
20,716.2
20,618.4
32.3
9,538.2
11,203.6
20,774.1
Carrying
amount
£m
Principal
amount
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
0.4
2,204.6
126.6
18,424.7
0.4
2,204.3
126.4
18,281.3
–
–
126.6
–
0.4
2,204.6
–
3,409.1
–
–
–
15,245.1
0.4
2,204.6
126.6
18,654.2
20,756.3
20,612.4
126.6
5,614.1
15,245.1
20,985.8
16,255.0
3,068.8
29.7
296.3
10.6
37.6
16,133.5
3,063.3
29.5
295.5
10.4
37.0
–
–
–
–
–
33.2
3,817.8
3,068.8
–
296.3
–
–
12,441.9
–
29.7
–
10.7
–
16,259.7
3,068.8
29.7
296.3
10.7
33.2
19,698.0
19,569.2
33.2
7,182.9
12,482.3
19,698.4
48. Pension scheme
Defined contribution scheme
The amount charged to profit or loss in respect of contributions to the Group’s defined contribution and stakeholder pension
arrangements is the contribution payable in the period. The total pension cost in the year amounted to £4.3m (2019: £3.0m).
49. Operating segments
The Group segments its lending business and operates under two segments in line with internal reporting to the Board:
} OSB
} CCFS
The Group separately discloses the impact of Combination accounting but does not consider this a business segment.
OSB GROUP PLC Annual Report and Accounts 2020
257
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
49. Operating segments continued
The financial position and results of operations of the above segments are summarised below:
OSB
£m
CCFS
£m
Combination
£m
Total
£m
11,131.4
8,001.2
(83.6)
(28.2)
209.1
0.8
19,341.7
(111.0)
11,047.8
5.3
7.1
7,973.0
2.4
2.4
209.9
–
4.3
19,230.7
7.7
13.8
332.8
18.8
351.6
(95.2)
–
(50.7)
–
(7.5)
(3.3)
194.9
(46.9)
201.2
17.4
218.6
(57.5)
(0.1)
(20.5)
–
(2.3)
–
138.2
(32.0)
(61.8)
0.2
(61.6)
(4.3)
–
0.2
(7.0)
–
–
(72.7)
14.8
472.2
36.4
508.6
(157.0)
(0.1)
(71.0)
(7.0)
(9.8)
(3.3)
260.4
(64.1)
148.0
106.2
(57.9)
196.3
OSB
£m
CCFS
£m
Combination
£m
Total
£m
10,820.6
7,374.4
(35.6)
(8.0)
10,785.0
10.2
6.3
7,366.4
1.1
1.3
294.7
0.7
295.4
–
0.6
18,489.7
(42.9)
18,446.8
11.3
8.2
316.2
(12.9)
303.3
(92.3)
0.1
(11.9)
–
(2.5)
(15.6)
181.1
(47.1)
50.1
8.3
58.4
(15.1)
(0.1)
(0.1)
–
(2.7)
–
40.4
(10.2)
(21.6)
3.3
(18.3)
(1.3)
–
(3.6)
10.8
–
–
(12.4)
7.0
344.7
(1.3)
343.4
(108.7)
–
(15.6)
10.8
(5.2)
(15.6)
209.1
(50.3)
134.0
30.2
(5.4)
158.8
2020
Balances at the reporting date
Gross loans and advances to customers
Expected credit losses
Loans and advances to customers
Capital expenditure
Depreciation and amortisation
Profit or loss for the year
Net interest income/(expense)
Other income
Total income/(expense)
Administrative expenses
Provisions
Impairment of financial assets
Impairment of intangible assets
Integration costs
Exceptional items
Profit/(loss) before taxation
Taxation
Profit/(loss) for the year
2019
Balances at the reporting date
Gross loans and advances to customers
Expected credit losses
Loans and advances to customers
Capital expenditure
Depreciation and amortisation
Profit or loss for the year
Net interest income/(expense)
Other (expense)/income
Total income/(expense)
Administrative expenses
Provisions
Impairment of financial assets
Gain on Combination with CCFS
Integration costs
Exceptional items
Profit/(loss) before taxation
Taxation
Profit/(loss) for the year
258
OSB GROUP PLC Annual Report and Accounts 2020
50. Country by country reporting
Country by Country Reporting (CBCR) was introduced through Article 89 of CRD IV, aimed at the banking and capital markets industry.
The name, nature of activities and geographic location of the Group’s companies are presented below:
Jurisdiction
UK1
Country
England
Guernsey
Jersey
Name
Activities
OSB GROUP PLC
OneSavings Bank plc
5D Finance Limited
Broadlands Finance Limited
Charter Court Financial Services Group Plc
Charter Court Financial Services Limited
Charter Mortgages Limited
Easioption Limited
Exact Mortgage Experts Limited
Guernsey Home Loans Limited
Heritable Development Finance Limited
Inter Bay Financial I Limited
Inter Bay Financial II Limited
InterBay Asset Finance Limited
Interbay Funding, Ltd
Interbay Group Holdings Limited
Interbay Holdings Ltd
Interbay ML, Ltd
Jersey Home Loans Limited
Prestige Finance Limited
Reliance Property Loans Limited
Rochester Mortgages Limited
Guernsey Home Loans Limited
Jersey Home Loans Limited
Commercial banking
1. Guernsey Home Loans Limited (Guernsey) and Jersey Home Loans Limited (Jersey) are incorporated in Guernsey and Jersey respectively but are considered to be located in the UK as they are
managed and controlled in the UK with no permanent establishments in Guernsey or Jersey.
Jurisdiction
UK
Country
England
Name
Activities
Canterbury Finance No. 2 plc
Canterbury Finance No. 3 plc
CMF 2020-1 plc
CML Warehouse Number 1 Limited
CML Warehouse Number 2 Limited
Precise Mortgage Funding 2014-1 plc
Precise Mortgage Funding 2014-2 plc
Precise Mortgage Funding 2015-1 plc
Precise Mortgage Funding 2015-3R plc
Special purpose vehicle
India
India
OSB India Private Limited
Back office processing
OSB GROUP PLC Annual Report and Accounts 2020
259
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
50. Country by country reporting continued
Other disclosures required by the CBCR directive are provided below:
2020
Average number of employees
Turnover1, £m
Profit/(loss) before tax, £m
Corporation tax paid, £m
2019
Average number of employees
Turnover1, £m
Profit/(loss) before tax, £m
Corporation tax paid, £m
UK
1,330
508.3
260.1
128.6
UK
1,335
343.1
208.8
52.6
India
Consolidation2
486
9.4
1.3
0.2
–
(9.1)
(1.0)
–
India
Consolidation2
454
8.9
1.6
0.4
–
(8.6)
(1.3)
–
Total
1,816
508.6
260.4
128.8
Total
1,789
343.4
209.1
53.0
1. Turnover represents total income before impairment losses, regulatory provisions and operating costs, but after net interest, net commissions and fees, gains and losses on financial instruments
and external servicing fees.
2. Relates to a management fee from Indian subsidiaries to OneSavings Bank plc for providing back office processing.
The tables below reconcile tax charged and tax paid during the year.
2020
Tax charge
Effects of:
Other timing differences
Tax outside of profit or loss
Prior year tax paid during the year
Tax in relation to future periods prepaid
Tax paid
2019
Tax charge
Effects of:
Other timing differences
Tax outside of profit or loss
Prior year tax paid during the year
Current year tax to be paid after the reporting date
Tax paid
UK
£m
63.8
15.7
0.2
41.8
7.1
128.6
UK
£m
49.8
4.3
(0.9)
22.1
(22.7)
52.6
India
£m
0.3
(0.1)
–
–
–
0.2
India
£m
0.5
(0.1)
–
–
–
0.4
Total
£m
64.1
15.6
0.2
41.8
7.1
128.8
Total
£m
50.3
4.2
(0.9)
22.1
(22.7)
53.0
260
OSB GROUP PLC Annual Report and Accounts 2020
51. Adjustments for non-cash items and changes in operating assets and liabilities
Adjustments for non-cash items:
Depreciation and amortisation
Interest on investment securities
Interest on subordinated liabilities
Interest on Perpetual Subordinated Bonds
Interest on securitised debt
Interest on financing debt
Impairment charge on loans
Impairment on intangible assets acquired on Combination
(Gains)/losses on sale of financial instruments
Provisions
Interest on lease liabilities
Fair value (gains)/losses on financial instruments
Share-based payments
Gain on Combination with CCFS
Total adjustments for non-cash items
Changes in operating assets and liabilities:
Increase in loans and advances to credit institutions
Increase in loans to customers
Increase in retail deposits
Net decrease/(increase) in other assets
Net decrease in derivatives and hedged items
Net increase/(decrease) in other customers deposits
Net decrease in other liabilities
Exchange differences on working capital
Total changes in operating assets and liabilities
2020
£m
2019
£m
13.8
(7.5)
0.8
1.7
3.4
10.9
71.0
7.0
(20.0)
0.1
0.3
(7.4)
5.1
–
8.2
–
0.7
1.8
0.8
2.4
15.6
–
0.1
–
0.1
3.3
4.0
(10.8)
79.2
26.2
(154.0)
(36.8)
(1,705.0) (2,230.8)
1,637.8
(4.8)
(20.1)
(19.2)
(37.3)
(0.6)
348.1
1.3
(64.3)
43.2
(6.5)
–
(1,537.2)
(711.8)
52. Events after the reporting date
On 11 January 2021, OSB GROUP PLC published a Circular in relation to the Capital Reduction, which subject to shareholder approval
as well as certain other conditions set out in the Circular, was undertaken to create the required distributable reserves to enable the
Company to pay dividends and other distributions to shareholders in the future. The Circular stated that there would be no change
to the total number of shares or the total capital in the Company or the Group’s capital ratios as a result of the Capital Reduction.
On 26 February 2021, the Capital reduction became effective with OSB GROUP PLC reducing the nominal value of 447,312,780 shares
from three hundred and four (304) pence each to one (1) penny each. Interim accounts as at 28 February 2021 have been prepared
and delivered to Companies House as a requirement to support the recommended distribution of a dividend of £64.9m on 2 June 2021
by OSB GROUP PLC.
On 26 February 2021, the Group completed the purchase of a c. £55m portfolio of UK residential mortgages, which were serviced by the
Group, from a third party. The portfolio was acquired at a discount to current balances.
On 17 March 2021, the Group issued a trading update stating that it had become aware of potential fraudulent activity by a third
party in relation to one of the funding lines provided by the Group, secured against lease receivables and the underlying hard assets.
The Group had an outstanding receivable against this funding line of £28.6m as at 31 December 2020. Following an initial report from
the Administrator to the third-party company, appointed by the Group, the Group concluded that conditions existed as at the end
of the reporting period which make this an adjusting post balance sheet event, with an impairment of £20.0m recognised in 2020.
53. Controlling party
As at 31 December 2020 there was no controlling party of OSB GROUP PLC.
OSB GROUP PLC Annual Report and Accounts 2020
261
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 December 2020
54. Capital management
The Group’s capital management approach is to provide a sufficient capital base to cover business risks and support future business
development. The Group remained, throughout the year, compliant with its capital requirements as set out by the PRA, the Group’s
primary prudential supervisor.
The Group manages and reports its capital at a number of levels including Group level and for the two regulated banking entities within
the Group, on an individual consolidation and on an individual basis. The capital position of the two regulated banking entities are not
separately disclosed.
The Group’s capital management is based on the three ‘pillars’ of Basel II.
Under Pillar 1, the Group calculates its minimum capital requirements based on 8% of risk-weighted assets.
Under Pillar 2, the Group and its regulated entities, complete an annual self-assessment of risks known as the Internal Capital Adequacy
Assessment Process (ICAAP). The PRA applies additional requirements to this assessment amount to cover risks under Pillar 2 to generate
a Total Capital Requirement. Further, the PRA sets capital buffers and the Group applies for imposition of the requirements and
modification of rules incorporating the capital buffers and Pillar 2 pursuant to the Financial Services and Markets Act 2000.
Pillar 3 requires firms to publish a set of disclosures which allow market participants to assess information on the Group’s capital, risk
exposures and risk assessment process. The Group’s Pillar 3 disclosures can be found on the Group’s website.
Basel III came into force through CRD IV. Basel III complements and enhances Basel I and II with additional safety measures. Basel III
changed definitions of regulatory capital, introduced new capital buffers, a non-risk adjusted leverage ratio, liquidity ratios and modified
the way regulatory capital is calculated.
The ultimate responsibility for capital adequacy rests with the Board of Directors. The Group’s ALCO is responsible for the management
of the capital process within the risk appetite defined by the Board, including approving policy, overseeing internal controls and setting
internal limits over capital ratios.
The Group actively manages its capital position and reports this on a regular basis to the Board and senior management via the ALCO
and other governance committees. Capital requirements are included within budgets, forecasts and strategic plans with initiatives being
executed against this plan.
262
OSB GROUP PLC Annual Report and Accounts 2020
54. Capital management continued
The Group’s Pillar 1 capital information is presented below:
Common Equity Tier 1 capital
Called up share capital
Share premium, capital contribution and share-based payment reserve
Retained earnings
Transfer reserve
Other reserves
Total equity attributable to ordinary shareholders
Foreseeable dividends
IFRS 9 transitional adjustment1
COVID-19 ECL transitional adjustment2
Deductions from Common Equity Tier 1 capital
Prudent valuation adjustment3
Intangible assets4
Deferred tax asset
Common Equity Tier 1 capital
Additional Tier 1 capital
Non-controlling interest securities5
Total Tier 1 capital
Tier 2 capital
Subordinated debt and PSBs5
Deductions from Tier 2 capital5
Total Tier 2 capital
Total regulatory capital
Risk-weighted assets (unaudited)
(Unaudited)
2020
£m
(Unaudited)
2019
£m
1,359.8
7.8
1,608.6
(1,355.3)
(4.0)
4.5
876.3
553.2
(12.8)
(4.2)
1,616.9
1,417.0
(64.9)
4.9
31.0
(0.4)
(20.6)
(0.9)
(49.9)
5.3
–
(0.5)
(31.4)
(0.9)
1,566.0
1,339.6
–
60.0
1,566.0
1,399.6
–
–
–
47.4
(0.7)
46.7
1,566.0
1,446.3
8,565.7
8,383.0
1. The regulatory capital includes a £4.9m add-back under IFRS 9 transitional arrangements. This represents 75% of the IFRS 9 transitional adjustment booked directly to retained earnings of £6.5m.
The full impact of IFRS 9, if applied, would reduce total regulatory capital to £1,561.1m.
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 0.1% of fair value assets and liabilities after adjusting for hedge accounting.
4. All software assets continue to be fully deducted from capital in light of the pending intention of the PRA to consult on the CRR ‘Quick Fix’ package in this area.
5. Non-controlling interest securities, subordinated debt and PSBs that qualified as regulatory capital in prior years no longer do so at the Group level since the insertion of the holding company,
OSB GROUP PLC.
The movement in CET1 during the year was as follows:
At 1 January
Movement in retained earnings
Share premium from Sharesave Scheme vesting
Shares issued on Combination with CCFS
Movement in other reserves
Movement in foreseeable dividends
Movement in solo consolidation adjustment
IFRS 9 transitional adjustment
COVID-19 ECL transitional adjustment
Movement in prudent valuation adjustment
Net decrease/(increase) in intangible assets
Movement in deferred tax asset for carried forward losses
At 31 December
(Unaudited)
2020
£m
(Unaudited)
2019
£m
1,339.6
1,055.4
2.6
–
(858.1)
(15.0)
–
(0.4)
31.0
0.1
10.8
–
561.6
113.6
0.3
707.1
(2.7)
(24.7)
5.4
2.6
–
(0.4)
(23.7)
0.5
1,566.0
1,339.6
OSB GROUP PLC Annual Report and Accounts 2020
263
OverviewStrategic reportGovernanceFinancial statementsAppendices
Company Statement of Financial Position
As at 31 December 2020
Assets
Investments in subsidiaries and intercompany loans
Total assets
Equity
Share capital
Retained earnings
Other reserves
Total equity
Note
2020
£m
2019
£m
2
1,425.9
1,425.9
3
1,359.8
4.0
62.1
1,425.9
1,425.9
–
–
–
–
–
–
–
The profit after tax for the year ended 31 December 2020 of OSB GROUP PLC was £0.1m (2019: £nil). As permitted by section 408 of the
Companies Act 2006, no separate Statement of Comprehensive Income is presented in respect of the Company.
The Company statement of financial position as at 31 December 2019 comprised Debtors £12,501, Called-up share capital not paid
£37,499, 2 Ordinary shares of £1.00 each and Redeemable preference shares of £1.00 each £49,998.
The notes on pages 267 to 269 form an integral part of the Company financial statements.
The financial statements were approved by the Board of Directors on 8 April 2021 and were signed on its behalf by:
Andy Golding
Chief Executive Officer
Company number: 11976839
April Talintyre
Chief Financial Officer
264
OSB GROUP PLC Annual Report and Accounts 2020
Company Statement of Changes in Equity
For the year ended 31 December 2020
Company incorporation on 22nd May 2019
Result for the period
At 31 December 2019
Profit for the year
Share-based payments
Own shares1
Shares issued on 27 November 2020
At 31 December 2020
Share
capital
£m
–
–
–
–
–
–
1,359.8
1,359.8
Transfer
reserve
£m
Own
shares
£m
Share-based
payment reserve
£m
Retained
earnings
£m
–
–
–
–
–
–
65.7
65.7
–
–
–
–
–
(4.0)
–
(4.0)
–
–
–
–
0.4
–
–
0.4
–
–
–
0.1
–
3.9
–
4.0
Total
£m
–
–
–
0.1
0.4
(0.1)
1,425.5
1,425.9
1. The Company has adopted look-through accounting and consolidated the Employee Benefit Trust effective from 27 November 2020. The Company initially recognised £6.1m of own shares,
with £3.9m recognised in retained earnings relating to gifts made to the EBT, and £2.2m in intercompany loans, relating to a loan from OSB to the EBT which funded the acquisition of shares prior
to 27 November 2020. As at 31 December 2020, the EBT had £0.1m of outstanding intercompany borrowing.
OSB GROUP PLC Annual Report and Accounts 2020
265
OverviewStrategic reportGovernanceFinancial statementsAppendices
Company Statement of Cash Flows
For the year ended 31 December 2020
Cash flows from operating activities
Profit before taxation
Change in intercompany loans
Cash used in operating activities
Cash flows from financing activities
Proceeds from issuance of shares under employee SAYE scheme
Cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Movement in cash and cash equivalents
Note
2020
£m
0.1
(2.2)
(2.1)
2.1
2.1
–
–
–
–
2019
£m
–
–
–
–
–
–
–
–
–
266
OSB GROUP PLC Annual Report and Accounts 2020
Notes to the Company Financial Statements
For the year ended 31 December 2020
1. Basis of preparation
The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the
separate financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the
European Union (EU), and are presented in pounds sterling.
The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as
those set out in note 2 to the Consolidated financial statements.
The Company has adopted the predecessor value method with an investment in subsidiary of OSBG being the book value of the balance
sheet in OSB at the date of insertion.
There are no critical judgements and estimates that apply to the Company.
2. Investment in subsidiary
The Company has one direct subsidiary, OneSavings Bank plc (OSB), which is carried at the net book value on the date the Company
was inserted as the holding company of the Group.
At 1 January 2020
Net book value of OSB on 27 November 2020
Additions
Repayments
At 31 December 2020
The Company holds ordinary shares in its direct subsidiary.
Shares in
subsidiary
undertakings
£m
–
1,425.5
0.4
–
1,425.9
Intercompany
loans payable
£m
–
–
(2.2)
2.2
–
OSB GROUP PLC Annual Report and Accounts 2020
267
OverviewStrategic reportGovernanceFinancial statementsAppendices
Notes to the Company Financial Statements (Continued)
For the year ended 31 December 2020
2. Investment in subsidiary continued
A list of the Company’s direct and indirect subsidiaries as at 31 December 2020 is shown below:
Direct investments
OneSavings Bank plc
Activity
Mortgage lending and deposit taking
Registered office
Reliance House
Ownership
100%
Indirect investments
Activity
Registered office
Ownership
5D Finance Limited
Broadlands Finance Limited
Canterbury Finance No.2 plc
Canterbury Finance No.3 plc
Charter Court Financial Services Group Plc
Charter Court Financial Services Limited
Charter Mortgages Limited
CMF 2020-1 plc
CML Warehouse Number 1 Limited
CML Warehouse Number 2 Limited
Easioption Limited
Exact Mortgage Experts Limited
Guernsey Home Loans Limited
Guernsey Home Loans Limited (Guernsey)
Heritable Development Finance Limited
Inter Bay Financial I Limited
Inter Bay Financial II Limited
InterBay Asset Finance Limited
Interbay Funding, Ltd
Interbay Group Holdings Limited
Interbay Holdings Ltd
Interbay ML, Ltd
Jersey Home Loans Limited
Jersey Home Loans Limited (Jersey)
OSB India Private Limited
Precise Mortgage Funding 2014-1 plc
Precise Mortgage Funding 2014-2 plc
Precise Mortgage Funding 2015-1 plc
Precise Mortgage Funding 2015-3R plc
Prestige Finance Limited
Reliance Property Loans Limited
Rochester Mortgages Limited
Mortgage servicer
Mortgage administration services
Special purpose vehicle
Special purpose vehicle
Holding company
Mortgage lending and deposit taking
Mortgage administration and analytical services
Special purpose vehicle
Special purpose vehicle
Special purpose vehicle
Holding company
Group service company
Mortgage provider
Mortgage provider
Mortgage originator and servicer
Holding company
Holding company
Asset finance and mortgage provider
Mortgage servicer
Holding company
Holding company
Mortgage provider
Mortgage provider
Mortgage provider
Back office processing
Special purpose vehicle
Special purpose vehicle
Special purpose vehicle
Special purpose vehicle
Mortgage originator and servicer
Mortgage provider
Mortgage provider
Reliance House
Charter Court
Churchill Place
Churchill Place
Charter Court
Charter Court
Charter Court
Churchill Place
Bartholomew
Churchill Place
Reliance House
Charter Court
Reliance House
Guernsey
Reliance House
Reliance House
Reliance House
Reliance House
Reliance House
Reliance House
Reliance House
Reliance House
Reliance House
Jersey
India
Great St. Helen’s
Great St. Helen’s
Great St. Helen’s
Great St. Helen’s
Reliance House
Reliance House
Reliance House
100%
100%
–
–
100%
100%
100%
–
–
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
–
–
–
100%
100%
100%
All investments are in the ordinary share capital of each subsidiary.
OSB India Private Limited is owned 70.28% by OneSavings Bank plc, 29.72% by Easioption Limited and 0.001% by Reliance Property
Loans Limited.
Special purpose vehicles which the Group controls are treated as subsidiaries for accounting purposes.
All of the entities listed above have been consolidated into the Group’s consolidated financial statements.
The investment is reviewed annually for indicators of impairment. If impairment indicators are identified an impairment review of the
investment is conducted which will quantify if the carry value is in excess of the recoverable amount or an impairment has occurred. In
determining recoverable amount the fair value less costs to sell and the value in use are assessed, with the value in use being an estimate
of the present value of future cashflows generated by the investment.
268
OSB GROUP PLC Annual Report and Accounts 2020
2. Investment in subsidiary continued
The following are the registered offices of the subsidiaries:
Bartholomew – 1 Bartholomew Lane, London, England, EC2N 2AX
Charter Court – 2 Charter Court, Broadlands, Wolverhampton, WV10 6TD
Churchill Place – 5 Churchill Place, 10th Floor, London, E14 5HU
Great St. Helen’s – 35 Great St. Helen’s, London, EC3A 6AP
Guernsey – 1st Floor, Tudor House, Le Bordage, St Peter Port, Guernsey, GY1 1DB
India – Salarpuria Magnificia No. 78, 9th & 10th floor, Old Madras Road, Bangalore, India, 560016.
Jersey – 26 New Street, St Helier, Jersey, JE2 3RA
Reliance House – Reliance House, Sun Pier, Chatham, Kent, ME4 4ET
During the year the Company received a gift of £0.1m from OSB.
3. Share capital
Incorporation on 2 May 2019, £1 nominal value shares
At 31 December 2019
Conversion of £1 ordinary shares to £0.01 ordinary shares
Issuance of 408 £0.01 ordinary shares
Conversion of £0.01 ordinary shares to £3.04 ordinary shares
Redemption of preference shares
Issuance of new £3.04 ordinary share on Insertion
Shares issued under employee share plans
At 31 December 2020
Ordinary
shares,
number
2
2
198
408
(606)
–
447,304,196
8,582
Nominal
value
£m
–
–
–
–
–
–
1,359.8
–
447,312,780
1,359.8
All ordinary shares issued in the current and prior year were fully paid.
4. Directors and employees
The Company has no employees. OneSavings Bank plc, provides the Company with employee services and bears the costs associated
with the Directors of the Company. These costs are not recharged to the Company. The Company will continue to have no employees.
OSB GROUP PLC Annual Report and Accounts 2020
269
OverviewStrategic reportGovernanceFinancial statementsAppendices
Appendices
1. Independent assurance statement by Deloitte LLP to OSB GROUP PLC
on selected Alternative Performance Measures
Our responsibilities
Our responsibility is to express an opinion on the assured
APMs, based on our assurance work. We performed a reasonable
assurance engagement in accordance with International
Standard on Assurance Engagements (ISAE) 3000 (Revised),
Assurance Engagements other than Audits or Reviews of Historical
Financial Information.
We are required to plan and perform our procedures in order to
obtain reasonable assurance as to whether the assured APMs have
been prepared, in all material respects, in accordance with OSB
Group’s APM Definitions and Basis of Preparation.
The nature, timing and extent of the assurance procedures
selected depended on our judgment, including the assessment of
the risks of material misstatement, whether due to fraud or error,
of the assured APMs. In making those risk assessments, we
considered internal controls relevant to the preparation of the
assured APMs.
Based on that assessment we carried out testing which included:
} Agreeing amounts used in the calculation of APMs which are
derived or extracted from the audited financial statements of
OSB Group for the year ended 31 December 2020 to the
financial statements.
} For amounts used in the calculation of APMs which were not
derived or extracted from the financial statements of OSB
Group for the year ended 31 December 2020 testing, on
a sample basis, the underlying data used in determining the
assured APMs.
} Checking the mathematical accuracy of the calculations used
to prepare the assured APMs and testing whether they were
prepared in accordance with OSB Group’s APM Definitions
and Basis of Preparation;
} Reading the 2020 ARA and assessing whether the assured
APMs were presented and described consistently.
We were not asked to give, and therefore have not given any
assurance over (i) any APMs other than the assured APMs or
(ii) other data in the ARA as part of this engagement.
We believe that the evidence obtained is sufficient and appropriate
to provide a basis for our opinion.
Opinion
We have performed an independent reasonable assurance
engagement on the Alternative Performance Measures
(collectively, the APMs) set out below for the financial year ended
31 December 2020. The assured APMs are highlighted with the
symbol ∆ throughout the OSB GROUP PLC (OSB Group) 2020
Annual Report and Accounts (ARA). The definition and the basis
of preparation for each of the assured APMs is described in the
Appendix to the 2020 ARA on pages 272 to 275 (OSB Group’s
APM Definitions and Basis of Preparation).
Statutory basis
} Gross new lending
} Net interest margin
} Cost to income
} Management expense ratio
} Loan loss ratio
} Dividend per share
} Basic earnings per share
} Return on equity
Underlying basis
} Net interest margin
} Cost to income
} Management expense ratio
} Loan loss ratio
} Basic earnings per share
} Return on equity
In our opinion, the assured APMs for the financial year ended
30 December 2020, have been prepared, in all material respects,
in accordance with OSB Group’s APM Definitions and Basis
of Preparation.
Directors’ responsibilities
The directors of OSB Group are responsible for
} selecting APMs with which to describe the entity’s performance
and appropriate criteria (as set out in the Group’s APM
Definitions and Basis of Preparation) to measure them;
} designing, implementing and maintaining internal controls
relevant to the preparation and presentation of the assured
APMs that are free from material misstatement, whether due
to fraud or error; and
} preparing and presenting the APMs.
270
OSB GROUP PLC Annual Report and Accounts 2020
Our independence and quality control
We have complied with the independence and other ethical
requirements of the FRC Ethical Standard and the Code
of Ethics for Professional Accountants issued by the
International Ethics Standards Board for Accountants, which
is founded on fundamental principles of integrity, objectivity,
professional competence and due care, confidentiality and
professional behaviour.
We apply International Standard on Quality Control 1. Accordingly,
we maintain a comprehensive system of quality control including
documented policies and procedures regarding compliance with
ethical requirements, professional standards and applicable legal
and regulatory requirements.
Use of our report
This assurance report is made solely to OSB GROUP PLC in
accordance with the terms of the engagement letter between us.
Our work has been undertaken so that we might state to OSB
GROUP PLC those matters we are required to state to them in
an independent reasonable assurance report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than OSB GROUP PLC
for our assurance work, for this assurance report or for the opinions
we have formed.
Deloitte LLP, London
8 April 2021
OSB GROUP PLC Annual Report and Accounts 2020
271
OverviewStrategic reportGovernanceFinancial statementsAppendices
Appendices
2. Alternative performance measures
In this Annual report, the Group used alternative performance measures (APMs) when presenting underlying results in 2020 and pro
forma underlying results in 2019 as management believe they provide a more consistent basis for comparing the Group’s performance
between financial periods. Underlying results exclude exceptional items, integration costs and other acquisition-related items. Pro forma
underlying results assume that the Combination with CCFS occurred on 1 January 2019 and include 12 months of results from CCFS.
They also exclude exceptional items, integration costs and other acquisition-related items.
APMs reflect an important aspect of the way in which operating targets are defined and performance is monitored by the Board.
However, APMs in this Annual Report are not a substitute for IFRS measures and readers should consider the IFRS measures as well.
Below we provide definitions and the calculation methodology of ratios used throughout this Annual Report both a on statutory basis for
2020 and 2019 and underlying basis for 2020 and pro forma underlying basis for 2019.
Key performance indicators
Gross new lending
Gross new lending is defined as gross new organic lending before redemptions.
Gross new lending – statutory
Gross new lending – CCFS 2019 pre-acquisition
Gross new lending – underlying and pro forma underlying
2020
£m
2019
£m
3,767.0
–
4,141.0
2,355.0
3,767.0
6,496.0
Net interest margin (NIM)
NIM is defined as net interest income as a percentage of a 13 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.
Net interest income – statutory A
CCFS 2019 pre-acquisition results
Add back: acquisition-related items2
Net interest income – underlying and pro forma underlying B
13 point average of interest earning assets – statutory C
13 point average of interest earning assets – underlying and pro forma underlying D
NIM statutory equals A/C
NIM underlying and pro forma underlying equals B/D
2020
£m
472.2
–
61.8
534.0
2019
£m
344.7
152.1
21.6
518.4
21,883.4
21,663.2
14,163.5
19,484.3
2.16%
2.47%
2.43%
2.66%
272
OSB GROUP PLC Annual Report and Accounts 2020
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.
Administrative expenses – statutory A
CCFS 2019 pre-acquisition results
Add back: acquisition-related items2
Administrative expenses – underlying and pro forma underlying B
Total income – statutory C
CCFS 2019 pre-acquisition results
Add back: acquisition-related items2
Total income – underlying pro forma underlying D
Cost to income statutory equals A/C
Cost to income underlying and pro forma underlying equals B/D
2020
£m
157.0
–
2019
£m
108.7
57.7
(4.3)
(1.3)
152.7
165.1
508.6
–
61.6
570.2
31%
27%
343.4
200.8
18.3
562.5
32%
29%
Management expense ratio
The management expense ratio is defined as administrative expenses as a percentage of a 13 point average1 of total assets.
Administrative expenses – statutory (as in cost to income ratio above) A
Administrative expenses – underlying and pro forma underlying (as in cost to income ratio above) B
13 point average of total assets – statutory C
13 point average of total assets – underlying and pro forma underlying D
Management expense ratio statutory equals A/C
Management expense ratio underlying and pro forma underlying equals B/D
2020
£m
157.0
152.7
2019
£m
108.7
165.1
22,140.1
21,931.8
14,298.0
19,752.6
0.71%
0.70%
0.76%
0.84%
Loan loss ratio
The loan loss ratio is defined as impairment of financial assets as a percentage of a 13 point average1 of gross loans and advances. It is a
measure of the credit performance of the loan book.
Impairment of financial assets – statutory A
CCFS 2019 pre-acquisition results
Add back: acquisition-related items2
Impairment of financial assets – underlying and pro forma underlying B
13 point average of gross loans – statutory C
13 point average of gross loans – underlying and pro forma underlying D
Loan loss ratio statutory equals A/C
Loan loss ratio underlying and pro forma underlying equals B/D
2020
£m
71.0
–
0.2
71.2
2019
£m
15.6
4.3
(3.6)
16.3
18,739.0
18,508.5
12,171.5
16,684.6
0.38%
0.38%
0.13%
0.10%
OSB GROUP PLC Annual Report and Accounts 2020
273
OverviewStrategic reportGovernanceFinancial statementsAppendices Appendices (Continued)
2. Alternative performance measures (Continued)
Return on equity (RoE)
RoE is defined as profit attributable to ordinary shareholders, which is profit after tax and after deducting coupons on non-controlling
interest securities, as a percentage of a 13 point average1 of shareholders’ equity (excluding £60m of non-controlling interest securities).
Profit after tax – statutory
Coupons on non-controlling interest securities
Profit attributable to ordinary shareholders – statutory A
CCFS 2019 pre-acquisition results
Add back: acquisition-related items2
Profit attributable to ordinary shareholders – underlying and pro forma underlying B
2020
£m
2019
£m
196.3
(5.5)
158.8
(5.5)
190.8
–
68.6
259.4
153.3
92.5
42.9
288.7
13 point average of shareholders’ equity (excluding non-controlling interest securities) – statutory C
13 point average of shareholders’ equity (excluding non-controlling interest securities) – underlying and pro forma underlying D
1,514.2
1,363.8
866.6
1,147.1
Return on equity statutory equals A/C
Return on equity underlying and pro forma underlying equals B/D
13%
19%
18%
25%
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 non-controlling interest securities, gross of tax, divided by the weighted average number of ordinary shares in issue.
Profit attributable to ordinary shareholders – statutory (as in RoE ratio above) A
Profit attributable to ordinary shareholders – underlying and pro forma underlying (as in RoE ratio above) B
Weighted average number of ordinary shares in issue – statutory C
Weighted average number of ordinary shares in issue – underlying and pro forma underlying D
Basic earnings per share statutory equals A/C
Basic earnings per share underlying and pro forma underlying equals B/D
1. 13 point average is calculated as an average of opening balance and closing balances for 12 months of the financial year.
2. The acquisition-related items are detailed in the reconciliation of statutory to underlying and pro forma underlying results in the Financial review.
2020
£m
190.8
259.4
446.2
446.2
42.8
58.1
2019
£m
153.3
288.7
291.6
444.8
52.6
64.9
274
OSB GROUP PLC Annual Report and Accounts 2020
Calculation of 2020 final dividend
The table below shows the basis of calculation of the Company’s recommended final dividend for 2020:
Statutory profit after tax
Less: Coupons on non-controlling interest securities classified as equity
Statutory profit attributable to ordinary shareholders
Add back: Group’s integration costs
Tax on Group’s integration costs
Add back: Group’s exceptional items
Add back: amortisation of fair value adjustment
Add back: amortisation of inception adjustment
Add back: amortisation of cancelled swaps
Add back: amortisation of intangible assets acquired
Release of deferred taxation on the above amortisation adjustments
Gain on sale of financial assets
Less: gain on Combination
Add back: ECL on Combination
Add: CCFS pre-acquisition profits
Add back: CCFS pre-acquisition exceptional items
Add back: CCFS pre-acquisition integration costs
Tax on CCFS pre-acquisition integration costs
Add back: Tax on Heritable option
2020
£m
196.3
(5.5)
190.8
9.8
(2.4)
3.3
64.5
(13.3)
(2.7)
11.3
(14.8)
13.1
–
(0.2)
–
–
–
–
–
2019
£m
158.8
(5.5)
153.3
–
–
15.6
21.6
(3.3)
–
1.3
(7.0)
–
(10.8)
3.6
92.5
15.7
5.2
(1.6)
2.6
Underlying and pro forma underlying profit attributable to ordinary shareholders
259.4
288.7
Total dividend: 25% of underlying and pro forma underlying profit attributable to ordinary shareholders
Less interim dividends paid:
CCFS (pre-acquisition)
OSB
Recommended final dividend
Number of ordinary shares in issue
Recommended final dividend per share
64.9
72.2
–
–
(10.3)
(12.0)
64.9
447,312,780
49.9
445,443,454
14.5
11.2
OSB GROUP PLC Annual Report and Accounts 2020
275
OverviewStrategic reportGovernanceFinancial statementsAppendices Appendices (Continued)
Glossary
Bank of England
Annual General Meeting
Chief Executive Officer
Chief Financial Officer
Chief Risk Officer
Deferred Share Bonus Plan
Exposure at Default
Expected Credit Loss
Effective Interest Rate
Earnings Per Share
European Union
Financial Conduct Authority
Financial Reporting Council
Financial Services Compensation Scheme
Forced Sale Discount
Financial Times Stock Exchange
AGM
ALCO Group Assets and Liabilities Committee
BoE
CCFS Charter Court Financial Services Group plc
CEO
CFO
CRD IV Capital Requirement Directive and Regulation
CRO
DSBP
EAD
ECL
EIR
EPS
EU
FCA
FRC
FSCS
FSD
FTSE
HMRC Her Majesty’s Revenue and Customs
HPI
IAS
ICAAP
ICR
IFRS
ILAAP
ILTR
IPO
IRB
ISA
House Price Inflation
International Accounting Standards
Internal Capital Adequacy Assessment Process
Interest Coverage Ratio
International Financial Reporting Standards
Internal Liquidity Adequacy Assessment Process
Indexed Long-Term Repo
Initial Public Offering
Internal Ratings-Based approach to credit risk
Individual Savings Account
Kent Reliance for Intermediaries
Kent Reliance Provident Society Limited
Liquidity Coverage Ratio
Loss Given Default
London Interbank Offered Rate
Long-Term Incentive Plan
Loan to value
Net Interest Margin
Net Promoter Score
OneSavings Bank plc
KRFI
KRPS
LCR
LGD
LIBOR
LTIP
LTV
NIM
NPS
OSB
OSBG OSB GROUP PLC
PD
PPD
PRA
PSBs
PSP
RMBS
RoE
RWA
SAYE
SDLT
SICR
SID
SME
SONIA Sterling Overnight Index Average
SRMF
TFS
Probability of Default
Propensity to go to Possession Given Default
Prudential Regulation Authority
Perpetual Subordinated Bonds
Performance Share Plan
Residential Mortgage-Backed Securities
Return on equity
Risk weighted assets
Save As You Earn or Sharesave
Stamp Duty Land Tax
Significant Increase in Credit Risk
Senior Independent Director
Small Medium Enterprises
Strategic Risk Management Framework
Term Funding Scheme
276
OSB GROUP PLC Annual Report and Accounts 2020
Company information
Registered office and head office
OSB House
Quayside
Chatham Maritime
Chatham
Kent, ME4 4QZ
United Kingdom
Registered in England no: 11976839
www.osb.co.uk
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 8LU
United Kingdom
Telephone: 0371 384 2030
International: +44 121 415 7047
Investor relations
Email: osbrelations@osb.co.uk
Telephone: 01634 838973
Private shareholders are welcome to contact the Company Secretary if they have any questions or concerns they wish
to be raised with the Board.
O
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B
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2
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www.osb.co.uk
OSB House, Quayside, Chatham, Kent, ME4 4QZ
T +44 (0) 1634 848944