A trusted partner
Annual Report
and Accounts
2022
Who we are
OSB Group is a leading
specialist mortgage lender,
primarily focused on carefully
selected sub-segments of the
UK mortgage market. Our
continued success is driven
by strong relationships with
all our stakeholders.
Our Purpose
To help our customers, colleagues
and communities prosper.
Our Values
Our Values are what our colleagues
stand by, and support us in
achieving our Purpose.
For more information
see pages 14 and 15.
08-13
Our business model
22-25
Market review
52-75
Risk review
We delivered record
profi ts whilst proving
once again the resilience
of our strategy and
business model.
Andy Golding CEO
01
Overview
Highlights
02
04 Why invest in OSB Group?
06
Chairman’s statement
Strategic report
08
Our business model
14
Our culture
16
Relationship with stakeholders
21
Section 172 Statement
22
Market review
26
Chief Executive Officer’s statement
30
Strategic framework
Segments review
32
42 Wholesale funding review
44
46
52
60
76
78
86
Key performance indicators
Financial review
Risk review
Principal risks and uncertainties
Viability statement
Non-financial information statement
ESG overview
88 Governance matters
91
Environmental matters
100 Task Force on Climate-
Related Financial Disclosures
108 Social matters
Governance
Directors’ Report
Board of Directors
116
118 Group Executive Committee
120 Corporate Governance Report
129 Group Nomination and Governance
Committee Report
133 Group Audit Committee Report
139 Group Risk Committee Report
141 Other Committees
142 Directors’ Remuneration Report
164 Directors’ Report: other information
167
Statement of Directors’
Responsibilities
Financial statements
Independent Auditor’s Report
169
179 Consolidated Statement of
Comprehensive Income
180 Consolidated Statement of
Financial Position
181 Consolidated Statement of
Changes in Equity
182 Consolidated Statement of
Cash Flows
183 Notes to the Consolidated
Financial Statements
239 Company Statement of
Financial Position
240 Company Statement of
Changes in Equity
241 Company Statement of Cash Flows
242 Notes to the Company
Financial Statements
Appendices
247
248
Independent Assurance Statement
Independent Limited Assurance
Report
250 Alternative Performance Measures
253 Glossary
254 Company Information
OSB GROUP PLC
Annual Report and Accounts 2022
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02
Highlights
Delivering
exceptional returns
Throughout the Strategic report, the
Key performance indicators (KPIs)
are presented on a statutory and an
underlying basis.
Management believe that the underlying KPIs provide
a more consistent basis for comparing the Group’s
performance between fi nancial periods.
Underlying KPIs exclude exceptional items, integration
costs and other acquisition-related items. For a
reconciliation of statutory to underlying KPIs,
see the Appendix.
For more information
see pages 46-51.
OSB GROUP PLC
Annual Report and Accounts 2022
Financial KPIs
Gross new lendingΔ
+29%
2022
2021
£5.8bn
£4.5bn
Net loan book
+12%
2022
2021
+12%
2022
2021
£23.6bn
£21.1bn
£23.5bn
£20.9bn
Common Equity Tier 1 (CET1) ratio
-130bps
2022
2021
18.3%
19.6%
Return on equityΔ
+1ppt
2022
2021
21%
20%
no change
2022
2021
24%
24%
03
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-1ppt
2022
2021
31%
32%
Savings customer satisfaction
– Net Promoter Score
-6
B
S
2022
2021O
-10
2022
S
F
C
2021C
+64
+70
+61
+71
Reduction in Scope 1 and Scope 2
emissions from 20212
8.1%
Non-fi nancial KPIs
Cost to income ratioΔ
Women in senior management1
Net interest marginΔ
+25bps
2022
2021
+21bps
2022
2021
Loan loss ratioΔ
+15bps
2022
2021
-2bps
+16bps
2022
2021
-2bps
278bps
253bps
+1ppt
2022
2021
+1ppt
303bps
282bps
2022
2021
Profi t before tax
+14%
2022
2021
+13%
2022
2021
13bps
14bps
27%
26%
25%
24%
£531.5m
£464.6m
£591.1m
£522.2m
Basic EPSΔ (pence per share)
Ordinary dividendΔ (pence per share)
+17%
2022
2021
30.5p
26.0p
2022 special dividend of 11.7p
+19%
2022
2021
+15%
2022
2021
Key:
90.8p
76.0p
99.6p
86.7p
Statutory 2022
Underlying 2022
Group 2022
Statutory 2021
Underlying 2021
Group 2021
Δ
The Group’s external auditor performed an
independent reasonable assurance review of
certain KPIs and certain ESG information as
highlighted with the symbol Δ – see the Appendix
for the auditor’s statements.
Employees undertaking roles at Grades A to E.
1.
2. Scope 2 emissions calculated using market-
based methodology.
2021 KPI measured reduction versus a 2019
baseline. The Group has now reset its base year
to 2022. The KPI uses performance versus 2021
to demonstrate progress made in 2022.
OSB GROUP PLC
Annual Report and Accounts 2022
04
Why invest in OSB Group?
OSB Group is a leading
specialist mortgage lender;
what makes us diff erent is
our unique business model
and our exceptional returns.
Leader in
specialist market
sub-segments
OSB Group is a leading mortgage lender
in professional Buy-to-Let and specialist
Residential market sub-segments.
The Private Rented Sector has experienced
an expansion in the last 20 years boosted by
a lack of aff ordable housing in the UK and
the Group’s share of new Buy-to-Let business
was c. 7% in 2022. The Group’s net loan book
grew by 12% in 2022.
For more information
see pages 22-25.
Highly capital-
generative business
The Group is strongly capitalised with
a proven track record of capital generation
through profi tability. This allows it to
support strong growth as well as
distributions to shareholders.
The strong capital position and fi nancial
performance in 2022 allows for an additional
£150m share repurchase programme to
commence in March 2023.
The Board has recommended a fi nal dividend
for 2022 of 21.8 pence per share which
together with the 2022 interim dividend of 8.7
pence per share, represents a 30% payout
ratio. The Board has also announced a £50m
special dividend, 11.7 pence per share, in line
with the Board’s commitment to returning
excess capital to shareholders.
At the end of 2022, the Group’s CET1
ratio was 18.3% and total capital ratio
was 19.7%.
For more information
see page 21.
Exceptional returns
driven by attractive
margins
Since its IPO, the Group has consistently
generated a market-leading return on
equity (RoE), driven by attractive margins,
signifi cant growth in its specialist market
sub-segments and sound risk management.
The underlying RoE for 2022 remained at 24%
and statutory RoE was 21%.
Our competitive
advantage
The Group focuses on market sub-segments
where its specialist approach to underwriting
off ers a key source of diff erentiation.
Following the Combination with Charter
Court Financial Services, the Group off ers
a unique breadth of complementary yet
diff erentiated lending propositions to its
customers, ranging from speedy decisions
for ‘off the peg’ solutions from its Precise
Mortgages brand, through to structuring
unique ‘bespoke’ solutions through its
InterBay brand.
OSB GROUP PLC
Annual Report and Accounts 2022
Since its IPO, the
Group has consistently
generated a market-
leading return
on equity.
Experienced
leadership team
The Group is managed by an experienced
and well-respected leadership team and
governed by a Board with a broad range
of skills and expertise. The leadership team
has a long track record in operational
management and in delivery of sustainable
returns for shareholders.
For more information
see pages 116-119.
Focus on sustainability
The Group joined the Net Zero Banking
Alliance and committed to achieve net zero
greenhouse gas emissions by 2050.1
In 2022, we made progress on the path to
achieving the net zero commitment and we
undertook many other initiatives, including
the fi rst of a range of mortgage products to
support the energy effi ciency of a property.
1.
Net zero is defi ned as a reduction in Scope 1, 2,
and 3 emissions to zero or to a residual level
that is consistent with reaching net zero
emissions at the global or sector level in
eligible 1.5°C aligned pathways.
For more information
see pages 86-114.
05
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OSB GROUP PLC
Annual Report and Accounts 2022
06
Chairman’s statement
As I refl ect on 2022, I recognise
the Group’s many successes
and achievements as it delivered
exceptional results in the face of
a challenging macroeconomic
backdrop of rising interest rates,
infl ation and the war in Ukraine.
Our tried and tested business
model continued to generate
attractive returns for our
shareholders. We remain
focused on our stakeholders
and in particular our customers,
through investment in the
business and continuing to
improve how we serve them.
None of this would have been possible
without the professionalism, commitment
and fl exibility of the Group’s more than
2,000 colleagues, and I would like to take
this opportunity to thank them all.
The Group benefi tted from its ability to
attract and retain talented individuals, part
of the wider strategic focus on strengthening
the Group’s resilience and sustainability. We
are investing in our technology infrastructure
to deliver an enhanced experience for
our customers, colleagues and our
broker partners.
The Board continued to formalise its
approach to environmental, social and
governance matters during the year, through
the development of the Group’s ESG Strategy
and ESG Operating Framework. These are
now embedded across the business and will
support us along the path to achieving our
target of net zero greenhouse gas emissions
by 2050.1
The Group is also implementing and
embedding the FCA’s Consumer Duty
rules and requirements, ensuring that we
further improve our customer outcomes and
experience by putting their needs fi rst.
The Board has been debating the appropriate
form and timing of capital returns as our
strong profi tability continues to generate
signifi cant levels of capital, adding to the
already strong capital position.
OSB GROUP PLC
Annual Report and Accounts 2022
I am pleased to announce that following the
successful completion of the £100m share
repurchase during 2022, a further £150m
share repurchase programme will commence
on 17 March 2023. In addition, the Board
has recommended a fi nal dividend of 21.8
pence per share for 2022, which together
with the interim dividend of 8.7 pence per
share, represents a total ordinary dividend
for the year of 30.5 pence per share (2021:
26.0p). The Board has also announced today
a special dividend of £50m, 11.7 pence per
share, in line with the Board’s commitment to
returning excess capital to shareholders.
The Board is confi dent that the Group’s
business strategy and proven capital
generation capability can support both
strong net loan book growth and further
capital returns to shareholders, including a
progressive dividend per share. The Board
remains committed to returning any excess
capital to shareholders.
The Board continues to develop, and I am
very pleased to welcome our new member,
Kal Atwal, who joined in February 2023. She
has signifi cant experience as a Non-Executive
Director across FTSE 100, FTSE 250 and
mutual businesses. Kal joins after a successful
career in start-up, scale-up, fi ntech and
digital businesses and will be a valuable
addition to the Board.
1.
Net zero is defi ned as a reduction in Scope
1, 2, and 3 emissions to zero or to a residual
level that is consistent with reaching net zero
emissions at the global or sector level in eligible
1.5°C aligned pathways.
On behalf of the Board and Executive team
I would like to thank Mary McNamara and
Graham Allatt, both of whom will be retiring
from the Board, after nine years’ service, at
the Annual General Meeting in May. Both
have chaired committees, made invaluable
contributions and been part of the OSB
journey from the time of its IPO. We wish
them both the very best.
We remain confi dent that our proven and
robust underwriting procedures will limit
the impact that a weaker macroeconomic
environment may have on our lending
portfolio. I am mindful that cost of living and
borrowing pressures may impact a number of
our customers, and we are ready to provide
appropriate support if required to deliver the
best outcomes for them.
We entered 2023 with a strong level of
confi dence in the resilience of the Group’s
business model and ability to deliver
attractive returns across the cycle. We
continue to invest in the Group and its
capabilities, identifying opportunities to
further digitise our business, and we will be
ready to take advantage of opportunities
once market conditions improve. I look to the
future with optimism.
David Weymouth
Chairman
16 March 2023
In this section...
Strategic report
Relationship with stakeholders
Section 172 Statement
08 Our business model
14 Our culture
16
21
22 Market review
26 Chief Executive Officer’s statement
30 Strategic framework
32
Segments review
42 Wholesale funding review
44 Key performance indicators
46
52 Risk review
60 Principal risks and uncertainties
76
78 Non-financial information statement
86
Viability statement
Financial review
ESG overview
88 Governance matters
91
100 Task Force on Climate-Related Financial Disclosures
108 Social matters
Environmental matters
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We have a family
of specialist lending
brands targeting
selected sub-segments
of the mortgage
market which are
underserved by large
UK banking institutions.
OSB GROUP PLC
Annual Report and Accounts 2022
08
Our business model
Our Purpose is to help our customers, colleagues and communities prosper
To achieve our Purpose, we operate in a sustainable way with Environmental, Social and
Governance matters at the heart of our business. We have a strong governance framework
and we recognise the needs and differences of our stakeholders.
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.
Colleagues
Our team of highly skilled employees possess
expertise and in-depth knowledge of the
lending, 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 proven
capability to generate capital through
profitability. The Board is focused on
capital management across the cycle and
delivering strong total shareholder returns.
OSB GROUP PLC
Annual Report and Accounts 2022
Specialist mortgage lending
Our key strengths:
– Strong levels of mortgage
Strategic priorities:
– Be a leading specialist lender in our chosen
origination
– Excellent loan
performance
– Award-winning product
propositions
– Strong relationships with
intermediaries
market sub-segments
– Retain focus on our complementary underwriting
platforms supporting our diversified loan book:
OSB’s bespoke and manual approach and CCFS’
automated risk assessment platforms
– Further deepen relationships and distribution
with intermediaries
– Provide thought leadership and assist our
borrowers in reducing their greenhouse
gas emissions
Sophisticated funding platforms
Our key strengths:
– Reliable savings funding
via Kent Reliance and
Charter Savings Bank
brands
Strategic priorities:
– Provide cost-efficient funding through resilient
and diversified funding platforms to support our
future growth
– Deliver consistently good value savings products
– Capital markets expertise
to our customers
with securitisation
platforms allowing for
programmatic issuance
of high-quality residential
mortgage-backed
securities (RMBS)
– Pursue sophisticated wholesale
funding and efficient balance sheet management
– Leverage our investment grade corporate rating
for further diversification of funding sources
Unique operating model
Our key strengths:
– OSB India: Best-in-class
Strategic priorities:
– Continue to leverage our unique and cost-
customer service
efficient operating model
– Deep credit expertise and
– Leverage deep credit expertise and
data analytics
data analytics
– Continued, disciplined
cost management
– Develop and invest in an efficient, scalable
and resilient digital infrastructure to meet the
changing needs of our customers
– Reduce the environmental impact of
our operations
Includes £50m special dividend, equivalent to 11.7 pence per share.
1.
2. OSB customer NPS 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.
Retention is defined as average maturing fixed contractual retail deposits that remain with the Bank on their
maturity date.
3.
What we do
Statutory net loans
to customers
£23.6bn
2021: £21.1bn
Gross loans
4% Commercial
3% Other
20%
Residential
CCFS Resi
11%
OSB Resi
9%
Residential
development
OSB 2nd charge
CCFS 2nd charge
Bridging
Funding lines
CCFS BTL
32%
OSB BTL
41%
73%
Buy-to-Let
Securitisations since 2013
across OSB and CCFS
Group’s funding channels
as at 31 December 2022
worth
22
£11.1bn
2021: 21 securitisations
worth over £9.8bn
Retail
Bank of England
Wholesale
80%
18%
2%
Read more on
pages 10 and 11.
Statutory
retail deposits
£19.8bn
2021: £17.5bn
Read more on
page 12.
Statutory cost
to income
ratio
27%
2021: 26%
Colleagues employed
at OSB India as at
31 December 2022
663
2021: 571
Read more on
page 13.
4.
5.
Employees undertaking roles at Grades A to E.
Scope 2 emissions calculated using market-based methodology. 2021 KPI measured reduction versus a 2019
baseline. The Group has now reset it base year to 2022. The KPI uses performance versus 2021 to demonstrate
progress made in 2022.
09
Outcomes and value creation
For shareholders
Statutory
basic EPS
90.8p
Total dividend
per share1
42.2p
For savings customers
OSB savings
customer NPS2
OSB customer
retention3
+64
94%
CCFS savings
customer NPS2
CCFS customer
retention3
+61
For intermediaries
88%
OSB broker
NPS2
+37
For employees
CCFS broker
NPS2
+39
Women in senior
management
roles4
Number of Group
employees
promoted in 2022
31%
318
For the environment
Reduction in Scope 1 and Scope 2
emissions from 20215
8.1%
For our communities
Group sponsorships and donations
over £220k
OSB GROUP PLC
Annual Report and Accounts 2022
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Our business model explained
Specialist mortgage lending
The complementary strengths and enhanced customer propositions from the Group’s diverse
brands support our goal to be a leading specialist lender in the UK. The Group reports its
lending business under two segments.
OneSavings Bank segment
Through our brands we tailor our lending
proposition to the specifi c needs of our
borrowers. Under our Kent Reliance and
InterBay brands all of our loans are
underwritten by experienced and skilled
underwriters, supported by technology
to reduce the administrative burden on
underwriters and mortgage intermediaries.
We refer to scorecards and bureau data
to support our skilled underwriter loan
assessments. We consider each loan on
its own merits, responding quickly and
fl exibly to off er 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
three times each week, demonstrating our
responsiveness to customer needs.
Buy-to-Let/SME 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.
Residential development
We provide development loans to small
and medium-sized developers of
residential property.
Funding lines
We provide loans to non-bank fi nance
companies secured against portfolios of
fi nancial assets, principally mortgages.
Asset fi nance
We provide loans under hire purchase, leasing
and refi nancing arrangements to UK SMEs
and small corporates to fi nance business-
critical assets.
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 sub-segment
First charge
We provide loans to individuals, secured by a
fi rst 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 fi rst-time buyers and key workers
buying a property in conjunction with a
housing association.
Statutory gross loan book
£13.2bn
2021: £12.1bn
Organic originations
£2.8bn
2021: £2.4bn
Statutory net interest income
£460.7m
2021: £414.8m
Read more on
pages 32-36.
OSB segment statutory
net loans
Buy-to-Let/SME
Residential
82%
18%
OSB GROUP PLC
Annual Report and Accounts 2022
11
Charter Court Financial Services segment
Our Precise Mortgages brand uses an
automated underwriting platform to manage
mortgage applications and to deliver a rapid
decision in principle, based on rigorous
lending policy rules and credit scores.
The platform is underpinned by extensive
underwriting expertise, enabling identifi cation
of new niches and determining appropriate
lending parameters.
It allows for consistent underwriting within the
Group’s risk appetite. Quick response times
help the Group to compete for the ‘fi rst look’
at credit opportunities, while a robust manual
verifi cation process further strengthens the
disciplined approach to credit risk.
Buy-to-Let
We provide products to professional and
non-professional landlords with good quality
credit histories, through a wide product
off ering, including personal and limited
company ownership.
Bridging
We focus on lending to customers with short-
term cash fl ow needs, for example, to cover
light refurbishments, home improvements,
auction purchases and to ‘bridge’ delays in
obtaining mortgages and ‘chain breaks’.
Residential
We provide a range of competitive
products to prime borrowers and complex
prime borrowers, including self-employed,
as well as near-prime borrowers.
Second charge
Second charge products under the Precise
Mortgage brand were withdrawn in the fi rst
half of 2022 and are no longer available to
new customers.
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OSB GROUP PLC
Annual Report and Accounts 2022
Underlying gross loan book
£10.4bn
2021: £9.0bn
Organic originations
£3.0bn
2021: £2.2bn
Underlying net interest income
£308.4m
2021: £235.7m
Read more on
pages 38-41.
CCFS segment
underlying net loans
Buy-to-Let
Residential
Bridging
Second charge
72%
26%
1%
1%
12
Our business model explained continued
Sophisticated funding platforms
The Group’s lending business is supported by diversifi ed and stable funding platforms.
This enables cost of funds optimisation while prudently managing funding and liquidity risks.
Retail savings
The Group is predominantly funded by
retail savings deposits sourced through two
brands: Kent Reliance and Charter Savings
Bank (CSB).
Kent Reliance is an award-winning retail
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, a multi-
award-winning retail savings bank, off ers its
products online and via post.
Both Banks have a wide range of savings
products, including easy access, fi xed term
bonds, cash ISAs and business savings
accounts. CSB and Kent Reliance have
diversifi ed their retail funding sources
through pooled funding platforms. The
range of products sourced via these
platforms includes easy access, longer-term
bonds and non-retail deposits.
In 2022, both Banks won industry awards,
including the prestigious Moneyfacts
Consumer Awards for Best Bank Savings
Provider, Best Cash ISA Provider and ISA
Provider of the Year for CSB and Best Cash
ISA Provider from Yourmoney.com Personal
Finance Awards for Kent Reliance.
Kent Reliance’s proposition for savers is
simple: to off er consistently good-value
savings products that meet customer
needs for cash savings and loyalty rates for
existing customers.
CSB’s philosophy is to maintain and
develop its award-winning business
off ering competitively priced savings
products. Operating with an agile, nimble
approach, CSB can respond quickly to the
funding requirements of the business at an
advantageous cost of funds.
OSB also issued three deals totalling £971m
of owner-occupied and Buy-to-Let acquired
mortgages via Rochester Financing
since 2013.
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.
The Group also takes advantage of the
Bank of England’s funding schemes.
Drawings under the Term Funding Scheme
for SMEs remained at £4.2bn and the
drawings under Index Long-Term Repo
were £301m as at 31 December 2022
(2021: £4.2bn and £nil, respectively).
Our securitisation platforms
The Group has built attractive diversifi cation
opportunities to supplement its retail funding.
CCFS uses its securitisation platform as a
means of providing low-cost term funding.
Wholesale funding enables 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 is 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 2022.
In 2019, OSB established its Canterbury
Finance securitisation programme to
enable it to issue high-quality residential
mortgage-backed securities. It has since
issued fi ve securitisations of organically
originated mortgages totalling £5.6bn to
31 December 2022.
Statutory retail deposits
£19.8bn
2021: £17.5bn
Securitisations
22
securitisations since 2013, across
OSB and CCFS, worth
£11.1bn
2021: 21 securitisations worth
over £9.8bn
Read more on
page 42.
OSB GROUP PLC
Annual Report and Accounts 2022
13
Unique operating model
The lending and savings businesses operate through the Group’s unique and cost-effi cient
operating model and a robust, scalable and resilient infrastructure.
Customer service
The Group operates customer service
functions in multiple locations across the
UK including Chatham, Wolverhampton,
Fareham, London and Fleet. These, together
with our wholly-owned subsidiary OSB
India, help us deliver on our aim of putting
customers fi rst.
The Group has proven collections capabilities
and expertise in case management and
supporting customers in fi nancial diffi culty.
This off ers valuable insights into, as well
as the opportunity to learn from, the
performance of mortgage loan products.
We have deep credit expertise through strong
data analytical capabilities.
We deliver cost effi ciencies through excellent
process design and management. We have an
effi cient, scalable and resilient infrastructure
supported by strong IT security and continue
to invest in enhancing our digital off ering as
customer demand changes.
OSB India
OSB India (OSBI) is a wholly-owned
subsidiary based in Bangalore and
Hyderabad, India.
OSBI puts customer service at the heart
of everything it does and we reward our
colleagues based on the quality of service they
provide to customers, demonstrated by our
excellent customer Net Promoter Score.
At OSBI, we employ highly talented and
motivated colleagues 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 effi cient
service management, matching those to
business needs both in India and the UK.
ESG
We operate in a sustainable way with relevant
Environmental, Social and Governance
matters at the heart of all everything we do.
As a specialist lender, we have been long
aware of our responsibilities and the positive
impact we can make in society through
our activities.
Various functions are also supported
by OSBI, including Support Services,
Operations, IT, Finance and Human
Resources. We have a one team approach
between the UK and India. The employee
turnover in India compares favourably to
local industry averages, despite an increase
in the regretted attrition rate to 24% in 2022
as a result of an extremely buoyant
recruitment market.
OSBI operates a fully paperless offi ce –
all data and processing are in the UK.
In 2022, we made progress on our path
to achieve our commitment to net zero
greenhouse gas emissions by 2050.3
We also launched our fi rst of a range of
mortgage products to improve the energy
effi ciency of a property.
We also renewed our commitment to have
33% women in senior management roles in
the UK by 2023 and donated nearly £225k
to charitable causes in the year.
1. Colleagues undertaking roles at Grades A to E.
2. Scope 2 emissions calculated using market-based methodology. 2021 KPI measured reduction versus a 2019
baseline. The Group has now reset it base year to 2022. The KPI uses performance versus 2021 to demonstrate
progress made in 2022.
3. Net zero is defi ned as a reduction in Scope 1, 2, and 3 emissions to zero or to a residual level that is consistent
with reaching net zero emissions at the global or sector level in eligible 1.5°C aligned pathways.
OSB GROUP PLC
Annual Report and Accounts 2022
Colleagues employed at OSB India
663
2021: 571
OSBI regretted attrition rate
24%
2021: 17%
Group colleagues
2,021
2021: 1,782
Women in senior management roles1
31%
2021: 32%
Reduction in Scope 1 and Scope 2
emissions from 20212
8.1%
Electricity purchased in the UK from
renewable tariff s
100%
Read more on
pages 91-104.
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Our culture
Together we
prosper
At OSB Group we are working hard
to create a positive, collaborative
and supportive environment.
Our Purpose
To help our customers, colleagues
and communities to prosper.
By that we mean more than just helping them to be more
fi nancially well off . We want them to fl ourish, thrive and
succeed in their personal and professional goals.
Our Vision
To be recognised as the UK’s number
one choice of specialist bank, through
our commitment to exceptional
service, strong relationships and
competitive propositions.
By working Stronger together, Taking ownership, Aiming high and
Respecting others, we will more powerfully achieve our own goals,
as well as our stakeholders’.
But we are not just focused on lending and savings (though that is what
we do and what we are great at); we are a business that cares about
leaving things better than we found them. We are passionate about
our fi nal value, Stewardship, which encourages us to give back to our
communities, supporting those who are vulnerable or less fortunate,
embracing diversity and fi nding new ways to protect our environment.
It does not matter where we are working from: a branch, on the road, in
the offi ce or from home. It does not even matter that we are not all in the
same country. We are clear about what we want to achieve, we know
how we want to achieve it and we are absolutely determined to build
upon the foundations we have created so our customers, shareholders,
communities and colleagues can prosper.
OSB GROUP PLC
Annual Report and Accounts 2022
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By working Stronger
together, Taking
ownership, Aiming
high and Respecting
others, we will more
powerfully achieve
our own goals.
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Our Values
Our Values are the principles that support our
Purpose.
Stronger together
We collaborate to create a culture in which
we all share goals and values. We aim to
build trust, respect and openness across
the Group.
Take ownership
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.
Aim high
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 others fairly and communicate
in a way that respects an inclusive and
diverse culture, listening to all voices and
ensuring opinions are off ered and heard.
For more information
see pages 108-112.
Stewardship
We act with conscience and take social,
environmental and ethical factors into
consideration when making decisions.
OSB GROUP PLC
Annual Report and Accounts 2022
16
Relationship with stakeholders
Our Purpose is to
help our customers,
colleagues and
communities prosper
Building strong relationships
with all of our stakeholders
through regular engagement
and open dialogue is
fundamental to achieving
the Group’s Purpose.
Our relationships with our
stakeholders 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 of the Companies Act 2006. For
more information on the activities of the
Board and its Committees, see pages 122-163
in the Corporate Governance Report.
The following matters, which were identified
as affecting our stakeholders, were of
particular interest to the Board in 2022:
– increased volatility in global markets,
alongside interest rate rises, the rise in
cost of living and cost of borrowing, and
their impact on our customers’ behaviours,
financial health and forbearance needs
– visibility of the customer experience
through customer satisfaction scores and
deep dives on how customers are treated
– the impact of the rising cost of living on
our employees
– the Group’s environmental ambitions
and initiatives
Colleagues
Our colleagues are our key asset
and our success depends on
the 2,021 talented individuals
we employ.
We have always favoured interactive
communication between management
and our colleagues through regular town
hall meetings, informal sessions with
management and opportunities to ask
questions anonymously directly to the
Chief Executive Officer (CEO), with the
questions and responses available on the
intranet. These methods of engagement
proved popular with employees and
contributed to many initiatives that were
undertaken by the business during the year.
How the Board has engaged
with colleagues
The Group has adopted a combination of
methods for engaging with its workforce,
including the establishment of a formal
workforce advisory panel and a designated
Non-Executive Director (NED). During
2022, Mary McNamara was the NED
appointed by the Board with responsibility
for representing employees at Board level
and she is a permanent member of the
Workforce Advisory Forum (known internally
as OurVoice). Mary has direct engagement
with the workforce by attending OurVoice
meetings and other events organised by the
Diversity and Inclusion Working Group. This
provides her with an insight into the culture
and concerns of the employees, which she
is able to bring to the attention of the Board.
Sarah Hedger will become a permanent
member of OurVoice and will replace Mary
McNamara as the designated NED with
responsibility for OurVoice on 11 May 2023.
OurVoice gives the Board and management
insight into a broadly representative range
of employee views to guide strategic
decisions for the future of the Group and
oversee their alignment to the Values.
OurVoice has its own Terms of Reference
which outlines the objectives and
composition of the Forum. Members of the
workforce are invited to apply to become
an employee representative.
Members of the Board and management
attended OurVoice meetings throughout
the year in order to understand and
discuss employee-related issues directly
with representatives across the business.
Employee representatives are encouraged
to be open and honest in their feedback at
each meeting. The themes from OurVoice
discussions are shared and discussed with
the Board and this informs the approach
towards new policies, benefits, resource
allocations and any other employee-
related projects.
Engagement also took place via the
annual Best Companies to Work For
survey. 82.5% of UK employees responded
to the survey in 2022 demonstrating a
high level of engagement. Following the
results of the survey, the Group received
a 2 star accreditation which means that
it was recognised as an ‘Outstanding’
company to work for. The Group Executive
Committee and the Board reviewed the
results, considered the key themes that had
emerged from the responses and discussed
what steps could be taken to capitalise on
the positive themes and also address areas
for improvement. OSB India participates in
a separate engagement survey and was
officially certified a ‘Great Place to Work’
for a sixth consecutive year in 2022.
For more detail on employee initiatives in
the year, see the Colleagues section on
pages 109-112.
The Board and its Committees also received
regular updates on matters impacting
employees from senior management and the
Group’s HR function. Members of the Board
oversee the Group’s talent management
initiatives and senior management
succession planning.
Further information on OurVoice can be
found in the Directors’ Report on
pages 164 and 165.
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.
The Board monitors the effectiveness of its
methods of engaging with colleagues and
adapts them where necessary.
OSB GROUP PLC
Annual Report and Accounts 2022
Customers
We pride ourselves on building
strong, long-term relationships
with our customers. Our continued
commitment to providing excellent
service to borrowers and savers
remained a priority in 2022 in
light of the rising cost of living
and borrowing.
We offer our savers an opportunity to let
us know how we are doing whenever they
call or interact with the Banks by listening
to their views and acting upon what they
tell us. Customer feedback is collected
throughout the year and satisfaction scores
produced as a result.
During 2022, as the interest rates continued
to rise, we saw a significant increase
in the volume of calls from our savers
wishing to benefit from attractively priced
savings products and our borrowers who
were concerned about the rising cost of
borrowing. As a result, there was a decrease
in the savings and broker NPS compared to
2021. Service levels have since improved and
they remain our key focus.
How the Board has engaged
with 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 our customers’ experiences.
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.
In addition, each year, the Board allocates
additional time at one Board meeting for
dedicated deep dives on a range of matters
related to how customers are treated.
Areas of continued focus include
developing a broader people and culture
strategy for the Group and continuing
to improve in the areas that have been
identified as lower scoring in the results
of employee surveys.
Outcomes following engagement
– a key topic of discussion at Board
level was the impact of continuing
interest rate rises and the rise in cost
of living and cost of borrowing on
our colleagues, both professionally
and personally, their well-being and
mental health.
– a one-off cost of living payment
of £1,200 was made to lower paid
employees and two further payments
of £600 have been approved for
payment in 2023 to the same
population.
– the Group became formally
accredited as a Living Wage
Employer.
– refreshed the Group’s Homeworking
Policy to formalise employee hybrid
working arrangements.
– approved a higher than usual salary
increase arrangement for over 80% of
employees in light of the high rate
of inflation.
UK Best Companies Survey
Outstanding
company to
work for
in 2023
‘Great Place to Work’ 2022
Win6th year in a row by OSB India
17
The Board was kept informed about
progress in embedding the new FCA
Consumer Duty requirements as well as
the support for customers who require
additional assistance.
Customers and intermediaries may be
consulted when the business is considering
the launch of a new product to ensure that
it meets their needs, and any concerns
raised are addressed.
Outcomes following engagement
with customers
– ensured that additional support was
available to customers who need it.
– a pledge of £50m to the newly-
established Landlord Leader Fund
to help landlords enhance energy
efficiency.
– introduced the first of a range of
products for landlords wishing to
improve the energy efficiency of their
properties.
Further information about our customers
can be found in the Customer section on
pages 108 and 109.
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Savings NPS for Kent Reliance
+642021: +70
Savings NPS for Charter Savings Bank
+61
2021: +71
OSB GROUP PLC
Annual Report and Accounts 2022
18
Relationship with stakeholders continued
Towards the end of 2022, research was
commissioned with the aim of supporting
our brokers and landlords with improving
the sustainability of their investment
properties. A number of key findings were
identified which included the creation of
a Landlord Leaders community to bring
brokers, landlords and other industry
members together. The Board received
updates and reviewed the progress of this
initiative. Further information on this can be
found on page 29.
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
their customers, our borrowers. Regular
engagement with the broker community
extends beyond our propositions and
enables us to continuously enhance the
service we provide, with our business
development managers working closely with
intermediaries to discuss cases and help to
obtain swift and reliable decisions.
The Group’s Sales teams participated in 330
physical and virtual intermediary events
during 2022. The events are an opportunity
for the Sales team to interact with brokers,
discuss their requirements and keep up to
date with industry developments.
Outcomes following engagement
with intermediaries
– launch of the Landlord Leaders thought
leadership report and the creation of a
Landlord Leaders community, bringing
brokers, landlords and other industry
members together.
Group’s Sales teams attended
330intermediary events
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 most frequent theme raised by investors
in 2022 was how and when the Board
planned to return any excess capital to
shareholders and expectations regarding
future dividends. The Board welcomed
the engagement from shareholders
and considered their feedback when
discussing potential capital distribution and
shareholder returns.
the headroom created by house price
appreciation in recent years, high interest
coverage ratios and the strong demand in
the rental market supporting rising rents.
It was also recognised that the Group was
well prepared to offer appropriate support
to customers should it be required.
Outcomes following engagement
with shareholders
– the Group completed a £100m share
repurchase programme during the year
and has announced a further £150m
repurchase programme for 2023.
Towards the end of the year, investors’
focus turned to the impact of higher interest
rates on landlord economics. The CEO and
CFO were able to provide relevant context
to address these concerns, describing the
timing benefit that portfolio landlords derive
from holding multiple fixed rate mortgages,
Engagement with shareholders
116individual investors met
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; it is important for us to
understand the challenges they
face and what they are trying to
achieve in terms of serving their
customers, so we can adapt the
way in which we support them, to
provide an even better service.
How the Board has engaged with
intermediaries
The Board’s engagement with intermediaries
is indirect and Directors are kept informed
of customer-related matters through regular
updates at Board meetings. Broker and
borrower satisfaction scores are tracked
on a regular basis, along with details of
all complaints, and are reviewed by the
Board and management within monthly
reporting packs.
Shareholders
Our approach to investor
engagement has remained
straightforward as we favour an
open dialogue. Active engagement
with our shareholders occurred
throughout the year with the
Investor Relations team meeting
116 individual investors via virtual
one-to-one meetings, industry
conferences and roadshows.
How the Board has engaged with
shareholders
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 CEO
and Chief Financial Officer (CFO), who
meet with investors and sell-side analysts
OSB GROUP PLC
Annual Report and Accounts 2022
Suppliers
Our business is supported by a
large number of suppliers, which
allows the Group to provide
high standards of service to our
customers.
Any complaints received in respect of
invoice payments are considered as part of
the dispute resolution process. During the
year, the Group did not deduct any sums
from payments under qualifying contracts
as a charge for remaining on a supplier list.
19
ESG is being embedded into every aspect
of our business and part of doing so is
to ensure that our suppliers share similar
values and aspirations to our own.
During 2022, our suppliers and business
partners were asked to complete a
questionnaire in order for us to understand
how they are addressing topics such as
climate change, diversity, equity and
inclusion and modern slavery, and to
identify areas of focus in the future. We
understand that organisations will be
at various stages of their own ESG and
sustainability journey and we are committed
to encouraging and supporting our suppliers
with their transition to an ESG strategy that
aligns to the Group’s ambitions.
In 2022, the Board was also involved
with the following aspects of supplier
relationships: consideration of the
risks associated with suppliers and the
framework for assurance; oversight of
key supplier relationships, including
engagement between the Group Audit
Committee and the external auditor; and
oversight of all levels of insurance in place
for the Group.
We are committed to complying with both
the law and best practice in respect of
Modern Slavery, workforce rights and the
environment. We expect our suppliers to
share that commitment by complying with
our Vendor Code of Conduct and Ethics.
Outcomes following engagement with
suppliers
– enhanced understanding of suppliers’
ESG and sustainability strategies to
ensure that they are in alignment with
the Group’s ESG ambitions.
The Group’s Modern Slavery and Human
Trafficking Statement is reviewed and
approved on an annual basis by the Board
and can be found on our website at
www.osb.co.uk.
Supplier payments
95%
of invoices paid within 30 days
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Even though the Directors do not participate
in all meetings, Executives, including the
Group Chief Risk Officer and Group Chief
Credit and Compliance Officer, provide the
Board and its Committees with feedback
and regular updates in respect of the
broader regulatory developments and
compliance considerations. The PRA was
invited to and attended one Board meeting
during 2022.
Outcomes following engagement
– meetings held with regulators during
the year covered, amongst other topics,
operational resilience, operational
continuity in resolution, resolvability
assessment framework, business
continuity, capital management and
the optimisation of our capital structure.
These are all areas that have been
considered by the Board in its meetings.
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The Group also regularly interacts and has
constructive relationships with the Bank
of England and HM Revenue & Customs,
amongst 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.
OSB GROUP PLC
Annual Report and Accounts 2022
How the Board engages with suppliers
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
kept up to date by management on supplier
considerations and developments.
Supplier payment practice reports are
published on a six-monthly basis and
approved and signed by the CFO and Chief
Operating Officer on behalf of the main
operating entities. The Group enters into
standard terms with suppliers, which include
terms requiring payment within 30 days of
the invoice date following receipt of a valid
invoice. Over 95% of all invoices are paid
within 30 days in line with the standard
payment period for qualifying contracts.
The average time taken to pay invoices
ranges from five to 11 days across the
Group. The maximum contractual payment
period agreed varies between 30 to 45 days.
There were no changes to the standard
payment terms in the reporting period.
Regulators
The Board recognises the
importance of having an open
and continuous dialogue with
all of our regulators, as well as
other government bodies, trade
associations and UK Finance.
How the Board engages with regulators
The Group maintains a proactive dialogue
with the Prudential Regulation Authority
(PRA) and Financial Conduct Authority
(FCA). 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.
20
Relationship with stakeholders continued
How the Board engages
with communities
The Board and management actively
encourage and fully support engagement
with our local communities to make a
positive impact.
Outcomes following engagement
with communities
– the total amount donated to charity
partners and good causes by the Group
and colleauges in the year was over
£220k. Further details can be found on
pages 113 and 114.
Group’s sponsorships and donations
over
£220k
Communities
The Group partners with national
and local charities, which offer
employees the chance to make a
difference both nationwide and
closer to home. Giving something
back to our community is important
to all of us, whether it is through
volunteering, fundraising or efforts
that help protect our environment,
and aligns with the Group’s Values.
Our nominated charity partners are
chosen by employees with the aim
of making a meaningful impact to
these charities and to the lives of
those that the charities help.
Environment
Sustainability is becoming
increasingly important to the
Board and management. The
Group operates under the highest
governance and ethical standards
and is focused on reducing its
impact on the environment.
The Board and management are cognisant
of the impact of social and environmental
change on our business and stakeholders
and regularly promote awareness of
environmental issues among our employees,
as well as adhering to our plan to become
a greener organisation and comply with
enhanced regulation and disclosures.
Electricity purchased in the UK from
renewable tariffs
100%
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
in line with its Stewardship value. Further
details can be found in the Environment
section on pages 91-107.
OSB GROUP PLC
Annual Report and Accounts 2022
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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 shareholders as a whole.
The preceding pages 16-20
demonstrate how the Board
has engaged with the Group’s
key stakeholders (customers,
intermediaries, colleagues,
shareholders, suppliers, regulators
and the local communities in
which we are located). Examples
of strategic decisions which
have impacted the Group’s key
stakeholders are set out below.
Pages 16-20 and those that follow, describe
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 thinking and
has been more important than ever during
2022, as a result of the economic environment
and the rising cost of living. The Board
acknowledges that some decisions will result
in different outcomes for each stakeholder.
Key strategic decisions
in the year
Share repurchase programme
The Board recognises the importance
of delivering against the Group’s stated
intention to provide attractive and sustainable
returns to its shareholders.
In 2022, the Board approved the
commencement of a £100m share repurchase
programme following consideration of
shareholder expectations in relation to
capital management. During the year, over
20m ordinary shares were repurchased and
cancelled in accordance with the terms of the
programme and on 21 November 2022, it was
announced to the market that the programme
had completed.
The Board remains committed to returning
excess capital to its shareholders and believes
that such strategies will enable the Group
to create sustainable, long-term value for all
stakeholders. Following successful completion
of the £100m share repurchase programme,
the Board has announced that a further
£150m share repurchase programme will
commence on 17 March 2023.
Employee remuneration
The Board has considered the impact of
ongoing interest rate rises and the rising cost
of living and cost of borrowing in the UK on
its employees, in terms of their financial and
mental health well-being.
The increase in the cost of living and its
impact on employees was discussed at the
Workforce Advisory Forum (OurVoice), which
includes attendance from members of the
Board and the Group Executive Committee.
In line with the Group’s commitment to
ensuring that employees receive a fair deal,
the Board supported the decision approved
by the Group Executive Committee in
respect of a one-off payment of £1,200 to
all qualifying UK employees on lower salary
grades representing approximately 80% of
the employee population. The Board also
supported the decision to increase salaries
of the Group’s lowest paid employees in
the UK to £19,250 in line with the Living
Wage Foundation.
The Board recognises the ongoing challenges
faced by employees in the current economic
environment. In January 2023, the Group
Remuneration and People Committee
discussed and approved the payment of two
further cost of living payments of £600 each
for all qualifying UK employees.
Landlord Leaders
The Board received updates on progress in
relation to the Landlord Leaders initiative.
Following engagement with landlords and
brokers, and as part of its commitment
to helping customers prosper, the Group
has committed to delivering a number of
initiatives to support the building of a future-
focused sustainable industry. The Group
has pledged £50m of funding to the newly
established Landlord Leader Fund to help
landlords enhance energy efficiency. Other
initiatives include the launch of new products
to support landlords with refurbishing their
properties, redesigning the underwriting
process and partnering with tax specialists
to provide advice and guidance on tax
planning for part-time landlords looking to
professionalise. As part of this commitment,
the Group will create a new Landlord Leaders
community to bring brokers, landlords and
other industry members together.
Customer experience
The Board was kept informed of a number
of enhancements made to the customer
journey. In particular, the launch of a
new, simplified product range which was
proactively communicated to customers to
ensure that they had sufficient time to take
action prior to the end of their fixed period.
Additional resource was allocated to improve
the customer experience, including following
up with customers who had not taken
action upon entering the reversion period. In
addition, enhancements were made to the
Group’s eligibility criteria to enable more
customers to take advantage of the revised
rates in order to minimise payment shocks
and redemptions.
OSB GROUP PLC
Annual Report and Accounts 2022
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22
Market review
Meeting market demand
Despite geopolitical and macroeconomic
events that took place in 2022, the housing
and mortgage market remained resilient.
UK Buy-to-Let gross advances
£56bn
2022
2021
2020
£56bn
£47bn
£39bn
Source: UK Finance, Feb 2023
UK average house price infl ation
9.8%
2022
2021
2020
Source: ONS, Feb 2023
9.8%
8.1%
7.0%
The UK housing and
mortgage market
The last 12 months were defi ned by changing
market conditions brought about by the
war in Ukraine, continuing supply chain
issues, high infl ation, rising cost of living
and borrowing and the disruption following
September’s mini-budget. Despite these
developments, the housing and mortgage
markets were resilient and activity levels
remained strong.
Infl ation gathered pace following the invasion
of Ukraine, exacerbating supply chain issues
and leading to large increases in energy and
food prices. Data from the Offi ce of National
Statistics estimated that prices had seen a
year on year increase of 10.5% at the end of
December 2022, down slightly from a peak
of 11.1% at the end of October.1
The Bank of England implemented eight
successive increases in the base rate in
2022 to reduce infl ation towards its 2.0%
target. Overall, the base rate rose to 3.5%
in December 2022 from 0.25% in
December 2021.2
Mortgage interest rates increased
signifi cantly over the course of 2022, with
rising cost of funds for lenders and volatile
swap spreads. According to the Bank of
England, the average rate on a new two-year
fi xed rate mortgage at 75% loan to value
rose from 1.64% in January 2022 to 5.43% in
December 2022, an increase of +3.79%.3
The most signifi cant increase in mortgage
rates during the year was observed following
September’s mini-budget, which saw
mortgage lenders withdrawing products
and increasing rates as a result of volatile
swap spreads.
Overall, the number of residential property
transactions in the UK fell by 14% to 1.3m
in 2022 from a record high of 1.5m in 2021,
however activity levels in 2021 were infl ated
by the Stamp Duty Land Tax holiday which
saw a large number of property purchases
brought forward to benefi t from lower
transactional costs. Beyond this year-on-
year comparison, 2022 saw more property
transactions than any other year since 2007.4
OSB GROUP PLC
Annual Report and Accounts 2022
23
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The UK mortgage
market and climate
change
It has been estimated that privately owned
residential properties represent 15% of
total carbon emissions in the UK and it is
acknowledged that there are signifi cant
barriers to implementing energy effi ciency
improvements.10 The UK Government’s focus
on achieving its net zero goals has highlighted
the need to improve the energy effi ciency of
UK housing stock.
Two key consultations relating to improving
home energy performance were held by
the Department for Business, Energy and
Industrial Strategy, with outcomes yet to
be published:
– Improving the Energy Performance of
Privately Rented Homes in England
and Wales closed in January 2021. The
outcome is widely expected to introduce
a minimum requirement to ensure that all
rental properties achieve an EPC (Energy
Performance Certifi cate) rating of C or
higher from 2028. It is also expected to
increase the current required works cap
(the maximum amount that is expected
to be paid to improve the property’s EPC
rating) from £3,500 to £10,000, before
exemptions can be applied.
– Improving Home Energy Performance
through Lenders closed in February 2021.
The outcome is expected to impose a
requirement on all lenders to report on
the EPC of their loan portfolio, along
with a commitment to show annual
improvements towards an average rating
of C or higher.
These changes could have a signifi cant
impact on the private rented sector in the
UK. The industry eagerly anticipates the
publication of the fi nal outcomes from each
of these consultations, however discussion
as well as action from lenders have already
taken place, with the emergence of a ‘green
fi nance sector’. The Green Finance Institute
reported that 19 Buy-to-Let lenders had
launched dedicated green fi nance products
by the end of May 2022, a notable increase
from nine lenders at the end of 2021.
OSB GROUP PLC
Annual Report and Accounts 2022
UK gross mortgage lending increased by
4% to £322bn in 2022, refl ecting a resilient
market that was buoyed by rising property
prices, with average house prices increasing
by 9.8% in 2022, stimulated by high levels of
demand and a lack of supply.5
The UK savings market
2022 marked the end to the ‘accidental
savings’ brought about by pandemic
lockdowns, as the rising cost of living saw
many customers withdrawing from their
savings, or not being able to add to them.
There was more competition in the savings
market as providers passed on a proportion
of the base rate rises to savers via attractively
priced savings products, despite the
signifi cant delays in doing so during the
fi rst half of the year. The Bank of England
reported that savings balances in the UK
grew by £67bn from £2,135.3bn at the start of
the year to £2,202.4bn in December 2022.6
There were also more providers and more
savings accounts on off er in the year,
with 1,690 savings products promoted
in December 2022 compared to 1,646 in
December 2021.7
According to the Offi ce of National Statistics,
the household savings ratio that peaked
at 26.8% in 2020, as a result of ‘accidental
savings’, reduced to 9.0% by the fourth
quarter of 2022.8
The base rate rises introduced by the Bank of
England led to higher rates across all types of
savings accounts. By the end of 2022, fi xed
rate bonds had increased by 293bps over
the year.9
Easy access accounts held by fi nancial
institutions continued to exceed fi xed
term accounts. This was driven in part by
increased rates on traditionally lower-earning
easy access accounts, and a likely desire by
customers to remain nimble, according to the
Household Sector Deposits report.
24
Market review continued
The Group’s lending
segments
Buy-to-Let
According to UK Finance, Buy-to-Let gross
advances reached £55.7bn in 2022, a 17%
increase from £47.4bn in 2021. This was
supported by strong refi nancing activity in the
year, with Buy-to-Let remortgages increasing
by 33% to £37.0bn11 as the early wave of
fi ve-year fi xed rate products taken post the
PRA’s changes to the underwriting standards
reached the end of their initial term.
Research conducted by BVA BDRC on behalf
of the Group showed that the number of
landlords planning to purchase new properties
fell to 9% in the fourth quarter of 2022 from
14% in 2021, and the proportion of landlords
looking to sell increased to 30% from 24% in
2021. The Landlords Panel survey suggested
that landlords with larger portfolios were more
likely to make changes to their portfolio over
the next year with 16% looking to buy and 44%
looking to sell. It also showed that of those
who planned to purchase new properties in the
next 12 months, the majority (57%) planned
to do so within a limited company structure,
further supporting the market-wide trend
towards professionalisation.12
Tenant demand remained strong, with RICS
reporting that demand was still rising at the
time of its December report, with supply
remaining weak as evidenced by a decline
in landlord instructions coming to market
during that month.13 This imbalance between
demand and supply continued to exert
upwards pressure on rents in support of
the fundamentals underpinning the Private
Rented Sector. Rightmove reported that the
average asking rent increased by 15.7% in
Greater London during 2022 and rose by
9.7% across the rest of the country.14
Residential
According to UK Finance, total Residential
loans to home owners reached £251bn
in 2022, a minor decrease from £255bn
in 2021. However, this stability in overall
lending volumes masked a shift in the type of
business written, with a buoyant refi nancing
market compensating for a declining
purchase market during the year.15
Purchase completions decreased by 9% to
£193bn in 2022 (2021: £213bn) as the prior
year benefi tted from a spike in purchase
completions while the stamp duty holiday
was in eff ect. Despite this, annual purchase
completions were still considerably higher than
the pre-pandemic period in 2019 (£158bn).
Remortgage completions increased by 30%
to £107bn (2021: £83bn) as borrowers sought
to lock in to the best deals before mortgage
aff ordability deteriorated and rates increased
further, with remortgages representing 36% of
the market total (2021: 28%).15
Commercial
Throughout the fi rst half of the year,
there was a strong sense of confi dence
in commercial property, supported by
improving valuations and rising rents. In the
fi rst quarter capital values increased by
3.9% and by a further 3.0% in the second
quarter, with rents rising 1.5% and 1.0%
respectively.16 However, wider geopolitical
and macroeconomic challenges began to
impact in late summer, reversing the value
growth recorded in the fi rst half, although
some property types were aff ected more
signifi cantly than others.
Retail rents remained broadly static in 2022
according to CBRE, with some insulation
from further declines provided by pandemic-
induced price corrections throughout 2020
and 2021.16 Mixed-use asset classes such
as semi-commercial property, which off er
a diverse income stream underpinned by
residential lettings, remained attractive to
investors. This property type demonstrated
more resilience due to the residential rentals
outperforming expectations. Overall, CBRE
reported that capital values for ‘all retail’
decreased by 8.1% during the year whilst
rents increased by approximately 0.7%.16
During 2022, all commercial segments saw a
10% increase in demand since 2021.
The volume of transactions in commercial
property investment reached £50.4bn in
2022, just 8% below the fi ve-year average.16
OSB GROUP PLC
Annual Report and Accounts 2022
Tenant demand
remained strong,
with RICS reporting
that demand was still
rising at the time of its
December report with
supply remaining weak
Residential development
Despite the withdrawal of the government’s
pandemic support, housing demand
remained strong throughout most of 2022,
although tailed off at the end of the year as
a result of the uncertainty in future economic
conditions and increasing interest rates.
Demand remained strongest for houses
that were aff ordable to local populations.
It was notable that sales rates for the few
apartment schemes funded in London were
also high, seemingly bucking that trend.
Notes
1. ONS, Consumer price infl ation, UK: Dec 2022
BoE, Interest rates and Bank Rate, Dec 2022
2
BoE, 2 year (75% LTV) fi xed rate mortgage to
3
households (IUMBV34), Dec 2022
4. HMRC, Monthly property transactions, Dec 2022
5. Land Registry, UK House Price Index summary:
Dec 2022
6. BoE, Monthly Amounts Outstanding of Monetary
Financial Institutions’ Sterling Retail Deposits from
Private Sector, Dec 2021- Dec 2022
7. Moneyfacts, Treasury Reports, Dec 2021-Dec 2022
8. ONS, Households’ saving ratio, Q4,2022
9. BoE, Table CFM26IE, Dec 2021- Dec 2022
10. LENDERS Project – Core Report July 2017
11. UK Finance, BTL mortgages outstanding and gross
lending, Feb 2023
12. BVA BDRC, Landlords Panel Research, Q4 2022
13. RICS, UK Residential Market Survey, Dec 2022
14. Rightmove, Rental Price Tracker, Q4 2022
15. UK Finance, New mortgages and aff ordability,
Feb 2023
16. CBRE, UK Monthly Index Snapshot Dec 2022,
Jan 2023
25
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OSB GROUP PLC
Annual Report and Accounts 2022
26
Chief Executive Offi cer’s statement
I am extremely proud of the outstanding results
that OSB Group delivered in 2022. The Group’s
strategy, business model and high quality customer
franchises continued to prove resilient in a diffi cult
macroeconomic environment, as pandemic-related
risks eased, but were replaced by risks arising from
political instability, the war in Ukraine, as well as the
increasing cost of living and borrowing. Throughout
this period of volatility we have maintained close
dialogue with our customers and intermediaries to
ensure we remain a trusted partner in the market
segments we serve.
Outstanding results in 2022
We delivered on the guidance set out at the
start of 2022 and further consolidated our
position as a leading specialist lender in the
UK. Strong demand for the Group’s lending
products delivered underlying and statutory
net loan book growth of 12% in the year
to £23.5bn and £23.6bn, respectively (31
December 2021: £20.9bn and £21.1bn).
increased to £531.5m and basic earnings per
share was 90.8 pence (2021: £464.6m and
76.0 pence, respectively).
The underlying and statutory net interest
margins improved to 303bps and 278bps
respectively, benefi tting from base rate
rises during the year (2021: 282bps and
253bps, respectively).
I am particularly proud of our consistent and
sector-leading returns, with an underlying
return on equity of 24% for 2022, unchanged
from the prior year. Statutory return on equity
improved to 21% (2021: 20%).
I am delighted that the Group delivered a
record underlying pre-tax profi t of £591.1m
in 2022, up 13% from £522.2m in 2021,
representing an underlying basic earnings
per share of 99.6 pence (2021: 86.7 pence).
On a statutory basis, profi t before tax
The Group maintained its focus on cost
discipline and effi ciency. Underlying and
statutory cost to income ratios increased
marginally, as previously guided, to 25%
and 27% respectively (2021: 24% and
26%), although benefi tted from higher fair
value gains on fi nancial instruments. The
underlying management expense ratio
increased to 80bps (2021: 70bps) and the
statutory management expense ratio was
81bps (2021: 71bps). This refl ected the
anticipated return to a more normalised level
of post-pandemic expenditure, infl ationary
headwinds and planned investment in the
business, which we expect to continue in
2023, including refreshing and upgrading
our technology infrastructure following the
successful integration of OSB with CCFS.
The credit performance of the Group’s loan
book remained strong in 2022, refl ecting
our underwriting expertise and a robust
rental market.
The Group maintains a very strong capital
position and proven capital generation
capability through profi tability, with a CET1
ratio of 18.3% as at 31 December 2022
(31 December 2021: 19.6%). This enabled
the Group to deliver strong growth and
shareholder distributions in the form of both
dividends and share buybacks. The Board has
recommended a full year ordinary dividend
of 30.5 pence per share representing a
payout ratio of 30% of underlying earnings
attributable to ordinary shareholders. The
Board has also announced a special dividend
of £50m, 11.7 pence per share, and a new
£150m share repurchase programme to
commence on 17 March 2023.
These results were only delivered with the
support of my talented colleagues and I
thank them all for their eff orts.
The lending franchise performed
strongly
Strong demand for the Group’s mortgages
across our core Buy-to-Let and Residential
sub-segments helped organic originations
reach £5.8bn in the year, an increase of 29%
from £4.5bn in 2021. I am pleased that our
renewed focus on commercial lending saw
originations more than triple in that sub-
segment to £279m.
OSB GROUP PLC
Annual Report and Accounts 2022
27
Underlying return on equity
24%
2021: 24%
Statutory return on equity
21%
2021: 20%
We entered the second half of 2022 with
a very strong pipeline and elevated levels
of completions, as borrowers sought to
lock in attractive mortgage rates ahead
of anticipated future rate rises. We also
experienced an increase in retention levels
as we took action to retain high quality
mortgage customers.
The Group supported its customers in
navigating the disruption caused by
September’s mini-budget, which led to a spike
in mortgage interest rates and the withdrawal
of products from the market fuelled by swap
spread volatility. Throughout that time,
we were honouring not only the off ered
pipeline, but also the pre-off er pipeline, as we
focused on maintaining our stable presence
in the market. This response was recognised
particularly by professional Buy-to-Let
landlords and mortgage intermediaries.
I am pleased that the volatility in swap
spreads reduced by the end of the year,
leading to product price reductions which
improved aff ordability for borrowers,
especially in light of house price appreciation
and rent increases over the last few years.
We continued to demonstrate our leadership
and commitment to the Buy-to-Let sector
through the publication of the Landlord
Leaders report in November. This research
highlighted the continuing trend towards
professionalisation of the sector, with 45%
of professional landlords committed to
growing their businesses and investing in their
properties, a trend that OSB Group is well
placed to serve.
Credit and risk management
demonstrated underlying resilience
The high quality of the Group’s loan book
was demonstrated by a consistently strong
credit performance, with balances over three
months in arrears remaining stable at just 1.1%
of the loan book at the end of December (31
December 2021: 1.1%). However, we recognise
the potential for the higher cost of living and
interest rate environment to have an impact
on aff ordability for some of our borrowers
or their tenants, and we conducted detailed
analysis to understand which customers
may be most aff ected. This analysis was an
important input into our 2022 IFRS 9 loan
loss provision post-model adjustments and
sizing our operational resources should some
borrowers require additional assistance.
The Group recorded an impairment charge
of £30.7m on an underlying basis, which
represented an underlying loan loss ratio of
14bps for the year (2021: credit of £4.9m and
-2bps, respectively). The impairment charge
refl ected the worsening economic outlook
at the end of 2022, including the potential
impact of higher cost of living and borrowing
on aff ordability. The statutory impairment
charge was £29.8m, equivalent to a loan
loss ratio of 13bps (2021: credit of £4.4m
and -2bps, respectively).
The weighted average loan to value (LTV) of
the Group’s loan book decreased to 60% as
at 31 December 2022 from 62% at the end of
2021, supported by house price appreciation.
The weighted average LTV of new business
written by the Group increased to 71% from
69% in 2021 and interest coverage ratios
remained strong at 207% for OSB and 191%
for CCFS.
Multi-channel funding model
Retail deposits remained the primary source
of funding for the Group and the deposit
book grew by 13% to £19.8bn in 2022 (31
December 2021: £17.5bn) as we priced our
savings products competitively following
the base rate rises.
We opened over 191,000 new savings
accounts in the year, more than twice the
prior year level, and retention rates remained
very high; 94% for maturing fi xed rate bonds
and ISAs at Kent Reliance and 88% for
Charter Savings Bank. We maintained a very
strong focus on customer service combined
with transparent and fair savings products.
The very strong demand we saw in the year
had some temporary impact on our service
response times and performance levels
which was refl ected in the strong but slightly
lower Net Promoter Scores for the year of
+64 for Kent Reliance and +61 for Charter
Savings Bank. I am pleased that process
enhancements we implemented during the
year have had a positive eff ect and are being
refl ected in current scores.
In August 2022 we completed a fully retained
c. £1.3bn securitisation of Buy-to-Let
mortgages under our Canterbury programme
to further optimise collateral placed with the
Bank of England and market counterparties.
Drawings under the Term Funding Scheme for
SMEs remained at £4.2bn as at 31 December
2022 and the Group intends to commence
the initial repayment of these funds in early
2024. We will continue to opportunistically
access the wholesale markets when
conditions are favourable as they off er
the Group optionality and diversifi cation
of funding.
OSB GROUP PLC
Annual Report and Accounts 2022
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28
Chief Executive Offi cer’s statement continued
Ordinary dividend payout ratio
30%
2021: 30%
Total dividend*, pence per share
42.2p
2021: 26.0p
*
Includes £50m special dividend, equivalent to 11.7
pence per share
Capital management
The Group has a proven capital generation
capability through profi tability and this
enabled the Group to deliver strong growth
and shareholder distributions in the form
of both dividends and share buybacks. The
Group has a very strong capital position, with
a CET1 ratio of 18.3% as at 31 December 2022
(31 December 2021: 19.6%), and is targeting
a CET1 ratio of 14%, once the capital stack
has been optimised fully over the next couple
of years, subject to market conditions,
through planned Tier 2 and MREL qualifying
debt issuance.
The Board has recommended a fi nal dividend
of 21.8 pence per share, which together with
the interim dividend of 8.7 pence per share,
results in an ordinary dividend for the year of
30.5 pence per share. The ordinary dividend
payout ratio of 30% of underlying earnings
is in line with the prior year payout ratio and
our stated desire to deliver a progressive
dividend per share. In addition, given the
strong capital position of the Group, the
Board has announced a special dividend of
£50m, 11.7 pence per share. When combined
with the recommended ordinary dividend
this represents a total dividend for 2022 of
42.2 pence per share and a 41% payout ratio.
The Board remains committed to returning
excess capital to shareholders and has today
announced a new £150m share repurchase
programme to commence on 17 March
2023. When combined with the ordinary
and special dividends, this represents a
total return to shareholders of £332m and
demonstrates the Board’s intention to use
multiple levers to deliver shareholder returns.
OSB GROUP PLC
Annual Report and Accounts 2022
We note the PRA’s recently published
consultation paper (CP) on the
implementation of Basel 3.1. We will be
responding to that paper and await
confi rmation of the fi nal rules, which we
expect to be available by the end of 2023.
We have estimated the impact on the 31
December 2022 CET1 ratio to be a reduction
of up to 2% points, should the proposed rules
be implemented as drafted in the CP and
prior to the Group receiving Internal Ratings-
Based (IRB) accreditation.
The Group continues to advance towards
Internal Ratings-Based (IRB) accreditation,
with progress made throughout the year.
The Group has undertaken a comprehensive
self-assessment exercise to validate its level
of compliance, in conjunction with drafting all
required module 1 submission documentation,
which has passed through internal
governance. The Group noted the PRA’s
industry level feedback to ensure eff ective
adherence to regulatory expectation. Pre-
application discussions have been held with
the PRA to outline the Group’s approach to
integrating IRB capabilities and compliance.
The Group is now actively engaging with the
PRA regarding a module 1 submission date.
The programme continues to integrate IRB
capabilities informing the Group’s business,
key risk and capital management disciplines.
The Board is confi dent that the Group’s
proven business strategy and capital
generation capability will continue to support
both strong net loan book growth and further
capital returns to shareholders, including a
progressive dividend per share. The Board
remains committed to returning excess
capital to shareholders.
ESG
We made good progress in continuing to
embed our ESG framework across the Group
during 2022, with regular meetings of the ESG
segment of the Group Executive Committee
and ESG reporting to the Board. I am proud
that we reduced our own greenhouse gas
emissions by 8.1% in the year, benefi tting from
a range of initiatives implemented throughout
the Group.
I am also particularly pleased that this year
we reached a milestone of 2,000 colleagues.
We have been hiring talented individuals
across the Group, demonstrating our
commitment to customers, and ensuring
the resilience of the business for the future,
placing us in an advantageous position for
when the market returns to healthy growth.
We continue to develop OSB Group as a
diverse and inclusive organisation and we
renewed our commitment to having 33% of
UK senior management positions fi lled by
women by the end of 2023. We are making
progress to achieve this target.
Landlord Leaders – A new environment for the Private Rented Sector
The shift to a more environmentally-
friendly housing stock won’t be
fi xed by single products with green
labels nor by one-off property
improvements. The solutions to the
challenges ahead lie in a holistic,
cross-industry approach, focused
on improving the lived experiences
of tenants and the impact that
housing has on both society and
the environment.
In 2022, we set out to understand the changing shape of the Private
Rented Sector through an ESG lens to help shape our strategy, support
our broker partners and deliver the support our landlord clients need
today and looking forward.
Jon Hall, Group Managing Director, Mortgages and Savings
29
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Looking forward
Over the course of the last three years, we
have successfully delivered on our integration
plans and our teams are now benefi tting from
working on a number of common technology
platforms. We have now turned our attention
towards identifying opportunities to further
digitise our business operations, to deliver
additional effi ciencies and invest in the Group
to ensure it remains well-positioned to meet
the evolving needs of our customers, brokers
and wider stakeholders.
The Group remains well capitalised, with
strong liquidity and a high quality loan book
and customer franchises. We have supported
our customers and colleagues who all face
the realities of the increasing cost of living and
rising interest rates, and we will continue to
focus on those who require most assistance.
The Group has a proven track record of
delivering strong results with a clear strategy
and risk management framework. We have
consistently demonstrated our resilience,
which allows us to look to the future
with optimism.
UK Finance is forecasting that the overall
mortgage market will be subdued in 2023,
with an overall 15% year-on-year reduction
in gross mortgage lending and a particular
reduction in expected purchase activity.
However, remortgaging is expected to
outperform purchasing activity, supported
by an increased level of fi xed rate mortgages
due to end during the year. The Buy-to-Let
segment is also predicted to see a reduction
in lending following a strong 2022. Whilst
part-time landlords may be more sellers
than buyers in the year ahead, professional
landlords, who comprise the majority of the
Group’s lending, remain active buyers and are
looking favourably at opportunities supported
by continued strong tenant demand and
rental growth. Aff ordability challenges will be
evident in all lending segments resulting from
the combined eff ects of infl ation and higher
interest rates. This is particularly the case for
fi rst time buyers in the residential segment
and also for amateur landlords. However,
professional multi-property landlords have
benefi tted from increases in rental yields
and strong tenant demand, and the Group’s
interest coverage ratios at origination
remained very high during the year at 207%
for OSB and 191% for CCFS.
We remain cognisant of the uncertain
macroeconomic outlook and the potential
impact of the higher cost of living and
borrowing on the mortgage market and
aff ordability, however we are building a
healthy pipeline of new business and have a
proven track record of retaining customers,
attracting new business and working with
high quality borrowers. Based on current
application volumes, we are targeting
underlying net loan book growth of c. 5%
for 2023. The underlying NIM for 2023 is
expected to be broadly fl at to 2022, after
the expected impact of planned Tier 2 and
MREL qualifying debt issuance, subject to
market conditions. We expect our underlying
cost to income ratio to increase to c. 29% in
2023, due to the signifi cant fair value gains
from hedging activities in 2022, continuing
infl ationary headwinds and the full-year
impact of hiring last year and further planned
investment in the business.
Andy Golding
Chief Executive Offi cer
OSB GROUP PLC
Annual Report and Accounts 2022
30
Strategic framework
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 propositions.
Priorities
Our goals
2022
Looking forward
Key risks
KPIs
Be a leading specialist
lender in our chosen
market sub-segments
Originate loans at attractive margins in our chosen
market sub-segments
– Target market sub-segments which offer
attractive returns on a risk-adjusted basis
– Identify incremental, non-organic business
– Invest in a highly responsive, customer-
focused culture
– Innovate to secure sustainable long-term
market leadership
– Provide solutions and leadership for
environmental, legislative and social changes
impacting our borrowers and their properties
– Organic originations were £5.8bn, up 29% from
£4.5bn in 2021 due to strong demand in our
core sub-segments
– Completions were very strong in the second
half with the Group’s stable and consistent
proposition proving popular as the underlying
macroeconomy became more difficult
– Originations improved in the Commercial sub-
segment as the Group relaunched products
under the InterBay brand
– Second charge products under the Precise
brand were withdrawn for new borrowers
– Maintain our strong credit and return requirements
– Political and economic uncertainty
Organic originations
and assess the attractiveness of growth
opportunities in our current market sub-segments
– Deploy scale and resources on organic
– Identify new market sub-segments with high returns
lending opportunities
on a risk-adjusted basis
– Leverage our proven track record for portfolio
acquisitions to deliver incremental
non-organic growth
affecting long-term demand for specialist
mortgages and appetite from professional
landlords to grow their portfolios
– Potential regulatory changes including
legislative focus on Buy-to-Let
and investment to meet
environmental regulation
– New specialist lenders entering the market
£5.8bn
2021: £4.5bn
High-quality decisions protecting the business
– Use deep credit expertise to deliver high-quality
lending decisions
– Provide a differentiated underwriting approach
based on the needs and characteristics of
our customers; offering both an automated
approach and a skilled manual underwriting
capability and in-house real estate expertise
– Deliver a quality, differentiated service informed
by comprehensive market feedback and research
– Deliver clear, accurate and efficient decisions
recognised by intermediaries for their quality
and fairness
Increase partner engagement in response
to demand
– Access to specialist products developed by
listening to intermediary partners
– Be accessible and available to intermediaries
– Offer complementary propositions for lending
brands across the Group
– Gain intermediary recognition for delivering
sustainable propositions
– Deliver bespoke solutions to meet intermediary
and customer needs
– The OSB Transactional Credit Committee met
three times a week to assist with more complex
and larger new mortgage applications and
larger portfolio relationships
– Maintained high underwriting standards
notably in response to the increase in
completions in the second half of 2022
– Changing regulations for underwriting
– More complex underwriting requirements
– Difficulty in recruiting experienced
colleagues
– Increasing intermediary demands
– Demands of the ever-changing technology
13bps
2021: -2bps
Statutory loan loss ratio
– Use OSB’s and CCFS’ credit experience in 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
– Invest in technology solutions to support deep
underwriting expertise enabling faster decision
making and processing
– Use enhanced data insight and analysis of
the combined OSB and CCFS data sets and
analytic capabilities
– Widened access to the Group’s specialist
products as we leveraged our complementary
brand propositions
– Enhanced the structure of the Sales team to
increase support to key market sub-segments
– Enhanced telephone intermediary resource to
complement our face-to-face service
– Launched Landlord Leaders programme,
supporting landlords in developing a
sustainable Private Rented Sector
– Continue to build direct relationships with
– Loss of key broker relationships
OSB broker NPS
CCFS broker NPS
intermediaries
– Leverage best practices across the combined
Group to maintain and further enhance our service
performance to brokers
– Increase the breadth of sales support to
intermediaries during the application process
– Continue Landlord Leaders programme providing
market leading guidance and support to landlords
– More complex underwriting requirements
slowing the process
– Speed of investment in technology solutions
to ensure that the Group can keep pace
with market demands
– Competitive pressures altering with
changing macroeconomic conditions
leading to peaks and troughs affecting
service levels
+37
2021: +55
+39
2021: +42
Expertise in funding options
– Maintain resilient and diversified funding
platforms to support future growth and ensure
that 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 propositions 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
– Opened over 191,000 new savings accounts
across both Banks in 2022, more than double
that in 2021
– Achieved 94% customer retention for Kent
Reliance and 88% for Charter Savings Bank
– Received multiple awards for savings products,
including ISA Provider of the Year for CSB and
Best Cash ISA Provider from Yourmoney.com
Personal Finance Awards for Kent Reliance
– Completed a fully retained £1.3bn
securitisation of Buy-to-Let mortgages under
the Canterbury Finance programme
Best-in-class customer service
– Have customer service at the heart of everything
we do
– Maintain centres of excellence across OSB’s
and CCFS’ existing locations in Chatham,
Wolverhampton and in India
– Maintain strong savings customer NPS of +64
for Kent Reliance and +61 for Charter Savings
Bank whilst managing eight base rate changes
and more than doubling account opening
– Continued to develop deep credit know-how
through strong data analytical capabilities
– Extend activity in OSB India (OSBI) to develop
– Increased support in OSBI reaching 663
high-quality areas of excellence
employees at the end of 2022
– Deliver cost efficiencies through excellent process
– Demonstrated outstanding operational
design and management
resilience and flexibility
– Deliver technology-enabled flexible and resilient
operating processes
– Continue to invest in both Kent Reliance and Charter
– Increased competition for retail funds as
Savings Bank retail deposit franchises
interest rates rise
– Benefit from the ability to execute structured
– Increased customer expectation for
balance sheet management transactions across the
technology-based accounts
combined Group’s balance sheet
– Volatility of capital markets on demand
– Utilise in-house expertise to enable efficient access
and price
to capital markets
– Increase the Group’s encumbrance efficiency:
– Increased burden of regulatory compliance,
for example, Open Banking (which currently
access to more wholesale funding for each pound of
does not apply to the Group)
assets encumbered
– Increase investment in technology to further
– Competition in wholesale and retail
markets as banks repay their Term Funding
enhance customer service and servicing capabilities
Scheme with additional incentives for
SMEs drawings
22 securitisations since
2013 across the Group
worth
£11.1bn
– Use greater scale to deliver efficient, scalable and
– Harder to achieve continuous service
Statutory cost to income ratio
resilient infrastructure including IT security
– Deliver cost efficiencies and operational
improvement as the Group grows
– Increasing costs in India and inflationary
enhancements by leveraging OSBI’s lending, savings
headwinds in the UK
and support operations and capabilities
– Increasing complexity from compliance
– Deliver efficiencies and enhanced capabilities in
with changing regulation
centres of excellence
– Maintaining operational resilience as the
– Deliver significant improvements in customer
Group grows
servicing and efficiency including the use of robotics
technology to improve workflows to further enhance
– Increasing costs of investing in technology
as advances increase
primary servicing
27%
2021: 26%
Focus on automated
and bespoke manual
underwriting
Further deepen
relationships and
reputation for delivery
with intermediaries
Maintain stable,
high-quality,
diversified funding
platforms
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Leverage our unique
and cost-efficient
operating model
e
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OSB GROUP PLC
Annual Report and Accounts 2022
Priorities
Our goals
2022
Looking forward
Key risks
KPIs
Originate loans at attractive margins in our chosen
– Organic originations were £5.8bn, up 29% from
– Maintain our strong credit and return requirements
– Political and economic uncertainty
Organic originations
and assess the attractiveness of growth
opportunities in our current market sub-segments
– Deploy scale and resources on organic
lending opportunities
– Identify new market sub-segments with high returns
on a risk-adjusted basis
– Leverage our proven track record for portfolio
acquisitions to deliver incremental
non-organic growth
affecting long-term demand for specialist
mortgages and appetite from professional
landlords to grow their portfolios
– Potential regulatory changes including
legislative focus on Buy-to-Let
and investment to meet
environmental regulation
– New specialist lenders entering the market
£5.8bn
2021: £4.5bn
– Use OSB’s and CCFS’ credit experience in 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
– Invest in technology solutions to support deep
underwriting expertise enabling faster decision
making and processing
– Use enhanced data insight and analysis of
the combined OSB and CCFS data sets and
analytic capabilities
– Changing regulations for underwriting
– More complex underwriting requirements
– Difficulty in recruiting experienced
colleagues
– Increasing intermediary demands
– Demands of the ever-changing technology
Statutory loan loss ratio
13bps
2021: -2bps
31
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– Continue to build direct relationships with
intermediaries
– Loss of key broker relationships
– More complex underwriting requirements
– Leverage best practices across the combined
slowing the process
Group to maintain and further enhance our service
performance to brokers
– Increase the breadth of sales support to
intermediaries during the application process
– Continue Landlord Leaders programme providing
market leading guidance and support to landlords
– Speed of investment in technology solutions
to ensure that the Group can keep pace
with market demands
– Competitive pressures altering with
changing macroeconomic conditions
leading to peaks and troughs affecting
service levels
OSB broker NPS
CCFS broker NPS
+37
2021: +55
+39
2021: +42
– Continue to invest in both Kent Reliance and Charter
– Increased competition for retail funds as
Savings Bank retail deposit franchises
interest rates rise
– Benefit from the ability to execute structured
– Increased customer expectation for
balance sheet management transactions across the
combined Group’s balance sheet
technology-based accounts
– Volatility of capital markets on demand
– Utilise in-house expertise to enable efficient access
and price
22 securitisations since
2013 across the Group
worth
to capital markets
– Increase the Group’s encumbrance efficiency:
access to more wholesale funding for each pound of
assets encumbered
– Increase investment in technology to further
enhance customer service and servicing capabilities
– Increased burden of regulatory compliance,
for example, Open Banking (which currently
does not apply to the Group)
– Competition in wholesale and retail
markets as banks repay their Term Funding
Scheme with additional incentives for
SMEs drawings
£11.1bn
– Use greater scale to deliver efficient, scalable and
resilient infrastructure including IT security
– Deliver cost efficiencies and operational
enhancements by leveraging OSBI’s lending, savings
and support operations and capabilities
– Harder to achieve continuous service
improvement as the Group grows
– Increasing costs in India and inflationary
headwinds in the UK
– Increasing complexity from compliance
– Deliver efficiencies and enhanced capabilities in
with changing regulation
centres of excellence
– Maintaining operational resilience as the
– Deliver significant improvements in customer
Group grows
servicing and efficiency including the use of robotics
technology to improve workflows to further enhance
primary servicing
– Increasing costs of investing in technology
as advances increase
Statutory cost to income ratio
27%
2021: 26%
For more information on risks
see pages 52-75.
For more information on KPIs
see pages 44 and 45.
OSB GROUP PLC
Annual Report and Accounts 2022
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Be a leading specialist
lender in our chosen
market sub-segments
market sub-segments
– Target market sub-segments which offer
attractive returns on a risk-adjusted basis
– Identify incremental, non-organic business
– Invest in a highly responsive, customer-
– Innovate to secure sustainable long-term
focused culture
market leadership
– Provide solutions and leadership for
environmental, legislative and social changes
impacting our borrowers and their properties
£4.5bn in 2021 due to strong demand in our
core sub-segments
– Completions were very strong in the second
half with the Group’s stable and consistent
proposition proving popular as the underlying
macroeconomy became more difficult
– Originations improved in the Commercial sub-
segment as the Group relaunched products
under the InterBay brand
– Second charge products under the Precise
brand were withdrawn for new borrowers
Focus on automated
and bespoke manual
underwriting
High-quality decisions protecting the business
– Use deep credit expertise to deliver high-quality
lending decisions
– The OSB Transactional Credit Committee met
three times a week to assist with more complex
and larger new mortgage applications and
– Provide a differentiated underwriting approach
larger portfolio relationships
– Maintained high underwriting standards
notably in response to the increase in
completions in the second half of 2022
based on the needs and characteristics of
our customers; offering both an automated
approach and a skilled manual underwriting
capability and in-house real estate expertise
– Deliver a quality, differentiated service informed
by comprehensive market feedback and research
– Deliver clear, accurate and efficient decisions
recognised by intermediaries for their quality
and fairness
Further deepen
relationships and
reputation for delivery
with intermediaries
Maintain stable,
high-quality,
diversified funding
platforms
Leverage our unique
and cost-efficient
operating model
Increase partner engagement in response
to demand
– Widened access to the Group’s specialist
products as we leveraged our complementary
– Access to specialist products developed by
brand propositions
listening to intermediary partners
– Be accessible and available to intermediaries
– Enhanced the structure of the Sales team to
increase support to key market sub-segments
– Offer complementary propositions for lending
– Enhanced telephone intermediary resource to
– Gain intermediary recognition for delivering
– Launched Landlord Leaders programme,
brands across the Group
sustainable propositions
– Deliver bespoke solutions to meet intermediary
and customer needs
complement our face-to-face service
supporting landlords in developing a
sustainable Private Rented Sector
Expertise in funding options
– Maintain resilient and diversified funding
platforms to support future growth and ensure
that 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 propositions 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
– Opened over 191,000 new savings accounts
across both Banks in 2022, more than double
that in 2021
– Achieved 94% customer retention for Kent
Reliance and 88% for Charter Savings Bank
– Received multiple awards for savings products,
including ISA Provider of the Year for CSB and
Best Cash ISA Provider from Yourmoney.com
Personal Finance Awards for Kent Reliance
– Completed a fully retained £1.3bn
securitisation of Buy-to-Let mortgages under
the Canterbury Finance programme
Best-in-class customer service
– Have customer service at the heart of everything
we do
– Maintain centres of excellence across OSB’s
and CCFS’ existing locations in Chatham,
Wolverhampton and in India
– Maintain strong savings customer NPS of +64
for Kent Reliance and +61 for Charter Savings
Bank whilst managing eight base rate changes
and more than doubling account opening
– Continued to develop deep credit know-how
through strong data analytical capabilities
– Extend activity in OSB India (OSBI) to develop
– Increased support in OSBI reaching 663
high-quality areas of excellence
employees at the end of 2022
– Deliver cost efficiencies through excellent process
– Demonstrated outstanding operational
design and management
resilience and flexibility
– Deliver technology-enabled flexible and resilient
operating processes
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32
Segments review
The Group reports its lending business
under two segments: OneSavings Bank
and Charter Court Financial Services.
OneSavings Bank
(OSB) segment
(OSB) segment
OSB GROUP PLC
Annual Report and Accounts 2022
33
The following tables present OSB’s contribution to profi t and loans and advances to customers on a statutory basis:
Contribution to profi t
For year ended 31 December 2022
Net interest income
Other income
Total income
Impairment of fi nancial assets
Contribution to profi t
For year ended 31 December 2021
Net interest income
Other income
Total income
Impairment of fi nancial assets
Contribution to profi t
Loans and advances to customers
As at 31 December 2022
Gross loans and advances to customers
Expected credit losses
Net loans and advances to customers
Risk-weighted assets
As at 31 December 2021
Gross loans and advances to customers
Expected credit losses
Net loans and advances to customers
Risk-weighted assets
BTL/SME
£m
Residential
£m
383.1
7.1
390.2
(23.5)
366.7
340.5
7.2
347.7
(6.2)
341.5
77.6
1.8
79.4
1.2
80.6
74.3
1.5
75.8
2.7
78.5
Total
£m
460.7
8.9
469.6
(22.3)
447.3
414.8
8.7
423.5
(3.5)
420.0
BTL/SME
£m
Residential
£m
Total
£m
10,920.0
(95.2)
2,324.7
(8.0)
13,244.7
(103.2)
10,824.8
2,316.7
13,141.5
5,258.8
1,033.7
6,292.5
9,936.1
(72.0)
9,864.1
2,121.2
(10.2)
12,057.3
(82.2)
2,111.0
11,975.1
4,614.1
957.6
5,571.7
OSB GROUP PLC
Annual Report and Accounts 2022
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34
Segments review continued
OSB segment continued
Buy-to-Let/SME sub-segment
Gross loan book
Loans and advances to customers
2021: £9,936.1m
£10,920.0m
+10%
Net interest income
2021: £340.5m
£383.1m
+13%
Contribution to profi t
2021: £341.5m
£366.7m
+7%
Buy-to-Let
Commercial
Residential development
Funding lines
Gross loans and advances to customers
Expected credit losses
Net loans and advances to customers
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, residential
development fi nance to small and medium-
sized developers, secured funding lines to
other lenders and asset fi nance.
The Buy-to-Let/SME net loan book increased
by 10% to £10,824.8m in 2022, supported
by organic originations of £2,283.8m, which
were 27% higher than £1,804.7m in 2021.
OSB GROUP PLC
Annual Report and Accounts 2022
31-Dec-2022
£m
31-Dec-2021
£m
9,755.0
881.3
184.5
99.2
10,920.0
(95.2)
10,824.8
8,867.7
794.4
120.7
153.3
9,936.1
(72.0)
9,864.1
Buy-to-Let/SME net interest income increased
by 13% to £383.1m from £340.5m in 2021,
refl ecting growth in the loan book and the
benefi cial impact of base rate rises, due
primarily to delays in the market passing
base rate rises on to savers in full. This sub-
segment also benefi tted from net eff ective
interest rate (EIR) reset gain of £20.0m
(2021: £24.9m). The gain was primarily due
to higher than expected redemptions in the
fi xed period of Buy-to-Let mortgages, as
borrowers sought to lock in rates early in a
period of rapidly rising rates, as well as higher
anticipated income in the reversion period for
commercial mortgages.
This sub-segment also benefi tted from £7.1m
of other income from the Group’s hedging
activities (2021: £7.2m) and recorded an
impairment charge of £23.5m (2021: £6.2m).
The impairment charge was due to the more
severe forward-looking macroeconomic
scenarios adopted by the Group, post model
adjustments to account for rising cost of
living and borrowing concerns, partially off set
by releases of pandemic-related provisions
and the favourable eff ect of house price
appreciation in the year. Overall, the Buy-
to-Let/SME segment made a contribution
to profi t of £366.7m, up 7% compared with
£341.5m in 2021.
The Group remained highly focused on
the risk assessment of new lending, as
demonstrated by the average loan to value
(LTV) for Buy-to-Let/SME originations of 73%,
unchanged from 2021.1 The average book LTV
in the Buy-to-Let/SME segment reduced to
63% (31 December 2021: 65%)1 benefi tting
from house price appreciation with only 3.2%
of loans exceeding 90% LTV (31 December
2021: 2.5%).
35
Buy-to-Let
The Buy-to-Let gross loan book increased by
10% to £9,755.0m at the end of December
2022 (31 December 2021: £8,867.7m),
benefitting from increased refinance activity.
Originations in this segment were £1,804.6m
in 2022, up 22% from £1,477.7m in the
prior year.
The PRA implemented new underwriting
standards for Buy-to-Let mortgages at the
start of 2017, which introduced affordability
stress testing for mortgages fixed for less
than five years, triggering a shift towards
five-year fixed rate products. The early wave
of these five-year fixed rate mortgages
reached the end of their initial term in 2022,
leading to an increase in refinance activity.
The proportion of Kent Reliance Buy-to-Let
completions due to refinancing activity
increased to 61% from 54% in 2021. The
proportion due to purchases reduced as the
prior year benefitted from a spike in purchase
activity due to the stamp duty holiday. Five-
year fixed rate mortgages continued to be
popular in 2022 due to the expectation of
further base rate rises and represented 70%
of Kent Reliance completions (2021: 62%).
Professional, multi-property landlords
continued to add to their portfolios and
optimise their businesses from a tax
perspective and represented 86% of
completions by value for the Kent Reliance
brand in 2022 (2021: 82%). Kent Reliance
mortgage applications that came from
landlords borrowing via a limited company
represented 78% (2021: 73%).
Research conducted by BVA BDRC on behalf
of the Group showed that the proportion
of landlords planning to purchase new
properties fell slightly during the year.
However, of those planning to acquire more
properties, the proportion planning to do so
within a limited company ownership structure
increased, especially amongst landlords
with portfolios of six or more properties,
signalling continued professionalisation of
Buy-to-Let landlords.
OSB continued to focus on retention under
its Choices retention programme, with 72%
of existing borrowers choosing a new product
with us within three months of their initial rate
ending (2021: 71%).
The weighted average LTV of the Buy-to-Let
book as at 31 December 2022 was 62% with
an average loan size of £255k (31 December
2021: 64% and £250k). The weighted average
interest coverage ratio for Buy-to-Let
originations during 2022 was 207%
(2021: 199%).
Commercial
Through its InterBay brand, the Group lends
to borrowers investing in commercial and
semi-commercial property, reported in the
Commercial total, and more complex Buy-to-
Let properties and portfolios, reported in the
Buy-to-Let total.
Organic originations more than triple in
2022 to £278.7m supporting growth in the
gross loan book of 11% to £881.3m as at 31
December 2022 from £794.4m in the prior
year. InterBay experienced increased levels
of interest and applications in 2022 as
pandemic-related criteria restrictions were
removed, and new refurbishment products
were relaunched in April.
The weighted average LTV of the commercial
book remained low at 69% and the average
loan size was £375k in 2022 (31 December
2021: 69% and £380k).
InterBay Asset Finance, which predominantly
targets UK SMEs and small corporates
financing business critical assets, achieved a
record year of lending volumes. Average deal
size increased and customer credit covenants
improved as businesses continued to recover
from the pandemic. The gross carrying
amount under finance leases increased by
40% to £163.2m as at 31 December 2022 (31
December 2021: £116.2m).
Residential development
Our Heritable residential development
business provides development finance to
small and medium-sized residential property
developers. The preference is to fund house
builders which operate outside of 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 represented
repeat business from the team’s extensive
existing relationships.
The residential development finance gross
loan book at the end of 2022 was £184.5m,
with a further £162.2m committed (31
December 2021: £120.7m and £188.0m,
respectively). Total approved limits were
£502.6m, exceeding drawn and committed
funds due to the revolving nature of the
facility where construction is phased and
facilities are redrawn as sales on the initially
developed properties occur (31 December
2021: £500.3m). The rates of sale experienced
by Heritable’s developer customers increased
during the year, leading to high levels of
loan repayments.
At the end of 2022, Heritable had
commitments to finance the development
of 2,140 residential units, the majority of
which are houses located outside of central
London. Heritable continues to take an
exacting approach to approving funding
for new customers given the
macroeconomic uncertainty.
Funding lines
OSB 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 the end of 2022 were
£274.0m with total loans outstanding of
£99.2m (31 December 2021: £450.0m and
£153.3m, respectively).
During the year, a cautious risk approach was
maintained. Five property-related funding
lines were closed and no new facilities were
extended, as the Group chose to focus on
servicing existing borrowers.
1. Buy-to-Let/SME sub-segment average weighted LTVs
include Kent Reliance and InterBay Buy-to-Let, semi-
commercial and commercial lending.
OSB GROUP PLC
Annual Report and Accounts 2022
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Segments review continued
OSB segment continued
Residential sub-segment
Gross loan book
Loans and advances to customers
2021: £2,121.2m
£2,324.7m
+10%
Net interest income
2021: £74.3m
£77.6m
+4%
Contribution to profi t
2021: £78.5m
£80.6m
+3%
OSB GROUP PLC
Annual Report and Accounts 2022
First charge
Second charge
Funding lines
Gross loans and advances to customers
Expected credit losses
Net loans and advances to customers
This sub-segment comprises lending to
owner-occupiers, secured via fi rst charge
against a residential home and under shared
ownership schemes.
The Residential sub-segment net loan book
grew by 10% to £2,316.7m as at 31 December
2022 (31 December 2021: £2,111.0m) with
organic originations of £575.9m during the
year (2021: £558.6m).
Net interest income in the Residential sub-
segment increased by 4% to £77.6m (2021:
£74.3m) largely due to the growth in the loan
book and the benefi cial impact of base rate
rises, due primarily to delays in the market
passing base rate rises on to savers in full.
This sub-segment recognised a £1.6m net EIR
loss due to cash underperformance versus
modelled assumptions on the second charge
acquired books (2021: £7.5m gain).
Other income of £1.8m (2021: £1.5m) was
recognised from the Group’s hedging
activities and an impairment credit of £1.2m
(2021: £2.7m) due to strong house price
performance in the year, partially off set by
more severe forward-looking macroeconomic
scenarios adopted by the Group and post
model adjustments to account for rising cost
of living and borrowing concerns. Overall,
contribution to profi t from this segment
increased by 3% to £80.6m compared with
£78.5m in 2021.
The average book LTV reduced to 45%
(31 December 2021: 48%)1 with only 0.8%
of loans by value with LTVs exceeding 90%
(31 December 2021: 0.8%). The average
LTV of new residential origination during
2022 increased to 64% (2021: 50%)1 as a
result of a smaller proportion of shared
ownership originations than in the prior
year, (which complete at lower LTVs)
and an increase in higher LTV
owner-occupied originations.
31-Dec-2022
£m
31-Dec-2021
£m
2,152.9
171.8
–
2,324.7
(8.0)
2,316.7
1,895.9
224.7
0.6
2,121.2
(10.2)
2,111.0
First charge
First charge mortgages are provided under
the Kent Reliance brand, which largely serves
prime credit quality borrowers with more
complex circumstances. This includes high
net worth individuals with multiple income
sources and self-employed borrowers, as well
as those buying a property in conjunction
with a housing association under shared
ownership schemes.
The fi rst charge gross loan book increased
14% in the period to £2,152.9m from £1,895.9m
at the end of 2021, as the Group relaunched
its residential proposition under the Kent
Reliance brand introducing a new range of
products for complex prime borrowers in May.
Second charge
The OSB second charge mortgage book is in
run-off and managed by Precise Mortgages.
The total gross loans were £171.8m at the end
of 2022 (31 December 2021: £224.7m).
Funding lines
As at the end of 2022, OSB provided no
secured funding lines with the fi nal exposure
repaid in the year (31 December 2021: £0.6m).
1. Residential sub-segment average weighted LTVs
include fi rst and second charge lending.
We have introduced
the fi rst of a range of
products for landlords
wishing to improve the
energy effi ciency of
their properties.
37
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OSB GROUP PLC
Annual Report and Accounts 2022
38
Segments review continued
Charter Court
Charter Court
Financial Services
Financial Services
Financial Services
Financial Services
(CCFS) segment
(CCFS) segment
(CCFS) segment
(CCFS) segment
OSB GROUP PLC
Annual Report and Accounts 2022
39
The following tables present CCFS’ contribution to profi t and loans and advances to customers on an underlying basis, excluding acquisition-
related items and a reconciliation to the statutory results.
Contribution to profi t
For year ended 31 December 2022
Net interest income
Other income
Total income
Impairment of fi nancial assets
Contribution to profi t
For year ended 31 December 2021
Net interest income
Other income
Total income
Impairment of fi nancial assets
Contribution to profi t
Buy-to-Let
£m
Residential
£m
Bridging
£m
206.0
–
206.0
(9.5)
196.5
96.0
–
96.0
1.2
97.2
5.0
–
5.0
(0.2)
4.8
Buy-to-Let
£m
Residential
£m
Bridging
£m
151.0
–
151.0
4.3
155.3
81.3
–
81.3
2.3
83.6
5.2
–
5.2
1.4
6.6
Second
charge
£m
5.9
–
5.9
0.1
6.0
Second
charge
£m
6.7
–
6.7
0.4
7.1
Other1
£m
(4.5)
46.2
41.7
–
41.7
Other1
£m
(8.5)
20.0
11.5
–
11.5
Total
underlying
£m
Acquisition-
related
items2
£m
308.4
46.2
354.6
(8.4)
346.2
(59.2)
10.4
(48.8)
0.9
Total
statutory
£m
249.2
56.6
305.8
(7.5)
(47.9)
298.3
Total
underlying
£m
Acquisition-
related
items2
£m
235.7
20.0
255.7
8.4
264.1
(62.9)
12.7
(50.2)
(0.5)
(50.7)
Total
statutory
£m
172.8
32.7
205.5
7.9
213.4
1.
Other relates to net interest income from acquired loan portfolios as well as gains on structured asset sales, fee income from third party mortgage servicing and gains or
losses on the Group’s hedging activities.
2. For more details on acquisition-related adjustments, see Reconciliation of statutory to underlying results in the Financial review.
Loans and advances to customers
As at 31 December 2022
Buy-to-Let
£m
Residential
£m
Bridging
£m
Gross loans and advances to customers
Expected credit losses
7,468.8
(23.5)
2,671.3
(3.8)
Net loans and advances to customers
7,445.3
2,667.5
149.7
(0.5)
149.2
Second
charge
£m
111.9
(0.2)
111.7
Other1
£m
14.6
–
Total
underlying
£m
10,416.3
(28.0)
Acquisition-
related
items2
£m
Total
statutory
£m
81.7
1.2
10,498.0
(26.8)
14.6
10,388.3
82.9
10,471.2
Risk-weighted assets
2,927.1
1,107.3
70.9
45.4
5.5
4,156.2
46.0
4,202.2
As at 31 December 2021
Buy-to-Let
£m
Residential
£m
Bridging
£m
Gross loans and advances to customers
Expected credit losses
6,301.9
(13.9)
2,451.8
(5.1)
Net loans and advances to customers
6,288.0
2,446.7
56.3
(0.3)
56.0
Second
charge
£m
153.7
(0.3)
153.4
Total
underlying
£m
8,981.4
(19.6)
8,961.8
Acquisition-
related
items2
£m
143.1
0.3
143.4
Other1
£m
17.7
–
17.7
Total
statutory
£m
9,124.5
(19.3)
9,105.2
Risk-weighted assets
2,352.1
1,011.1
29.3
62.2
6.5
3,461.2
68.7
3,529.9
1. Other relates to acquired loan portfolios.
2. For more details on acquisition-related adjustments, see Reconciliation of statutory to underlying results in the Financial review.
OSB GROUP PLC
Annual Report and Accounts 2022
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40
Segments review continued
CCFS segment continued
Gross loan book1
Underlying loans and advances to customers
2021: £8,981.4m
£10,416.3m
+16%
Buy-to-Let
Residential
Bridging
Second charge
Other1
Net interest income1
2021: £235.7m
£308.4m
+31%
Contribution to profit1
2021: £264.1m
£346.2m
+31%
1. Underlying
OSB GROUP PLC
Annual Report and Accounts 2022
Gross loans and advances to customers
Expected credit losses
Net loans and advances to customers
1. Other relates to acquired loan portfolios.
CCFS targets specialist mortgage market
sub-segments with a focus on specialist
Buy-to-Let mortgages secured on residential
property held for investment purposes by
both non-professional and professional
landlords. It also provides specialist residential
mortgages to owner-occupiers, secured
against residential properties, including
those unsupported by the high street banks.
In addition, it provides short-term bridging,
secured against residential property in both
the regulated and unregulated sectors.
The CCFS underlying net loan book grew
by 16% to £10,388.3m at the end of 2022
(31 December 2021: £8,961.8m) supported
by organic originations of £2,969.4m, which
increased by 37% from £2,160.2m of new
business written in 2021.
CCFS Buy-to-Let sub-segment
During 2022 CCFS’ organic originations in
the Buy-to-Let sub-segment through the
Precise Mortgages brand increased by 35%
to £1,998.7m (2021: £1,482.3m) supporting
growth of 19% in the underlying gross Buy-to-
Let loan book in the year to £7,468.8m from
£6,301.9m at the end of 2021.
Underlying net interest income in this sub-
segment increased by 36% to £206.0m
compared with £151.0m in the prior year,
reflecting growth in the loan book and an
improved net interest margin due to the base
rate rises. There were delays, especially
in the first half of the year, in the market
passing base rate rises on to savers in full.
In addition, as rates rose, mortgage interest
income benefitted from higher than expected
reversionary income following the end of the
fixed product term. This benefit was partially
offset by an expectation that customers
would spend less time on the higher
reversionary rate before refinancing, leading
to net underlying EIR reset loss of £37.5m
(2021: £14.7m).
31-Dec-2022
£m
31-Dec-2021
£m
7,468.8
2,671.3
149.7
111.9
14.6
10,416.3
(28.0)
10,388.3
6,301.9
2,451.8
56.3
153.7
17.7
8,981.4
(19.6)
8,961.8
This sub-segment recorded an impairment
charge of £9.5m (2021: £4.3m credit)
largely due to more severe forward-looking
macroeconomic scenarios adopted by Group
and post model adjustments to account for
rising cost of living and borrowing concerns,
partially offset by the release of pandemic-
related provisions and the favourable effect
of house price appreciation in the year. On
an underlying basis, Buy-to-Let made a
contribution to profit of £196.5m in 2022, up
27% (2021: £155.3m).
The PRA implemented new underwriting
standards for Buy-to-Let mortgages at the
start of 2017, which introduced affordability
stress testing for mortgages fixed for less
than five years, triggering a shift towards
five-year fixed rate products. The early wave
of these five-year fixed rate mortgages
reached the end of their initial term in 2022,
leading to an increase in refinance activity in
the market. Remortgages represented 50%
of completions under the Precise Mortgages
brand in 2022 (2021: 39%) with purchases
reducing as a percentage of the total, as the
prior year benefitted from a spike in purchase
activity due to the stamp duty holiday.
Longer term mortgages continued to be
favoured by landlords and five-year fixed rate
products accounted for 74% of completions,
an increase from 64% recorded during 2021.
In addition, borrowing via a limited company
made up 65% of Buy-to-Let completions for
the Precise Mortgages brand in 2022 (2021:
69%) and loans for specialist property types,
including houses of multiple occupation and
multi-unit properties, represented 21% of
completions in this sub-segment (2021: 26%).
Research conducted by BVA BDRC on behalf
of the Group found that almost six in ten
landlords that intended to acquire new
properties planned to do so within a limited
41
to Buy scheme closed to new applications
in October 2022, with completions for new
purchases required by 31 March 2023 and
represented 19% of completions in this sub-
segment in the year (2021: 44%).
The average loan size in this sub-segment
was £147k (31 December 2021: £136k) with
an average LTV for new lending unchanged
from prior year at 66% and a book LTV of
57% which benefi tted from house price
appreciation in the year (31 December
2021: 59%).
On a statutory basis, the Residential sub-
segment made a contribution to profi t of
£81.9m (2021: £67.1m).
CCFS Bridging sub-segment
The Group continued to improve its bridging
off ering and in April 2022 relaunched and
rebranded its refurbishment product criteria.
Short-term bridging originations nearly
doubled in the year to £217.5m (2021: £109.1m)
and as a result the gross loan book in this
sub-segment increased to £149.7m as at 31
December 2022 (31 December 2021: £56.3m).
Underlying net interest income remained
broadly fl at at £5.0m (2021: £5.2m), and
the impairment charge was £0.2m (2021:
£1.4m credit) largely due to balance sheet
growth. The bridging sub-segment made a
contribution to profi t of £4.8m in 2022 on
an underlying basis compared with £6.6m
in 2021.
On a statutory basis, the bridging sub-
segment made a contribution to profi t
of £4.2m (2021: £6.4m).
CCFS Second charge sub-segment
The second charge gross loan book reduced
to £111.9m compared with £153.7m as at
31 December 2021, as the second charge
products under Precise Mortgages brand
were withdrawn in August 2022.
Underlying net interest income in the second
charge sub-segment reduced to £5.9m (2021:
£6.7m) and the contribution to profi t reduced
to £6.0m (2021: £7.1m) after an impairment
credit of £0.1m (2021: £0.4m) largely due to
the reduction in the size of the loan book.
On a statutory basis, the contribution to
profi t from the second charge sub-segment
was £5.2m (2021: £5.7m).
OSB GROUP PLC
Annual Report and Accounts 2022
company structure, continuing an upward
trend that has been observed over a number
of years.
Precise Mortgages remained the highest
ranked specialist lending brand for Buy-to-Let
mortgages based on unprompted willingness
to recommend in the BVA BDRC’s Project
Mercury survey in Q4 2022.
The weighted average LTV of the loan book
in this segment decreased to 66% benefi tting
from house price appreciation (31 December
2021: 68%). The new lending average LTV was
73% with an average loan size of £191k (2021:
74% and £192k, respectively). The weighted
average interest coverage ratio for Buy-to-Let
origination was 191% in 2022 (2021: 188%).
On a statutory basis, the Buy-to-Let sub-
segment made a contribution to profi t of
£154.8m in 2022 (2021: £109.5m).
CCFS Residential sub-segment
The underlying gross loan book in CCFS’
Residential sub-segment reached £2,671.3m
in 2022, an increase of 9% from £2,451.8m as
at 31 December 2021 and organic originations
increased 34% to £749.4m in 2022
(2021: £558.0m).
Underlying net interest income increased to
£96.0m (2021: £81.3m) and refl ected growth
in the loan book and an improved net interest
margin, due to the base rate rises and delays
in these being passed on to retail savers in full,
partially off set by an underlying EIR reset loss
of £4.0m (2021: £nil). The EIR reset loss was
due to an expectation that borrowers would
spend less time on the higher reversionary
rate at the end of their fi xed term.
The Residential sub-segment benefi tted from
an impairment credit of £1.2m (2021: £2.3m)
due to strong house price appreciation in the
year, partially off set by more severe forward-
looking macroeconomic scenarios adopted
by the Group and post model adjustments
to account for rising cost of living and
borrowing concerns.
Overall, on an underlying basis, the
Residential sub-segment made a contribution
to profi t of £97.2m, up by 16% compared with
£83.6m in 2021.
The Group continued to benefi t from CCFS’
expertise, with a strong focus on fi rst time
buyers, self-employed individuals and those
with minor adverse credit records. The Help
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Wholesale funding review
Securitisation is central to the Group’s liability
management strategy, as well as a key
funding source, with £11.1bn of issuance since
December 2013 across CCFS and OSB.
In addition to providing cost effi cient funding,
the Group uses securitisations to provide
effi cient access to commercial and central
bank repo facilities.
The Group’s strategy is to be fl eet-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 use other options
when the market is not favourable.
The Group issued its second largest
securitisation, Canterbury No. 5, in August
2022, which was a fully retained transaction.
It securitised c. £1.3bn of mortgage loans
and provided the Group with c. £1.1bn of
AAA rated senior bonds which can be used
as collateral in commercial and central bank
repo facilities, or be sold into the market for
liquidity purposes.
The Canterbury No. 5 transaction also
forms part of a broader strategy to increase
the Group’s wholesale funding options
and, in particular, to increase its
encumbrance effi ciency.
The Group maintained its drawings under
the Term Funding for SMEs, which at the end
of 2022 totalled £4.2bn. These borrowings
provide four-year funding at a cost of
Bank Base Rate. Drawings under Indexed
Long-Term Repo were £301m as at
31 December 2022 (2021: £nil).
Group’s active issuances to 31 December 2022 (£m)
Group’s active issuances to 31 December 2022 (£m)
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
490.05
86.19
465.12
524.62
1,216.86
1,209.79
263.76
110.70
PMF
2018-2B*
214.07
71.46
CMF
2018-1*
373.15
360.50
PMF
2019-1B
358.20
141.87
CANBY
No.1*
129.74
245.72
PMF
2020-1B
192.74
137.00
CMF
2020-1
571.47
524.52
49.42
136.70
28.30
CANBY
No.2
CANBY
No.3
ROCHFIN
No.3
CANBY
No.4
CANBY
No.5
Outstanding BTL
Outstanding Residential
Original deal mortgage balance
PMF
2018-2B*
CMF
2018-1*
PMF
2019-1B*
CANBY
No.1*
PMF
2020-1B
CMF
2020-1
CANBY
No.2
CANBY
No.3
ROCHFIN
No.3*
CANBY
No.4
CANBY
No.5
Number of accounts 3+ months
in arrears
Losses to date (£k)
Weighted average mortgage
interest rate
1
0
22
0
6
8
11
0
2
0
11
0
11
0
12
0
134
324
26
0
3
0
6.37%
7.26%
4.77% 5.70%
3.94% 5.43%
4.13%
4.12% 6.44%
4.17% 3.78%
Senior note spread (over LIBOR)
0.68%
0.47%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Senior note spread (over SONIA)
n/a
n/a
0.93%
1.17% 0.93% 0.60% 0.95%
1.00% 0.70% 0.65%
1.30%
Weighted average margin at closing
0.77% 0.55%
1.27%
1.45%
1.13% 0.66%
1.14%
1.33% 0.86% 0.86%
1.15%
* 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 2022
The Group issued
its second largest
securitisation,
Canterbury No. 5,
in August 2022.
43
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OSB GROUP PLC
Annual Report and Accounts 2022
44
Key performance indicators
Throughout the Strategic report the results
and the Key performance indicators (KPIs)
are presented on a statutory and an
underlying basis.
Gross new lendingΔ
+29%
2022
2021
£5.8bn
£4.5bn
Key:
Statutory 2022
Statutory 2021
Underlying 2022
Underlying 2021
Management believes that the underlying
results and the underlying KPIs provide
a more consistent basis for comparing
the Group’s performance between
fi nancial periods.
Underlying results for 2022 and 2021 exclude
exceptional items, integration costs and other
acquisition-related items. For a reconciliation
of statutory results to underlying results,
see page 51.
The Group’s external auditor performed an
independent reasonable assurance review of
certain KPIs as highlighted with the symbol
Δ – see the Appendix for the
auditor’s statement.
Defi nition
Gross new lending is defi ned as gross new
organic lending before redemptions.
2022 performance
Gross new lending increased 29% in the
year and refl ected a return to pre-pandemic
criteria in our core sub-segments including
the reintroduction of lending at higher LTVs
for higher credit quality customers.
Loan loss ratioΔ
+15bps
2022
2021
-2bps
+16bps
2022
2021
-2bps
Basic EPSΔ (pence per share)
+19%
Ordinary dividend per shareΔ
(pence per share)
+17%
13bps
2022
2021
90.8p
76.0p
2022
2021
30.5p
26.0p
15%
2022
2021
14bps
99.6p
86.7p
2022 Special dividend of 11.7p
Defi nition
Loan loss ratio is defi ned 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.
2022 performance
Statutory and underlying loan loss ratios
increased in the year as the Group adopted
more severe forward-looking macroeconomic
scenarios and post model adjustments to
account for rising cost of living and borrowing
concerns. Loan book growth and changes
in the observed risk profi le also added to the
charge and were partially off set by a release
of pandemic-related adjustments and house
price appreciation.
OSB GROUP PLC
Annual Report and Accounts 2022
Defi nition
Basic EPS is defi ned as profi t attributable to
ordinary shareholders, which is profi t 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.
2022 performance
Statutory basic EPS improved to 90.8 pence
per share and underlying basic EPS improved
to 99.6 pence per share, both benefi tting from
higher profi tability in the year.
Defi nition
Dividend per share is defi ned as the sum
of the recommended fi nal dividend per
share and any interim dividend per share
for the year.
2022 performance
The Board has recommended a fi nal dividend
for 2022 of 21.8 pence per share, which
together with the 2022 interim dividend
of 8.7 pence represents 30% of underlying
profi t attributable to ordinary shareholders.
The Board has also announced a special
dividend of £50.3m, 11.7 pence per share.
For calculation of the fi nal dividend, see
the Appendix.
45
Net interest margin (NIM)Δ
Cost to income ratioΔ
Management expense ratioΔ
+25bps
2022
2021
278bps
253bps
+21bps
2022
2021
+1ppt
2022
2021
+1ppt
+10bps
27%
26%
2022
2021
+10bps
303bps
282bps
2022
2021
25%
24%
2022
2021
81bps
71bps
80bps
70bps
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.
2022 performance
Both statutory and underlying NIM improved
in 2022, primarily due to the benefit of delays
in the market passing on base rate rises to
savers in full, especially in the first half of
the year, and higher expected reversionary
income, partially offset by an expectation
that customers will refinance earlier.
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.
2022 performance
Statutory and underlying cost to income
ratios increased in 2022 as a result of the
growth in administrative expenses due
primarily to a more normalised level of post-
pandemic spend, inflationary headwinds and
planned investment in the business, including
refreshing and upgrading our technology
infrastructure post-integration. These costs
were moderated by strong income generation
in the year, including fair value gains on
hedging activities.
2022 performance
Statutory and underlying management
expense ratios increased in 2022 largely
due to higher administrative costs that
reflected a more normalised level of post-
pandemic spend, inflationary headwinds and
planned investment in the business, including
refreshing and upgrading our technology
infrastructure post-integration.
Return on equityΔ
+1ppt
2022
2021
CRD IV Common Equity –
Tier 1 capital ratio
-130bps
21%
20%
2022
2021
18.3%
19.6%
no change
2022
2021
24%
24%
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 £150m of AT1 securities and £60m
of non-controlling interest securities).
2022 performance
Statutory and underlying return on equity
remained strong in 2022 due to strong
profitability in the year.
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.
2022 performance
The CET1 ratio remained strong, although
reduced marginally as capital generation
from profitability in the year was offset by
loan book growth, dividends and the impact
of the £100m share repurchase programme
completed in 2022.
Savings customer satisfaction
– Net Promoter Score
-6
B
S
2022
2021O
-10
2022
S
F
C
2021C
+64
+70
+61
+71
Definition
The NPS measures customers’ satisfaction
with services and products. It is based
on customer responses to the question of
whether they would recommend us to a
friend. The response scale is 0 for absolutely
not to 10 for definitely yes. Based on the
score, a customer is 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 promoters
gives an NPS of between -100 and +100.
2022 performance
Savings customer NPS declined slightly due
to very strong demand in the year which
temporarily impacted the service response
times and performance levels.
OSB GROUP PLC
Annual Report and Accounts 2022
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46
Financial review
Review of the Group’s performance presented on a
statutory basis for 2022 and 2021.
Summary Profit or Loss
Net interest income
Net fair value gain on financial instruments
Gain on sale of financial instruments
Other operating income
Administrative expenses
Provisions
Impairment of financial assets
Impairment of intangible assets
Integration costs
Exceptional items
Profit before tax
Profit after tax
Key ratios ∆
Net interest margin
Cost to income ratio
Management expense ratio
Loan loss ratio
Return on equity
Basic earnings per share, pence
Ordinary dividend per share, pence
Special dividend per share, pence
Extracts from the Statement of Financial Position
Loans and advances to customers
Retail deposits
Total assets
Key ratios
Common equity tier 1 ratio
Total capital ratio
Leverage ratio1
Group
31-Dec-2022
£m
Group
31-Dec 2021
£m
709.9
58.9
–
6.6
(207.8)
1.6
(29.8)
–
(7.9)
–
531.5
410.0
278bps
27%
81bps
13bps
21%
90.8
30.5
11.7
587.6
29.5
4.0
7.9
(166.5)
(0.2)
4.4
3.1
(5.0)
(0.2)
464.6
345.3
253bps
26%
71bps
-2bps
20%
76.0
26.0
–
£m
£m
23,612.7
19,755.8
27,566.7
21,080.3
17,526.4
24,531.9
18.3%
19.7%
8.4%
19.6%
21.2%
7.9%
1. In line with the latest UK Leverage Ratio Framework, which came into effect on 1 January 2022, the leverage
ratio now excludes claims on central banks. As at 31 December 2021, the ratio would have been 8.9% on a like
for like basis
For definitions of key ratios, see Key performance indicators on pages 44 and 45, for more detail
on the calculation of key ratios, see the Appendix on pages 250-252.
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.
OSB GROUP PLC
Annual Report and Accounts 2022
Statutory profit
The Group’s statutory profit before tax
increased by 14% to £531.5m (2021: £464.6m)
after exceptional items, integration costs and
other acquisition-related items of £59.6m1
(2021: £57.6m). The increase was primarily
due to growth in the loan book, an improved
net interest margin and net fair value gain on
financial instruments resulting from rising swap
rates, partially offset by higher administration
costs and an impairment charge compared to
an impairment credit in 2021.
Statutory profit after tax was £410.0m in
2022, an increase of 19% from £345.3m in the
prior year, and included after-tax exceptional
items, integration costs and other acquisition-
related items of £38.7m1 (2021: £47.8m).
The Group’s effective tax rate reduced to
23.1%2 compared to 25.7% in the prior year,
primarily due to a reduction in the deferred
tax provision following the enactment of the
expected decrease in the bank surcharge
from 8% to 3% from April 2023.
Statutory return on equity for 2022 improved
to 21% (2021: 20%) reflecting the increase in
profitability in the year.
Statutory basic earnings per share increased
to 90.8 pence (2021: 76.0 pence), in line with
the increase in profit after taxation.
Net interest income
Statutory net interest income increased by
21% in 2022 to £709.9m (2021: £587.6m),
largely reflecting growth in the loan book and
an improved net interest margin.
Statutory net interest margin (NIM) was
278bps compared to 253bps in the prior year,
up 25bps, primarily due to the benefit of base
rate rises. There were delays, especially in the
first half of the year, in the market passing
base rate rises on to savers in full. In addition,
as rates rose, mortgage interest income
benefitted from higher expected reversionary
income following the end of the fixed product
term. This benefit was partially offset by an
expectation that customers would on average
spend less time on the higher reversionary
rate before refinancing. The impact of this,
together with other behavioural changes,
resulted in a net effective interest rate (EIR)
reset loss of £31.6m (2021: £11.5m gain).
Net fair value gain on financial
instruments
Statutory net fair value gain on financial
instruments of £58.9m in 2022 (2021: £29.5m)
included a £57.1m net gain on unmatched
swaps (2021: £10.3m) following the significant
rise in swap prices in the fourth quarter and a
loss of £8.1m (2021: £2.4m gain) in respect of
the ineffective portion of hedges.
The Group also recorded a £10.2m net gain
(2021: £13.4m gain) from the unwind of
acquisition-related inception adjustments,
a £1.2m gain (2021: £3.0m) from the
amortisation of hedge accounting inception
adjustments and a loss of £1.5m from other
items (2021: £0.4m gain).
The net gain on unmatched swaps related
primarily to fair value movements on
mortgage pipeline swaps prior to them being
matched against completed mortgages. This
benefitted from a step up in interest rate
outlook on the SONIA yield curve largely
in response to the actions announced in
the September mini budget. The Group
economically hedges its committed pipeline
of mortgages and this unrealised gain
unwinds over the life of the swaps through
hedge accounting inception adjustments.
Gain on sale of financial instruments
There were no sales of financial instruments
in 2022.
The gain on sale of financial instruments of
£4.0m in 2021, related to the disposal of A2
notes in the PMF 2019-1B securitisation in
February 2021.
Other operating income
Statutory other operating income of £6.6m
(2021: £7.9m) mainly comprised CCFS’
commissions and servicing fees, including
those from servicing securitised loans that
have been derecognised from the Group’s
balance sheet.
Administrative expenses
Statutory administrative expenses increased
by 25% to £207.8m in 2022 (2021: £166.5m),
due primarily to spend returning to a more
normalised level post pandemic, inflationary
headwinds and planned investment in the
business, including refreshing and
upgrading our technology infrastructure
post-integration.
The Group’s statutory cost to income ratio
increased to 27% (2021: 26%) as a result
of the growth in administrative expenses,
moderated by strong income generation in
the year, including the net fair value gain on
hedging activities.
The statutory management expense ratio
increased to 81bps in 2022 (2021: 71bps)
reflecting the higher administrative expenses.
Impairment of financial assets
The Group recorded a statutory impairment
charge of £29.8m in 2022 (2021: £4.4m credit)
representing a statutory loan loss ratio of
13bps (2021: -2bps).
The Group adopted more severe
macroeconomic scenarios in its IFRS 9 models
as the outlook deteriorated, which led to a
charge of £11.6m. Post-model adjustments,
primarily to account for rising cost of living
and borrowing concerns, amounted to a
charge of £13.3m and the strong loan book
growth and changes in the risk profile in the
year resulted in a charge of £15.2m. These
were partially offset by a release of £10.3m
due to house price appreciation in the year
and a £8.3m release from a reduction in
pandemic-related post-model adjustments
and modelling enhancements. Other charges
amounted to £8.3m.
In the prior year, the impairment credit was
largely due to the Group’s adoption of less
severe forward-looking macroeconomic
scenarios in its IFRS 9 models, reflecting an
improved outlook together with the benefit of
strong house price performance in the year.
Impairment of intangible assets
There were no intangible asset impairments
in 2022.
The impairment credit to intangible assets
of £3.1m in the prior year related to a partial
reversal of the impairment of the broker
relationships intangible of £7.0m recorded in
2020, as lending volumes in 2021 were higher
than previously anticipated.
Integration costs
The Group recorded £7.9m of integration
costs in 2022 (2021: £5.0m), which largely
related to redundancy costs and consultant
fees for advice on the Group’s future
operating structure.
47
Exceptional items
There were no exceptional costs in 2022.
In the prior year, exceptional costs of £0.2m
related to the insertion of OSB GROUP PLC as
the new holding company and listed entity of
the Group.
Dividend
The Board has recommended a final dividend
of 21.8 pence per share for 2022, which
together with the interim dividend of 8.7 pence
per share, represents 30% of underlying profit
attributable to ordinary shareholders. The
Board has also announced a special dividend
of £50.3m, 11.7 pence per share (2021: nil). See
the Appendix for the calculation of the 2022
final dividend.
The recommended final dividend is subject to
approval at the AGM on 11 May 2023. The final
and special dividends will be paid on 17 May
2023, with an ex-dividend date of 23 March
2023 and a record date of 24 March 2023.
Balance sheet growth
On a statutory basis, net loans and advances to
customers grew by 12% to £23,612.7m in 2022
(31 December 2021: £21,080.3m), supported by
originations of £5.8bn in the year.
Total assets also grew by 12% to £27,566.7m
(31 December 2021: £24,531.9m), largely due to
the growth in loans and advances to customers
and an increase in liquid assets.
On a statutory basis, retail deposits increased
by 13% to £19,755.8m as at 31 December
2022 from £17,526.4m in the prior year, as the
Group’s attractively priced savings products
proved popular with customers.
The Group complemented its retail deposits
funding with drawings under the Bank of
England’s schemes. Drawings under the Term
Funding Scheme for SMEs as at 31 December
2022 remained unchanged from £4.2bn at the
end of 2021 and drawings under the Indexed
Long-Term Repo scheme were £300.9m.
Liquidity
OSB and CCFS operate under the Prudential
Regulation Authority’s liquidity regime and are
managed separately for liquidity risk. Each
Bank holds its own significant liquidity buffer
of liquidity coverage ratio (LCR) eligible high-
quality liquid assets (HQLA).
Each Bank operates within a target liquidity
runway in excess of the minimum LCR
regulatory requirement, which is based on
internal stress testing. Each Bank has a range
of contingent liquidity and funding options
available for possible stress periods.
OSB GROUP PLC
Annual Report and Accounts 2022
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48
Financial review continued
As at 31 December 2022, OSB had £1,494.1m
and CCFS had £1,522.8m of HQLA
(31 December 2021: £1,322.8m and
£1,318.0m, respectively).
OSB and CCFS also held portfolios of
unencumbered prepositioned Bank of
England level B and C eligible collateral in
the Bank of England Single Collateral Pool.
As at 31 December 2022, OSB had an LCR
of 229% and CCFS 148% (31 December 2021:
240% and 158%, respectively) and the
Group LCR was 185% (31 December 2021:
196%), all significantly in excess of the
regulatory minimum of 100% plus Individual
Liquidity Guidance.
Capital
The Group’s capital position remained
strong, with a CET1 ratio of 18.3% and a
total capital ratio of 19.7% as at the end of
2022 (31 December 2021: 19.6% and 21.2%,
respectively). Both ratios reflected strong
capital generation from profitability in the
year offset by loan book growth, foreseeable
and paid dividends and the impact of
the £100m share repurchase programme
completed in 2022.
The Group had a leverage ratio of 8.4%3 as at
31 December 2022 (31 December 2021: 7.9%).
The combined Group had a Pillar 2a
requirement of 1.27% (2021: 1.27%) of
risk-weighted assets (excluding a static
integration add-on of £19.5m) as at 31
December 2022.
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
Cash and cash equivalents at the
beginning of the period
Group
31-Dec-2022
£m
Restated1
Group
31-Dec-2021
£m
531.5
464.6
428.5
63.2
(184.3)
307.4
(346.3)
80.6
631.8
366.1
2,736.7
2,370.6
Cash and cash equivalents at the end of the period
3,044.1
2,736.7
1. 2021 figures were restated, see note 1 b) in the Group’s Consolidated Financial Statements for further information
Cash flow statement
The Group’s cash and cash equivalents
increased by £307.4m during the year to
£3,044.1m as at 31 December 2022.
In 2022, loans and advances to customers
increased by £2,563.1m, primarily funded by
£2,229.4m of deposits from retail customers.
The Group received £434.3m of cash collateral
on derivative exposures and paid £137.5m
of initial margin, reflecting new derivatives
during the year. Cash used from financing
activities of £184.3m included £300.9m
drawings under the ILTR scheme offset
by £193.6m repayment of debt securities,
£102.0m share repurchases, £133.1m dividend
payments and £45.3m interest on financing
liabilities. Total drawings under the Bank
of England’s TFSME scheme remained
unchanged at £4.2bn. Cash generated from
investing activities was £63.2m.
In 2021, loans and advances to customers
increased by £1,844.0m during the year,
partially funded by £923.3m of deposits
from retail customers and a decrease in
loans and advances to credit institutions
(primarily the Bank of England call account)
of £167.4m. Additional funding was provided
by cash generated from financing activities
of £631.8m4 and included £634.4m of net
drawings under the Bank of England’s TFS
and TFSME schemes and £36.1m of net
proceeds from securitisation of mortgages
during the year. Cash generated from
investing activities was £80.6m.
1.
See the reconciliation of statutory to underlying
results on page 51.
2. Effective tax rate excludes £1.2m of adjustments
relating to earlier years.
3. In line with the latest UK Leverage Ratio Framework
which came into effect on 1 January 2022, the
leverage ratio now excludes claims on central
banks. As at 31 December 2021, the ratio would
have been 8.9% on a like for like basis.
4. Restated, see note 1 b) in the Group’s Consolidated
Financial Statements for further information.
OSB GROUP PLC
Annual Report and Accounts 2022
Review of the Group’s performance presented on
an underlying basis for 2022 and 2021.
Summary Profi t or Loss
Net interest income
Net fair value gain on fi nancial instruments
Gain on sale of fi nancial instruments
Other operating income
Administrative expenses
Provisions
Impairment of fi nancial assets
Profi t before tax
Profi t after tax
Key ratios ∆
Net interest margin
Cost to income ratio
Management expense ratio
Loan loss ratio
Return on equity
Basic earnings per share, pence
Extracts from the Statement of Financial Position
Loans and advances to customers
Retail deposits
Total assets
Group
31-Dec-2022
£m
Group
31-Dec-2021
£m
769.1
48.5
–
6.6
(204.0)
1.6
(30.7)
591.1
448.7
650.5
18.5
2.3
7.9
(161.7)
(0.2)
4.9
522.2
393.1
303bps
25%
80bps
14bps
24%
99.6
282bps
24%
70bps
-2bps
24%
86.7
£m
£m
23,529.8
19,755.2
27,487.6
20,936.9
17,524.8
24,403.6
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.
Underlying profi t
The Group’s underlying profi t before tax
increased by 13% to £591.1m from £522.2m
in 2021. The increase was primarily due
to growth in the loan book, an improved
net interest margin and net fair value gain
on fi nancial instruments resulting from
rising swap rates, partially off set by higher
administration costs and an impairment
charge compared to an impairment credit
in 2021.
Underlying profi t after tax was £448.7m, up
14% (2021: £393.1m), broadly in line with the
increase in profi t before tax. The Group’s
eff ective tax rate on an underlying basis
reduced to 24.3%1 for 2022 (2021: 24.7%).
On an underlying basis, return on equity
for 2022 was 24%, unchanged from the
prior year.
The underlying basic earnings per share
increased to 99.6 pence (2021: 86.7 pence),
due to the increase in profi t after tax.
Net interest income
Underlying net interest income increased
by 18% to £769.1m in 2022 (2021: £650.5m),
largely refl ecting growth in the loan book and
an improved net interest margin.
The underlying net interest margin increased
to 303bps from 282bps in 2021, primarily
due to the benefi t of base rate rises. There
were delays, especially in the fi rst half of
the year, in the market passing base rate
rises on to savers in full. In addition, as rates
rose, mortgage interest income benefi tted
from higher expected reversionary income
following the end of the fi xed product term.
This benefi t was partially off set by an
expectation that customers would on average
spend less time on the higher reversionary
rate before refi nancing. The impact of this,
together with other behavioural changes,
resulted in a net eff ective interest rate (EIR)
reset loss of £23.1m (2021: £18.6m gain).
49
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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 fi nancial periods.
Underlying results for 2022 and
2021 exclude exceptional items,
integration costs and other
acquisition-related items.
APMs refl ect an important aspect of
the way in which operating targets are
defi ned 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 APMs and
the reconciliation between APMs and
the statutory equivalents, see the
Appendix on pages 250-252.
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Net fair value gain on fi nancial
instruments
Underlying net fair value gain on fi nancial
instruments was £48.5m in 2022 (2021:
£18.5m) and included a gain on unmatched
swaps of £57.1m (2021: £10.3m) following the
signifi cant rise in swap prices in the fourth
quarter and a loss of £8.1m (2021: £2.4m
gain) from hedge ineff ectiveness.
The Group also recorded a £1.2m gain (2021:
£5.4m) from the amortisation of hedge
accounting inception adjustments and a loss
of £1.7m (2021: £0.4m gain) from other items.
The net gain on unmatched swaps related
primarily to fair value movements on
mortgage pipeline swaps prior to them being
matched against completed mortgages. This
benefi tted from a step up in interest rate
outlook on the SONIA yield curve largely
in response to the actions announced in
the September mini budget. The Group
economically hedges its committed pipeline
of mortgages and this unrealised gain
unwinds over the life of the swaps through
hedge accounting inception adjustments.
OSB GROUP PLC
Annual Report and Accounts 2022
50
Financial review continued
Gain on sale of financial instruments
There were no sales of financial instruments
in 2022.
The gain on sale of financial instruments of
£2.3m in 2021 related to the disposal of A2
notes in the PMF 2019-1B securitisation in
February 2021.
Other operating income
On an underlying basis, other operating
income was £6.6m in 2022 (2021: £7.9m) and
mainly comprised CCFS’ commissions and
servicing fees, including those from servicing
securitised loans that have been derecognised
from the Group’s balance sheet.
Administrative expenses
Underlying administrative expenses were
up 26% to £204.0m in 2022 (2021: £161.7m),
due primarily to spend returning to a more
normalised level post pandemic, inflationary
headwinds and planned investment in
the business, including refreshing and
upgrading our technology infrastructure
post-integration.
The Group’s underlying cost to income ratio
increased to 25% (2021: 24%) as a result
of the growth in administrative expenses,
moderated by strong income generation in
the year, including the fair value gain on
hedging activities.
The underlying management expense ratio
increased to 80bps in 2022 (2021: 70bps)
reflecting the higher administrative expenses.
Impairment of financial assets
The Group recorded an underlying
impairment charge of £30.7m in 2022 (2021:
£4.9m credit) representing an underlying loan
loss ratio of 14bps (2021: -2bps).
The Group adopted more severe
macroeconomic scenarios in its IFRS 9 models
as the outlook deteriorated, which led to a
charge of £11.6m. Post-model adjustments,
primarily to account for rising cost of living
and borrowing concerns, amounted to a
charge of £13.3m and the strong loan book
growth and changes in the risk profile in the
year resulted in a charge of £15.2m. These
were partially offset by a release of £10.3m
due to house price appreciation in the year
and a £8.3m release from a reduction in
pandemic-related post-model adjustments
and modelling enhancements. Other charges
amounted to £9.2m.
In the prior year, the impairment credit was
largely due to the Group’s adoption of less
severe forward-looking macroeconomic
scenarios in its IFRS 9 models, reflecting an
improved outlook together with the benefit of
strong house price performance in the year.
Balance sheet growth
On an underlying basis, net loans and
advances to customers were £23,529.8m (31
December 2021: £20,936.9m) an increase
of 12%, supported by gross originations of
£5.8bn in the year.
Total underlying assets grew by 13% to
£27,487.6m (31 December 2021: £24,403.6m),
largely due to the growth in loans and
advances to customers and an increase in
liquid assets.
On an underlying basis, retail deposits
increased by 13% to £19,755.2m (31 December
2021: £17,524.8m) as the Group’s attractively
priced savings products proved popular
with customers.
The Group complemented its retail deposits
funding with drawings under the Bank of
England’s schemes. Drawings under the Term
Funding Scheme for SMEs as at 31 December
2022 remained unchanged from £4.2bn at
the end of 2021 and drawings under the
Indexed Long-Term Repo scheme
were £300.9m.
1.
Effective tax rate excludes £1.2m of adjustments
relating to earlier years.
OSB GROUP PLC
Annual Report and Accounts 2022
51
FY 2022
Reverse
acquisition-
related and
exceptional
items
£m
Underlying
results
£m
Statutory
results
£m
59.21
(10.4)2
–
–
48.8
3.84
–
(0.9)5
–
7.97
–
59.6
38.7
769.1
48.5
–
6.6
824.2
(204.0)
1.6
(30.7)
–
–
–
591.1
448.7
587.6
29.5
4.0
7.9
629.0
(166.5)
(0.2)
4.4
3.1
(5.0)
(0.2)
464.6
345.3
FY 2021
Reverse
acquisition-
related and
exceptional
items
£m
62.9
(11.0)
(1.7)3
–
50.2
4.8
–
0.5
(3.1)6
5.0
0.28
57.6
47.8
Underlying
results
£m
650.5
18.5
2.3
7.9
679.2
(161.7)
(0.2)
4.9
–
–
–
522.2
393.1
Statutory
results
£m
709.9
58.9
–
6.6
775.4
(207.8)
1.6
(29.8)
–
(7.9)
–
531.5
410.0
23,612.7
3,878.1
75.9
(82.9)9 23,529.8
9.110
3,887.2
(5.3)11
70.6
21,080.3
3,382.3
69.3
(143.4) 20,936.9
3,404.3
62.4
22.0
(6.9)
27,566.7
(79.1)
27,487.6
24,531.9
(128.3) 24,403.6
19,755.8
5,548.5
61.4
(0.6)12
0.813
(30.2)14
19,755.2
5,549.3
31.2
17,526.4
4,908.7
72.4
(1.6)
2.3
(45.0)
17,524.8
4,911.0
27.4
25,365.7
(30.0) 25,335.7
22,507.5
(44.3) 22,463.2
2,201.0
(49.1)
2,151.9
2,024.4
(84.0)
1,940.4
Reconciliation of statutory to underlying results
Net interest income
Net fair value gain on financial instruments
Gain on sale of financial instruments
Other operating income
Total income
Administrative expenses
Provisions
Impairment of financial assets
Impairment of intangible assets
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
Notes to the reconciliation of statutory to underlying results table:
Amortisation of the net fair value uplift to CCFS’ mortgage loans and retail deposits on Combination
Inception adjustment on CCFS’ derivative assets and liabilities on Combination
Reversal of integration costs related to the Combination
Amortisation of intangible assets recognised on Combination
Adjustment to expected credit losses on CCFS loans on Combination
1.
2.
3. Recognition of a loss on sale of securitisation notes
4.
5.
6. Reversal of impairment of intangible assets
7.
8. Reversal of exceptional items
9.
10. Fair value adjustment to hedged assets
11. 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
Recognition of a fair value uplift to CCFS’ loan book less accumulated amortisation of the fair value uplift and a movement on credit provisions
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Annual Report and Accounts 2022
52
Risk review
Progress was made in 2022 against the Group’s strategic risk management
objectives for the year, including the priority areas set out in the Annual
Report and Accounts for the year ended 31 December 2021.
Executive summary
The Group delivered strong financial
performance against the backdrop of the
United Kingdom’s uncertain macroeconomic
outlook resulting from the high levels of
inflation and the ongoing conflict in Ukraine.
The strong performance was delivered within
the confines of a prudent risk appetite. The
Group operated within the boundaries of its
risk appetite limits during 2022.
The impact of the rising cost of living, the rising
cost of borrowing and the prospect of further
increases in the Bank of England base rate
were key areas of focus for the Group in 2022.
The Group conducted additional analysis and
made adjustments to the macroeconomic
scenarios used in its modelling and
provisioning to ensure that the impacts on
customer affordability were covered.
The Group remained alert to the heightened
cyber risk environment driven by the situation
in Ukraine and the embedding of the hybrid
working model for colleagues across the
Group. Our cyber security capabilities were
maintained through continued investment
and frequent penetration testing.
The Group’s overall asset quality remained
stable with respect to customer behaviour
and affordability levels, whilst collateral
values improved during the year. Arrears
levels remained broadly stable. The Group
has a negligible exposure to Ukrainian,
Russian and Belarusian customers and
closely monitored and managed these
customers as required.
The Group’s risk management framework
ensures that risks continued to be identified,
monitored and managed effectively, which
in turn supported the strong operational
and financial performance in the year. A
full review of the risk appetite statements
and limits across all principal risk types was
undertaken in 2022, which informed the
management of the Group’s lending and
retail savings businesses in an uncertain and
competitive operating environment. Group
risk appetite statements and limits were
designed and implemented, based on aligned
approaches calibrated for anticipated
financial forecasts and stress test analysis.
Risk appetite is monitored and managed at
the Group and at the individual Bank levels.
OSB GROUP PLC
Annual Report and Accounts 2022
The Group also maintained strong levels of
capital and funding throughout 2022, being
mindful of the heightened levels of future
uncertainty. Capital and funding levels were
assessed against the impacts of extreme but
plausible economic, business and operational
shocks and reflected in the Group’s solvency
and liquidity risk appetites. A number of
reverse stress tests were performed to identify
what severity of macroeconomic scenario
could result in the Group and its entities
breaching minimum regulatory requirements,
which were utilised in the going concern and
viability assessments.
The Group experienced some operational
challenges during 2022. The number of
base rate rises was responsible for strong
demand for savings accounts and the
number of product rate changes required
was operationally challenging. In the second
half, the market saw an increasing level of
borrowers looking to refinance with their
existing lender and in some cases refinance
early to avoid anticipated future interest rate
rises. This caused a spike in enquiries and
application timelines which also resulted in
elongated call wait times.
The Group continues to focus on enhancing
forecasting and stress testing capabilities,
with a particular focus on Internal Ratings
Based (IRB) stress testing and stress testing
using Basel 3.1 scenarios.
The Group continues to advance towards
IRB accreditation, with progress made
throughout the year. The Group has
undertaken a comprehensive self-assessment
exercise to validate its level of compliance,
in conjunction with drafting all required
module 1 submission documentation, which
has passed through internal governance.
The Group has noted the PRA’s industry level
feedback to ensure effective adherence
to regulatory expectation. Pre-application
discussions have been held with the PRA to
outline the Group’s approach to integrating
IRB capabilities and compliance. The
Group is now actively engaging with the
PRA regarding a module 1 submission date.
The programme continues to integrate IRB
capabilities informing the Group’s business,
key risk and capital management disciplines.
Active monitoring and assessment of the
Group’s credit risk portfolio drivers is a
critical risk management discipline. This
was achieved through the active monitoring
of credit portfolio performance indicators,
sensitivity and stress test analysis and
thematic deep dives.
Cross-functional expertise was leveraged to
review emerging trends and take pre-emptive
actions in accordance with the defined
risk appetite and governance standards.
The Group’s investment in advanced credit
analytics greatly enhanced monitoring
capabilities, improved forward-looking
assessments and supported stress testing
and capacity planning analysis. This in turn
allowed the Board to make more informed
decisions in the uncertain macroeconomic
and political environment.
Ensuring that the Group continued to
maintain appropriate expected credit loss
provisions was an important consideration
of the Board and senior management. The
Group undertook detailed analysis to assess
portfolio risks and consider if these were
adequately accounted for in IFRS 9 models
and frameworks. The Group identified a
number of areas requiring post-model
adjustments, most notably to account for
the increased credit risk from the heightened
cost of living and cost of borrowing, resulting
in an increase in provisions and a more
pronounced increase in the balances of
accounts in stage 2, which was expected
given the mechanics of the IFRS 9 framework.
In addition, a new suite of IFRS 9 models
were implemented, which further increased
alignment across the Group. Expected
credit loss provisions were assessed using
the Group’s revised IFRS 9 methodologies,
individually assessed provisioning
approaches and portfolio segment based
stress and sensitivity analysis. Benchmarking
analysis was provided to the Board and
senior management, enabling review and
challenge of provision coverage levels and
underlying macroeconomic scenarios.
Significant investment continues to be
made across the Group’s risk management
capabilities and resources, to ensure that all
categories of risk continue to be managed
effectively. An independent third-party
review was undertaken during the year which
indicated that the Group’s risk management
framework was well-designed and embedded
to support the Group’s current and future
strategic plans. The review’s recommended
actions confirmed management’s existing
53
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The Group views fair customer outcomes
and provision of timely and eff ective support
to customers in distress as a central pillar
supporting its Purpose, Vision and Values.
The Group has customer-centric policies
and procedures in place which are subject
to ongoing reviews and benchmarking.
The Group was also appropriately attuned
to the emerging industry and regulatory
focus on customer vulnerability recognising
that Consumer Duty regulations set higher
expectations for the Group in terms of
demonstrating that good outcomes for its
customers is at the heart of the Group’s
strategy and business objectives.
The Group continued to embed its approach
to managing climate risk through the further
development of its climate risk management
framework. A dedicated ESG Technical
Committee ensures that enhancements are
delivered as required.
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Priority areas for 2023
A signifi cant level of uncertainty remains around the UK economic outlook and the
operating environment for 2023 and beyond. Therefore, continued close monitoring of
the Group’s risk profi le and operating eff ectiveness remains a key priority for the Risk and
Compliance function. Other priorities include:
– Continue to leverage the Group’s Enterprise Risk Management Framework and
existing capabilities to actively identify, assess and manage risks in line with approved
risk appetite.
– Leverage enhancements made across the Group’s portfolio analytical capabilities,
including the implementation of an enhanced stress testing capability to improve risk-
based pricing, balance sheet management, capital planning and stress testing.
– Make continued progress in obtaining IRB accreditation and further leverage
capabilities within wider risk management disciplines such as IFRS 9 Expected Credit
Loss (ECL) calculations, underwriting, existing customer management and collections
to drive portfolio performance benefi ts and improvements in shareholder returns.
– Implement and embed the FCA’s Consumer Duty rules and requirements, via 5 key
pillars of activity, to ensure that the Group complies with the new Consumer Principle,
cross-cutting rules and the four Consumer Duty outcomes by 31 July 2023 for new
and existing products and 31 July 2024 for closed products.
– Continue to strengthen engagement and support with the fi rst line of defence to
enhance conduct, regulatory and fi nancial crime risk awareness and key preventative
and detective controls.
– Further enhance and embed the Group’s resolution framework, including testing
valuation and funding in resolution capabilities and testing interactions between other
resolution barriers.
– Maintain oversight of capital management including the impact of MREL, Basel 3.1
and IRB.
– Continue the optimisation of funding strategy and enhancement of sensitivity
analysis around key liquidity drivers.
OSB GROUP PLC
Annual Report and Accounts 2022
plans and will drive further enhancements
ensuring that the Group continues to meet
emerging regulatory expectations, whilst
supporting shareholder returns via the
management of fi nancial risks.
A number of deep dive thematic reviews
across all core loan portfolios were conducted
to ensure that credit risk strategies and
operational capabilities remained appropriate.
As a secured lender, the Group has prudent
credit risk appetite limits in place which,
together with well-established management
capabilities, position the Group well to manage
the impact of any potential aff ordability
stress from the ongoing rising cost of living or
further increases in interest rates. The Group
continues to conduct sensitivity and stress
testing analysis to understand the fi nancial
and operational impact of diff ering scenarios
on arrears levels, fi nancial performance
metrics and prudential requirements. These
scenarios also support operational capacity
planning to help ensure that the correct level
of resourcing is in place within the Servicing
and Collections function. During the pandemic,
the Group demonstrated the eff ectiveness of
its capabilities in managing and supporting
customers during a period of stress.
The ongoing delivery of planned
enhancements to the Group’s operational
resilience capabilities remains a key area of
focus. The Group’s programme of work to
ensure appropriate capabilities and processes
are in place to facilitate an orderly resolution
of the Group completed as planned, including
the successful completion of a resolution
scenario fi re drill which walked selected Board
members and senior management through
the core steps of the resolution timeline.
The Group has put in place arrangements
designed to ensure that it is able to continue
to serve customers through resolution and any
post-stabilisation restructuring.
The Group continues to implement a
programme of work to further embed the
operational risk management framework
across the Group, including the completion
of an enhanced risk and controls self-
assessment process and delivery of a
more aligned approach to the setting of
operational risk appetite. The Group’s
Risk and Control Self-Assessment (RCSA)
process was integrated into a Group-wide
risk system which will ensure more dynamic
and continuous assessment, adherence
to common standards, an improved user
interface and increased review and challenge.
54
Risk review continued
Key risk performance 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.
Loan loss ratio∆
Liquidity coverage ratio
y
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2022
2021
2022
2021
-2bps
-2bps
13bps
14bps
B
S
O
2022
2021
S
F
C
C
2022
2021
229%
240%
148%
158%
2022 performance
Statutory and underlying loan loss ratios
increased in the year as the Group adopted
more severe forward-looking macroeconomic
scenarios as well as post model adjustments
to account for rising cost of living and cost of
borrowing concerns.
2022 performance
Liquidity ratios reduced during 2022, but
remained well above internal and regulatory
requirements. The reduction was driven by
a strong mortgage pipeline and increased
derivative margin requirements as a result
of swap volatility during the year.
Loan book growth and changes in the
observed risk profile also added to the
charge, offset by a release of pandemic-
related post model adjustments and
modelling enhancements.
3 or more months’ arrears
CRD IV fully-loaded Common Equity –
Tier 1 capital ratio
B
S
O
2022
2021
S
F
C
C
2022
2021
0.9%
0.7%
1.2%
1.4%
2022
2021
Total capital ratio
2022
2021
18.3%
19.6%
19.7%
21.2%
2022 performance
The Group’s capital position remained
strong, with a CET1 ratio of 18.3% and a
total capital ratio of 19.7% as at the end of
2022 (31 December 2021: 19.6% and 21.2%,
respectively). This enabled the Group to
deliver strong growth and shareholder returns.
2022 performance
The Group’s ratio of balances which are
greater than three months in arrears
remained stable at 1.1% (2021: 1.1%).
Across the OSB bank entity, an improvement
in arrears was observed from 1.4% in 2021 to
1.2% in 2022. Both the Residential and Buy-
to-Let segments of the portfolio improved
during the year.
CCFS arrears growth, from 0.7% to 0.9%,
was observed on both the Residential and
Buy-to-Let portfolios, with both experiencing
a similar percentage change in three months
in arrears balances as the portfolio continues
to mature.
OSB GROUP PLC
Annual Report and Accounts 2022
55
Enterprise Risk Management Framework
The Enterprise Risk Management Framework
(ERMF) sets out the principles and approach
with respect to the management of the
Group’s risk profi le in order to successfully
fulfi l its business strategy and objectives,
including compliance with all conduct and
prudential regulatory objectives.
The ERMF is the overarching framework that
enables the Board and senior management to
actively manage and optimise the risk profi le
within the constraints of its risk appetite.
The ERMF also enables informed risk-based
decisions to be taken in a timely manner,
ensuring that the interests and expectations
of key stakeholders can be met.
The ERMF also provides a structured
mechanism to align critical components of
an eff ective approach to risk management.
The ERMF links overarching risk principles
to day-to-day risk monitoring and
management activities.
The modular construct of the ERMF provides
an agile approach to keeping pace with
the evolving nature of the risk profi le and
underlying drivers. The ERMF and its core
modular components are subject to periodic
review and approval by the Board and its
relevant Committees.
The key modules of the ERMF structure are
as follows:
1 Risk principles and culture
The Group established a set of risk
management and oversight principles
that inform and guide all underlying risk
management and assessment activities.
These principles are informed by the
Group’s Purpose, Vision and Values.
2 Risk strategy and appetite
8 Risk Management Framework’s
The Group established a clear business
vision and strategy which is supported by
an articulated risk vision and underlying
principles. The Board is accountable
for ensuring that the Group’s ERMF is
structured against the strategic vision
and is delivered within agreed risk
appetite thresholds.
3 Risk assessment and control
The Group is committed to building a
safe and secure banking operation via
an integrated and eff ective enterprise
strategic risk management framework.
4 Risk defi nitions and categorisation
The Group sets out its principal risks that
represent the primary risks to which the
Group is exposed.
5 Risk analytics
The Group uses quantitative analysis and
statistical modelling to help improve its
business decisions.
6 Stress testing and scenario
development
Stress testing is an important risk
management tool, which is used to
evaluate the potential eff ects of a
specifi c event and or movement in a set
of variables to understand the impact
on the Group’s fi nancial and operating
performance. The Group has a stress
testing framework which sets out the
Group’s approach.
7 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.
policies and procedures
Risk frameworks, policies and supporting
documentation outline the process by
which risk is eff ectively managed and
governed within the Group.
9 Risk management information
and reporting
The Group established a comprehensive
suite of risk Management Information
(MI) and reports covering all principal
risk types.
10 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.
11 Use and embedding
Dissemination of key framework
components across the Group to ensure
that business activities and decision-
making are undertaken in line with the
Board expectations.
Further detail on these modules is set out in
the Group’s Pillar 3 disclosures.
The following diagram outlines the
core components of the ERMF and the
organisational arrangements to ensure that
the Group operates in accordance with the
requirements of the ERMF.
Enterprise Risk Management Framework (ERMF)
Key elements
Risk principles
and culture
Risk strategy
and appetite
Risk governance and
function organisation
Risk defi nitions
and categorisation
Financial risks
Credit risk
Liquidity and funding risk
Market risk
Solvency risk
Strategic and business risk
Reputational risk
Non-fi nancial risks
Operational risk
Conduct risk
Financial Crime risk
Compliance/regulatory risk
Principal risks
Risk framework and policies
Risk data and IT
Risk analytics
Risk management information
Capabilities
ICAAP
ILAAP
Recovery plan/Z-templates
Risk regulatory submissions
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Annual Report and Accounts 2022
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Risk review continued
Group organisational structure
The Board has ultimate responsibility for the
oversight of the Group’s risk profi le and risk
management framework and, where it deems
it appropriate, it delegates its authority to
relevant Committees. The Board and its
Committees are provided with appropriate
and timely information relating to the nature
and level of the risks to which the Group
is exposed and the adequacy of the risk
controls and mitigants.
The Internal Audit function provides
independent assurance to the Board and
its Committees as to the eff ectiveness of
the systems and controls and the level of
adherence to internal policies and regulatory
requirements. The Board also commissions
third party subject matter expert reviews
and reports in relation to issues and areas
requiring deeper technical assessment
and guidance.
Risk appetite
The Group aligns its strategic and business
objectives with its risk appetite, which
defi nes the level of risk that the Group is
willing to accept, enabling the Board and
senior management to monitor the risk
profi le 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 risk appetite is calibrated to refl ect
the Group’s strategic objectives, business
operating plans, as well as external economic,
business and regulatory constraints. In
particular, the risk appetite is calibrated to
ensure that the Group continues to deliver
against its strategic objectives and operates
with suffi cient fi nancial buff ers even when
subjected to plausible but extreme stress
scenarios. The objective of the Board’s risk
appetite is to ensure that the strategy
and business operating model is
suffi ciently resilient.
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 profi le within
approved thresholds. The Board and senior
management actively monitor actual
performance against approved management
triggers and limits. Currently, 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 a mid-year review where any metrics can
be assessed and updated as appropriate.
OSB GROUP PLC
Annual Report and Accounts 2022
57
Structure of the Group
Board of Directors
Board Capital
and Funding
Committee
Group
Remuneration
and People
Committee
Group
Nomination
and Governance
Committee
Group Audit
Committee
Group Risk
Committee
Group Models
and Ratings
Committee
CCFSL
Board
Group Executive Committee
Group Credit
Committee
Operations
Committee
Models and
Ratings
Management
Committee
Group Risk
Management
Committee
Regulatory
Governance
Committee
Group Assets
and Liabilities
Committee
Group
Executive
Disclosure
Committee
ESG Technical
Committee
Transactional
Credit
Committee
(TCC)
Heritable
Transactional
Credit
Committee
(HTCC)
Operational
Risk
Management
Committee
Conduct Risk
Management
Committee
Solvency
Working
Group
Liquidity
Working
Group
First Line of Defence
Second Line of Defence
Third Line of Defence
Ensures that risks are identifi ed,
measured, monitored and reported in line
with policy in an eff ective manner.
Key Brands
Provides an independent review and
challenge to the business and control
functions to ensure that all aspects of the
risk profi le are managed in adherence to
risk appetite and risk policies.
Risk and Compliance
Provides independent assurance on the
eff ectiveness of the ERMF, compliance
with regulations, adherence to policies
and eff ectiveness of controls.
Internal Audit
Finance and HR
Operations
IT and Change
Commercial
Sales and Marketing
Legal and Regulation
Credit
Strategy
Chief Executive Offi cer
Group Financial Offi cer
Group Chief Risk Offi cer
Group Chief Internal Auditor
Group Chief Operating Offi cer
Group Chief Information Offi cer
Group Chief Credit & Compliance
Offi cer and CCFS Chief Risk Offi cer
Group General Counsel &
Company Secretary
Group Commercial Director
Group Managing Director,
Mortgages and Savings
Brand-Level Senior Management
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Risk review continued
Management of climate change risk
There was further embedding of the Group’s
approach to climate risk during 2022, with the
Climate Risk Management Framework and
ESG governance structures now established.
b) Climate risk perils considered
The following three physical perils of climate
change were assessed:
– Flood - wetter winters and more
The Group is exposed to the following climate
related risks:
– Physical risk – relates to climate
or weather-related events such as
heatwaves, droughts, floods, storms, rising
sea levels, coastal erosion and subsidence.
These risks could result in financial losses
with respect to the Group’s own real
estate and customer loan portfolios.
– Transition risk – arising from the effect
of adjusting to a low-carbon economy
and changes to appetite, strategy, policy
or technology. These changes could
result in a reassessment of property
prices and increased credit exposures for
banks and other lenders as the costs and
opportunities arising from climate change
become apparent. Reputational risk arises
from a failure to meet changing and
more demanding societal, investor and
regulatory expectations.
Approach to analysing climate risk on the
loan book
As part of the ICAAP, the Risk function
engaged with a third party to provide
detailed climate change assessments at a
collateral level for the Group’s loan portfolios.
The data was in turn utilised to conduct
profiling and financial risk assessments.
a) Climate scenarios considered
The standard metric for assessing climate
change risk is the global greenhouse gas
concentration as measured by Representative
Concentration Pathway (RCP) levels. The
four levels adopted by the Intergovernmental
Panel for Climate Change for its fifth
assessment report (AR5) in 2014 are:
Emissions scenario
Scenario
RCP 2.6
RCP 4.5
RCP 6.0
RCP 8.5
Change in temperature
(°C) by 2100
1.6 (0.9–2.3)
2.4 (1.7–3.2)
2.8 (2.0–3.7)
4.3 (3.2–5.4)
Note: figures within the brackets above detail the
range in temperatures. Single figures outside the
brackets indicate the averages.
OSB GROUP PLC
Annual Report and Accounts 2022
concentrated rainfall events will increase
flooding.
– Subsidence - drier summers will increase
subsidence via the shrink or swell of clay.
– Coastal erosion - increased storm surge
and rising sea levels will increase the rate
of erosion.
For each of the physical perils and climate
scenarios detailed above, a decade by
decade prediction, from the current year to
2100, on the likelihood of each was provided.
For flood and subsidence, the likelihood
took the form of a probability that a flood or
subsidence event would occur over the next
10 years. For coastal erosion the distance of
the property to the coast line is provided by
scenario and decade.
All peril impacts are calculated at property
level to a one-metre accuracy. This resolution
is essential because flood and subsidence
risk factors can vary considerably between
neighbouring properties.
In addition to the physical perils, the current
Energy Performance Certificate (EPC) of
each property was considered to allow for an
assessment of transitional risk due to policy
change. EPC ratings are based on a Standard
Energy Procedure (SAP) calculation which
uses a government methodology to determine
the energy performance of properties by
considering factors such as construction
materials, heating systems, insulation and
air leakage.
Both the OSB and CCFS portfolios were
profiled against each of the perils detailed
under the best (RCP 2.6) and worst (RCP 8.5)
climate scenarios.
– Flood risk
By the 2030s, at the Group level, the
percentage of properties predicted to
experience a flood is expected to increase
from 0.49% in the least severe scenario to
0.51% in the most severe scenario. Both
scenarios represent a low proportion of the
Group’s loan portfolios.
– Subsidence
In the 2030s, at the Group level, the
percentage of properties predicted to
experience subsidence is expected to increase
from 0.42% in the least severe scenario
to 0.45% in the most severe scenario. The
outcome of both scenarios represents a low
proportion of the Group’s loan portfolios.
– Coastal erosion
There are two elements to coastal erosion
risk. The first relates to the proximity of the
property to the coast. The second depends
on whether the area in which the property is
located is likely to experience coastal erosion
in the future.
Both Banks have over 93% of their portfolios
more than 1,000 metres from the coastline,
indicating a very low coastal erosion risk
across the Group.
The CCFS bank entity has 32 properties
within 100 metres of the coastline, whilst the
OSB bank entity has 34.
c) Energy Performance Certificate profile
The EPC profile of both Bank entities follows
a similar trend to the national average. At the
Group level 40% of properties have an EPC of
C or better, 45% have an EPC of D, 13% with
an EPC of E and negligible percentages in F
or G. Over 90% of the properties supporting
the Group’s loan portfolios have the potential
to have at least an EPC rating of C.
Value at Risk assessment
The Value at Risk to each Bank, measured
through change to Expected Credit Loss
(ECL) and Standardised and IRB Risk
Weighted Assets (RWAs), is assessed through
the application of stress to collateral
valuations as per the methodology outlined
below. Impacts are assessed against the
latest year end position.
Climate change scenarios
To get the full range of impacts, the most and
least severe climate change stress scenarios
were considered.
The most severe, RCP 8.5, assumes there
will be no concerted effort at a global level
to reduce greenhouse gas emissions. Under
this scenario, the predicted increase in global
temperature is 3.2-5.4°C by 2100.
The least severe scenario, RCP 2.6,
assumes early action is taken to limit future
greenhouse gas emissions. Under this
scenario, the predicted increase in global
temperature is 0.9-2.3°C by 2100.
59
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Methodology – physical risks
For the physical risks, updated valuations
are produced to refl ect the impact of a fl ood,
subsidence and coastal erosion risk.
Methodology – transitional risks
The Group’s expectation is that, under
the early action scenario (RCP 2.6), the
government will require all properties to
achieve EPC A, B and C grades where
possible. We considered this risk for Buy-to-
Let accounts only.
d) Analysis outcome
The physical risks currently present an
immaterial ECL or capital risk to the Group.
The sensitivity to transitional risk is larger
than that of physical risk, although still very
small, particularly when considering the
aggressive time frames on government policy
relating to minimum EPC requirements.
e) Planned enhancements during 2023
In the future, the Group’s climate risk data
and scenario analysis capabilities will
continue to be enhanced.
60
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 heat map below,
with further details provided in each
principal risk section.
Current assessment of principal risks
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1 Strategic and business risk
2 Reputational risk
3 Credit risk
4 Market risk
5 Liquidity and funding risk
6 Solvency risk
7 Operational risk
8 Conduct risk
9 Compliance/regulatory risk
10 Financial crime risk
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Impact
High
1 Strategic and business risk
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 strong and dependable savings
franchises. 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.
1.1 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.
Mitigation
Regular monitoring by the Board and the Group Executive Committee
of business and financial performance against the strategic agenda
and risk appetite. The financial plan is subject to regular reforecasts.
The Balanced Business Scorecard is the primary mechanism to
support how the Board 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 Group delivered strong performance against targets during
2022 despite the continued impact of inflation, increasing interest
rates and the conflict in Ukraine. The ongoing macroeconomic
uncertainty and its potential impact on net interest margin,
affordability levels and house prices present an increased risk to
the Group’s performance in 2023.
OSB GROUP PLC
Annual Report and Accounts 2022
61
1.2 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 portfolios and may influence future business
strategy as the Group’s new business proposition becomes less attractive due to lower returns.
Mitigation
The Group’s business model as a secured lender helps limit
potential credit risk losses and supports performance through the
economic cycle. The Group continues to utilise and enhance its
stress testing capabilities to assess and minimise potential areas of
macroeconomic vulnerability.
Direction
Increased
The increase in macroeconomic environment risk in 2022 related
to inflation and increasing interest rates creating a squeeze on
borrowers’ affordability levels. The ongoing macroeconomic
uncertainty will continue into 2023 with an increased risk to
the Group’s credit risk profile, including the possibility of a fall
in house prices.
1.3 Competition risk
The risk that new bank entrants and existing peer banks shift focus to the Group’s market sub-segments, increasing the level of
competition.
Mitigation
The Group continues to develop products and services that meet the
requirements of the markets in which it operates. The Group has a
diversified suite of products and capabilities to utilise, together with
significant financial resources to support a response to changes
in competition.
Direction
Unchanged
The current economic outlook may limit the number of
competitors shifting their focus to the Group’s key market
sub-segments.
2 Reputational risk
The potential risk of the Group’s reputation being affected due to factors
such as unethical practices, adverse regulatory actions, customer or
broker 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 any principal risk can lead to a
reputational risk impact.
Risk appetite statement
The Group has a very low appetite for reputational risks. The
Group will not conduct its business or engage with stakeholders in
a manner that could adversely impact its reputation or franchise
value. The Group recognises that reputational risk is a consequence
of other risks materialising and in turn seeks to actively manage all
risks within Board-approved risk appetite levels. The Group strives to
protect and enhance its reputation at all times.
2. 1 Deterioration of reputation
Potential loss of trust and confidence that our stakeholders place in us as a responsible and fair provider of financial services.
Mitigation
Culture and commitment to treating customers fairly and being
open and transparent in communication with key stakeholders.
Established processes in place to proactively identify and manage
potential sources of reputational risk. Review of relevant Management
Information (MI) including complaint volumes, Net Promoter Scores,
Customer Satisfaction results, Social Media and Trustpilot feedback.
Direction
Increased
The challenging macroeconomic environment in 2022 resulted
in significant shifts within both the UK’s lending and savings
markets. This has brought about the need for all banks to become
increasingly agile with products offered in order to ensure that
all core targets continued to be met. Operational scalability and
efficiency challenges have impacted the Group’s reputational
risk profile.
OSB GROUP PLC
Annual Report and Accounts 2022
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Principal risks and uncertainties continued
3 Credit risk
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.
3.1 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, which
may result in a loss being incurred.
Direction
Increased
The drivers of borrower default risk have shifted to rising inflation
and the consequential increases in interest rates which impact
affordability for accounts which revert onto higher interest rates
and increase the risk of borrower default.
Mitigation
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,
supplemented by bespoke application scorecards to inform the
lending decision.
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 finance lending is extended only after a deep
investigation of the borrower’s track record and stress testing the
economics of the specific project.
3.2 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.
Mitigation
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.
Direction
Increased
The uncertain economic outlook and the ongoing geopolitical
risk due to the conflict in Ukraine resulted in high inflation and
increases in interest rates could drive higher levels of customer
defaults, rising impairment levels and falling residential and
commercial collateral values.
3.3 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.
Mitigation
The Group transacts only with high-quality wholesale counterparties.
Derivative exposures include collateral agreements to mitigate
credit exposures.
Direction
Unchanged
The Group’s wholesale credit risk exposure remains limited to
high-quality counterparties, overnight exposures to clearing
banks and swap counterparties.
OSB GROUP PLC
Annual Report and Accounts 2022
63
4 Market risk
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.
4.1 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.
Mitigation
The Group’s Treasury function actively hedges to match the timing of
cash flows from assets and liabilities.
Direction
Unchanged
Interest rate risk remained unchanged in 2022 due to the
Group’s simple asset and liability structure and ongoing
careful management.
4.2 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, administered, other discretionary variable rates, or that received on call accounts with other
banks.
Mitigation
The Group did not require active management of basis risk in 2022
due to its balance sheet structure.
Direction
Decreased
Basis risk exposures reduced year on year as a result of the LIBOR
Transition at the end of 2021.
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64
Principal risks and uncertainties continued
5 Liquidity and funding risk
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 strong retail savings franchises,
supported by high-quality liquid asset portfolios 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.
5.1 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.
Direction
Increased
The Group’s funding levels and mix remained strong throughout
the year.
In 2022, OSB and CCFS were able to attract significant flows of
new deposits and depositors, despite the volatile interest rate
environment and competitive savings market. During periods of
exceptionally high volatility, funding was drawn from the Bank
of England using the Indexed Long-term Repo scheme to support
retail funding and customer operations.
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, largely mitigating the 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 that it is not solely
reliant on retail savings. The Group also has a mature Retail Mortgage
Backed Security (RMBS) programme.
5.2 Wholesale funding stress
A market-wide stress could close securitisation markets or make issuance costs unattractive for the Group.
Mitigation
The Group continuously monitors wholesale funding markets and is
experienced in taking proactive management actions where required.
Direction
Unchanged
The Group issued one securitisation in 2022 and has a range of
wholesale funding options available outside retained securitisation,
including Bank of England facilities, for which collateral has
been prepositioned.
5.3 Refinancing of TFSME
The Group’s range of wholesale funding options available,
including repo or sale of retained notes or collateral upgrade
trades remained broadly unchanged.
Current Term Funding Scheme for Small and Medium-sized Enterprises (TFSME) borrowing by the Group remained at £4.2bn at the
end of 2022, with a refinancing concentration scheduled for October 2025.
Mitigation
The Group has other wholesale options available to it, including
securitisation programmes and repo or sale of held notes, as well as
retail funding via its strong franchises, to replace the TFSME borrowing
gradually over the next few years ahead of the maturity of this funding.
Direction
Unchanged
TFSME borrowing remained unchanged during the year; however,
the current funding plan to refinance TFSME requires significant
securitisation issuance. These markets have seen increased
volatility during 2022, which could continue into 2023 so
additional refinancing options are being considered.
OSB GROUP PLC
Annual Report and Accounts 2022
65
6 Solvency risk
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.
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.
We manage our capital resources in a manner which avoids
excessive leverage and allows us flexibility in raising capital.
6.1 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. In particular, we note the PRA’s recently published consultation paper (CP) on the
implementation of Basel 3.1.
Mitigation
The Group operates from a strong capital position and has a
consistent record of strong profitability.
Direction
Increased
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.
The stable credit profile and ongoing profitability mean that the
Group’s capital resources remain strong.
Risks remain around adverse credit profile performance resulting
from rising inflation and interest rates.
We have estimated the impact of Basel 3.1 on our 31 December
2022 CET1 ratio to be a reduction of up to 2% points, should the
proposed rules be implemented as drafted in the CP and prior to
the Group receiving Internal Ratings Based (IRB) accreditation.
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OSB GROUP PLC
Annual Report and Accounts 2022
66
Principal risks and uncertainties continued
7 Operational risk
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.
7.1 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.
Mitigation
The Group programme of IT and cyber improvements continued
with the aim of 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.
7.2 Data quality and completeness
The risks resulting from data being either inaccurate or incomplete.
Mitigation
The Group previously established a dedicated Data Strategy
Programme, involving the recruitment of a Chief Data Officer and a
Data Governance Director, 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.
7.3 Change management
Direction
Unchanged
The Group has processes in place to allow it to operate effectively
when employees work from home and manage the cyber risks
related to working remotely.
Whilst IT security risks continue to evolve, work continues to
enhance the level of maturity of the Group’s controls and
defences, supported by dedicated IT security experts.
The Group’s has an ongoing programme of penetration testing in
place to drive enhancements by identifying potential areas of risk.
Direction
Unchanged
Progress was made in 2022 to embed Group-wide governance
frameworks in part driven by the Group’s IRB project. Further
work is planned for 2023, to move closer to the Group’s target
end state.
The risks resulting from unsuccessful change management implementations, including the failure to respond effectively to release-
related incidents.
Mitigation
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.
Direction
Increased
The Group continued to adopt an ambitious change agenda,
which was monitored and managed well in 2022. We are now
turning our attention towards identifying opportunities to further
digitise our business operations, to deliver additional efficiencies
and invest in the Group to ensure it remains well-positioned to
meet the changing needs of our customers, brokers and
wider stakeholders.
7.4 IT failure
The risks resulting from a major IT application or infrastructure failure impacting access to the Group’s IT systems.
Mitigation
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.
The Group has established a site in Hyderabad to ensure that,
in the event of an operational incident in Bangalore, services can
be maintained.
Direction
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 hybrid working arrangement. Further work is planned
during 2023.
OSB GROUP PLC
Annual Report and Accounts 2022
8 Conduct risk
The risk that the Group’s culture, organisation, behaviours and actions
result in poor outcomes and detriment for customers and/or damage to
consumer trust and integrity of the markets in which it operates.
67
Risk appetite statement
The Group has a very low appetite to assume risks which may
result in either poor or unfair customer outcomes and/or cause
disruptions in the market segments in which it operates. The Group
aims to avoid causing detriment or harm to its customers and
operates to the highest standards of conduct. The Group will treat
its customers, third-party partners, investors and regulators with
respect, fairness and transparency. The Group will proactively
look to identify where its products and services could lead to poor
outcomes or harm to its customers, and will take appropriate action
to mitigate this. Where customer harm occurs, the Group will ensure
that effective solutions are implemented to address the root cause
and a fair outcome is achieved.
8.1 Conduct risk
The risk that the Group fails to meet its expectations with respect to conduct risk.
Mitigation
The Group’s culture is clearly defined and monitored via its Purpose,
Vision and Values driven behaviours.
Direction
Increased
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.
The Group has an embedded Conduct Risk Management Framework
which clearly define roles and responsibilities for conduct risk
management and oversight across the Group’s three lines of defence.
The conduct risk level increased due to macroeconomic
uncertainty. Some customers, particularly those who are
vulnerable, may experience financial difficulty as a result of
the rising cost of living and cost of borrowing. Volatile lending
and savings markets led to unprecedented high volumes of new
business adversely impacting customer service level agreements
and leading to increased complaints and reputational risk.
Conduct losses have remained stable with no breaches of risk
appetite reported during the last 12 months.
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OSB GROUP PLC
Annual Report and Accounts 2022
68
Principal risks and uncertainties continued
9 Regulatory risk
The risk of failure to effectively identify, interpret, implement and adhere
to all regulatory or legislative change that impacts the Group.
Risk appetite statement
The Group views ongoing conformance with regulatory rules and
standards across all the jurisdictions in which it operates as a critical
facet of its risk culture. The Group has a very low appetite to assume
regulatory risk, which could result in poor customer outcomes,
customer detriment, regulatory sanctions, financial loss or damage
to its reputation. The Group will proactively monitor for and will
not tolerate any systemic failure to comply with applicable laws,
regulations or codes of conduct relevant to its business.
The Group acknowledges that regulatory rules and standards are
subject to interpretation and subsequent translation into internal
policies and procedures. The Group interprets requirements to
ensure adherence with the intended purpose and spirit of the
regulation whilst being cognisant of commercial considerations and
good customer outcomes. To minimise regulatory risk, the Group
proactively engages with its regulators in a transparent manner,
participates in industry forums and seeks external advice to validate
its interpretations, where appropriate.
9.1 Prudential regulatory changes
The Group continues to see a high volume of key compliance regulatory changes that impact its business activities. These include
the implementation of Basel 3.1 capital rules and increased Resolvability Assessment Framework requirements, including updated
minimum requirements for own funds and eligible liabilities (MREL).
Mitigation
The Group has an effective horizon scanning process to identify
regulatory change.
Direction
Unchanged
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.
9.2 Conduct regulation
The Group continued to have a high level of interaction with UK
regulators and continues to identify and respond effectively to all
regulatory changes.
Regulatory changes focused on the conduct of business could force changes in the way the Group carries out business and impose
substantial compliance costs.
This includes the risk that product design, pricing, underwriting, arrears and forbearance and vulnerable customer 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.
Mitigation
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 and forbearance and
vulnerable customer policies, which are designed to comply with
regulatory principles, 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
Increased
The level of regulatory change continued to be high but the
Group has sufficient resources and capabilities to respond to any
changes in an effective and efficient manner.
The Group continues to proactively interact with regulatory
bodies to take part in thematic reviews and information requests,
as required.
Identifying, monitoring and supporting vulnerable customers
continues to be a key area of focus.
Ongoing reviews of long term arrears and forbearance customers,
continues to ensure that payment terms still remain appropriate.
The Group has instigated a formal project to implement the FCA’s
new Consumer Duty requirements within the required timelines.
OSB GROUP PLC
Annual Report and Accounts 2022
10 Financial crime risk
The risk of financial or reputational loss resulting from inadequate
systems and controls to mitigate the risks from financial crime.
69
Risk appetite statement
To minimise financial crime risk the Group will design and maintain
robust systems and controls to identify, assess, manage and
report any activity (internal or external in nature) which exposes
the Group to financial crime risk in the form of money laundering,
human trafficking, terrorist financing, sanctions breaches,
bribery, corruption and fraud. The Group recognises the need to
continuously review its systems and controls to ensure that they are
aligned to the nature and scale of financial crime risk it is exposed to
on a current and forward looking basis.
10.1 Financial crime risk
The risk of financial or reputational loss resulting from a failure to implement systems and controls to manage the risk from money
laundering, terrorist financing, sanctions, bribery, corruption and cyber-crime.
Direction
Unchanged
The Group continues to focus primarily on the UK market with
accounts serviced from UK bank accounts.
The Group has processes in place to allow it to operate effectively
when employees work from home and manage the cyber risks
related to working remotely. 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.
Mitigation
The Group operates in a low-risk environment providing relatively
simple products to UK domiciled customers serviced through a UK
registered bank account. The Group has an established screening
programme that is deployed at the point of origination and on a
regular basis throughout the customer lifecycle. Where applicable,
enhanced due diligence is applied to ensure that any increase in risk is
appropriately managed and any activity remains within risk appetite.
The Group has a horizon scanning programme that identifies changes
to money laundering regulations and any other financial crime related
legislation to ensure that we comply with all regulatory obligations.
The Group reacted swiftly to the events in Ukraine and the regular
updates released in relation to the Russia and Belarus financial
sanctions regimes. The Group has negligible exposure to the affected
jurisdictions and no exposure to any specific individual or entity
contained within the revised sanctions listings.
The Group’s programme of cyber improvements continued with
the aim of enhancing its protection against IT security threats,
deploying a series of tools designed to identify and prevent network/
system intrusions. The Group’s Financial Crime team will support the
Information Security Team, where appropriate, to ensure that there
are robust and effective controls in place and sufficient training and
awareness for all colleagues.
10.2 Fraud risk
The risk of financial loss resulting from fraudulent action by a person either internal or external.
Mitigation
The Group continues to invest in a range of systems and controls that
are deployed across its product range in order to detect and prevent
the exposure to fraud through the customer lifecycle. All new business
applications are subject to a range of controls to identify and mitigate
fraud. Customer activity is monitored in order to detect suspicious
activity or behaviour that may be indicative of fraud.
These controls are further supported by documented policies and
procedures that are managed by experienced employees in a
dedicated Financial Crime function.
The Group continually monitors its detection capability with periodic
reviews of the parameters within its systems and control framework to
ensure that these remain fit for purpose and aligned to mitigate any
emerging risks.
Direction
Increased
The Group remains aware that any potential downturn in the
wider economic environment may increase the risk of fraud
activity across its product range and will closely monitor changes
in trends that may be indicative of any new or emerging risks.
OSB GROUP PLC
Annual Report and Accounts 2022
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Principal risks and uncertainties continued
Emerging risks
The Group proactively scans for emerging risks which may have an impact on its ongoing operations and strategy and considers its top emerging
risks to be:
Emerging risk
Description
Mitigation
Political
and macro-
economic
uncertainty
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. Rising inflation and interest rates pose risks to
the Group’s loan portfolio performance.
Climate
change
As the 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 which 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.
The Group also notes changes in industry best practice
with respect to model risk management including a PRA
consultation paper containing proposed expectations
regarding banks’ management of model risk.
The Group remains subject to high levels of regulatory
oversight and an extensive and broad ranging regulatory
change agenda, including meeting the requirements of
the Resolvability Assessment Framework and Operational
Continuity in Resolution. The Group is therefore required
to respond to prudential and conduct-related regulatory
changes, taking part in thematic reviews, as required.
There is also residual uncertainty in relation to the
regulatory landscape post the United Kingdom’s exit from
the European Union.
Model risk
Regulatory
change
The Group has mature and robust monitoring processes
and via various stress testing activities (i.e. ad hoc, risk
appetite and Internal Capital Adequacy Assessment
Process (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.
During 2022, the Group further embedded its approach to
climate risk management, which included the development
of a climate risk appetite, and making enhancements
to its Task Force on Climate-Related Financial
Disclosures (TCFD).
The Group’s Chief Risk Officer has designated senior
management responsibility for the management of climate
change risk.
The Group has well-established model risk governance
arrangements in place, with Board and Executive
Committees in place to ensure robust oversight of the
Group’s model risk profile. Dedicated resources are in place
to ensure that model governance arrangements continue to
meet any changes in industry and regulatory expectations.
The Group has established horizon scanning capabilities,
coupled with dedicated prudential and conduct regulatory
experts in place to ensure the Group manages future
regulatory changes effectively.
The Group also has strong relationships with regulatory
bodies, and via membership of UK Finance, inputs into
upcoming regulatory consultations.
OSB GROUP PLC
Annual Report and Accounts 2022
Risk review
Risk profile performance overview
Credit risk
The Group’s loan portfolios performed
robustly during 2022. Prudent criteria
for new originations delivered strong new
business quality, whilst the back book also
outperformed forecast expectations. In
particular, the Group saw lower arrears levels
than forecast and better than expected house
price inflation.
The Group’s prudent credit risk appetite
ensures that loan portfolios are positioned
to perform well in both benign and stressed
macroeconomic environments.
The Group delivered 12% net loan book
growth in 2022 with strong originations in
the Group’s core Buy-to-Let and residential
owner-occupier sub-segments, which more
than offset reductions in the second charge
and funding lines sub-segments. New
lending also improved in semi-commercial
and commercial as well as in the Group’s
development finance sub-segments.
Favourable property price indexing resulted
in a reduction in the weighted average stock
LTV for OSB and CCFS to 58% and 63%
respectively as at 31 December 2022 (31
December 2021: OSB 60% and CCFS 65%),
and a prudent weighted average LTV profile
of 60% for the Group, down from 62% at the
end of 2021.
A low and stable level of arrears continued
to be observed, with just 1.1% of the Group’s
net loan balances being greater than three
months in arrears as at 31 December 2022,
unchanged from the prior year. Increasing
arrears levels were observed across a small
number of portfolios as payment deferrals
expired; however, these increases were
partially offset by improving performance
across other loan portfolios.
Solo bank interest coverage ratios for Buy-
to-Let loans remained strong during 2022 at
207% for OSB and 191% for CCFS (2021: 199%
OSB and 188% CCFS).
During 2022, forward-looking external credit
bureau probability of default and customer
indebtedness scores remained strong, with
some reversion back to pre-pandemic levels
as customers returned to spending, once
lockdown restrictions were relaxed.
Expected Credit Losses (ECL)
Balance sheet expected credit losses
increased from £101.5m to £130.0m as at 31
December 2022. Other non-material items
further contributed to the increase and
resulted in a full year statutory impairment
charge of £29.8m representing a loan loss
ratio of 13bps (2021: £4.4m release, -2bps,
respectively), with the provision charge
primarily driven by post-model adjustments
to account for rising cost of living and cost
of borrowing concerns, as well as the strong
growth in the loan book in the year.
A summary of the key impairment charge
drivers for 2022 included:
a. Macroeconomic outlook
– positive House Price Index (HPI)
movements and continued low
unemployment were observed throughout
2022, however, the outlook deteriorated
throughout the year due to the war
between Russia and Ukraine and the
fallout from the mini budget. The
economic outlook at the end of 2022
was driven by rising interest rates, higher
than target inflation and most notably
a decrease in house prices. The change
in economic outlook contributed £11.6m
of impairment charge in 2022, whilst
the improvement in house prices drove a
release of £10.3m.
b. Model and staging enhancements
– enhancements were made to the
Group’s underlying models to ensure
that estimates continued to reflect
actual credit profile performance. Most
notably, the Group’s enhancements to
models, as part of the IRB programme,
were incorporated into the Group’s IFRS
9 framework. In addition, the Group
enhanced its Significant Increase in Credit
Risk (SICR) framework to adopt a default
risk trigger, sensitive to the economic
outlook. The cumulative impact of these
modelling and staging enhancements was
an £8.3m release for 2022.
c. Post-model adjustments
– the Group adopted a number of post-
model adjustments to account for external
risks that were not sufficiently addressed
in the model and staging framework.
The most significant were adjustments
made to the stage 2 approach to account
for rising cost of living and borrowing
concerns due to the sharp increase
in interest rates and the historically
high inflation. In total, the post-model
adjustments contributed £13.3m of
impairment charge in 2022.
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d. Credit profile provision charges
– impairment charges driven by changes
in the credit profile such as portfolio
growth, portfolio product mix and
changes in staging mix totalled £15.2m.
Other charges, including changes to
individually assessed provisions and write
offs, totalled £8.3m.
The Group continued to closely monitor
impairment coverage levels in the year.
Impairment coverage levels were strengthened
due to both the observed cost of living and
cost of borrowing drivers, and the renewed
uncertainty surrounding the macroeconomic
outlook, with coverage levels approaching
those held at the peak of the pandemic. The
Group’s Risk function conducted top-down
analysis, assessing portfolio-specific risks,
which confirmed the appropriateness of
provision levels after taking into account the
post-model adjustments.
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OSB GROUP PLC
Annual Report and Accounts 2022
72
Risk review continued
Coverage ratios table
As at 31 December 2022
Stage 1
Stage 2
Stage 3 (+ POCI)
Total
As at 31 December 2021
Stage 1
Stage 2
Stage 3 (+ POCI)
Total
Gross carrying
amount
£m
Expected credit
losses
£m
18,722.3
4,417.1
588.7
23,728.1
7.2
50.9
71.9
130.0
Gross carrying
amount
£m
Expected credit
losses
£m
18,188.4
2,413.6
562.1
21,164.1
12.1
25.0
64.4
101.5
Coverage
ratio
%
0.04%
1.15%
12.21%
0.55%
Coverage
ratio
%
0.07%
1.04%
11.46%
0.48%
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 adopted an approach which
utilises four macroeconomic scenarios. These
scenarios are provided by an industry-leading
economics advisory firm, that provides
management and the Board with advice.
A base case forecast is provided, together
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 principally
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.
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.
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, together
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 2022
Throughout 2022, the scenario suite was
monitored and updated as UK political and
geopolitical developments occurred.
The Group’s Risk and Audit Committees
focused on assessing whether specific risks
had been captured within externally provided
forward-looking forecasts. Of particular focus
were the risks relating to rising costs of living
and subsequent rising interest rates to control
inflation levels. The Group undertook a
detailed analysis to assess the portfolio risks
and consider whether these were adequately
accounted for in the IFRS 9 models and
frameworks, and identified a number of areas
requiring post-model adjustments, most
notably to account for the increased credit
risk from the heightened cost of living and
cost of borrowing resulting in an increase in
the balance of accounts in stage 2.
The Board reflected on the ongoing
appropriateness of probabilities attached
to the suite of IFRS 9 scenarios as the
macroeconomic outlook evolved throughout
the year. Scenarios were adjusted to
a symmetrical probability, where the
upside and downside scenarios carry
equal weightings, as a result of separate
post-model adjustments being raised to
ensure that the current IFRS 9 framework
adequately provisioned the underlying
portfolio risk.
Details relating to the scenarios utilised to set
the 31 December 2022 IFRS 9 provision levels
are provided in the table opposite.
OSB GROUP PLC
Annual Report and Accounts 2022
Forecast macroeconomic variables over a five-year period
Scenario
Probability
weighting
(%)
Base case 40
Upside
30
Downside 20
Severe
downside
10
Economic measure
GDP
Unemployment
House price growth
CPI
Bank Base Rate
GDP
Unemployment
House price growth
CPI
Bank Base Rate
GDP
Unemployment
House price growth
CPI
Bank Base Rate
GDP
Unemployment
House price growth
CPI
Bank Base Rate
Scenario %
Year end
2022
Year end
2023
Year end
2024
Year end
2025
Year end
2026
4.3
3.7
9.0
10.7
2.8
4.6
3.6
10.6
11.0
3.0
3.7
4.2
6.8
10.2
2.9
3.2
4.3
5.0
9.5
2.6
(0.7)
4.7
(9.0)
3.4
4.0
1.9
4.2
(6.7)
4.7
5.3
(4.4)
6.3
(14.4)
1.6
3.8
(7.5)
6.8
(18.6)
0.7
2.8
1.8
4.2
(3.4)
2.0
3.6
2.9
4.0
(1.3)
2.9
4.8
1.0
7.0
(8.0)
1.5
3.1
0.1
7.6
(12.1)
0.9
2.0
2.7
3.9
2.8
1.6
2.6
3.4
3.7
4.4
1.4
3.4
2.4
7.0
(1.2)
1.8
1.9
1.9
7.6
(5.0)
2.1
0.6
2.1
3.8
5.8
1.2
1.8
2.2
3.7
5.6
1.1
2.3
2.1
6.7
6.1
0.8
1.3
2.1
7.2
6.5
0.5
0.5
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 the contractual monthly
payment is reduced to the amount of
interest owed in the month for the duration
of the account change. 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
capital and interest accruals during the
payment holiday period are repaid from
the end of the payment holiday over the
remaining term. 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 monthly payment.
– Reduced monthly payments: a
temporary arrangement for customers
in financial distress. For example, a
short-term arrangement to pay less
than the contractual monthly payment.
Arrears continue to accrue based on the
contractual monthly 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
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
73
– 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 payment, 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.
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.
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 quarterly indexing
using Commercial Real Estate (CRE) data.
Residential properties are indexed at least
quarterly, using 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, 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. The Group’s
fully-loaded CET1 and total capital ratios
under CRD IV reduced to 18.3% and 19.7%,
respectively as at 31 December 2022 (31
December 2021: 19.6% and 21.2%, respectively).
The Group’s leverage ratio was 8.4% as at 31
December 2022 (31 December 2021: 7.9%).
OSB GROUP PLC
Annual Report and Accounts 2022
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74
Risk review continued
Liquidity and funding risk
The Group has a prudent approach to
liquidity management through maintaining
suffi cient liquidity resources to cover
cash-fl ow imbalances and fl uctuations in
funding, under both normal and stressed
conditions, arising from market-wide and
Bank-specifi c events. OSB’s and CCFS’
liquidity risk appetites have been calibrated
to ensure that both Banks always operate
above the minimum prudential requirements
with suffi cient contingency for unexpected
stresses, whilst actively minimising the risk
of holding excessive liquidity, which would
adversely impact the fi nancial effi ciency of
the business model.
The Group continues to attract new retail
savers and has high retention levels with
existing customers. In addition, the Group
is able to access a wide range of wholesale
funding options, including securitisation
issuances and the use of retained notes from
both Banks as collateral for Bank of England
facilities and repurchase agreements with
third parties.
In 2022, both Banks actively managed their
respective liquidity and funding profi les
within the confi nes of their risk appetites as
set out in the Group’s ILAAP.
Retail funding rates increased throughout
the year due to the signifi cant increase in
the Bank of England Base Rate. However,
swap rate increases during the year allowed
both Banks to retain more margin on savings
rates off ered to customers. There was a
short period towards the end of the fi rst
quarter where retail funding was volatile as
the fi rst of the larger Base Rate increases
pushed competitor savings rates higher and
increased competition; however, both Banks
were able to attract new depositors with
competitive rates.
Swap rate increases in 2022 also led to the
Group receiving a high level of variation
margin collateral on the Group’s interest rate
swaps. The Group has increased internal
buff ers to ensure that suffi cient funds are
held at the Bank of England to meet any swap
margin calls that may arise if swap rates
reduce.
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 2022, OSB
had a liquidity coverage ratio of 229% (2021:
240%) and CCFS 148% (2021: 158%), and the
Group LCR was 185%, all signifi cantly above
regulatory requirements.
OSB GROUP PLC
Annual Report and Accounts 2022
Market risk
The Group proactively manages its risk
profi le 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 fi xed rate mortgage
lending, sight and fi xed-term savings and
the maintenance of a portfolio of high-
quality liquid assets. Interest rate exposure
is mitigated on a continuous basis through
portfolio diversifi cation, reserve allocation
and the use of fi nancial derivatives, within
limits set by the Group ALCO, and approved
by the Board.
The Group’s balance sheet is predominantly
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.
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 identifi cation,
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
fi nancial 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 identifi ed, together with dedicated
fi rst line risk and controls teams in some key
areas of the business. Both the dedicated
fi rst line risk and control teams and the Risk
Champions ensure that the operational risk
identifi cation 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.
A hybrid working model has been adopted
across the Group, with the exception being
front-line customer-facing colleagues,
following the return to the offi ce after the
COVID-19 pandemic. With a 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, work continues to enhance the
level of maturity of the Group’s controls and
defences, supported by dedicated IT security
experts. The Group’s ongoing penetration
testing continues to drive enhancements by
identifying potential areas of risk.
The Group has established a site in
Hyderabad to ensure that, in the event of an
operational incident in Bangalore, services
can be maintained.
Regulatory and compliance risk
The Group is committed to the highest
standards of regulatory conduct and aims
to minimise breaches, fi nancial costs and
reputational damage associated with non-
compliance.
The Group has an established Compliance
function which actively identifi es, assesses and
monitors adherence with current regulation
and the impact of emerging regulation.
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 forthcoming regulation on itself and the
market in which it operates, and undertakes
robust assurance assessments from within
the Risk and Compliance functions.
Conduct risk
The Group considers its culture and behaviour
in ensuring the fair treatment of customers
and in maintaining the integrity of the market
sub-segments in which it operates to be a
fundamental part of its strategy and a key
driver to sustainable profi tability 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 eff ective conduct risk
management to be a product of the positive
behaviour of all employees, infl uenced by
the customer-centric culture throughout
the organisation and therefore continues to
promote a strong sense of awareness and
accountability.
Financial crime risk
The Group operates in a low risk environment
providing relatively simple products to UK
domiciled customers serviced through a
UK-registered bank account. The Group has
an established screening programme that
is deployed at the point of origination and
on a regular basis throughout the customer
lifecycle.
The Group continues to invest in a range
of systems and controls that are deployed
across its product range in order to detect
and prevent the exposure to fraud through
the customer lifecycle. All new-to-business
applications are subject to a range of controls
to identify and mitigate fraud. Customer
activity is monitored in order to detect
suspicious activity or behaviour that may be
indicative of fraud.
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 fi nancial
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 sub-
segments where its experience and capabilities
give it a clear competitive advantage.
The Group remains focused on delivering
against its core strategic and fi nancial
objectives, against a highly competitive and
uncertain backdrop.
Reputational risk
Reputational risk can arise from a variety
of sources and is a second order risk – the
crystallisation of another principal 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.
75
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OSB GROUP PLC
Annual Report and Accounts 2022
76
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 timeframe 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 set on an annual
basis and are reviewed and refreshed
quarterly. 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 any changes in
capital requirements.
In making the assessment, the Board has
considered all principal and emerging risks,
including climate risk, where the risk is likely
to emerge outside of the viability assessment
horizon. The impacts of climate risk have
been assessed as part of the Internal Capital
Adequacy Assessment Process (ICAAP), which
concluded that at present the associated
financial risks are not material for the Group.
The Group prepares financial forecasts over
a five year time horizon, with the Board and
management focusing on the projections
over the first three years, with years four and
five being extrapolations of the earlier years.
Key events which will impact the Group’s
capital adequacy such as the introduction of
Basel 3.1, the impact of the implementation
of the Group’s Minimum Requirements for
Own Funds and Eligible Liabilities (MREL)
and the impact of the peak stress point of
macroeconomic forecasts all fall within a
three year time horizon. Post consideration
of these factors, the Board considers a
viability assessment horizon of three years to
remain appropriate.
OSB GROUP PLC
Annual Report and Accounts 2022
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 the Principal risks and
uncertainties on pages 60-70).
The Group identifies, assesses, manages
and monitors its risk profile based on the
disciplines outlined within the Group Enterprise
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.
Stress testing is an integral risk management
discipline, used to assess the financial
and operational resilience of the Group.
The Group has 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 considering the potential impacts
to changes in HPI, unemployment, inflation
and interest rates over a range of severity
scenarios. 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 assessing long term viability, the Directors
have assumed that the Group will be able
to issue MREL instruments to meet its MREL
requirements or, if required, obtain a ‘flexible
add-on’ extension to the MREL requirements
of up to two years. The Board assessed the
uncertainty around the quantum and phasing
of MREL issuance resulting from the ongoing
Basel 3.1 consultation and the timing of
the Group’s IRB accreditation, whilst being
cognisant of the outlined criteria which must
be met to apply for the ‘flexible add-on’
relating to (i) where a market dislocation
impacts capital markets issuance conditions,
or (ii) whether the institution’s business model
faces idiosyncratic challenges which justify
an extension. Obtaining a ‘flexible add on’
would be subject to review and approval by
the Bank of England.
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 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
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
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
– 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.
assess the viability of the business model over
a three-year period.
The Group has maintained strong capital
and funding profiles with a view to ensuring
continued financial resilience. However,
the Group remains fully cognisant of the
uncertain macroeconomic environment and
ensures that stress testing activities consider
a range of potential scenarios.
The Board has also considered the potential
implications of the current macroeconomic
uncertainty 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 line with prior years, in the viability
assessment process the Board considered
the latest macroeconomic forward-looking
scenarios utilised for business planning
and the Group’s IFRS 9 calculations which
consider macroeconomic risks such as
rising levels of unemployment, inflation,
interest rate rises and movements in house
prices. Utilising analysis which identifies
scenarios which would result in the Group
becoming unviable, the Board considered the
plausibility of these scenarios materialising.
Forecasts and capital stress tests considered
the impact of the countercyclical buffer
being progressively phased back in, IFRS 9
transitional arrangements unwinding, the
Group’s go-forward MREL phasing in, whilst
incorporating the Group’s simulation of the
impact of Basel 3.1 implementation.
The potential impact of the macroeconomic
environment on 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.
77
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OSB GROUP PLC
Annual Report and Accounts 2022
78
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. 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
embodies our Stewardship value,
outlining our commitment to taking
responsibility for the environment.
The policy commits to respecting the
environment, minimising environmental
impact and maintaining resilience to
environmental risks and impacts and
helping to limit the speed of climate
change and resource depletion.
The Environmental Policy was reviewed
by the Environmental Working Group,
ESG Technical Committee and ESG
Committee and approved by the
Board. Importantly the policy scope
was expanded to explicitly include
operations within OSB India and the
Group’s alignment to the Paris Climate
Accord ambitions.
The policy focuses on:
The policy articulates the Group’s
ambition to achieve net zero value
chain greenhouse gas emissions
by no later than 2050 in line with
the ambitions of the Paris Climate
Accord 2015.
– meeting or exceeding all applicable
legal and regulatory environmental
obligations, stakeholders’ expectations
and obligations;
– aligning with the Paris Climate Accord
ambitions of achieving net zero value
chain greenhouse gas emissions no
later than 2050;
– aligning policy objectives with the
Group’s commitments to the Net Zero
Banking Alliance, Partnership for
Carbon Accounting Financials and the
Science Based Targets initiative.
See pages 91-107.
The focus of actions in 2022 has been
on establishing the Group’s carbon
reduction plans in order to deliver on the
commitments set out within the Policy.
Key highlights for the year include:
– defining the Group’s high level carbon
reduction plan towards net zero direct
emissions by 2030;
– initiating work on defining the Group’s
climate transition plan for financed
emissions (Scope 3, category 15);
– approval of the Group’s Climate Risk
Management Framework;
– completing a materiality assessment
of emission sources associated
with Scope 3 categories 1-14 of the
greenhouse gas protocol;
– continuing to procure electricity
from renewable energy tariffs where
the Group is responsible for utilities
procurement;
– completing feasibility studies on the
installation of solar panels to owned
real estate in the UK;
– increasing the number of electric
vehicle charging points across our UK
real estate;
– increasing management information
reporting including climate risk,
utilities consumption and carbon
emissions;
– key greenhouse gas metrics subject to
independent assurance; and
– completing environmental initiatives in
the UK and India to raise awareness of
environmental issues.
Our Environmental, Social and
Governance (ESG) Metrics Policy
sets out the non-financial performance
indicators which include ethical,
sustainability and corporate governance
considerations that are reported to
relevant Committees. These metrics
have been determined to be important
to the Group’s stakeholders and ESG
strategy and commitments.
The ESG Metrics Policy is reviewed by
the ESG team and approved by the
Group Audit Committee.
Non-financial metrics are subject to the
ESG metrics lifecycle and principles of
the Group’s Data Quality Policy. This
is monitored by the ESG team on a
monthly basis. Functional providers of
information and data are responsible for
the management and reporting of the
ESG metrics.
Second line review and monitoring is
provided by Risk and Compliance.
Internal Audit provide a third line review
and challenge on an annual basis.
Through the compilation and reporting
of non-financial metrics, performance
towards achieving the Group’s ESG
strategy and commitments and
management of risk is monitored.
The ESG Technical Committee review
and challenge the reported metrics.
Suitability of metrics is reviewed
annually and updates presented
through the governance process
for approval.
Accuracy of reported metrics is a risk
that is managed through data quality
processes and controls.
See pages 88-114.
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Description of policies/statement
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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 Group Diversity, Equity 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 Group Whistleblowing Policy –
Raising a Concern aims to encourage
all employees, and others who have
serious concerns about wrongdoing in
the workplace, to raise their concerns at
the earliest opportunity.
The Group’s whistleblowing
arrangements endeavour to
manage whistleblowing cases fairly,
consistently and in a way which
protects individual whistleblowers.
See page 112.
The Group Flexible Working Policy was
initially drafted by HR Management
and reviewed by the Group’s Legal and
Company Secretariat function. It was
most recently updated and approved
by the Group Executive Committee in
August 2022.
A similar process, as outlined above, was
followed for the Group Homeworking
Policy which, in line with policy review
requirements, was last updated and
subsequently approved by the Group
Executive Committee in May 2022.
We seek to accommodate, where
possible, all requests for flexible
working, with the majority of requests
being agreed.
The Group Homeworking Policy contains
an attestation for those working from
home (formally, informally and on an
enforced basis), with this 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.
In order to ensure appropriate Board
oversight of matters relating to diversity
and inclusion, updates are regularly
provided to the Group Remuneration
and People 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.
The current version of the Group
Diversity, Equity and Inclusion Policy
has been reviewed in line with the
governance and approval processes
detailed above and will be subject
to a detailed review by the Group’s
newly appointed Diversity, Equity and
Inclusion Specialist.
A Whistleblowing Report is presented to
the Group Audit Committee on a regular
basis, whilst the Annual Whistleblowing
Report is presented to the Board.
The Chair of the Group Audit
Committee is the designated
Whistleblowers’ Champion.
See pages 111
and 112.
Our Group-wide Diversity and Inclusion
Working Group has progressed a
number of initiatives and activities,
some of which supported gender-
related focus areas, such as progressing
towards our published Women in
Finance Charter target and reducing
our gender pay gap. The Diversity and
Inclusion Working Group has ensured
a far broader focus on other areas of
diversity, which will be further enhanced
given the appointment of a Diversity,
Equity and Inclusion Specialist.
In 2022 we commenced the process
of collating diversity data from our UK
employee base across the broad range
of diversity categories which align with
regulatory guidance. This will enable us
to build a picture of the diverse nature of
our workforce and understand areas of
underrepresentation.
The Group Audit Committee 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
pages 133-138.
OSB GROUP PLC
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Description of policies/statement
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Outcomes/Impacts/Risks
Further information
Employee matters continued
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 and
Vendor Code of Conduct and Ethics
outlines the measures we have taken to
combat the risks of modern slavery and
human trafficking in our businesses and
supply chains.
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.
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.
Strategic Report,
see page 19.
The greatest modern slavery risks to the
Group are its supply chain, its Indian
operations and employment processes.
To sufficiently mitigate the risks, our
Vendor Management team includes
specific testing of key controls within the
Vendor Management Risk Assessment
Matrix in line with the Vendor
Management Framework. The Group
ensures that appropriate contractual
wording is included in its recruitment-
related contractual documentation
where appropriate. The Group also
ensures that suppliers are paid in
sufficiently reasonable timescales.
There are breach reporting procedures
in place and there were no reportable
incidents in this financial year.
The Group adopts a robust approach
to ensuring compliance with its internal
policies and all legislative requirements.
A range of controls are in place
and tested regularly to ensure their
effectiveness. All controls are subject to
independent oversight.
The Health and Safety Working Group
meets 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 Statement is
updated in line with the requirements.
In addition, as part of an annual review,
the Group has updated both of its
Vendor Codes of Conduct and Ethics.
The UK Vendor Code of Conduct and
Ethics (UK VCCE) is issued at the start
of any new vendor relationship and on
an annual basis to existing categorised
and identified vendors. The UK Code
includes provisions on the Group’s
Values, Diversity and Inclusion and
Human Rights. It also provides details of
breach reporting procedures.
OSB India also has a Vendor Code
of Conduct which receives external
assurances from Indian qualified legal
professionals and issued for all new
third parties and annually to all existing
arrangements in India. 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, we continue to
ensure that our standard contractual
terms include references to modern
slavery, where relevant.
The Group remains cognisant of policies
potentially impacted by modern slavery
and human trafficking and continues
to ensure that modern slavery is
referenced, where appropriate.
All employees are required to complete
mandatory training to raise awareness
with additional targeted training
provided to our Branch Network in
recognition of their face-to-face
interactions with our customers.
OSB GROUP PLC
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Further information
Social matters continued
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.
All third parties are classified according
to the nature of the services provided
and the associated risk. Due diligence
relating to issues such as data security,
financial stability, legal and reputational
risks is undertaken when onboarding,
monitoring and exiting all third parties.
The monthly Vendor Management
Committee reviews compliance with
our Group Vendor Management
and Outsourcing Policy and the
performance of our key third parties.
There is regular reporting to the
Group Risk Committee and an annual
assurance update is provided to
the Board.
Strategic Report,
see page 19.
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 that they are
adhering to our requirements and
standards, so that we can in turn meet
our obligations to stakeholders.
Our Lending Policy sets out the
parameters within which we are willing
to lend money responsibly within our
set criteria and credit risk appetite.
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.
See page 21.
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 that lending parameters are
not breached.
The credit risk appetite of the Group
provides a benchmark against 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.
The affordability approach is calibrated
to ensure the recent cost of living
changes are reflected in the assessment
of a customer’s creditworthiness.
The recent rise in the cost of certain
commodities (e.g. energy and fuel)
has been reflected within the Group’s
assessment of customers’ affordability.
The Group applies interest rate stress
tests to ensure that customers will still be
able to afford their mortgages during a
rising interest rates market environment.
The interest rate stress tests have been
formally reviewed to ensure that the
Group continues to lend responsibly
during this volatile rate environment.
In line with policy, the Compliance
function conducts risk-based second
line assurance reviews across the
Group to test regulatory adherence and
customer outcomes, in accordance with
its annual Compliance Assurance Plan.
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Non-financial information statement continued
Description of policies/statement
Due diligence undertaken
Outcomes/Impacts/Risks
Further information
See page 108.
Complaints are also a component
of Executive bonus scheme metrics
affecting remuneration outcomes.
Complaints may be an early warning of
not treating customers fairly, which has
regulatory consequences for the Group.
Social matters continued
Our Group Complaint Handling Policy
outlines, at a high level, our regulatory
expectations for complaint handling from
a customer-centric perspective.
We investigate complaints competently,
diligently and impartially, supported by
appropriately trained employees. Our
complaints processes are designed to
be easily accessible by all customers
and ensure that those in vulnerable
circumstances experience the same
opportunities to complain and a service
that is tailored to individual needs. Root
cause analysis is used to identify and
solve underlying issues rather than apply
quick fixes.
Complaint performance forms part of
the 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.
In line with policy, the Compliance
function conducts risk-based second line
assurance reviews across the Group to
test regulatory adherence and customer
outcomes, in accordance with its annual
Compliance Assurance Plan.
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 that vulnerable customers
consistently receive fair outcomes.
Regular case study reviews through
the Vulnerable Customer Review
Committee ensure that best practice
processes across the different customer
journeys are monitored and shared with
representatives from differing customer-
facing and second line functions.
In line with policy, the Compliance
function conducts risk-based second line
assurance reviews across the Group to
test regulatory adherence and customer
outcomes, in accordance with its annual
Compliance Assurance Plan.
See page 108.
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
that there were no systemic issues in
vulnerability processes and outcomes for
the year.
Our Group Data Protection Policy
ensures that there are adequate policies
and procedures in place to enable
compliance with the UK General Data
Protection Regulation (GDPR) and the
Data Protection Act 2018; and sets out
the necessary steps that should be taken
when processing personal data.
The Group Data Protection Officer
reports twice each year, to the Group
Executive Committee and the Board,
regarding compliance with legal
requirements and the Data Protection
Policy and reports on any data incidents
and data subject access requests.
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 UK GDPR provisions and fines.
See page 108.
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Further information
Social matters continued
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.
As the second line of defence, the Credit
Quality Assurance process monitors
adherence to the policy through a risk-
based sampling approach.
Due consideration has been given to
the implications of customers reverting
from fixed rates to a variable rate in
the face of the rising interest rate
market environment.
In line with policy, the Compliance
function conducts risk-based second line
assurance reviews across the Group to
test regulatory adherence and customer
outcomes in accordance with its annual
Compliance Assurance Plan.
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.
The existing forbearance and collection
toolkit and mandates have been
reviewed to ensure that the sufficient
level of support is available to customers
experiencing financial difficulties due to
increased mortgage payments.
See page 108.
See page 136.
Our Anti-Bribery and Corruption
Policy outlines our stance to conduct
all of our business in an 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 policy is 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.
The purpose of the policy is to provide
employees, contractors and third party
service providers 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.
The policy forms an integral part
of the Group Financial Crime Risk
Management Framework.
Our Conflicts 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.
In addition, the requirements set out in
the Anti-Bribery and Corruption Policy
are incorporated into the Group’s Vendor
Management and Outsourcing Policy.
Gifts, hospitality and donations
are closely monitored through a log
maintained by the Group Financial
Crime function in accordance with our
associated policy and procedures.
The policy is subject to an annual review
process with approval provided by the
Group Executive Committee. Conflicts
of Interest training forms part of the
wider Financial Crime training package
that is mandatory for each employee to
complete on an annual basis.
Conflicts of interest disclosures are
typically made as part of the recruitment
process, as part of the annual attestation
process and/or when there is a change to
circumstances, such as a new potential
conflict arising.
In addition, conflicts of interest
requirements are incorporated into
the Group’s Vendor Management and
Outsourcing Policy.
Group Compliance maintains the
conflicts of interest register, which
is reviewed quarterly by the Group
Conduct Risk Management Committee
and escalated to the Group Risk
Management Committee, as required.
In addition, the Group Nomination and
Governance Committee annually reviews
Executive and Director conflicts.
No material issues or breaches have
arisen from the Group’s adherence to
the existing Anti-Bribery and Corruption
Policy 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 Policy and
requirements. This approach also applies
to the Conflicts of Interest Policy.
No material issues or breaches have
arisen from the Group’s adherence to
the existing Conflicts of Interest Policy
and processes.
Corporate
Governance
Report, see page
126.
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.
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Outcomes/Impacts/Risks
Further information
Social matters continued
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 that 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.
The policy provides a consistent
approach to the deterrence and
detection of those suspected of
laundering the proceeds of crime or
those involved in the funding of terrorism
and the relevant disclosure to the
necessary authorities. The policy forms
an integral part of the Group Financial
Crime Risk Management Framework.
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.
All potential fraud incidents are
investigated by a dedicated Group
Financial Crime team that is specifically
trained in identifying and reporting
fraudulent behaviour.
The Group will seek to recover all losses
arising from fraud-related activities and
to take necessary action, as appropriate.
The Group Conduct Risk Management
Committee, Group Operational Risk
Management Committee, Group Risk
Management Committee and Group Risk
Committee regularly review and monitor
fraud reporting.
The policy is subject to an annual review
with approval provided by the Group
Audit Committee.
Anti-money laundering and counter
terrorist financing forms part of the
wider Financial Crime training package
that is mandatory for each employee to
complete on an annual basis.
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 identify and report
activity deemed to be suspicious.
All suspicious activity is investigated by a
dedicated Group Financial Crime team
who are specifically trained in identifying
and reporting suspicious behaviour.
Group Audit
Committee
Report, see page
136.
As a financial services provider, we
recognise that we are inherently exposed
to the risk of fraud and that losses may
occur as a result of doing business. In
order to deter, detect and disrupt those
who would seek to use the Group to
facilitate any form of financial crime 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.
Group Audit
Committee
Report, see page
136.
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.
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.
OSB GROUP PLC
Annual Report and Accounts 2022
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Description of policies/statement
Due diligence undertaken
Outcomes/Impacts/Risks
Further information
See page 66.
The Group continues to invest in
improving its infrastructure and is
committed to delivering a number of
enhancements in 2023 and beyond,
with the aim of re-engineering how
technology enables services provided by
the Group.
Enhancing Operational Resilience
remains a key consideration when setting
the change management agenda.
The Group continues to maintain
strong relationships with our key third
parties and validates that they are
able to recover services in line with our
expectations and standards.
Social matters continued
Our Group Operational Resilience
Policy documents the approach and
expectations of the Group in establishing
and enhancing its levels of resilience and
recognises Operational Resilience as a
key area of focus for the Group.
The implementation and ongoing
compliance with the requirements of this
Policy is achieved through the Group’s
existing governance arrangements and
overseen by the Group Operational
Resilience function.
The policy references how the Group
complies with all relevant UK regulatory
requirements (e.g. the Financial
Conduct Authority (FCA) and Prudential
Regulation Authority (PRA)) and aligns to
industry good practice and standards.
This includes the March 2021 published
FCA and PRA policies on Operational
Resilience. These policies require all
firms to adopt a proactive approach to
preventing a disruption to its services,
whilst also ensuring that sufficient
planning and testing is established
in order to respond effectively to a
disruptive incident.
The Group continues to make progress
in implementing the requirements of the
two regulatory policies.
The Group’s response throughout the
COVID-19 pandemic was proportionate
and pragmatic, and was designed
to consider both the needs of our
colleagues and our customers and the
services we provide. The widespread
and prolonged period of the pandemic
required the Group to adapt its approach
reflecting both the local challenges of
our business and the historical legacy
differences in respect of governance;
however, where a common Group-wide
approach was required, it was applied.
Whilst COVID-19 brought operational
resilience into sharp focus, we recognise
there are a number of threats that will
not be as slow to impact or as prolonged
and we plan for these against a range of
severe but plausible scenarios.
In the event of a disruptive incident,
the Group is well-placed to respond
and deliver our Important Business
Services. By assessing the level of risk
our businesses face when exposed to a
range of possible scenarios, developing
the appropriate plans and then testing
those plans; the Group is well positioned
to respond to disruptive events.
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Description of the business model
A description of the business model is set out on pages 8-13 and includes non-financial KPIs relating to broker and customer satisfaction scores,
customer retention, Greenhouse gas emissions, sponsorship and donations and women in senior management roles.
Principal risks and uncertainties
A description of the principal risks and uncertainties is set out on pages 60-70.
This Strategic report was approved by the Board and signed on its behalf by:
Jason Elphick
Group General Counsel and Company Secretary
16 March 2023
OSB GROUP PLC
Annual Report and Accounts 2022
86
ESG overview
Environmental, Social and Governance
(ESG) matters are not just about measuring
a business’s sustainability, through strong
governance and risk-based frameworks.
They are about our social purpose and
stewardship, doing the right thing for our
employees, customers, communities and
our planet, working in collaboration, as we
seek to combat the current economic and
climate change headwinds.
During 2022, building on our strong ESG
foundations, we developed a Strategy and a
set of ESG Principles that seek to strike the
right balance between risk and opportunity.
We developed and implemented an ESG
Operating Framework and Lifecycle that
ensure we focus on, and capture the areas
of stakeholder materiality and we linked
our ESG performance to the Executive and
Senior Management remuneration. Our ESG
Strategy and ESG Operating Framework have
not only served to embed ESG and climate
risk into our business strategy, fi nancial
planning and risk management frameworks
but have also allowed us to identify
opportunities, where stakeholder value
can be created.
Through aligning our ESG strategic direction,
opportunities and initiatives, to our Purpose,
Vision, and Values, the Group delivered a
number of stakeholder led initiatives
that included:
– Landlord Leaders thought leadership,
education and awareness campaign
– optional energy effi ciency mortgage
products that aim to incentivise, enable
and reward our customers
– various initiatives, operational processes
and practices that support our customers,
communities and employees through the
current cost of living crisis
– reduction in our Scope 1 and Scope 2
emissions intensity ratio versus 2021
– supply chain collaboration to ensure
ESG values are aligned, and
– various community and charity
led initiatives.
OSB GROUP PLC
Annual Report and Accounts 2022
Through active engagement and
collaboration we seek to continue leading
change by leveraging our colleague networks
and our external partnerships to support
the delivery of our environmental and social
purpose. 2023 will see the launch of diff erent
products and partnerships to help our
customers, and the creation of a collective
manifesto for change. We are keen to lead
the way and are seeking to collaborate with
others within the industry to join us in driving
positive and tangible change.
We are proud of the progress we have
made on ESG but there is more to do to
tackle the important challenges, we and
our stakeholders face. We continue to
rely on a wider set of regulatory and legal
policy changes alongside developments in
technology in order to meet our targets.
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Together we prosper
We are committed to delivering our Purpose and
a sustainable future for our customers, colleagues
and communities.
From reducing the carbon emissions of our
operations, supply chains and lending activities,
to the impact we have on the people we aff ect
directly and indirectly everyday.
Governance
We are committed to operating
responsibly, ethically and transparently,
delivering sustainable value for all
our stakeholders
Environment
We are committed to environmental
stewardship and delivering a positive impact
on the environment, accelerating the transition
to a low carbon economy and achieving
net zero across our value chain by 2050
Social
We are committed to having a positive
human and social impact on the lives
of the customers, colleagues and
in communities we work with and aff ect
88 Operating Framework
89 Materiality assessment
90 Strategy and ambition
90 Governance
90 Decision-making
92 Progress
93 Management
108 Customers
109 Colleagues
94 Reducing the emissions from OSB Group
113 Communities
buildings
96 Defi ning the Group’s climate transition
plan for fi nanced emissions
97 Developing our understanding of Scope
3 upstream and downstream emissions
98 GHG emissions
99 GHG emissions table
100 TCFD
OSB GROUP PLC
Annual Report and Accounts 2022
88
Governance matters
The Group’s Board recognises its responsibility for providing
oversight of the Group’s ESG Strategy and for setting the
vision on how we conduct business, enhance stakeholder
value and fulfil our regulatory obligations.
Colleagues
We will retain, recruit and train the best
talent, enabling all employees to maximise
their ambition. We will seek to embed a
diverse and inclusive culture the Group is
proud of, and to achieve our Purpose
and Vision
Net zero
The Group’s environmental ambitions
and transition plan will align to the Paris
Accord on climate change, achieving
carbon net zero across our operational
emissions by 2030 and total emissions
by 2050
Customers
We will be inclusive for our customers,
ensuring that the social mobility of our
customers is not compromised through our
products or decisions
Communities
A strategic and coordinated programme
to support our communities and wider
social economic environment through
collaborations, partnerships and
volunteering with focus on UK and India
housing projects
Supply and value chain
We will encourage and support our supply
and value chain with their transition to
an ESG strategy that aligns to the
Group’s ambitions
A Board-approved ESG Strategy supports
the proportionate management of ESG risk
and delivery of our strategic opportunities
and initiatives aimed to positively impact
our stakeholders.
The Board has overseen the development and
approval of the following areas
of governance:
– ESG Strategy
– ESG Operating Framework
– ESG Risk and Opportunity Analysis (non-
financial)
– ESG balanced scorecard which measures
performance against internal ESG targets
– ESG performance linked to Executive and
Senior Management remuneration, see
Remuneration Report on page 142
– ESG Metrics Policy
– Climate Risk Management Framework
– Membership and alliance to industry
groups for climate change and diversity
and inclusion.
ESG Operating Framework
The purpose of the ESG Operating Framework
is to summarise the key components of the
Group’s ESG structures and management
processes including:
– ESG governance mechanisms and
responsibilities
– The ESG annual lifecycle:
– Identification of risks and opportunities
– Assessment of impact to the business
and importance to stakeholders
– Prioritisation of opportunities
– Metrics identified to measure and
monitor progress
– ESG strategy definition in line with the
Group’s annual planning processes
– The Group’s strategic ESG commitments
– ESG operating management principles
– ESG team roles and responsibilities in
conjunction with other business lines
within the Group.
Within the ESG Operating Framework the
following strategic commitments have been
established to guide our strategy, resource
allocation, metrics, targets and reporting:
OSB GROUP PLC
Annual Report and Accounts 2022
Materiality assessment
ESG risk and opportunity materiality
assessment
The Group matured its approach to the
identifi cation and assessment of non-
fi nancial risks and opportunities in 2022, by
undertaking a materiality assessment. The
process allows the Group to ensure that focus
is maintained in the areas most important to
our stakeholders and where impact and value
can be created, furthering progress towards
our Purpose and ESG commitments. For more
information on the Group’s stakeholders see
page 16.
Identifying topics for assessment
48 topics were identifi ed as relevant to the
Group from a range of macroeconomic,
industry and organisational inputs. These
topics are grouped under 18 themes that
bring relevance to the Group and its activities.
Our approach to establishing material ESG
topics will be refi ned during 2023 to align with
those set by the International Sustainability
Standards Board (ISSB).
The assessment identifi ed a number of topics,
such as cyber security, fi nancial crime,
conduct and compliance that are important to
stakeholders, but fall within existing business
responsibilities and management where there
will be continued and ongoing focus.
Criteria were determined to inform the
assessment of risks and opportunities. Risk
was considered in line with the Group’s
Enterprise Risk Management Framework
and opportunity was determined upon
potential growth or reduction in cost, delivery
of competitive advantage or alignment
to Purpose, Vision and Values and ESG
principles. Where available, quantitative data
was used to inform the assessment.
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Annual Report and Accounts 2022
90
Governance matters continued
ESG strategy and ambition
Informed by the materiality analysis and
in the context of the activities the Group
undertakes, three strategic pillars and
supporting opportunities and initiatives have
been defi ned under which we can focus our
resources, decision making and reporting
to deliver positive stakeholder value.
Our opportunities deliver progress towards
one or more of the three strategic pillars
and contribute towards one or more UN
Sustainable Development Goals.
ESG governance
In March 2022, the Group established the
ESG Technical Committee, incorporating
the Climate Risk Committee and ESG
Steering Committee both established in
2021. The ESG Technical Committee is a
management committee reporting to the
Group Executive Committee.
The Committee is responsible for directing
and organising the Group’s day to day
approach to ESG. This includes focus on the
social and governance objectives, as well
as environmental matters, including climate
risk. The Committee monitors the Group’s
progress in identifying and managing risks
and opportunities in all of these areas.
ESG decision making
All Committee and Board papers now
include a mandatory section dedicated to
the assessment of Environmental, Social
and Governance impact. Those submitting
papers are required to refl ect on contribution
towards the Group’s ESG Principles and the
UN Sustainable Development Goals.
The Group’s assessment of ESG priorities and subsequent disclosures (with the exception
of TCFD) are currently voluntary and cover topics identifi ed as relevant and those we
believe are of interest to our stakeholders. We adapted our approach to non-fi nancial (ESG)
materiality to suit the topics, and disclosures, and aligned them to our Purpose, Vision and
Values. In the future, data and information may need to be recalculated and restated
as standards and frameworks are adopted and implemented and as the Group’s maturity
in these areas increases. To this end, the Group has engaged with the Financial Reporting
Council – Financial reporting lab, Materiality project.
3rd line of
defence
Internal Audit
Board
Group Audit
Committee
Group Risk
Committee
Group Nominations and
Governance Committee
Risk and
compliance
2nd line of
defence
Executive Committee
ESG
Team
1st line of
defence
ESG Technical Committee
Business
Functions
Employee Networks
Key:
Execution
Reporting, fi rst line risk
management and coordination
Governance and oversight
OSB GROUP PLC
Annual Report and Accounts 2022
Environmental matters
Climate change and its impact remain the most pressing
challenge facing our planet.
91
In March 2022, the Group announced our
ambition to tackle the operational emissions
from our offi ce and branch buildings and
the more challenging emissions associated
with the properties we lend on (fi nanced
emissions). The commitment was supported
by two targets that guide our actions:
1) Committing to net zero for our operational
emissions1 by 2030
2) Committing to net zero for fi nanced
emissions by 2050
Our approach to mitigating climate change
and delivering on the opportunities this
presents is in line with our Purpose
and Values.
In recognition of the importance placed on
addressing climate change, Just Transition
is a pillar of our ESG strategy. The Group’s
Transition Plan will set out our interim and
long-term targets and the actions we will take
over the short and medium term. We expect
to publish our detailed transition plan
in 2024.
The Group’s Landlord Leaders report was
an important milestone in climate transition
planning and delivery that places, customers,
tenants and brokers at the heart of the
discussion, not only in terms of environmental
consideration but also, delivering fair and
equitable social and economic prosperity.
In 2022, we gained a deeper understanding
of our complete emissions inventory.2 This
work informed our approach to better
measurement and target setting, identifi ed
the specifi c areas to focus on and increased
the transparency with which we can inform
our stakeholders of progress.
Recognising that no business can achieve
net zero on their own and that collaborative
support is required from key stakeholders
across industry and policy makers, the Group
joined and actively participated in a number
of collaborative and sector specifi c initiatives
giving the opportunity to remain informed
and to have a voice in the development and
implementation of regulation, frameworks
and guidance.
1. Scope 1 and Scope 2 emissions.
2. In line with Greenhouse Gas Protocol.
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OSB GROUP PLC
Annual Report and Accounts 2022
92
Environmental matters continued
Progress in 2022
Pillar What we said in 2021
Progress we have made in 2022
Our priorities for 2023
Set and disclose
Science Based Targets
for Scope 1, 2 and 3
emissions for 2030,
in order to achieve
net zero no later than
2050
It is evident from data collected during the year that 2022 will provide a more
accurate representation of the Group’s carbon footprint post integration
between OSB and CCFS, the return to more normal working after the
pandemic, and therefore a more robust reference point from which to set
reduction targets than the previous base year of 2019.
This is in line with Science Based Targets initiative (SBTi) guidance on selecting a
baseline year which identifies three determining criteria:
1)
verifiable data on Scope 1, 2 and 3 emissions should exist for the base year
2) the base year should be representative of a company’s typical GHG profile
3) the base year should be chosen such that the target has sufficient forward-
looking ambition
Therefore the Group is establishing 2022 as its base year from which to
calculate interim and net zero targets.
Define the near and
medium-term actions
the Group will take to
deliver the transition
to net zero by 2050
“Just Transition” has been prioritised as a pillar of the Group’s ESG strategy.
Work was undertaken in 2022 to establish the Group’s approach to Transition
Planning. We have:
A) Developed a Climate Transition Plan Framework having considered:
i) Glasgow Financial Alliance for Net Zero financial sector
recommendations for transition plans; and
ii) The Transition Plan Taskforce (TPT) draft Sector-Neutral Framework
B) Identified the decarbonisation levers that the Group will consider in defining
the actions it will take to reduce financed emissions
C) Appointed Executive Sponsors to provide support and alignment
The Group has established an ESG balanced scorecard which includes
greenhouse gas metrics for Scope 1 and 2. The dashboard is presented to
the ESG Technical Committee, Group Executive Committee and Board on a
monthly basis.
Metrics relating to the progress towards net zero are included.
Validation of our science base targets
following re-baseline (Scope 1, 2 and 3
financed emissions targets)
Calculate the emissions baseline of
our asset based brands (Interbay Asset
Finance) using PCAF methodology
In 2023, the Group will form its approach
to Climate Transition and publish the plan
containing details of:
i) Objective and priorities
ii) Governance
iii) Implementation strategy
iv) Engagement Strategy
v) Metrics and targets
Following the Scope 3 materiality
assessment, further metrics will be
introduced to measure material emissions
sources, or those that are to be targeted
for reduction. As part of the Climate
Transition Plan further metrics will be
considered.
Throughout the year, presentations were made to Committees, and wider
groups of colleagues. Communications were shared with employees raising
awareness of the Group’s ambitions.
ESG workshops delivered as part of our People Development Programme
included a focus on energy efficiency.
Climate training was delivered to the Board in November.
The Landlord Leaders report was published in November following significant
engagement activities with customers and brokers.
A gap analysis will be performed assessing
organisational readiness for executing the
Climate Transition Plan; this will include
reviewing competence and expertise
throughout the Group.
Further refinement of training materials
as part of our personal development
programme
We have introduced products that incentivise, enable and reward customers
who improve the energy efficiency of their property. In November 2022, the
Group announced a £50m Landlord Leader Fund for 2023, which includes
products to support landlords in the transition to energy-efficient properties.
In 2022, the Group initiated a pilot scheme with certain suppliers to encourage
them to align their ESG strategy with the Group’s own ambitions.
A questionnaire was shared with pilot vendors to gauge their understanding
and maturity in considering ESG matters. In addition, a letter from the Group’s
CEO was shared with vendors making clear the importance of ESG to the
Group.
Specifics pertaining to the £50m Landlord
Leaders products will be announced as
part of transition planning and the Group’s
commitment to customers. An assessment
will be conducted to understand the
impact of products across ESG aspects.
The Group will define its Vendor
Management Strategy and approach to
ESG and Sustainable supply chains.
Partnership for Carbon Accounting Financials (PCAF)- membership of two
working groups, and chairperson of PCAF UK Residential Working Group
Appointment to UK Finance Sustainability Committee.
Investigated a number of solutions to support customers in their
decarbonisation journey.
The Group will continue to align with, and
where required, seek to become a member
of collaborations and initiatives aligned
with our ambitions.
See Risk review on page 58 for further details.
Climate risk management information
will be enhanced for 2023, informed by
ongoing trend and scenario analysis.
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Implement suitable
metrics and improve
data integrity and
quality to measure
and report progress
towards targets
Engage key
stakeholders in
understanding our
carbon ambitions and
improving carbon
literacy
Develop and release
products that deliver
a material difference
to our net zero
ambitions and those
of our customers
i
Cascade our
n
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S
ambitions to strategic
suppliers of goods
and services in order
to begin addressing
our supply chain
emissions
l
Identify key
n
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b
a
collaboration
opportunities for both
sharing and learning
through initiatives,
programmes,
charities and
networks
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Further refine our
t
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s
s
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s
s
A
approach to climate
risk assessment in line
with our climate and
ESG strategy.
OSB GROUP PLC
Annual Report and Accounts 2022
Strategic Principle - Net zero
The Group’s environmental ambitions and transition plan will align to the Paris Accord on
climate change, achieving carbon net zero across our operational emissions (Scope 1 and 2
emissions) by 2030 and attributable GHG emissions from lending portfolios by 2050.
OSB
JOURNEY
INITIAL
ACTION
ACCELERATING
ACTION
Net zero action plan
disclosed –
ON TRACK
Absolute and
emissions intensity
targets set for
interim (2030) and
longer term (2050)
NEW FOR 2022:
Scope 3 materiality
assessment
conducted
Redefi ning GHG
inventory and
baseline
Net zero across
Scope 1 and 2
emissions with
limited off setting.
On track to
address Scope 3
emissions by 2050
or sooner
Net zero across
operations and
value chain by
2050, cutting
most emissions
and balancing
remaining
emissions with
natural or
technical solutions
Exploring carbon
restorative, putting
back more than we
take out
Environmental
management systems
certifi ed to ISO 14001
Local actions taken to
address impact.
First Group carbon
footprint report
as part of SECR
regulations
Move to renewable
energy tariff s
reduces UK
footprint by c. 740
tonnes of CO2e
Extending scope of
reporting to OSBI
and other emissions
sources
Off setting 2020
Scope 1 and Scope
2 emissions (Group-
wide) achieving
carbon neutrality
for 2020
Net zero plan
development to
achieve Scope 1 and
2 Net zero by 2030
Selection of a
framework to align
to for target setting,
reporting and
disclosures
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2019
2020
2021
2022
2015
PARIS
AGREEMENT
2050
Emissions to
be net zero
2030
INTERIM -
Financed
emissions intensity
to be halved
(2022 baseline)
INTERIM -
Net zero Scope 1
and Scope 2
emissions
As a specialist lender, the impact of our
business operations (Scope 1 and 2 emissions)
is relatively low, driven predominantly
by the use of resources associated with
electricity and gas. They provide power,
heating, cooling and ventilation to our offi ce
and branch locations and came from the
procurement of goods and services consumed
as part of our business activities.
In comparison, the emissions associated with
the fi nance we provide (Scope 3 category 15)
to our customers3 was 449 times that of our
Scope 1 and Scope 2 emissions. Considering
the impact of these emissions and the
complexity in reducing them, fi nanced
emissions are a priority area for the
Group and form the basis of our climate
transition planning.
The wider value chain4 of the Group presents
a challenge in both measurement and
allocation. However, we remain committed
to developing our understanding of total
greenhouse gas (GHG) inventory and in
2022 we undertook a Scope 3 materiality
assessment in order to begin measuring
categories that will help guide target setting.
3. Mortgages only.
4. Greenhouse Gas Protocol – Scope 3 categories 1-14.
Management
Our Environmental Policy embodies the
Group’s commitment to meeting or exceeding
all relevant environmental obligations under
law and regulation, reducing our impact
and achieving the Group’s ambition of net
zero value chain GHG emissions by no later
than 2050. These goals are in line with the
Paris Climate Accord of keeping a global
temperature rise this century well below 2°C
above pre-industrial levels and to pursue
eff orts to limit the temperature increase even
further to 1.5°C.
OSB GROUP PLC
Annual Report and Accounts 2022
94
Environmental matters continued
The policy is supported by Environmental
Management Systems (EMS), the Group’s
science-based targets and environmental
improvement programmes, addressing
energy use and carbon reduction, natural
resource preservation, waste reduction and
encouraging sustainable behaviours. The
policy is reviewed by the Group Executive
Committee and ESG Technical Committee
prior to Board approval and an executive
accountable for the policy is appointed.
All UK offi ces remain under a management
system certifi ed to the international
environmental management standard
ISO:14001 2015.
Measuring emissions
In 2022, the Group matured its approach
to GHG accounting, continuing to apply
the Greenhouse Gas Protocol: A Corporate
Accounting and Reporting Standard for all
GHG accounting across Scopes 1, 2 and 3.
In line with the principles of relevance,
completeness, consistency, transparency
and accuracy set out in the standard, we
recategorised some emissions sources based
upon the Operational Control method of
setting organisational boundaries. Selecting
this approach refl ects the contractual
arrangements of ownership and tenancy
of the buildings we operate from, and our
ability to implement programmes to reduce
emissions. Our carbon footprint data and
comments on performance for 2022 refl ect the
revised accounting method. We re-calculated
2021 and 2020 emissions to allow suitable
comparison in disclosures. Where emissions
sources have moved from Scope 1 or Scope 2,
they have been accounted for within Scope 3.
Gaining a complete view of our GHG
inventory is the best way to target action
based on and our ability to control or
infl uence emissions. With the support of third-
party specialists we conducted a materiality
assessment of our Scope 3 emissions sources,
see page 98 for further details. Maturity in
emissions accounting will continue to be a
focus. The availability and quality of data,
and progress in internal accounting processes
and systems to support these will require
development over time.
OSB GROUP PLC
Annual Report and Accounts 2022
Reducing the emissions from
OSB Group buildings
OSB Group commits to reduce Scope
1 and Scope 2 GHG emissions* by
100%
by 2030 from a 2022
base year
* Scope 1 and Scope 2 target is calculated using market-
based methodology in line with the SBTi Financial
Sector Science-Based Targets Guidance – version
1.1 Aug 2022
This ambitious target embraces the Group’s
commitment to taking ownership of emissions
from the buildings we operate from and have
control over.
The Group’s net zero strategy continues to
be based on a responsible and transparent
transition for the emissions associated with
our business activities, with the following
priorities guiding our action:
– eliminating emissions wherever possible
– improving the effi ciency of our processes
to reduce the associated emissions or their
impact
– off setting the residual emissions through
the procurement of validated and verifi ed
carbon off sets.
During the year the following steps were
taken:
– net zero 2030 de-carbonisation plan set
out for the Group’s Scope 1 and Scope 2
emissions and presented to the Group’s
ESG Technical Committee
– investment in net zero feasibility studies
completed for two of the Group’s main
offi ce locations5 in order to evaluate and
prioritise technologies suitable for our
operations
– feasibility studies and proposals
completed for the installation of solar
arrays to the UK offi ce buildings6
– improvement to Building Management
Systems (BMS) controls and settings
– completed the purchase of a freehold
offi ce building in Wolverhampton, allowing
greater control over emissions, with net
zero a core consideration in the design
and fi t-out project.
5. The Observatory and OSB House in Chatham, Kent.
6. The Observatory, OSB House, Charter House.
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Performance in 2022
In 2022, the Group reduced its Scope 1
emissions by 8.1%. The reduction in Scope 1
emissions was a result of using less natural
gas (169,386kWh) which is used to provide
heating and hot water to a number of
UK offi ces.
The Group’s Scope 2 emissions using market-
based methodology were zero for 2022, as
100% of the electricity purchased by the
Group was from renewable tariff s. Using
the location-based methodology, refl ecting
the average emissions intensity of grids on
which energy consumption occurs, emissions
were 322.1 tCo2e, a 5.9% reduction from
2021. However, the Group’s consumption of
electricity increased by 54,029 kWh (3%)
from 2021. The reduction in location-based
emissions despite an increase in consumption
is a result of the reduced carbon intensity of
the 2022 carbon conversion factor applied to
standard grid electricity as published by the
Department for Business, Energy & Industrial
Strategy (BEIS).
Location based GHG Emissions (tCO2e) 2022
2022
2021
2020
154
167
133
322
342
335
112
310
71
Market based GHG Emissions (tCO2e) 2022
2022
2021
2020
154
167
133
335
112
239
71
Scope 1
Scope 2
Scope 3
Scope 1
Scope 2
Scope 3
Electricity purchased in the UK from
renewable tariff s
100%
Reduction in Scope 1 and Scope 2
emissions from 2021*
8.1%
* Scope 2 emissions calculated using market-based
methodology. 2021 KPI measured reduction versus a
2019 baseline. The Group has now reset it base year
to 2022. The KPI uses performance versus 2021 to
demonstrate progress made in 2022.
OSB GROUP PLC
Annual Report and Accounts 2022
96
Environmental matters continued
Electricity and gas
The Group’s decarbonisation plan prioritises
moving away from natural gas technologies
to heat buildings towards electrical solutions
as part of our corporate real estate strategy.
As eff orts to realise these ambitions continue,
the Group has used, verifi ed carbon
mitigation schemes from the voluntary
carbon market (VCM) to off set the emissions
directly related to our business activities
in 2022.7
Water
The Group’s use of water is for domestic and
hygiene purposes. 5,243m³ of potable water
was used in 2022, an increase of 56.2% from
2021. It can be reasonably assumed that this
was a result of increased occupation and use
of the offi ce buildings during 2022 following
periods of lower occupancy in 2021 as a
result of the pandemic.
Waste
Following a UK campaign in June, where all of
the plastics items thrown away in UK offi ces
in a week were counted and categorised,
a number of actions were taken to reduce
waste and increase recycling.
During June, in honour of World Environment
Day, OSBI launched a challenge to reduce
the amount of consumables used each day in
the offi ce.
Defi ning the Group’s Climate Transition
Plan for fi nanced emissions
Calculating fi nanced emissions
Building on the Group’s inaugural
measurement of fi nanced emissions in 2021,
using the Partnership for Carbon Accounting
Financials (PCAF) methodology, we have
again calculated the attributed carbon
emissions of our lending portfolio, see
page 99.
The Group continues to use the PCAF
methodology as the most robust and suitable
method to calculate fi nanced emissions. The
PCAF method attributes a proportion of the
total emissions of a property, taken from the
Energy Performance Certifi cate (EPC) to the
lender based on the outstanding value of the
loan versus the value at origination.
An inherent limitation in this methodology
is that it relies on the availability of
property EPC certifi cates. In 2022, 79.9%
of properties had a valid EPC certifi cate.
19.7% of properties had emissions modelled
or estimated based on postcode average or
UK average. Where data was unavailable
(<1% of properties), properties were allocated
a D rating. Our calculations included the
mortgage portfolio as the largest asset class
(c. 97% for OSB and c. 98% for CCFS of total
lending). It did not cover non-modelled book
or securitised loans.
Calculated Financed Emissions
449 x
4768
3359
363,680
Scope 1 & 2 emissions
Scope 3 - operational emissions
Scope 3 - fi nanced emissions
In 2021, we committed to improving the
quality of data used to calculate fi nanced
emissions. For 2022, our PCAF data quality
score is at 3.2.8 The Group joined the PCAF
UK Residential Property Working Group to
explore this as a sector level challenge that
will not be solved in isolation. Whilst we have
identifi ed and explored several solutions
that can provide property level consumption
data, we continue to form plans of how this is
integrated into our product and proposition
off ering and overcome the barriers of data
confi dentiality and access.
In October, the Group contributed to PCAF
UK’s letter to the Department for Business,
Energy & Industrial Strategy, outlining the
challenges fi nancial institutions face within
the current Minimum Energy Effi ciency
Standards and EPC system, alongside the
opportunity presented by smart meter data in
both the accurate measurement of fi nanced
emissions and determining product and
service off erings that can drive change in the
real economy. In November, the Group’s Head
of Sustainability became the Chair of the
PCAF UK Residential Property Working Group.
7 Off setting covers Scope 1, Scope 2 (market-based) and UK Scope 3 (business travel, water and waste from operations, energy related activities not reported in Scope 1 and 2
and OSBI operations (purchased electricity - market-based), gas oil and fugitive emissions) for year ended 31 December 2022.
8 2021 PCAF data score of 3.
OSB GROUP PLC
Annual Report and Accounts 2022
Our Landlord Leaders – A New Environment
for the Private Rented Sector thought
leadership piece released in November 2022
is a clear demonstration of both the Group’s
commitment to decarbonisation and to
our brokers, customers and tenants. It also
highlights the challenges we face, from
raising the education and awareness required
to ensure that stakeholders are climate
literate, to the current lack of government
policy critical to providing direction and
pace. That is why the Group committed to
delivering the following in 2023:
– a pledge of £50m to our newly established
Landlord Leader Fund to help landlords
enhance energy effi ciency
– a new product range with accommodating
loan to values and interest coverage ratios
during property refurbishment
– a redesigned underwriting process for
existing landlords
– partnering with tax specialists who can
provide advice and guidance on tax
planning for part-time landlords looking to
professionalise
– the creation of a Landlord Leaders
community to bring brokers, landlords and
other industry members together
The Group recognises the risk of unintended
consequences where action is taken without
full consideration of all stakeholders that
may be impacted. That is why in 2023, we
will build on the work completed in 2022
and form our just climate transition plan
as a holistic and collaborative exercise,
championed by Executive sponsors and
utilising the existing expertise within the
Group including Risk, Compliance, Products
and Propositions, Sales and Marketing,
Compliance, ESG and Human Resources
teams. We will continue to utilise frameworks
and guidance designed for the fi nancial
services sector including the GFANZ Financial
Institution Net Zero Transition Plans –
Fundamentals, Recommendations, and
Guidance and when fi nalised, the Transition
Plan Taskforce Disclosure Framework
and Guidance both of which have been
considered in the work completed to date.
Target setting
The Group is committed to setting Science-
Based targets in line with our Net Zero
Banking Alliance (NZBA), and Science Base
Targets Initiative (SBTi) commitments. The SBTi
requires that companies should use the same
base year for all targets within the near-term
timeframe, and therefore 2022 will be used
as the baseline for calculating targets for
fi nanced emissions, with validation of the
targets by SBTi to be conducted in 2023.
Planning a just climate transition
In 2022, the Group defi ned the just transition
as one of three ESG Strategic Pillars. Earlier in
the year, the Group committed to a science-
based net zero target by 2050, and joined
the Net Zero Banking Alliance. To deliver on
this ambition, we will defi ne and demonstrate
the steps we intend to take to achieve net
zero emissions.
Just Transition
Whilst there is no single accepted
defi nition of a Just Transition, the
principle is based on a fair and
inclusive move to a low carbon
economy. A transition that maximises
benefi t for the environment, society
and the economy and leaves no
one behind.
As a specialist lender, that does not lend into
carbon intensive sectors such as coal, oil or
gas, the Group is well placed to understand
and meaningfully contribute to the real
economy decarbonisation of UK housing
required in order to avoid the worst impacts of
climate change. With our heritage, expertise
and understanding of the sectors we operate
in, we approach transition planning in a
thoughtful and considered way, placing
the borrower and tenant at the heart of the
conversation alongside the environment. It is
important that the actions we do take drive
real economy change and do not introduce
unacceptable risk.
During the year, the Group focused eff orts on
creating a framework and solid foundation
from which to build the Transition Plan. This
involved considering the Glasgow Financial
Alliance for Net Zero (GFANZ) and Transition
Plan Taskforce (TPT) consultations and calls
for evidence. The Group used the elements
of the GFANZ framework which is specifi c to
fi nancial institutions, to initiate work on the
climate transition plan.
We made progress in a number of areas,
including setting ambition and vision,
infl uencing clients and harnessing the
collective industry infl uence.
97
Developing our understanding of Scope 3
upstream and downstream emissions
It is widely understood that Scope 3 emissions
account for the vast proportion of a fi nancial
institution’s GHG inventory due to the
emissions attributed to the assets they fund,
referred to as fi nanced emissions (Scope
3, category 15). For this reason, the Group
approaches reducing fi nanced emissions as
a strategic priority with separate targets,
planning and sections of reporting.
Given the breadth and depth of categories
1-14 of Scope 3, the Group takes a structured
approach to defi nition and measurement.
A Scope 3 screening assessment has been
conducted and initial calculations made for
various categories where they are deemed
potentially signifi cant.
Relevance has been decided based upon size,
infl uence, risk, stakeholders, outsourcing and
sector guidance.
As a fi nancial product and service provider,
our fi nanced emissions remain the most
material as disclosed on page 99. We have
quantifi ed and disclosed Scope 3 categories
3, 5 and 6 in the Greenhouse gas emissions
table on page 99. Further work will be carried
out in 2023 to quantify other categories.
Currently we do not expect other categories
to be material when considered against
fi nanced emissions and the GHG protocol
materiality level of 5%.
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Scope 3
All indirect emissions (not included in
Scope 2) that occur in the value chain of
the reporting company, including both
upstream and downstream emissions.
OSB GROUP PLC
Annual Report and Accounts 2022
98
Environmental matters continued
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).
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.
Emissions are calculated using the
Greenhouse Gas Protocol Corporate
Standard and associated guidance
documents and include all greenhouse
gases reported in tonnes of carbon
dioxide equivalent (CO2e). When
converting consumption data to
carbon emissions Emission Factors
from UK Government Emissions
Conversion Factors for Company
Reporting (Department for Business,
Energy & Industrial Strategy, 2022)
are used.
In 2022, an exercise to review the Group’s GHG inventory was completed. Where an emissions
source moved scopes as a result of the assessment, the outcomes of the review are summarised
below. We intend to disclose Category 8 emissions in 2023 following refi nement of the data.
Emissions
source
Country
Nature of
operation
Scope previously
accounted within
Scope now
accounted in1 What is the basis for change
OSBI -
Bangalore
OSBI -
Hyderabad
OSBI -
Hosur
Whitfi eld
Street
India
Offi ce
1 & 2
3
Category 8
UK
Offi ce
2
The Group does not procure
the utilities for these locations.
These are selected and provided
by the building operator. The
Group does not operate the
mechanical and electrical
systems within the building. The
building is shared with a number
of other organisations.
1. It is the intention to report further Scope 3 categories in future disclosures
2022 GHG emissions reporting includes the changes referenced above. To allow annual
comparison between previous and current years, emissions have been recalculated and re-
stated in this report.
The Group’s 2022 Greenhouse gas emissions basis for reporting is publicly available on the OSB
GROUP corporate website: https://www.osb.co.uk/corporate-responsibility/focused-on-
the-environment/
Verifi cation and assurance
Deloitte LLP was engaged to provide independent limited assurance over the following metrics
for the year ended 31 December 2022 ◆ under the International Standard on Assurance
Engagements 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical
Financial Information (ISAE 3000 (Revised)) and the International Standard on Assurance
Engagements 3410 Assurance Engagements on Greenhouse Gas Statements (ISAE 3410):
Greenhouse Gas (GHG) emissions
– Total direct (Scope 1)
– Total indirect (Scope 2) emissions – Market-based
– Total indirect (Scope 2) emissions - Location-based
GHG Intensity
– Metric tonnes of CO2e per FTE employee
– Metric tonnes of CO2e per £m turnover
Deloitte’s assurance statement can be found on page 248.
Scope 3 emissions - (categories: 3 Fuel and energy-related activities, 5 Waste generated in
operations and 6 Business travel) disclosures were verifi ed by Interface NRM, an independent
UKAS and ASI accredited Certifi cation Body, operating in accordance with ISO 17021
(2015) Conformity assessment: Requirements for bodies providing audit and certifi cation of
management systems; and ISO 17065 (2012) Conformity assessment – Requirements for bodies
certifying products, processes and services.
2022 Operational emissions breakdown (tCO2e)
810.69
322.13
(322.13)
488.56
153.87
193
136.71
0.78
4.20
Scope 1
Scope 2
Location-
based
Reduction
from
renewable
energy
tariff s
Scope 3
Water
Scope 3
Waste
Scope 3
T&D
Scope 3
Business
Travel
Total
Market-
Based
emissions
Total
Location-
based
emissions
OSB GROUP PLC
Annual Report and Accounts 2022
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Greenhouse Gas (GHG) Emissions
Direct and indirect GHG emissions
(Scopes 1, 2 and 3)
Further description
Amounts in metric tonnes CO2 equivalent
Scope 1
Stationary combustion
Combustion of fuel on site
Fugitive emissions
Fugitive emissions
99
Specific fuels where applicable
2020
2021
2022
On site: natural gas, diesel for
generators
Fugitive emissions are leaks
and other irregular releases
of gases or vapours from a
pressurized containment: air-
con units
132.95
167.39
138.22
0.00
0.00
15.65
132.95
167.39
153.87◆
Electricity - Location-based
Electricity - Market-based
309.54
238.53
342.23
0.00
322.13◆
0.00◆
Total Scope 1 direct emissions
Scope 2
Purchased electricity
Total Scope 2 location-based
Total Scope 2 market -based
Scope 3
Business travel
Water
Waste
Fuel and energy-related activities
(not included in Scope 1 or 2)
Total indirect Scope 3
emissions (category 3, 5 and 6)
Total operational emissions
(location-based)
Total operational emissions
(market-based)
Total indirect Scope 3 - Financed
emissions (category 15)*
Total GHG emissions
(location-based)
GHG intensity
GHG intensity ratio
Unknown vehicle fuel; rail; bus; taxi; hotel stays Unknown vehicle fuel
Water use
Waste from operations
Well-to-tank (WTT) emissions for fuel use,
upstream emissions for non-renewable
electricity generation, and transmission and
distribution losses in the electricity network
71.26
N/M
N/M
N/M
78.87
0.50
1.35
31.20
193.00
0.78
4.20
136.71
Unknown vehicle fuel, water,
waste energy related activities
71.26
111.91
334.69
Category 15 Investments (financed emissions).
Calculated by multiplying an attribution factor
(outstanding amount of loan divided by the
property value at origination) by the emissions
associated with the property taken from EPC.
Calculated for the Buy-to-Let and residential
lending
All measured emissions for the year
Description
Full Time Equivalent (FTE)
employees (UK)
full-time equivalent (FTE) is a unit of
measurement equal to one full-time employee
£m
metric tonnes of CO2 equivalent per full time
equivalent
metric tonnes of CO2 equivalent per £m total
income
Kgs of CO2 equivalent per square metre*
Annual turnover
Scope 1 and Scope 2
location-based
Scope 1 and Scope 2
location-based
Scope 3 Financed emissions -
physical emissions intensity
Energy consumption
Energy usage kWh
Electricity
Gas
Total kWh
513.75
621.53
810.69
442.74
279.30
488.56
Gas and electricity for heating,
hot water and lighting only
N/M 278,854.00
363,680.00
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513.75 279,475.53
364,490.69
2020
1233
508
0.36
0.87
N/M
2021
1164
629
0.44
0.81
2022
1237
775
0.38◆
0.61◆
24.81
29.9
2020
2021
2022
1,777,667.00
1,611,783.00
1,665,812.80
723,050.00
913,890.00
744,504.18
Electricity, natural gas
2,500,717.00 2,525,673.00 2,410,316.98
N/M = Not measured
*
Financed emissions physical intensity ratio is calculated by multiplying the total estimated attributable financed emissions in tCo2e for 2022 (363,680 tCO2e) by 1000 to
give Kgs Co2e (363,680000 kgCo2e). This is divided by the total floor area in m2 of the properties taken from the Energy Performance Certificate (12,151,478m2). Estimated
absolute financed emissions were 610,265 tCO2e for 2022. Financed emissions estimates are for the mortgage portfolio as the largest asset class. It does not cover non-
modelled book or securitised loans.
OSB GROUP PLC
Annual Report and Accounts 2022
100
Task Force on Climate-Related Financial Disclosures
Listing Rule 9.8.6R (8) requires that the Group provides climate-related
financial disclosures consistent with the recommendations set out by the
Task Force on Climate-related Financial Disclosures (TCFD). The Board
confirms that it has disclosed sufficient information to comply with the TCFD
recommendations, with the exception of the Group’s transition plan which will
be completed during 2023 (Strategy b). The Group has reviewed the guidance
contained in the TCFD Annex and will continue to supplement its future
disclosures where appropriate.
The Board and management are committed
to ensuring that the Group takes appropriate
and timely actions to support the global
sustainability agenda.
The Board is conscious that regulatory
expectations and industry best practices
continue to evolve and further work is
required to fully embed our climate risk
operating model across the Group.
Throughout 2022, the Group continued
to provide thought leadership, raise
awareness and educate our borrowers to
help them make decisions that would lead
to improvements in the energy efficiency of
their properties. Progress was also made in
delivering a number of initiatives to reduce
the Group’s own impact on the climate.
The disclosures below were drafted to be
consistent with TCFD recommendations and
provide transparent reporting to assist our
stakeholders in understanding the impact of
climate change on the Group. The current
assessment indicates a low climate risk impact
to the business, however we remain cognisant
that climate risks may evolve over time.
GOVERNANCE
A transition plan (Strategy b) is not included
below and is a priority development area
for 2023 and will align with the timeline of
the commitments made to the UN Net Zero
Banking Alliance and Science Based Targets
Initiative. The Group aims to include it in the
2023 Annual Report and Accounts.
In the table below, we describe the progress
made against each TCFD pillar during 2022
and the opportunities planned for 2023.
Achievements in 2022
Opportunities for 2023
Further details
See Governance
matters on page
90 for further
information.
1) Board oversight of climate-related risks and opportunities:
– All Committee and Board papers provide an environmental impact assessment to allow the
Directors to consider any climate-related risk impacts. Climate risk and Environmental, Social
and Governance (ESG) matters are key considerations to the Group’s strategy for which the
Board assumes responsibility.
– The ESG Technical Committee was created as a Management Committee reporting to the
Group Executive Committee which met quarterly in 2022. The Board delegated the day-to-
day management of climate risk to the CEO, who was assisted by the ESG Technical and
Group Executive Committees in discharging these responsibilities.
– In addition to its direct oversight, the Board delegates responsibility for the Group’s climate-
related risk appetite, risk monitoring, provisioning, and capital and liquidity management to
the Group Risk Committee. The setting of climate risk appetite limits is a key tool utilised to
ensure that the Group’s risk profile continues to be managed to an acceptable level, whilst
the Group’s climate risk Internal Capital Adequacy Assessment Process (ICAAP) ensures that
the Group continues to hold sufficient capital to address climate specific risks to which it may
be exposed. During 2022, the Board provided oversight over these key processes.
– During 2022, the Group Audit Committee continued to monitor the Group’s compliance with
the TCFD requirements.
– A Non-Executive Director of the Board, Sarah Hedger, continued to oversee ESG matters on
behalf of the Board.
– External climate and wider ESG training was provided to the Board in Q4 2022.
– Senior management function responsibilities were updated to include details of functional
plans regarding the Group’s ESG agenda, and the relevant activities are detailed within
Executives’ statements of responsibilities.
– The Board considers and approves emission reduction goals and targets in line with the
Group’s net zero commitment by 2050 commitment.
– The Group Remuneration and People Committee integrated greenhouse gas (GHG) emission
reduction targets into the Balanced Business Scorecard (BBS) with performance against these
targets presented to the Board on a regular basis (see metrics and targets for further details).
– Deliver further enhancements
to the Group’s climate-related
internal expertise to ensure
effective oversight of climate-
related risks.
– Continue to work with external
advisors as appropriate
to inform annual budgets,
business plans, as well as
setting the organisation’s
performance objectives.
– Further develop the Group’s
climate risk strategy and
monitor its adherence by
setting and monitoring climate-
related risk performance
targets.
– Deliver further enhancements
to the Group’s climate financial
risk appetite framework,
which will result in enhanced
monitoring of the Group’s
climate risk profile
– Provide training as part of the
Group’s Climate Transition
Plan.
OSB GROUP PLC
Annual Report and Accounts 2022
101
Achievements in 2022
Opportunities for 2023
Further details
2) Management’s role in assessing and managing climate-related risks and
opportunities:
– The ESG Technical Committee was established in 2022 with the responsibility to maintain
– Further embed the Group’s
None
GOVERNANCE CONTINUED
effective identification and management of climate-related risks and goals. The Committee's
output is summarised and shared annually with the Board for consideration.
– An annual materiality workshop is completed as part of the ESG lifecycle where management
consider ESG risks and opportunities.
– Climate risk continues to be recognised as an enterprise risk and forms part of the Group’s
overarching Enterprise Risk Management Framework (ERMF).
– The ESG Sustainability Director is responsible for ensuring the Group’s strategy is aligned and
consistent with the various climate-related initiatives across the Group as well as ensuring
that the Group is well positioned to meet its ESG reporting objectives.
– In 2022, the Group’s Climate Risk Management Framework (CRMF) was implemented as a
sub framework of the Group’s ERMF, which articulates the Group’s climate risk management
arrangements, ensuring ongoing delivery of planned goals and continued effective risk
management of climate-related risks.
– Annual greenhouse gas reduction targets (scope 1 and scope 2) were integrated into the
personal objective of the CEO and CFO as well as the Balanced Business Scorecard (BBS).
Integrating targets into remuneration is expected to reduce the Group’s emissions aligned to
the Group’s net zero commitment.
– An internal review of existing risk management frameworks across principal risk areas was
conducted to ensure that climate risk is appropriately embedded and monitored. Formal
addition of the climate elements are planned during the next individual framework review
cycle.
– Following the Science Based Targets Initiative (SBTi) guidance and criteria, 2022 is set
to be the established base year for financed emissions (mortgages). Interim (2030) and
long-term (2050) net zero targets have been established using intensity ratios under sector
decarbonisation pathways.
CRMF.
– Further embed climate
risk considerations within
the Group’s other sub risk
management frameworks.
– Progress towards reducing
the Group’s direct emissions
targets.
– Continue the development of
the Group’s transition plan
setting out the actions the
Group will take to achieve its
targets and how progress will
be measured and reported.
This plan will be reviewed and
considered by the Board for
approval in 2023.
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OSB GROUP PLC
Annual Report and Accounts 2022
102
Task Force on Climate-Related Financial Disclosures continued
Achievements 2022
Opportunities for 2023
Further details
STRATEGY
3) Climate-related risks and opportunities identified over the short, medium, and
long-term:
The Group determined the following as relevant and/or material risks to be reviewed annually:
Time periods considered are defined as short term 0-5 years, medium term 5-10 years and
long term greater than 10 years. The short term time horizon aligns to the Group’s planning
and ICAAP stress testing assessment periods. The long term time horizon has been utilised
within scenario analysis to assess climate risks which may occur over a longer timeframe. The
medium term horizon therefore, relates to risks and opportunities which are inside our long term
assessment horizon, but sit outside of our short term assessment period.
The Group’s lending is to individuals and small and medium enterprises in the UK, where the
specific climate risks and opportunities are assessed. The Group’s operational sites in both the
UK and India (OSBI) are exposed to similar climate risks. Currently, the Group does not deem it
necessary to describe risks and opportunities by geography. The Group provides lending in the
UK primarily against residential and commercial properties, with low exposure to non-property
collateral backed funding lines or asset finance lending which is typically secured against hard
assets, and therefore does not have significant credit exposure to carbon related assets.
•
– Expand the Group’s scenario
analysis to a wider range of
transition risks.
– Identify climate-friendly
products, utilising the full range
of the Group’s brands, whilst
being cognisant of any conduct
risks.
– Fund thought leadership and
broker/ borrower education and
awareness.
– Consider the Group’s climate
financial risks within the
Group’s planning processes.
See analysis on
pages 58 and
59.
Risks
Lending
• Physical risk (long term)
Changes in precipitation patterns and extreme variability in weather patterns, rising mean
temperatures and rising sea levels
The Group primarily lends on residential assets, either for owner occupation or for
investment by professional landlords. The Group undertook the annual scenario analysis
of its portfolio using best-case and worse-case scenarios to determine the level of
exposure to climate-related risks. The key physical risks used for scenario analysis are
flooding, subsidence and coastal erosion in the long-term (> 10 years), which considers the
behavioural and contractual life of the Group’s primary lending types.
• Transition risk (short term)
Policy and legal - mandates on and regulation of existing products and services
Energy Performance Certificate (EPC) rating requirements are considered a key transitional
risk in the short term (0-5 years). The Group’s current exposure to transition risk as a
proportion of the total lending is relatively small.
Uncertainty in market proposition
Commissioned research indicated varying levels of awareness amongst borrowers around
climate change, mitigation, support available and understanding of EPC ratings. There is a
potential risk that landlords might be leaving or not entering the market if climate risks make
investment less attractive.
Policy and legal - exposure to litigation
Reputational - increased concern or negative feedback from the Group’s stakeholders
Operations
• Physical risk (long term)
Increased severity of extreme weather events such as cyclones and floods. The Group’s
operations in the UK and OSBI could be impacted by an increased number or severity
of extreme weather events. Increased costs may be incurred during the period in which
operational processes are recovered.
• Transition risk (long term)
Increased pricing of GHG emissions, enhanced emissions-reporting obligations
The Group offsets its Scope 1, Scope 2 and Scope 3 business travel emissions on an annual
basis whilst it aims to reduce total emissions. It is expected that the cost of offsets from
the voluntary carbon market will increase significantly towards 2030. In addition, it is
anticipated that policy will introduce mechanisms to penalise fossil fuel use in support of the
government’s net zero ambitions.
1
The Group has defined its time periods as follows: short term: less than one year; medium term: period to 2035; long term: period to 2050.
OSB GROUP PLC
Annual Report and Accounts 2022
103
Achievements in 2022
Opportunities for 2023
Further details
3) Climate-related risks and opportunities identified over the short, medium, and
STRATEGY CONTINUED
None
– Expand the Group’s scenario
analysis to a wider range of
transition risks.
– Identify climate-friendly
products, utilising the full range
of the Group’s brands, whilst
being cognisant of any conduct
risks.
– Fund thought leadership and
broker/ borrower education and
awareness.
– Consider the Group’s climate
financial risks within the
Group’s planning processes.
long-term: continued
Opportunities
Lending
• Products and services (short term)
- increased revenue through demand for lower emissions products and services
- improved competitive position to reflect shifting consumer preferences, resulting in
increased revenues
- green financing and lending products have the ability to finance retrofit new build
projects that increase carbon efficiency or reduce the carbon footprint of investments
contributing to real economy decarbonisation, and the Group’s ambitions and
commitments. The Group undertook and commissioned research in the mortgage
market to fully understand broker and customer perceptions, attitudes and knowledge
in this area, and will regularly refresh the research to identify solutions that allow the
market to meet the government’s climate change commitments.
• Resilience (short term)
Increased revenue through new products and services
Transition planning is a significant focus for regulators and continues to gain the attention
of shareholders. Suitable planning supports the ongoing resilience of the Group as a
specialist lender.
Operations
• Resource efficiency (short term)
Reduced operating costs (e.g. through efficiency gains and cost reduction)
Increasing the Group’s energy efficiency is an opportunity that will reduce the ongoing
operating costs of electricity and natural gas, which are the key drivers of Scope 1 and
Scope 2 emissions. Increased efficiency also provides a level of protection against the
current uncertainty of energy security and pricing.
• Energy source (short term)
Use of lower-emission sources of energy, use of supportive policy incentives
The use of low or zero carbon technologies is likely to reduce operating costs associated
with carbon intense energy sources over the medium to long-term and the need to
fund offsetting. The Group will also be afforded a level of protection from fossil fuel
price increases.
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Annual Report and Accounts 2022
104
Task Force on Climate-Related Financial Disclosures continued
Achievements in 2022
Opportunities for 2023
Further details
STRATEGY CONTINUED
See page 96 for
further details
on transition
planning.
See Environment
matters on page
92 for further
details.
4) Impact of climate-related risks and opportunities on the Group’s businesses,
strategy, and financial planning:
– Climate-related risks and opportunities are part of a wider ESG risk and opportunity
– Enhance the Group’s approach
analysis. The impact and importance of risks and opportunities are determined based upon a
quantitative assessment where data is available, or a qualitative assessment of the potential for
growth or cost management and the degree of importance to stakeholders.
– During 2022, the Group made progress in managing risks and developing potential areas
of opportunity with respect to products and services, the supply/value chain, adaption and
mitigation activities and operations, with further initiatives planned in 2023. As a result of the
Group’s current strategy and simple business model, the climate related risks and opportunities
relating to investment in research and development, acquisitions and access to capital are not
deemed material for the Group and therefore were not an area of focus in 2022.
– The Board has determined that sustainability is a key priority for the Group, and has committed
to the development and implementation of a robust net zero Transition Plan in line with the Paris
Agreement’s central aim to strengthen the global response to the threat of climate change.
– In 2022, the Group measured its Scope 3 financed emissions using the Partnership for Carbon
Accounting Financials (PCAF) methodology. This is an important step forward which allows
subsequent analysis and modelling of actions to address this area of significant risk and
opportunity. This ambitious strategy is wholly aligned with the Group’s Values, in particular Aim
High and Stewardship. The PCAF calculation covers the mortgage portfolio as the largest asset
class. It does not cover non-mortgaged portfolios or securitised loans.
– The Group’s financial plans are set on an annual basis and are reviewed and refreshed
quarterly. They 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 any changes in capital requirements. For the 2022 financial
plans, the Board considered all principal and emerging risks including climate risk, where the
risk is likely to emerge outside of the viability assessment horizon. The impact of climate risk was
assessed as part of the ICAAP, which concluded that the associated financial risks were not
material for the Group as at 31 December 2022.
– In 2022, the Group included provisions for climate change in its IFRS 9 impairment in the form
of a post model adjustment and accounted for discounts on properties with a low energy
efficiency rating in the event of a forced sale. The provisions raised were not material in the
context of the total provisions held by the Group.
– The Group considered the impact of climate-related risks on its operations in India and
established a second site in Hyderabad to ensure that in the event of an operational incident
(including a climate-related one) services can be maintained.
to defining the impact of
climate-related risks and
opportunities beyond current
scenario analysis of physical
and transitional risks
– Develop a clear and robust
transition plan to achieve the
targets set for Scope 1, 2 and 3
emissions to be verified by SBTi
which will result in a greater
understanding of the effect
of climate risk on the Group’s
financial performance
– The Group will establish
two emissions reduction
targets aligned to the SBTi
methodology which will be
submitted for SBTi validation
in 2023:
– 1. a target for Scope 3
category 15 financed
emissions using a Sector
Decarbonisation approach
(SDA) under SBTi IEA ETP
2017 B2DS scenario for
residential buildings which
will include an interim
target for 2030 (financed
emissions)
– 2. a target for operational
emissions covering Scope
1 and 2 categories using
an absolute contraction
approach.
These targets show the
Group’s commitment to
meeting the Paris Climate
Accord.
– Consider opportunities such
as green funding, green
savings, securitisation, climate
risk underwriting criteria and
ESG awareness campaigns
to pursue the most impactful
opportunities and support
customers in their transition.
– Join sector initiatives to
enhance collaborative working
to achieve net zero.
– Formalise and include climate-
related inputs into the financial
planning process.
5) Resilience of the Group’s strategy taking into consideration climate-related
scenario analysis:
– The Group’s ICAAP considers the resilience of its strategy and loan portfolios to climate
– Expand the number of
risks such as floods, coastal erosion, subsidence, and minimum EPC ratings. The ICAAP saw
minimal impact from climate risk, varying severity RCP 2.6 and 8.5 scenarios were considered
which assess the impacts across a range of severity scenarios. In 2022, a Climate Biennial
Exploratory Scenario was utilised to undertake a Pillar 2B climate risk assessment.
transitional climate risks
considered in future scenario
analysis. The results of these
may drive changes to strategy
which the Group will disclose, if
material.
See Risk review
on page 58 for
further detail
on the Group’s
approach to
analysing
climate risk.
OSB GROUP PLC
Annual Report and Accounts 2022
105
Achievements in 2022
Opportunities for 2023
Further details
RISK MANAGEMENT
See Risk review
on page 58 and
the Governance
matters,
Materiality
assessment
on page 89
for more
information.
6) Processes for identifying and assessing climate-related risks:
– Climate-related horizon scanning is in place to monitor regulatory or legislative changes which
– Enhance engagement with
could impact the Group which feeds into the assessment of transition risks.
– Climate risk is also a consideration of the Group’s wider assessment of ESG risks and
opportunities which uses the outputs of scenario analysis to support the assessment of material
ESG risks and opportunities, which further informs the ESG strategy. Within the context of
ESG risk and opportunities, potential impact on growth or cost management and the degree
of importance to stakeholder groups are assessed. Climate related topics are identified and
considered from a wide range of global issues, industry and sector specific considerations, such
as regulatory and disclosure requirements and Group specific inputs such as our Purpose, Vision
and Values and ESG Operating Framework and Strategy. The Group used the approaches and
processes set out in the ERMF to identify and assess all risks including climate risk.
– The enterprise risk register process allows the Group to consistently size, scope and reassess the
relative significance of all risks including climate risk, considering the likelihood and potential
impact of the risk emerging, to provide an inherent risk rating. Risk mitigants are documented and
constantly assessed and enhanced to ensure climate related risks are managed appropriately.
– Scenario analysis is used as an important tool to understand and inform the potential impact of
climate change on the Group’s loan portfolios. It consisted of climate change portfolio analysis
(covering both physical and transitional risks), including an assessment of EPC ratings in the UK.
7) Processes for managing climate-related risks:
– The existing lending policies and criteria help to manage climate risk across the Group’s loan
portfolios i.e. setting out the EPC requirements for Buy-to-Let lending. Flood, subsidence and
coastal erosion risks are in part mitigated by independent property valuation, which forms part
of the underwriting process.
– Climate risk appetite statements and limits were implemented which inform the Group’s
strategy and facilitate monitoring of the Group’s climate risk profile.
– Climate-related horizon scanning is in place to monitor regulatory or legislative changes which
could impact the Group and feeds into the assessment of transition risks.
– Business continuity plans and disaster recovery plans were updated to reflect risks from
extreme weather and establish appropriate plans to mitigate the associated risks. Threat risk
assessments are conducted on both UK and Indian sites annually to support the robustness of
business continuity plans.
– On an annual basis, the Group conducts a complete review of its loan book from a climate
perspective. This enables the Group to determine the potential impact of climate-related risks.
– The Group enhanced its risk and opportunity analysis for ESG matters in 2022 which included
climate risk, physical and transitional considerations, with the physical transition remaining a
key focus.
– The Group aligned its scenario analysis processes with UKCP18 climate change predictions for
the UK that were issued by the Met Office in collaboration with other agencies.
8) Integrating climate-related risk processes into overall risk management:
– Climate risk was integrated into the Group-wide ERMF supported by the implementation of the
CRMF, a sub-framework of the ERMF specifically designed to manage and monitor climate-
related risk.
– The Group incorporated climate risk into its three lines of defence risk management model, with
the recognition of climate risk as an enterprise risk.
– An ESG learning module was completed by the Group’s employees during the year,
communicating the importance of ESG, the principles that guide decision making, planning and
the Group’s commitments.
stakeholders to determine how
customers are being supported in
reducing their carbon footprint.
– Enhance climate risk
management information with
ongoing trend and scenario
analysis.
– Reassess the classification of
climate risk based on further
regulatory clarity and an
ongoing materiality assessment.
– Embed climate risk into the risk
and control self-assessment
(RCSA) process, which will
enable the identification of
climate-related risks in a
proactive manner and embed
the right climate risk behaviours
across the Group.
– Provide further Board training
to assist with the ongoing
identification of climate-related
risks.
– Define the Terms of Reference
for the ESG Action Group that
will oversee progress towards
the Group’s commitments and
responsibilities.
– Continue the development of
the Group’s Transition Plan
setting out the actions the
Group will take to achieve its
targets and how progress will
be measured and reported.
– Review and update the climate
risk glossary annually.
– Enhance the prioritisation of
climate- related risks to a more
quantitative approach across a
broader range of risks.
– Conduct the onboarding review
of all new business taking
into account transitional and
physical climate risks and any
regulatory requirements.
– Create a climate (and wider
ESG) training plan to ensure that
all relevant employees receive
appropriate training.
– Identify key roles where further
or expanded knowledge or
competence is required in
order to deliver on the Group’s
ambitions and commitments.
OSB GROUP PLC
Annual Report and Accounts 2022
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Task Force on Climate-Related Financial Disclosures continued
Achievements in 2022
Opportunities for 2023
Further details
METRICS AND TARGETS
9) Metrics used to assess climate-related risks and opportunities:
The Group uses a variety of metrics to assess climate-related risks and opportunities and has
considered all cross-industry metrics and has determined the below to be the most important
(further information of historical performance is detailed within the Environment Matters Section).
• Physical risk
- Properties within 1,000m of the coastline should the maximum emission scenario prevail,
i.e. no climate action is taken and the worst-case scenario prevails.
- Properties exposed to flood alert zones
- Properties with a 0.5% exposure to subsidence risk within a 10-year term in the
maximum emission scenario
• Transition risk
- Portfolio EPC distribution at levels F and G
- GHG emissions are calculated using the GHG Protocol Corporate Standard and the
Group’s criteria for reporting
- Scope 3 financed emissions tonnes of carbon equivalent (tCO2e) /m2 using PCAF
methodology
- Scope 1 and 2 (location-based and market-based) absolute emissions in tCO2e by
emissions source
- Scope 3 business travel in tCO2e
- Scope 1 and Scope 2 tCO2e as a proportion of full-time equivalent employees (FTE)
which is linked to Executive remuneration.
- The Group is considering internal carbon pricing during the development of the
transition plan.
– Define additional metrics and
targets as the Group continues
its ESG journey and transition
planning.
– Define additional Scope 3
emissions sources in line with
the GHG Protocol Corporate
Standard.
– Understand how EPC data
forms part of the Group’s
strategy and its approach to
net zero risks and opportunities.
– Consider internal carbon
pricing as a metric to incentivise
progress and track costs and
benefits.
See
Environmental
matters on
pages 91-99
for more detail
on historic
performance
and future
targets.
For portfolio
metrics see
Insights from
our scenario
analysis on
page 107.
See
Environmental
matters on page
99 for further
information.
See
Environmental
matters on page
97 for further
information.
10) Scope 1, 2 and 3 Greenhouse Gas (GHG) emissions and the related risks:
– Scope 1, 2 and 3 emissions have been disclosed (where material and available for Scope
– Conduct an assessment of
3), emissions are calculated in line with the GHG Protocol Corporate Standard. Criteria for
reporting GHG emissions can be found on the Group’s website.
– Intensity ratios were established and reported on:
- Scope 1, 2 tCO2e per FTE
- Scope 3 – financed emissions only – tCO2e per m2
– Comparative figures were disclosed for 2020 onwards.
11) Targets used to manage climate-related risks and opportunities:
– In 2022, the Group committed to achieve net zero GHG emissions by 2050 in line with the 2015
Paris Climate Accord. The Group’s ambition is to reduce Scope 1 and 2 emissions (market-
based) to zero by 2030.
– The Group is working towards creating qualitative and quantitative targets. The principles
guiding the targets were presented and approved by the relevant Management Committee.
– The emissions year used for science-based target setting will be reset to 2022 as an accurate
representation of direct emissions following the pandemic, introduction of a hybrid working
model and recategorisation of the carbon footprint inventory. For details on how climate-
related risks and opportunities are linked to Executives and senior managers’ remuneration, see
Remuneration report on page 142.
the risks associated with the
Group’s Scope 1, 2 and 3
emissions in 2023.
– Utilise the UN – Finance
Initiative “Guidelines for target
setting” to develop targets and
timeframes for delivery. Target
setting is an integral part of
transition planning and our
approach is expected to mature
over time.
– Validate and disclose rebased
targets.
– Continue to include GHG Scope
1 and 2 emissions intensity
ratio targets in the Executive
and senior managers’ bonus
schemes.
– Use relevant guidance to further
enhance metrics and targets
e.g. carbon footprint metrics
use the GHG protocol, UN NZBA
targets setting guidelines.
– Develop longer term climate
targets to be considered for
inclusion with the Group’s long-
term incentive plans.
OSB GROUP PLC
Annual Report and Accounts 2022
Insights from our scenario analysis:
impact on the Group
Physical risk
The Group’s physical risk profile remained
broadly stable during 2022, when compared
to 2021. The physical impact of climate
change on our real estate portfolio across
the UK is expected to be limited. Sensitivity
analysis completed using RCP scenarios on
increases in global temperatures by 2100,
compared the least severe scenario (RCP
2.6 – increase of 0.9ºC to 2.3ºC) to the most
severe (RCP 8.5 – increase of 3.2ºC to 5.4ºC).
At a Group level, the analysis shows that
the exposure to the probability of flood over
the next decade increases by 0.03% from
the best-case scenario to the worst case
scenario, only 0.43% of the Group’s portfolio
is in an area with a flood risk greater than
20%. For subsidence, the increase from
best-case to worst-case increase is also only
0.04%, with the portfolio risk of subsidence
being less than 0.5%.
For coastal erosion, across the Group over
93.6% of the portfolio is more than 1,000
metres from the coastline. Of the properties
within 1,000 meters, only 94 are located in
areas likely to experience coastal erosion.
Insights from our scenario analysis:
key drivers
OSB Group is a leading mortgage lender
predominantly in the professional Buy-
to-let and specialist Residential market
sub segments secured against residential
property. The Group also provides loans to
limited companies and individuals secured
against commercial and semi-commercial
properties, residential development financing,
funding lines to non-bank finance companies
and asset finance lending.
At present the Group has identified the
physical risks relating to flooding, subsidence
and coastal erosion reducing the value of
properties as well as the ability of borrowers
to afford or refinance their mortgages, as
the most material physical climate risks to
be assessed and managed. The Group has
also identified the transitional risks relating
to changes in regulatory policy resulting in
material levels of investment being required to
ensure minimum EPC requirements are met.
This spend for example, may be required to
ensure Buy-to-let properties are eligible to
let and loan to value levels aren’t adversely
impacted and void periods and defaults
don’t materialise which result in loan losses
and higher capital requirements. As such the
Group considers the above risks as the most
material and therefore focuses on assessing,
monitoring and managing these risks.
The climate risks relating to the Group’s
operational premises are considered less
material, than the physical and transitional
risks to the properties which underpin the
Group’s loan portfolios
107
Transitional risk
The Group observed marginal improvements
in EPC ratings for existing stock assessed
in both 2022 and 2021, in addition
improvements in the climate data processes
improved insight into the transitional risk
profile. At a Group level, c. 40% of properties
(2021: 35%) have an EPC rating of C or
better, c. 45% (2021: 48%) have an EPC rating
of D, c. 13% (2021: 15%) an EPC rating of E
and c. 2% (2021: negligible) an EPC rating of
F or G. Of the properties with an EPC rating
of D or worse, c. 91% (2021: 90%) have the
potential to reach at least an EPC rating of C.
Adverse movements in the EPC rating
distribution of the Group’s loan portfolios
and any potential change in government
policy have the potential to result in larger
future financial impacts for the Group. To
mitigate this risk, the Group actively monitors
and assesses the possible financial risks
associated with the EPC rating distribution
of the Group’s loan portfolios and horizon
scans for any changes in regulatory or
governmental policy.
During 2022, the Group ensured consistency
between internal analysis covering the setting
of climate risk appetite, ICAAP and other ad
hoc analysis with the data, scenarios and
assumptions used to support the Group’s
financial disclosures. As an example, the IFRS
9 post model adjustment (PMA) relating to
climate change utilised the same underlying
data, scenario and approach to quantifying
the financial risk relating to climate change
as the climate and ICAAP risk assessments.
See the Group’s Risk review for more detail on
the Group’s approach to analysing climate
risk and further detail on the Group’s climate
risk PMA. The Group’s current risk appetite,
ICAAP and IFRS 9 climate risk assessments
have all indicated that the Group is currently
exposed to a low climate related financial risk,
using the materiality assessment scale which
supports other financial disclosures within the
Group’s Annual report and Accounts.
OSB GROUP PLC
Annual Report and Accounts 2022
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108
Social matters
Customers
Our customers are at the heart of what we do and are a
key part of our success. Through the breath of our product
offering, excellent customer service and close relationships
with our intermediaries, we aim to be our customers’
financial provider of choice.
The broker NPS decreased to +37 for OSB
and +39 for CCFS in 2022, both impacted
by high application and completion volumes
as a result of the market disruption following
September’s mini budget. As a leading
specialist lender, we have the breadth of
mortgage products, ability to make rapid
decisions and expertise in structuring
borrowers’ portfolios, all of which were
particularly valued by our customers during
that time. To further provide our customers
and intermediaries with the certainty of
funding, the Group honoured both our
offered and pre-offered applications in the
fourth quarter of 2022.
We are conscious that our borrowers are
facing more uncertainty in their investment
decisions given the elevated focus on the
energy efficiency of the properties they own
or are considering purchasing. In a move
to lead the sector’s approach, the Group
published the Landlord Leaders research
report in November, which surveyed the
Private Rented Sector in light of these
environmental challenges. As a result, the
Group pledged £50m to the newly-established
Landlord Leaders Fund to assist landlords
in enhancing the energy efficiency of their
properties. Earlier in the year, the Group
introduced the first of a range of mortgage
products that aim to help landlords in making
their properties more energy efficient and
improve their EPC rating, preparing them for
the demands of legislation.
There are also policies that apply to
the business as a whole and govern our
operations, including Data protection and
retention policies, Conduct risk framework
and our Complaints handling policy.
In 2022, the Group commenced a project to
implement the FCA’s Consumer Duty rules and
requirements, which further focus on customer
vulnerability and improve our customers’
experience by putting their needs first.
The main way of engaging with our savings
customers is via telephone, online or directly
in our nine Kent Reliance branches in the
south east England. All our mortgage
products are distributed by mortgage
intermediaries across England and Scotland
and our experienced Sales teams maintain
strong relationships with them. The surveys
conducted on behalf of the Group revealed
that in 2022, we received over 4,000 survey
responses from intermediaries, almost 7,000
responses from borrowers and over 46,000
responses from savers.
We are proud that in 2022, our efforts
to provide transparent and competitive
products were recognised by the mortgage
and savings industries: Kent Reliance for
Intermediaries was awarded Best Specialist
Lender by L&G Mortgage Club and Precise
Mortgages was named The Best Specialist
Lender by the MABs Awards. In addition, Kent
Reliance won the Best Cash ISA Provider from
Yourmoney.com Personal Finance Awards
and Charter Savings Bank was named ISA
Provider of the Year by Moneyfacts.
We also measure and closely monitor Net
Promoter Scores (NPSs) for our savings
customers and intermediaries which indicate
their satisfaction with our services and
products. Savings customer NPS was +64 for
Kent Reliance and +61 for Charter Savings
Bank, both strong results in light of eight
base rate rises that prompted many savers
to choose new products, and across our two
brands we opened over 191,000 new savings
accounts, more than double that in 2021.
Group's pledge to Landlord Leaders Fund
£50m
New savings accounts opened
over 191k
2021: over 44k
To achieve this goal, we use an established
governance framework for consistent best
practice across the business and ensure
that we have robust policies and procedures
to minimise the risk of failure to deliver the
quality of service our savers and borrowers
have come to expect.
The main policies which govern how we
transact with our customers are:
– Lending policy – ensures that we lend
responsibly and within the Group’s lending
criteria and risk appetite.
– Customer vulnerability policy – sets
out the standards and approach for
the identification and treatment of
vulnerable customers and provides
guidance to ensure that these customers
consistently receive fair outcomes.
The Group’s employees are trained to
identify vulnerability and put in place
appropriate actions to deal with issues as
effectively as possible. We are 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
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 the best possible outcome.
OSB GROUP PLC
Annual Report and Accounts 2022
109
Colleagues
The skills, expertise and commitment of our colleagues have always
been fundamental to the achievement of the Group’s strategic
goals. In 2022, we continued to invest in training, development and
employee engagement activities to ensure that the Group provides a
compelling and attractive employee proposition both for our existing
employees and for candidates considering joining the Group.
Group vacancies filled by the Talent
Acquisition team
9082021: 626
Employee promotions across UK and
India
3182021: 176
2022 saw the conclusion of restructuring
following the combination with CCFS and
the deployment of an enhanced HR & Payroll
system for all UK employees. We also
finalised our key employee-related
harmonisation activities.
Other areas of focus related to the ongoing
organisational growth and recruitment of a
significant number of new employees.
The Group’s approach to hybrid working
was further embedded and expanded to
appropriate roles at OSB India, providing
flexibility for an increased number
of employees.
Recruitment
Our Talent Acquisition teams ensure that,
across all locations, internal recruitment
specialists provide bespoke support in
attracting high quality candidates for vacant
positions and, through robust interview and
selection processes, assist in making strong
recruitment decisions.
The Group’s recruitment demands increased
significantly during 2022 as a result of
departmental restructuring, organisational
growth and higher levels of regretted attrition.
During the year, the Talent Acquisition
team filled 515 UK vacancies and 393 in OSB
India, significantly exceeding the number of
vacancies filled in 2021 (387 in the UK and 239
in OSB India).
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 2022, they filled almost 30% of
UK vacancies on a direct recruitment basis,
resulting in a saving in excess of £1m on
agency recruitment fees. At OSB India (OSBI),
almost half of all the vacancies which closed
in 2022 were as a result of direct
recruitment activity.
Our recruitment procedures are fair and
inclusive, with shortlisting, interviewing and
selection always undertaken 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. In addition, Executive sign off is
required for senior vacancies where it has not
been possible to identify or progress a female
candidate through to the interview process.
In 2022, The Group welcomed 386 new UK
employees, with a further 297 at OSBI. Our
Group-wide employee base at the end of
2022 totalled 2,021, representing a increase
of over 13% on prior year.
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 2022, over 1,300 separate
internal workshops were delivered by the
People Development team and the recorded
number of training hours averaged over
3,500 hours per month. It was a significant
improvement on the amount of internal
training delivered during the previous year
and it represented over 10 workshop training
hours per UK employee and around 47 hours
per OSBI employee.
A lot of focus was applied to the Group’s Fit
to Practice Scheme, which saw the in-scope
number of employees significantly increase
following the extension of the scheme to CCFS
employees. The scheme requires line managers
to undertake regular activities in terms of one
to one, performance observations and quality
assessments, and play a proactive role in
identifying development needs and providing
developmental feedback to continually
progress the competence levels of their direct
reports. The average activity completion
rate for over 1,800 in-scope employees
exceeded 91%.
OSB GROUP PLC
Annual Report and Accounts 2022
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Social matters continued
Colleagues continued
In 2022, the Group became an
accredited Living Wage employer
Group-wide, monthly mandatory regulatory
training requirements were completed
robustly with only 6 instances of an employee
being more than one month late in completing
their training, demonstrating the importance
we place on ensuring that our employees are
suitably aware of key requirements.
Remuneration and benefits
The Group believes in rewarding its
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 142-163.
The Group is also committed to supporting
employees undertaking professional
development; 27 UK employees received
financial support to pursue their professional
qualifications.
Retention and progression
The Group has a genuine desire to retain,
support and develop its employees. Over 240
UK employees were formally promoted to a
more senior grade along with 75 employees
at OSBI.
We advertise vacancies internally in order
to provide career development opportunities
for existing employees. Nearly 27% of UK
vacancies and nearly 6% at OSBI were filled
by way of internal appointments.
At 13.0%, the UK regretted attrition rate
improved slightly from the rate seen in
2021. At OSBI, the 2022 rate increased to
23.8%, which was higher than c. 17% in 2021,
predominantly due to ‘the Great Resignation’
and an extremely buoyant external
recruitment market. Despite this increase,
OSBI’s regretted attrition rate compares
favourably with rates in the local sector.
2022 saw a continued focus on leadership
development and our People Development
team delivered three bespoke programmes
for different levels of existing leadership and
management experience. Throughout the
year, we saw 32 employees join our Future
Supervisors and Managers Programme, 60
current managers commenced the Essential
Managers Programme and among our more
senior managers, 23 individuals joined our
Stellar Leadership Programme.
A comprehensive approach to succession
planning was undertaken to ensure that a
proactive focus was applied to identifying
individuals who, over a period of up to five
years, had the potential to step up into
our most senior positions beneath Group
Executive level.
OSB GROUP PLC
Annual Report and Accounts 2022
In 2022, the Group became an accredited
Living Wage employer and further sought to
support UK employees by making a one-off
£1,200 cost of living payment in August to all
staff beneath senior management level. This
payment was made to around 80% of the
employee base and was not pro-rated to reflect
either tenure or contractual working hours.
Our approach to benefits also provides UK
employees with an element of choice, enabling
them to determine their preference for a
higher employee pension contribution and a
slightly lower discretionary bonus opportunity
or vice versa. In addition, employees had an
opportunity to select from two separate health
and insurance packages. Our third annual
benefit choices window opened in November
2022, with new selections becoming effective
from 1 January 2023.
We also encouraged our employees to hold
shares in the Group for the long term, via our
Sharesave Scheme, which is offered annually
to all UK employees. The Sharesave Scheme
allows employees to save a fixed amount of
between £10 and £500 per month over a three
year period in order to use these savings at
the end of the qualifying period to buy shares
at a fixed option price. Nearly 500 employees
joined the 2022 Sharesave scheme and,
taking into account the schemes launched
in previous years, 738 (around 54%) UK
employees were Sharesave Scheme members
as at the end of 2022.
Employee engagement and culture
The 2023 Best Companies to Work For survey
was undertaken in December 2022 and
saw an impressive 82.5% of UK employees
submit responses. Our overall result was over
5% higher than the previous year and saw
the Group achieve an overall ‘2 Star’ rating,
with Best Companies defining this as an
outstanding level of employee engagement.
OSBI participates in a separate employee
engagement survey, run by the Great Place
to Work Institute. It was officially certified as a
‘Great Place to Work’ for the sixth consecutive
year in December, with the overall survey
score increasing by 1% from 2021 and strong
results in all five survey categories (credibility
of management, respect for people, fairness
at the workplace, pride and camaraderie
between people). It reflects the strong brand
and culture that exists throughout our teams
in Bangalore and Hyderabad.
Throughout the Group, our values (Stronger
Together, Take Ownership, Aim High, Respect
and Stewardship) and the related behavioural
expectations provide 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.
The Group’s Workforce Advisory Forum
(OurVoice) continued to meet regularly in
2022, including employee representatives
from all core geographical locations,
including OSBI. The aim of the forum is to
further enhance the level of engagement
that the Group Executive Committee and
the Board have with the wider workforce.
To achieve this, in addition to employee
representatives, the forum is attended by
rotating Non-Executive Directors and Group
Executive Committee members to ensure that
they can hear directly from the employees
and share feedback (positive or negative) on
important matters.
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 do so confidentially, protected
from possible reprisals. Regular reports were
provided to the Group Audit Committee,
including an annual report, which was also
presented to the Board.
Employee recognition and awards
In 2022, the Group recognised the significant
tenure of 183 UK employees who reached
a 5, 10, 15, 20, 25 or 35 year milestone of
employment via our Long Service Award
programme. There were three employees
who reached 20 years’ service, another who
reached 25 years with our longest-serving
employee reaching the significant milestone
of 35 years’ service with the Group.
111
Each quarter, all employees within the Group,
are invited to nominate their colleagues
as part of our Galaxy Award Scheme.
Nominations are sought for fi ve separate
categories, linking directly to each of our
Values with individual winners and runners-up
for each category determined by a detailed
process. For 2022, over 300 nominations were
submitted, with the details of all nominees
published on the Group’s intranet along with
details of the quarterly award winners and
their nomination rationale.
Additionally, the Group’s ‘Thank You’ facility
provided an opportunity for employees to
publicly recognise the contributions of their
colleagues and during 2022, there were
nearly 1,800 thank you messages posted on
the intranet.
Diversity and inclusion
We recognise the benefi ts that diversity brings
to the business and we actively promote and
encourage a culture and environment that
values and celebrates our diff erences. In
2022, we continued our journey to become a
truly diverse and inclusive organisation that
is committed to providing equal opportunities
through the recruitment, training and
development for all employees.
2022 saw a continued focus on supporting
mental health and well-being via the provision
of advice, workshops for employees and Line
Managers and we are pleased to have trained
a network of over 30 UK employees as Mental
Health First Aiders.
The Group published its 2022 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) and
shows that OSB’s mean gender pay gap as
at the snapshot date of 5 April 2022 was
42.6%, reducing from the 2021 reported fi gure
of 45.7%. The CCFS mean gender pay gap
at the same snapshot date was signifi cantly
lower at 24.5% reducing from 31.0% as
reported in the previous year.
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 refl ect
the fact that we have more men than women
in senior roles and more female employees
undertaking clerical roles rather than
any diff erence between male and female
employees undertaking similar roles.
We recognise that we need to focus on
improving our gender balance and we
made solid progress towards meeting the
commitment the Group made as a signatory of
HM Treasury’s Women in Finance Charter that,
by the end of 2023, 33% of senior management
positions within the UK would be undertaken
by female employees. Having ended 2022 at
31.4%, gender diversity will remain an area of
enhanced focus throughout 2023.
2022 saw the Group apply an enhanced level
of focus on ethnicity diversity, particularly
in respect of the senior management
population. As at the end of 2022, just over
10% of senior managers did not identify as
white and increasing this percentage will be
an area of ongoing consideration.
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Annual Report and Accounts 2022
112
Social matters continued
Colleagues continued
Our Diversity and Inclusion (D&I) Working
Group ensures an employee led focus on a
wide range of D&I matters, with their core
purpose being to raise awareness, celebrate
our diff erences and ensure that all employees
feel genuinely included and that they are
treated equally and fairly.
The launch of the Group’s UK HR System
in April provided the facility to collate
comprehensive diversity data. By the
end of 2022, over 70% of employees had
provided data spanning a broad range of
diversity categories enabling us to build
an increasingly clear picture of the diverse
nature of our UK workforce and areas which
are underrepresented.
Establishing initiatives to further broaden
our diversity and inclusivity will be an area
of ongoing focus and in order to ensure an
appropriate level of focus and dedicated
resource, the Group recruited a Diversity,
Equity & Inclusion Specialist who joined in
November and will be leading our initiatives in
the future.
Just under 10% of our UK employees work
under a formal fl exible working arrangement
relating to part time hours and nearly 70
additional employees compress their full time
working hours into less than fi ve full days
each week.
At the end of 2022, around 57% of our
UK workforce was female, as were 52%
of employees who joined in 2022. At
OSBI, females constituted just over 40%
of all employees, with around 41% of new
starters being female. The Group Executive
Committee had 25% of members who were
females and Board women constituted 44%.
Number of Board
Directors (OSB Group)
Number of Directors of
subsidiaries
Male
Female
5
14
4
1
Number of senior
managers (not Directors)1
127
60
All other employees1
848
972
1.
Includes OSB, OSB India and CCFS. Senior
managers are employees within the Grade A
to E population.
OSB GROUP PLC
Annual Report and Accounts 2022
OSB India
OSBI, a wholly-owned subsidiary of the Group,
is based in Bangalore and, as at the end of
2022 had 663 employees. OSBI supports the
Group across various functions including
Support Services, Operations, IT, Finance and
Human Resources. OSBI is a holder of ISO
27001: 2013 certifi cation, demonstrating high
standards of information security.
OSBI’s business continuity site in Hyderabad
was converted to a fully-fl edged operational
site in late 2021 in order to accommodate
both organisational growth and further
enhance operational resilience. By the end of
2022, around 140 employees from a range
of functions were operating permanently
from the Hyderabad offi ce, representing a
signifi cant increase from 61 at the end of
2021 and the Hyderabad employee base is
expected to further increase during 2023.
In compliance with the Modern Slavery Act,
OSBI does not support excessive overtime
and all employees in India are encouraged
to work in accordance with local legislation.
Employees are provided with a range of
benefi ts which include 22 days of annual
leave, 12 days’ sick leave and
cafeteria services.
113
Communities
Taking our Stewardship value seriously means acting
with a social conscience whilst also considering
social, environmental and ethical matters. We have
been proactive in 2022 in fi nding ways we can
positively impact our local communities.
From volunteering to sponsorships and
fundraising, we have supported our national
and local partnerships through a variety of
events and initiatives.
How we have helped
In 2022, we raised over £220,000 for
charitable causes through donations,
fundraising, fund-matching, our good causes
fund and Pennies from Heaven initiative.
Our colleagues are encouraged to use their
annual volunteering day to make a diff erence
for a cause close to their hearts, and in 2022
310 volunteer days were logged across the
Group. Volunteering opportunities varied,
from helping out in charity warehouses,
mucking out animals, and decorating
hospices, to lending a hand at soup kitchens.
Our UK national charity partner for 2022
Campaign Against Living Miserably
(CALM)
CALM is leading a movement against suicide
through raising awareness of mental health,
fi ghting against stigma, encouraging people
to talk and signposting support available.
Our community and charity partners
UK
Demelza Children Hospice, Kent
Demelza provides clinical care, therapies,
specialised activities and practical support
across Kent, South East London and
East Sussex.
We supported the cause through bake sales
and Halloween fundraisers and highlighted
awareness through webinars and supporting
suicide prevention day. Our May-ke a Move
for CALM step challenge saw over 5.5 million
steps logged across the Group.
A CALM representative said: “What we have
already, and will achieve in the future, is only
possible with the support of organisations
such as OSB Group. Together we can continue
to show everyone struggling that life is always
worth living and that CALM will always be
there for them.”
We are proud to have been supporting
Demelza Children’s Hospice since it was
founded in 1998. Funds raised through
our Children’s savings accounts were
supplemented by various fundraising
initiatives and donations. These funds are
vital to the hospices and help to pay for
trained, specialist nurses.
In addition, our employees used their
volunteering days to help out in Demelza’s
retail warehouses, hospices and at a variety
of events.
Two such events happened in 2022: Little
Warrior in June and Bubble Rush in July.
Little Warrior was a new event sponsored
by the Group including runs and challenges
and Bubble Rush which took place in various
locations throughout Kent, saw nearly 3,000
participants taking part in the fi nal race in
Maidstone. These two events raised funds to
help Demelza continue to support terminally
ill children and their families.
As well as helping out at Bubble Rush and
Little Warrior, our colleagues also assisted
in the Demelza warehouse, helping to
sort through donations which are sent
out to various stores across Kent. We also
introduced Demelza donation stations in our
offi ces and two branches as a trial, to collect
clothing for the charity’s slowing down ‘fast
fashion’ campaign.
XL@Football. Kent
Kent Reliance sponsors the senior, youth and
coaching teams at XL@Football, a Kent-
based women’s football academy. In 2022,
we launched the Kent Reliance Scholarship,
off ering places to players who are fi nancially
vulnerable and/or exceptionally talented, to
help them develop to their full potential.
OSB GROUP PLC
Annual Report and Accounts 2022
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Social matters continued
Communities continued
Group’s sponsorships and donations
over
£220k
We have gifted the logo placement to
Demelza Hospice Care for Children, our
local charity partner, to create a three-way
partnership to help raise awareness and
fundraising opportunities.
Coventry Rugby Club
The Group supported Project:500 camps held
during school holidays, where disadvantaged
children attend a 3-day event to play sports
and learn about nutrition and wellness. The
children are given a hot meal each day and
take home a hamper of fresh food to feed
their families for a week. Our colleagues also
attended the Christmas camp to help with
packing the food hampers, serving the meals
and providing support wherever we could.
Through our partnership with Coventry
Rugby Club we also donated to the Reading
for Pleasure Zone at Colmore Junior School
in Birmingham, and supported grassroots
Wolverhampton Rugby to deliver a coaching
night to 100 children in the junior team.
Wolves Play Café, Wolverhampton
Our support helped this community
organisation, which delivers ‘stay and play’
sessions to children under 7, pay for new
uniforms, provide safeguarding training and
purchase vital online technology.
The Haven, Wolverhampton
The Haven delivers vital support to
families aff ected by domestic violence or
homelessness. In June, our colleagues cycled
175 miles on a static bike to raise funds and
in August a team of colleagues decorated
two new temporary homes at the refuge.
OSB GROUP PLC
Annual Report and Accounts 2022
Happy Pants Animal Ranch, Kent
Happy Pants Ranch is a safe haven for
unwanted and abandoned animals. In 2022,
colleagues used their volunteering day to
make a diff erence at the ranch by shovelling
muck, collecting metal waste for recycling
and sorting through donations.
India
SOS Children’s Village, Bangalore
The Group has been a consistent partner to
SOS Village over the last six years, providing
warmth, care and the bare necessities to
orphaned and marginalised children.
SOS Children’s Village provides opportunities
for the holistic development of orphans,
women and children in vulnerable families.
We provide funding to support education,
food, clothing and housing for orphans in
Bangalore and children in Hyderabad.
HBS Hospital, Bangalore
A non-profi t hospital that provides critical
healthcare to those unable to aff ord the
care they need.
The Group has been a consistent sponsor of
monthly dialysis sessions for individuals who
live below the poverty line. We also donated
two dialysis machines that can provide over
11,000 dialysis sessions over fi ve years.
Civil Hospital – Kolar Gold Field Hospital
In 2022, the Group worked closely with the
hospital providing funding for renovation
and we are discussing an opportunity to
provide the hospital with surgical equipment.
In this section...
Corporate
Governance Report
Directors’ Report
116 Board of Directors
118 Group Executive Committee
120 Corporate Governance Report
129 Group Nomination and Governance Committee Report
133 Group Audit Committee Report
139 Group Risk Committee Report
141 Other Committees
142 Directors’ Remuneration Report
164 Directors’ Report: other information
167 Statement of Directors’ Responsibilities
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The Board recognises
that good corporate
governance is
fundamental to the
sustainable execution
of the Company’s
strategy in line with
evolving stakeholder
expectations.
OSB GROUP PLC
Annual Report and Accounts 2022
116
Board of Directors
Experienced
leadership
Committee membership:
Chair of Committee
N Group Nomination and
Governance Committee
M Group Models and Ratings
Committee
Re Group Remuneration and
People Committee
A Group Audit Committee
C Board Capital and Funding
Committee
Ri Group Risk Committee
OSB GROUP PLC
Annual Report and Accounts 2022
David Weymouth
Chairman
N C
Re
Noël Harwerth
Senior Independent Director
N
A Re Ri
Experience and qualifi cations
David is also Chairman of Mizuho International
Plc and Chair Elect of Pension Insurance
Corporation plc. Other current non-executive
directorships include Pension Insurance
Corporation Group Limited and Marsh Limited
where he is Chair of the Risk Committee. David
previously served as a non-executive director
on the board of Bank of Ireland (UK) plc, Fidelity
International Holdings (UK) Limited and the Royal
London Mutual Insurance Society. David was
previously Chief Information Offi cer at Barclays
Bank plc and Chief Risk Offi cer 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.
Experience and qualifi cations
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
Offi cer 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
David has over 40 years’ experience in the
fi nancial services industry and has a degree
in Modern Languages from University College
London and a MBA from the University of Exeter.
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.
Appointment
David was appointed to the OSB Board as
Chairman in September 2017 and held the
position until October 2019 when OSB combined
with CCFS. He was reappointed as Chairman in
February 2020.
Appointment
Noël was appointed to the OSB Board and
the position of Senior Independent Director in
October 2019.
Andy Golding
Chief Executive Offi cer
C
April Talintyre
Chief Financial Offi cer
M C
Experience and qualifi cations
Prior to joining OSB, Andy was CEO of Saff ron
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
fi nancial services.
Appointment
Andy was appointed to the OSB Board in
December 2011.
Experience and qualifi cations
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 fi nancial services experience and
has been a member of the Institute of Chartered
Accountants in England and Wales since 1992.
Appointment
April joined OSB in May 2012 and was appointed
to the OSB Board in June 2012.
117
Graham Allatt
Independent Non-Executive Director
Kal Atwal
Independent Non-Executive Director
Sarah Hedger
Independent Non-Executive Director
M Ri
A C
Re
A
Re
Experience and qualifi cations
Graham was previously Acting Group Credit
Director at Lloyds TSB plc and Chief Credit
Offi cer 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 signifi cant banking, credit risk and
fi nancial services experience.
Appointment
Graham was appointed to the OSB Board in
May 2014.
Experience and qualifi cations
Kal has signifi cant experience as a non-executive
director across FTSE 100, FTSE 250 and mutual
businesses and is a non-executive director
of Admiral Financial Services, Whitbread Plc
and WH Smith PLC. At BGL Group, Kal was
Managing Director and became the founding
managing director of comparethemarket.com,
a division of BGL. Following promotion to Group
Director of BGL Limited, Kal was responsible
for brand-led businesses, group strategy and
corporate communications.
Key skills
Kal is an experienced strategy leader with
international experience in start-up, scale-up,
fi ntech and digital businesses.
Appointment
Kal was appointed to the Board on
7 February 2023.
Experience and qualifi cations
Sarah previously held leadership positions at
General Electric Company (GEC) 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 fi ve
years as an auditor at PricewaterhouseCoopers
LLP (PwC). She served as an Independent non-
executive director of Balta Group NV, a Belgian
company listed on Euronext, until December
2021 and as non-executive director of GE Money
Bank AB for 3 years during her time at GEC.
Key skills
Sarah has signifi cant capital management
and merger and acquisitions experience in
fi nancial services. She is a qualifi ed
chartered accountant.
Appointment
Sarah was appointed to the OSB Board in
February 2019.
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Rajan Kapoor
Independent Non-Executive Director
Mary McNamara
Independent Non-Executive Director
Simon Walker
Independent Non-Executive Director
A M C Re Ri
Re N
M A C Ri
Experience and qualifi cations
Rajan was appointed to the Board of CCFS in
September 2016 and is a non-executive director
of Allica Bank and Revolut Newco UK Ltd. He
was Financial Controller of the Royal Bank of
Scotland (RBS) Group plc and held a number of
senior fi nance positions during a 28-year career
with RBS.
Key skills
Rajan has extensive experience of fi nancial and
regulatory reporting in the UK and US with a
strong background in internal fi nancial controls,
governance and compliance.
Experience and qualifi cations
Mary is Chair of the Remuneration Committee
and Senior Independent Director at Motorpoint
Group 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
Offi cer 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.
Rajan is a Fellow of the Institute of Chartered
Accountants and of the Chartered Institute of
Bankers in Scotland.
Key skills
Mary has broad senior management experience
in the banking and fi nance sectors.
Experience and qualifi cations
Simon has signifi cant experience in fi nancial
services. He joined KPMG in 1980 and was
made a partner of the fi rm in 1992, going on to
lead the fi rm’s National Building Societies and
Mortgage Practice and subsequently became
banking partner in Financial Risk Management.
Simon graduated in Law from University College
London and is a qualifi ed chartered accountant.
Simon is a non-executive director of H&T Group
plc and IWP (Holdings) Limited and was
previously a non-executive director of Leeds
Theatre Trust Limited.
Key skills
Simon has signifi cant experience in mortgages,
SME lending, risk management and regulation
within the banking sector.
Appointment
Rajan was appointed to the OSB Board in
October 2019.
Appointment
Mary was appointed to the OSB Board in
May 2014.
Appointment
Simon was appointed to the Board in
January 2022.
OSB GROUP PLC
Annual Report and Accounts 2022
118
Group Executive Committee
A strong
core team
Jens Bech
Group Commercial Director
Jason Elphick
Group General Counsel and Company
Secretary
Experience and qualifi cations
Jens joined OSB as Chief Risk Offi cer in 2012,
before becoming Group Commercial Director
in 2014.
Experience and qualifi cations
Jason joined OSB in June 2016. He has over
25 years of legal private practice and in-house
fi nancial services experience.
Jens joined from the Asset Protection Agency,
an executive arm of HM Treasury, where he
held the position of Chief Risk Offi cer. 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 fi nancial services fi rms and
supervisors on strategy and risk management.
Jens led Oliver Wyman Limited’s support of
Iceland during the fi nancial crisis.
Jason’s private practice experience was
primarily in Australia with King & Wood
Mallesons and in New York with Sidley Austin
LLP. He has been admitted to practice in
Australia, New York and England and Wales.
Jason has previous in-house fi nancial services
experience 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.
Jon Hall
Group Managing Director, Mortgages
and Savings
Experience and qualifi cations
Jon joined OSB in November 2021.
Jon has signifi cant experience within the
fi nancial services sector and joined the
Group from Aspinall Financial Services, a
pre-authorisation bank start-up, having
previously led Masthaven Bank from 2016 to
early 2021 as their Chief Commercial Offi cer
and Deputy Chief Executive Offi cer (CEO).
Jon started his career with PwC, before joining
Aviva plc and subsequently became CEO of
Saff ron Building Society.
Jon is a Fellow of the Institute of Chartered
Accountants in England and Wales.
Peter Hindle
Group Chief Information Offi cer
Experience and qualifi cations
Peter joined OSB in 2017 driving a substantial IT
change programme. In 2019, he was appointed
to lead the post-Combination integration of
OSB and CCFS. Peter was appointed as Interim
Group Chief Information Offi cer in April 2022.
Peter has over 30 years’ experience
working in IT and Change across a range
of market sectors. Having worked in an
IT advisory capacity with Accenture and
PricewaterhouseCoopers, Peter worked
extensively as an interim IT and Change leader
and consultant serving fi nancial services clients
including Barclays, NatWest and Deutsche
Bank. He previously held IT leadership positions
in a range of organisations including Bradford
& Bingley, Adidas, Merlin Entertainments,
FirstAssist and John Charcol Limited.
OSB GROUP PLC
Annual Report and Accounts 2022
119
Victoria Hyde
Deputy Chief Financial Offi cer
Hasan Kazmi
Group Chief Risk Offi cer
Clive Kornitzer
Group Chief Operating Offi cer
Experience and qualifi cations
Victoria joined OSB in September 2022. Prior to
joining OSB, Victoria worked at Barclays for 21
years, most recently as Finance Director of the
Consumer, Cards and Payments segment.
Victoria is a qualifi ed Chartered Management
Accountant and has over 25 years experience
in fi nance. She has supported Retail, Corporate
and Investment Banking business lines across
a range of Finance roles including Product
Control, Treasury Finance, Costs and Business
Planning and Analysis.
Experience and qualifi cations
Hasan joined OSB in September 2015 as
Chief Risk Offi cer. He became Group Chief
Risk Offi cer in 2021.
Hasan has over 25 years of risk experience
having worked at several fi nancial 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
fi rm’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.
Experience and qualifi cations
Clive joined OSB in 2013. Clive has over 25
years of fi nancial services experience, having
worked at several fi nancial 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 Offi cer 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.
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Lisa Odendaal
Group Chief Internal Auditor
Experience and qualifi cations
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 qualifi ed 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
fi nancial institutions, including PwC, Morgan
Stanley Group, HSBC and Man Group plc.
Richard Wilson
Group Chief Credit and Compliance
Offi cer
Experience and qualifi cations
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.
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OSB GROUP PLC
Annual Report and Accounts 2022
120
Corporate Governance Report
Dear Shareholder,
The Company’s Corporate
Governance Report for 2022 is
set out in the following pages and
demonstrates full compliance with
the Code throughout the year.
The statement of corporate governance practices, including the
Reports of the Committees, set out on pages 129-163 and information
incorporated by reference, constitutes the Corporate Governance
Report of OSB GROUP PLC.
Stewardship culture
The Board recognises that stewardship and strong corporate
governance is fundamental to the sustainable execution of the
Company’s strategy. This year, the Board continued to focus on
environmental, social and governance (ESG) matters to ensure that
the strategy remains aligned with the Group’s purpose of helping
customers, colleagues and communities prosper.
The Board has identifi ed Stewardship to be one of the Group’s core
values. This refl ects the Board’s ambition to encourage a culture of
environmental and social conscience and positively impacting the
communities in which we operate. A number of initiatives have been
implemented this year to ensure Stewardship remains a key part of the
Group’s culture. Sarah Hedger is the Non-Executive Director appointed
as ESG Champion. The Group’s Task Force on Climate-related
Financial Disclosures (TCFD) are presented on pages 100-107. Further
details of the Group’s ESG initiatives can be found on pages 86-99.
Board eff ectiveness
During the year, the Board and its Committees undertook self-
evaluations with the assistance of Independent Audit1, details of which
are set out in the report on page 128. It is pleasing to see the review
concluded that the Board and its Committees continue to operate
eff ectively. Recommended areas of focus will be addressed by the
Board during 2023.
Board appointments and composition
Kal Atwal has been recently appointed to the Board bringing
signifi cant experience as a Non-Executive Director across FTSE 100,
FTSE 250 and mutual businesses. The Board feel that she will be a
great addition to the existing skillset. Simon Walker joined the Board
on 4 January 2022 and brought with him signifi cant experience in
mortgages and risk management. Further changes to the composition
of the Board will be seen during 2023 with the retirement of Graham
Allatt and Mary McNamara who have both reached the end of their
nine-year tenure and will not be standing for re-election at the
Annual General Meeting (AGM) on 11 May 2023. I would like to extend
my thanks to Graham and Mary for the signifi cant contribution
and support they have provided over the years to the Board and
Committees and I wish them well for the future.
Engaging with stakeholders
The Board is committed to maintaining eff ective engagement and
active dialogue with its stakeholders. Full details can be found on
pages 16-21.
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. Shareholders have an opportunity to further
engage with us at the AGM which will be held at our offi ces at 90
Whitfi eld Street, Fitzrovia, London W1T 4EZ on 11 May 2023 at 11am.
Further details are set out in the Notice of AGM.
David Weymouth
Chairman
16 March 2023
1.
Independent Audit has no other connection with the Company or
individual Directors.
OSB GROUP PLC
Annual Report and Accounts 2022
The Board recognises that
stewardship and strong corporate
governance is fundamental to
the sustainable execution of the
Company’s strategy.
David Weymouth
Chairman
16 March 2023
Board Leadership and Company Purpose
A
B
C
D
E
Board eff ectiveness and activities
Purpose, culture and values
Risk management and controls
Stakeholder engagement
Workforce policies and practices
Page 122-124
122
123
123
124
124
Division of Responsibilities
Board roles
F
Independence
G
Time commitment and confl icts of interest
H
Board resources
I
Page 125 and 126
125
126
126
127
Composition, Succession and Evaluation
Appointments and succession plans
J
Board composition
K
Board performance review
L
Page 127 and 128
127
127
128
Audit, Risk and Internal Control
M
N
O
Auditor independence and eff ectiveness
Review of Annual Report
Risk management and internal control
Remuneration
P
Q
R
Annual Report on Remuneration
Determining the Remuneration Policy
2022 performance outcomes
Page 133-141
137
134
136
Page 142-163
142-163
157
150
121
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Corporate Governance Statement
UK Corporate Governance Code 2018 (the
Code) Compliance Statement
During 2022, the Company applied all the
principles and complied with all the provisions
of the Code. The Corporate Governance Report
and the table on this page illustrates how we
have applied the Code principles and complied
with the provisions.
The Code is available at www.frc.org.uk.
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OSB GROUP PLC
Annual Report and Accounts 2022
122
Corporate Governance Report continued
The role and structure of the Board
The Board of Directors (the Board) is responsible for the long-term
sustainable success of the Company and provides leadership to
the Group. The Board focuses on generating value for shareholders
by setting strategy, monitoring performance and ensuring that
appropriate systems, controls and resources are in place to enable the
Company to meet its objectives whilst safeguarding the interests of
stakeholders and maintaining effective corporate governance.
The activities undertaken by the Board during the year are set out
on page 123. The Board has established a number of Committees,
as indicated in the chart on page 57. Each have their own terms
of reference, which are reviewed at least annually. Details of each
Committee’s activities during 2022 are shown in the Group Nomination
and Governance, Group Audit, Group Risk, Group Models and Ratings,
Board Capital and Funding and Directors’ Remuneration reports on
pages 129-163.
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 in line with 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.
Directors
The Board currently consists of 10 Directors; the Chairman, two
Executive Directors (being the Chief Executive Officer (CEO) and
Chief Financial Officer (CFO)) and seven independent Non-Executive
Directors (NEDs). The biographies of the Directors can be found on
pages 116 and 117.
Board meetings and attendance
The Board met 10 times during the year. The Board has a formal
meeting schedule with ad hoc meetings called as and when
circumstances require. 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
table also shows each Director’s attendance at the Board and
Committee meetings they were eligible to attend in 2022.
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 Enterprise Risk Management Framework (ERMF).
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
material changes to existing plans.
–
Corporate governance
–
– Determining the independence of Directors.
Review of the Group’s overall governance structure.
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.
The Directors who served during the year are listed in the table below. Kal Atwal was appointed on 7 February 2023 and Simon Walker was
appointed to the Board on 4 January 2022. Attendance at meetings of the Board Capital and Funding Committee are not included due to its
transactional nature.
Group
Remuneration
and People
Committee
Group
Nomination and
Governance
Committee
Group Audit
Committee
Group Risk
Committee
n/a
7/7
n/a
6/7
7/7
7/7
n/a
n/a
7/7
5/5
n/a
n/a
5/5
5/5
5/5
5/5
n/a
n/a
7/7
n/a
n/a
7/7
n/a
n/a
7/7
n/a
n/a
n/a
7/7
n/a
7/7
n/a
7/7
n/a
n/a
7/7
Board
10/10
10/10
10/10
10/10
10/10
10/10
9/10
10/10
10/10
David Weymouth (Chairman)
Graham Allatt
Andy Golding
Noël Harwerth
Sarah Hedger
Rajan Kapoor
Mary McNamara
April Talintyre
Simon Walker
1 As at 31 December 2022
OSB GROUP PLC
Annual Report and Accounts 2022
123
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 Group’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. Both Noël Harwerth and Mary McNamara provided
comments for the meetings they were not able to attend.
Due to the continuing impact of COVID-19 during the first quarter
of the year, all meetings were held virtually via video conference;
however, from April 2022 all meetings were held face-to-face across
split sites in Chatham and London.
Key Board activities during the year included:
– Development of Strategy and the Group’s Financial Plan.
–
ESG strategy, including approval of the Group’s Modern Slavery
Statement.
– Monitoring and assessing culture.
– Oversight of the £100m share repurchase programme.
– Risk monitoring and review.
– The impact of increasing interest rates.
– Consumer duty regulation updates.
– Governance and compliance.
– External affairs and competitor analysis.
– Board and Executive succession planning.
– Annual, interim and quarterly reporting.
– Policy reviews and updates.
–
Investment proposals.
– Climate change developments.
– Charitable and Community initiatives.
– Customer/brand/product reviews.
Purpose, Vision, Values and Culture
The Board sets the tone from the top in relation to conduct and culture
whilst acting with integrity and fully supports the Group’s Purpose,
Vision and Values.
The Board assesses and monitors culture to ensure that it is aligned
with the Group’s Purpose, Vision, Values and strategy. The Board
monitors culture through regular updates from management,
interactions with employees (informally and through OurVoice),
reviewing the diversity and inclusion metrics, the employee
engagement strategy and the results of employee engagement
surveys. The Board annually reviews regretted leaver analysis for signs
of poor culture.
The Board and Group Executive Committee monitor completion
rates of the Group’s conduct training modules to ensure employees
successfully meet the required behaviours that support the Group’s
Values and, to identify any key themes and systemic issues relating
to culture. The Board is satisfied that the Purpose, Vision, Values and
strategy of the Group are aligned with culture but recognises that this
is a developing area. Further details regarding the Group’s Values and
culture are provided on pages 14 and 15.
During 2022, the Board received regular updates from management in
respect of the workforce and the levels of engagement of employees.
The Board oversees charitable and community activities undertaken
by employees. Further details of the Board’s engagement with its
stakeholders and the community is included on pages 16-21.
Risk management and internal control
The Board retains ultimate responsibility for setting the Group’s
risk appetite and ensuring that there is an effective Enterprise Risk
Management Framework 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 76
and 77.
The Board has an established Group Risk Committee to which it
delegates 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 139-141.
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 regarding 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 pages
133-138.
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 Group’s risk appetite and is ultimately responsible for ensuring
an effective ERMF 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.
OSB GROUP PLC
Annual Report and Accounts 2022
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Corporate Governance Report continued
Stakeholder engagement
The Board is committed to maintaining effective engagement and
active dialogue with its stakeholders and ensuring that stakeholder
views and interests are a key consideration in the Board’s decision
making. The Board engages with colleagues directly through attending
OurVoice meetings.
Annual General Meeting
Our AGM will be held at our offices at 90 Whitfield Street, Fitzrovia,
London W1T 4EZ on 11 May 2023 at 11am. 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.
This year, the Board continued to focus on external and internal
developments in relation to climate change, including discussions
around the Group’s climate strategy and goals, as well as oversight
of the Group’s compliance with the disclosure requirements of TCFD.
The Board and its Committees spent time on a broad range of
sustainability considerations, including as part of strategy discussions
and regular ESG updates recognising that this is a growing area of
importance for stakeholders.
The Board and Group Nomination and Governance Committee have
continued to monitor diversity and inclusion, both as part of ongoing
Board and Executive succession planning and in relation to activities
aimed at developing a diverse and inclusive talent pipeline below
Board level. A Diversity, Equity & Inclusion Specialist was appointed
during the year in order to drive forward the Group’s ambitions in
diversity and inclusion. Further information relating to Diversity can be
found on pages 112, 113 and 131.
Full details of how the Board engages with the Group’s key
stakeholders are included on pages 16-21.
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 scheduled meetings
with larger investors and remain available outside of this cycle to
discuss areas of topical interest. The Board is updated on shareholder
expectations following these meetings to ensure that the strategy is
aligned with those expectations.
In 2022, the Investor Relations team responded to a range of enquiries
and points of feedback raised by shareholders, including in relation
to capital management and the effects of higher interest rates on the
Group’s business performance and its customers.
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.
The Chairs of each Board Committee are available to engage with
shareholders on any significant matters that relate to their areas of
responsibility.
Further details can be found in the Section 172 Statement on pages
16-21.
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. At the 2022 AGM, all resolutions were passed with at least 94%
of votes in favour.
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.
Workforce policies and practices
The Board is supported by its Committees to ensure that workforce
policies and practices are consistent with the Company’s core values
and support its long-term sustainable success. The Board monitors
and assesses culture to ensure that it is aligned to the Group’s
continued commitment to treating customers fairly, carrying out
business with integrity and preventing bribery, corruption, fraud or
the facilitation of tax evasion and modern slavery. The Board, with the
support of its Committees, approves key policies and practices which
impact the workforce and drive their behaviours. Training is provided to
employees to ensure that the policies are embedded within the culture.
Further details of workforce policies and practices are included on
pages 78-85.
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 Group Whistleblowing Policy applies to all employees and is
benchmarked against industry standards. Rajan Kapoor, Chair of the
Group Audit Committee is the appointed Whistleblowers’ Champion.
The Group Audit Committee is responsible for monitoring the Group’s
whistleblowing arrangements and the policy and regularly reports to
the Board on its activities.
OSB GROUP PLC
Annual Report and Accounts 2022
125
Division of responsibilities
Roles of the Chairman and Chief Executive Officer
The roles of Chairman and 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, was independent on appointment.
He leads the Board and is responsible for its overall effectiveness
and directing the Group. He ensures 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 that 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 below.
Chairman’s responsibilities
Activities carried out in 2022
Chairing the Board and general meetings of the
Company.
David Weymouth chaired all Board meetings held during 2022, including the AGM.
Setting the Board agenda and ensuring that
adequate time is available for discussion of all
agenda items.
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 and 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.
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.
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.
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 any virtual meetings were conducted in a manner that
allowed all Directors to participate fully. A self-evaluation of the Board concluded that
the Chairman was viewed positively, with NEDs and Executives noting that the open,
inclusive and collaborative atmosphere within the boardroom was a major strength of
the Board.
The Board received regular updates from the Group Nomination and Governance
Committee and were all invited to attend a succession planning session held by
that Committee. Details of the Committee’s activities are explained in the Group
Nomination and Governance Committee Report on pages 129-132.
The Chairman, in liaison with the Company Secretary, has reviewed the Directors’
training requirements. Details of training held during the year are given on page 127.
The Chairman, along with other members of the Board, is available should any
shareholders or other key stakeholders wish to speak to him. Our shareholders did not
request any additional meetings during the year.
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.
An experienced Group Executive team, comprising specialists in
finance, banking, risk, operations, internal audit, 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.
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.
OSB GROUP PLC
Annual Report and Accounts 2022
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Corporate Governance Report continued
Group Executive Committee
The CEO chairs the Group Executive Committee, whose members
also include the CFO, Deputy CFO, Group Chief Operating Officer,
Group Chief Risk Officer (CRO), Group General Counsel and
Company Secretary, Group Commercial Director, Group Chief
Information Officer, Group Chief Credit and Compliance Officer,
Group Managing Director for Mortgages and 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 oversee the Risk and Compliance functions, with a view to
ensuring the effective management of risks across OSB and CCFS
as individual entities and on an aggregated basis.
– To oversee and lead the embedding of the ESG Strategy and
Operating Framework.
The areas of focus for the Group Executive Committee during the year
included:
– Consumer Duty.
– Business review.
– Capital and funding.
– Human resources and succession planning.
– Governance, control and risk environment – current and forward-
looking.
– The impact of increasing interest rates.
– Monitoring target operating model progress.
– Culture – Purpose, Vision and Values.
– ESG matters, including climate change.
– Operational and customer service.
– IT Security and cyber risk.
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.
Balance and independence
The Board comprises seven 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.
Non-Executive Directors’ terms of appointment and time
commitment
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 a 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.
NEDs are required to confirm annually that they continue to have
sufficient time to devote to the role.
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.
OSB GROUP PLC
Annual Report and Accounts 2022
Board resources
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. Further information on the induction programme for Kal Atwal
and Simon Walker can be found on page 130.
As senior managers, under the Senior Managers Regime operated
by the PRA and FCA, all Directors are required to maintain skills,
knowledge and a certain level of expertise in order 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 that 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 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 that it is fit for purpose and that it
enables sound decision-making.
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 126.
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 for all
Directors and Officers.
127
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).
Board appointments and succession plans
The Board may appoint a Director, either to fill a vacancy or as
an addition to the existing Board. All appointments to the Board
are made on the recommendation of the Group Nomination and
Governance Committee and are subject to a formal, rigorous and
transparent procedure. Succession plans are also considered by
the Group Nomination and Governance Committee. Appointments
and succession plans are based on merit and objective criteria and,
within this context, promote diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths. The Group Nomination
and Governance Committee Report on pages 129-132 provides further
details on the process for appointing Board Directors, succession
planning and diversity.
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Kal Atwal was appointed as a Non-Executive Director on 7 February
2023 and Simon Walker was appointed on 4 January 2022. All
Directors will be put forward for election or re-election at the
forthcoming AGM with the exception of Graham Allatt and Mary
McNamara who will be retiring at the AGM as they have reached
the end of their nine year term. 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.
Board composition
The size and composition of the Board is kept under review by the
Group Nomination and Governance Committee and the Board to
ensure that an appropriate balance of skills and experience are
represented. Following an external skills review undertaken in 2020
and the subsequent appointment of Simon Walker in January 2022,
the Board continued to focus on its composition and engaged the
external Executive Search agency, Per Ardua1, with the remit to find
potential Non-Executive Director candidates. After an extensive search
and rigorous interview process, the decision was made to appoint
Kal Atwal as a NED with effect from 7 February 2023. 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.
1.
Per Ardua has no other connection with the Company or individual Directors.
OSB GROUP PLC
Annual Report and Accounts 2022
128
Corporate Governance Report continued
The Group Nomination and Governance Committee acknowledges
the need for an effective and robust succession plan for both NEDs
and Executives in order to fill any potential skills gaps and to continue
to develop broader diversity within the Board. Korn Ferry was
appointed as succession planning adviser to the Group and provided
independent advice to the Committee during 2022. Korn Ferry also
act as Remuneration Consultant to the Group Remuneration and
People Committee. Korn Ferry has no other connection with the
Company or any individual Director with the exception of Mary
McNamara. Korn Ferry acts as Remuneration Consultants to the
Remuneration Committee of Motorpoint Group Plc, of which Mary
McNamara is Chair.
The Directors’ biographies can be found on pages 116 and 117.
Board evaluation
The Board undertakes an evaluation of its performance and that
of its Committees and individual Directors annually. An externally-
facilitated evaluation of the Board was conducted in 2021. In 2022,
Independent Audit was commissioned to facilitate the self-evaluation
of the Board and its Committees.
Questionnaires for the Board and its Committees were prepared by
Independent Audit and completed by members of the Board and
Group Executive Committee. Independent Audit did not conduct
any interviews, observe meetings or review Board papers as part
of the exercise. Responses from the questionnaires were analysed
by Independent Audit and formed the basis of the internal self-
assessment report, which was presented to the Board and its
Committees who discussed the findings.
The 2021 external review concluded that the Board was working well
together and the results of this year’s self-evaluation showed that this
was still the case. The results were indicative of a well-functioning Board
whereby the NEDs and Executives were aligned in their thinking. The
self-evaluation noted that there was unanimous agreement that the
NEDs worked well together on a good basis of trust in a collaborative
and open atmosphere. The Chairman of the Board was viewed very
positively, with NEDs and Executives noting the open, inclusive and
collaborative atmosphere as a major strength of the Board. The
dynamic between the Board and Group Executive Committee was
positive, striking the right balance of support and challenge.
The Chairing of the Board and its Committees was of a high quality
and encouraged all views to be heard. It was agreed that the Board
considered its stakeholders in all decisions, thinking through their views
in depth. The Committees worked effectively, particularly in how they
liaised with each other and the Board.
As part of the self-evaluation, Independent Audit suggested some
areas for development, as outlined in the table below.
Outcomes of the self-evaluation
Proposed actions
Continue to focus on the long-term strategy of
the Group.
Time has been allocated to discuss the Group’s long-term strategy at Board meetings
in 2023.
Develop deeper understanding of the role of
technology in the Group’s strategy, in particular
the ability of IT systems to support the strategy,
as well as managing cyber risk.
Oversee the development of a broader People
strategy, with particular reference to culture
and engagement.
The Board will be provided with cyber risk training during 2023.
A People Strategy is being developed, which will focus on the skills, characteristics
and diversity needed to underpin the Group’s overall strategy.
Continue to oversee the development of the ESG
strategy in terms of how it is being embedded
throughout the Group and with focus on thought
leadership in relation to the private rented sector.
The Board received regular updates relating to ESG during 2022. In the latter part
of the year, more detail relating to ESG Strategy was presented. The Board and
the Group Nomination and Governance Committee will continue to receive regular
updates on this topic during 2023.
OSB GROUP PLC
Annual Report and Accounts 2022
Group Nomination and Governance Committee Report
129
Dear Shareholder,
This report is presented to
you in my capacity as Chair
of the Group Nomination and
Governance Committee.
Committee member
David Weymouth (Chair)
Noël Harwerth
Mary McNamara
Meetings attended
7/7
7/7
7/7
The Group Nomination and Governance Committee is responsible for
leading the process for the appointment of new members of the Board
and Executives and provides oversight and guidance to the Board on
all Corporate Governance matters in relation to the Group.
In relation to the values, ethics and overall culture of the Group the
Board sets the tone from the top leading the Group towards creating
a sustainable business. The Group adheres to best practice in relation
to corporate governance which is in line with the Code and the
requirements of the PRA and FCA. The Board, its Committees and
the boards of the subsidiary companies operate eff ectively and have
an appropriate balance of diversity, skills, experience, availability,
independence and knowledge of the Group to enable them to
discharge their respective responsibilities eff ectively.
Following Simon Walker’s appointment to the Board in January
2022, the Committee has continued to focus on the composition
of the Board to ensure that the current mix of experience and skills
remains fi t for purpose. Kal Atwal has been appointed as a NED with
eff ect from 7 February 2023 following approval from the Board and
brings with her signifi cant experience as a Non-Executive Director
across FTSE 100, FTSE 250 and mutual businesses. The Committee
acknowledges the need for an eff ective and robust succession plan
for both NEDs and Executives in order to fi ll any potential skills gaps
and to continue to develop broader diversity within the Board. Korn
Ferry1 has been appointed as Executive succession planning adviser
to assist the Committee with succession planning for key roles. Per
Ardua2 assisted with the search for the new NED which led to the
appointment of Kal Atwal.
1 Korn Ferry also act as Remuneration Consultant to the Group Remuneration and
People Committee. Korn Ferry has no other connection with the Company or any
individual Director, with the exception of Mary McNamara.
2 Per Ardua has no other connection with the Company or any individual Director.
As at the date of this report, the Board is comprised of 50% females
and continues to meet the requirements of the Parker Review and
Hampton-Alexander guidelines.
For a number of years, the Group has subscribed to the Women in
Finance Charter which is an initiative to drive the representation
of female employees at senior levels across the fi nancial services
industry. Having met the initial three-year target of ensuring that 30%
of all senior roles would be fi lled by females by the end of 2020, the
Committee agreed to a new three-year commitment to the end of
2023 to achieve 33%. As at 31 December 2022, 31.4% of all senior roles
were undertaken by female employees and the Group is continuing to
work towards achieving the increased target by the end of this year.
In addition to Board and Executive succession planning resulting in the
appointments of Kal Atwal and Simon Walker during the year; other
items considered by the Committee included Board eff ectiveness, the
Executive Development Programme and NED confl icts of interests, as
well as ESG matters such as a focus on diversity and inclusion, the
Gender Pay Gap Report, and recruitment activity across the Group.
During the year, the Group Remuneration Committee’s remit was
expanded to include people matters. As a result of this change, some
of the Committee’s responsibilities relating to employee engagement,
diversity, equity and inclusion and culture, were reallocated to the
renamed Remuneration and People Committee.
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
16 March 2023
OSB GROUP PLC
Annual Report and Accounts 2022
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Group Nomination and Governance
Committee Report continued
Board and Committee composition and
succession planning has been a main
focus throughout the year.
David Weymouth
Chair of the Group Nomination and Governance Committee
Group Nomination and Governance Committee –
key responsibilities
– Review and oversee the structure, size and composition of the
Board (including the balance of skills, knowledge, experience
and diversity, including gender).
– Review and oversee the composition (including the skills,
knowledge, experience and diversity, including gender) of
Committees of the Board and succession planning for chairs
of the various Committees and the Senior Independent Director.
– Ensure plans are in place for orderly succession planning
for Directors and other senior management and oversee the
development of a diverse pipeline for succession.
– Keep under review the leadership needs of the Group, both
Executive and Non-Executive.
– Identify and recommend for the approval of the Board,
candidates to fi ll Board vacancies as and when they arise.
– Monitor, oversee and keep the Board aware of strategic
corporate governance issues and changes aff ecting the
Company and the market in which it operates.
– Review whether Directors continue to meet the independence
criteria at least annually.
– Review annually the time required from Non-Executive
Directors.
– Review and approve changes to the Board’s Corporate
Governance guidelines.
– Review and recommend to the Board for approval the Corporate
Governance Report, for inclusion in the Annual Report.
– Monitor developing trends, initiatives or proposals in relation
to legal developments, Board governance issues and best
corporate governance practice.
Membership and meetings
The Committee met a total of seven times during 2022. The members
of the Committee are Noël Harwerth, Mary McNamara and David
Weymouth (Chair). Mary McNamara will cease to be a member of
the Committee on 11 May 2023. Sarah Hedger will be appointed as a
member of the Committee with eff ect from 11 May 2023.
Responsibilities
The specifi c 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 People and Group Risk Committees
and its own composition during 2022, carefully considering the skills
of existing members and looking at any skills gaps applicable to each
Committee. In relation to this Committee, it was found that members
were unanimous in their decisions following detailed discussion; the
meetings are chaired well and supported by internal functions of the
Group. The focus of the Committee was strong in all aspects of its key
responsibilities, particularly in relation to diversity, equity and inclusion
and overseeing Executive succession planning.
Succession planning
The Committee considered both Board and Executive level succession
planning during 2022, including ways in which existing skills could
be developed further and identifi ed additional skills which would
complement the Board and its Committees. Korn Ferry was appointed
as Executive succession planning adviser to the Group and provided
independent advice to the Committee during 2022. Per Ardua is the
appointed Board succession planning adviser and assisted with the
search for new NEDs.
All members of the Board were invited to participate in succession
planning discussions during the year.
Induction
All Directors newly appointed to the Board undergo a thorough
induction plan. During 2022, Simon Walker had one-to-one meetings
with the Chair, existing Non-Executive Directors, CEO, CFO, Group
General Counsel and Company Secretary, members of the Group
Executive Committee and other senior managers. He also had access
to various corporate documents and product guides and received
a briefi ng on Directors’ responsibilities and obligations. Kal Atwal
will follow a similar induction plan this year. Site visits to all offi ces
will be arranged and other members of the Board will be given the
opportunity to participate to refresh their knowledge.
OSB GROUP PLC
Annual Report and Accounts 2022
131
During the year the Committee reviewed, and the Group Remuneration
and People Committee approved, the Group’s Diversity, Equity and
Inclusion Policy which sets out the Board’s commitments in relation
to diversity and inclusion. These commitments include addressing
behavioural gender and ethnic bias and basing appointments on merit
and objective criteria and, within this context, promoting diversity
of gender, social and ethnic backgrounds, cognitive and personal
strengths. The policy also sets out the Board’s commitment to the
Women in Finance Charter and has introduced measurable objectives
with the Group committing to increase the percentage of females in
senior management positions within the Group’s UK population to 33%
by the end of 2023.
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. The Diversity and Inclusion Working Group continued
to develop and deliver the Group’s Diversity and Inclusion agenda
in order to promote, champion and encourage diversity, equity and
inclusion within the workplace in line with the Respect Others value.
The Diversity and Inclusion Working Group consists of volunteer
representatives from across the Group and hosted a number of
activities during the year, including Learning at Work Week which
focused on creating human connections and supporting colleague
well-being and resulted in the Group receiving an Impact Award for
Promoting Well-being. The Diversity and Inclusion Working Group
reports to the ESG Technical Committee, which in turn provides
updates to the Committee and the Board on all matters relating to
diversity, equity and inclusion.
Further details relating to diversity, equity and inclusion are set out on
pages 111-113.
Environmental, Social and Governance
The Committee monitored sustainability and ESG developments
relevant to the Group including consideration of points arising from
engagement with shareholders and other stakeholders in these areas.
ESG continues to be a key area for the Board and its Committees and
is expected to remain a focus in the coming years.
Following recommendation from the Committee, Sarah Hedger
was appointed as the ESG Champion in order to facilitate Board
engagement on ESG matters and held this position throughout
the year.
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. The Committee
remained satisfied that there are effective arrangements in place.
Further details on the Group’s ESG initiatives is included on pages
86-114.
Diversity and inclusion
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’.
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.
In compliance with Listing Rule 9.8.6, as at 31 December 2022, 25%
of the Group Executive Committee and 44% of the Board was female
and two females held senior Board positions. With the appointment
of Kal Atwal, and as at the date of this report, 50% of the Board is
female; two of the ten Directors are from an ethnic minority and two
females hold senior Board positions. The tables on page 132 set out the
required information as at 31 December 2022.
OSB GROUP PLC
Annual Report and Accounts 2022
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Group Nomination and Governance
Committee Report continued
Men
Women
Other
Not specified/prefer not to say
Table for reporting on ethnic background
Number of
Board members
Percentage of
the Board
Number of senior
positions on the Board
(CEO, CFO, SID and Chair)
Number in
Executive
Management
Percentage of
Executive
Management
5
4
0
0
56%
44%
0%
0%
2
2
0
0
9
3
0
0
75%
25%
0%
0%
Number of
Board members
Percentage of
the Board
Number of senior
positions on the Board
(CEO, CFO, SID and Chair)
Number in
Executive
Management
Percentage of
Executive
Management
White British or other White (including minority-
white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/ prefer not to say
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0
1
0
0
0
89%
0%
11%
0%
0%
0%
4
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0
0
0
11
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1
0
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0%
0%
0%
Activities during 2022
In last year’s report, the Committee identified four key priorities. A summary of actions taken and outcomes are set out in the table below.
Objective
Action taken
Continue to work on developing
the Board and Group Executive
Committee succession plans and
invite all NEDs to attend such
meetings of the Committee.
The Committee continues to review the skills and experience matrix of the Board and Group Executive
Committee to ensure that it remains fit for purpose, as well as maintaining an effective succession plan.
Following endorsement, Kal Atwal was appointed to the Board on 7 February 2023 and Simon Walker
was appointed on 4 January 2022. Succession planning for the Group Executive Committee was further
enhanced with the appointment of the Deputy Chief Financial Officer in September 2022.
Oversee the development of a
structured workforce engagement
plan to build upon the engagement
provided by employee forums,
including face-to-face
engagement and informal visits.
Organise occasional sessions
with the CEO to brief NEDs
on capacity and succession
planning within senior teams.
The Committee endorsed new Chairs of the Group Risk Committee and Group Remuneration and People
Committee when the existing Chairs retire. These appointments were approved by the Board. The Committee
continues to look to fill potential skills gaps and to continue to develop broad diversity in the Board.
The OurVoice meetings conducted in 2022 provided the Board and Executives with real time exposure to
employees and the opportunity to engage with them directly. There are tangible outcomes from these
meetings such as improving the new employee referral scheme. Work also commenced in 2022 towards
developing a broader people/culture strategy for the Group to be delivered in 2023.
The CEO held sessions with the NEDs in order to provide an update on capacity and succession planning in
respect of key appointments within the Group.
The Committee approved the appointment of Korn Ferry as Executive succession planning adviser to the
Group; they provided independent advice to the Committee during 2022.
Continue to oversee the
development of the ESG strategy
and how it is being embedded
throughout the Group.
The Committee acknowledges that central to the Group’s ESG strategy and succession planning is the
importance of having a diverse and inclusive workforce. The Board approved a broad ESG strategy in
November 2022, which includes regular reporting to enable the Board to monitor how well it is being
embedded within the culture of the Group.
Priorities for 2023
– Continue succession planning work for at Board and Executive levels.
– Specific actions to embed the ESG strategy in 2023, in particular by providing thought leadership.
OSB GROUP PLC
Annual Report and Accounts 2022
Group Audit Committee Report
Dear Shareholder,
133
The Group Audit Committee report
for 2022 sets out how the Committee
has discharged its responsibilities and
provided assurance on the integrity of
the Group’s fi nancial statements for
the year ended 31 December 2022.
Committee member
Rajan Kapoor (Chair)
Graham Allatt
Noël Harwerth
Sarah Hedger
Simon Walker
Meetings
attended
7/7
7/7
6/7
7/7
7/7
The Committee supports the Board in overseeing the systems of
internal control and external fi nancial and narrative reporting across
the Group; and provides assurance on the integrity of the Group’s
fi nancial statements.
During 2022, the Committee challenged management on accounting
judgements and estimates; in particular, the calculation of expected
credit losses (ECL) and eff ective interest rate (EIR) accounting
in accordance with IFRS 9, against the backdrop of economic
and political uncertainties. The Committee focused on model
enhancements and analysis, with management judgments applied on
historical data trends to factor in the impact of the macroeconomic
outlook and the rising cost of living and borrowing as well as the
longer term climate factors. Other areas of focus included monitoring
the steps being taken by management to enhance the Group’s
internal control environment and ensure that the Group is prepared
for the regulatory changes anticipated following the UK government’s
consultation on ‘Restoring trust in audit and corporate governance’;
monitoring the Group’s compliance with the Task Force on Climate-
related Financial Disclosures (TCFD) requirements and other non-
fi nancial reporting requirements.
The Committee performs this role by ensuring that eff ective
external and internal audit arrangements are in place, reviewing
and monitoring compliance assurance processes, overseeing
fraud prevention and whistleblowing procedures and monitoring
the integrity of the Group’s fi nancial and regulatory disclosures.
Throughout 2022, maintaining audit quality remained a priority
and the Committee monitored the performance of the external
auditor and the Internal Audit function. A formal assessment was
undertaken through an internal process and the Committee reviewed
the feedback provided by stakeholders. Additionally, the Committee
approved the Internal Audit Plan for 2022 and was kept informed
of progress and delivery. The Committee regularly sets time aside
to meet with the Group’s external and internal auditors without
management present so that they are able to raise concerns freely. As
Chair, I am committed to ensuring that the Committee’s performance
is also kept under review and further details of the Committee’s
performance evaluation is included within this report. I work with the
CFO and Committee Secretary to ensure that the agenda remains
appropriate in light of regulatory changes and relevant developments
within the Group. I am also available to meet with the Company’s
investors on request in accordance with the Financial Reporting
Council’s (FRC) Stewardship Code.
In addition to my role as Chair of this Committee, I act as the Group’s
Whistleblowers’ Champion and have overall responsibility for the
integrity, eff ectiveness and independence of the Group’s policies
and procedures on whistleblowing. An internal assurance review
of the Group’s whistleblowing procedures was undertaken and
the recommended actions were implemented during the year. The
Committee is confi dent that the whistleblowing arrangements remain
eff ective, facilitate the proportionate and independent investigation of
reported matters and allow appropriate follow-up action to be taken.
I would like to thank all Committee members for their diligent
contribution during 2022 and in particular, Graham Allatt for his
continued support and invaluable insight as the Group has continued
to grow. Graham will not be standing for re-election at the AGM
and will cease to be a member of the Committee on 11 May 2023.
Simon Walker became a member of the Group Audit Committee on
his appointment to the Board in January 2022 in order to provide
consistency and to support succession planning during the time
leading up to Graham’s departure.
Rajan Kapoor
Chair of the Group Audit Committee
16 March 2023
OSB GROUP PLC
Annual Report and Accounts 2022
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Group Audit Committee Report continued
Membership and meetings
The Committee met seven times during the year. The current members
of the Committee are Rajan Kapoor (Chair), Graham Allatt, Noël
Harwerth, Sarah Hedger and Simon Walker and details of their
qualifi cations and experience can be found on pages 116 and 117. The
members are all independent Non-Executive Directors who also serve
on other Board Committees in addition to the Group Audit Committee.
Simon Walker joined the Committee on 4 January 2022 and has
signifi cant experience in fi nancial services. Graham Allatt will cease
to be a member of the Committee on 11 May 2023. Rajan Kapoor
served as Chair of the Group Audit Committee throughout the year
and has wide-ranging fi nancial experience in the banking industry,
including recent and relevant fi nancial experience as required by the
UK Corporate Governance Code 2018.
As a whole, the Committee has an appropriate balance of skills
and standing invitations to Committee meetings are extended to
the Chairman of the Board, Executive Directors, the Group Chief
Risk Offi cer, 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.
Responsibilities
The specifi c responsibilities and duties of the Committee are set
out in its terms of reference which are available on our website,
www.osb.co.uk.
Group Audit Committee – key responsibilities
Internal control and risk management
– Review systems of internal control over fi nancial reporting to
identify, assess and monitor fi nancial 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 eff ectiveness of anti-money
laundering systems and controls.
– Review the adequacy of the Group’s whistleblowing
arrangements and procedures.
Financial and non-fi nancial reporting
– Review and recommend to the Board, the long-term viability
statement and the adoption of the going concern basis for the
preparation of the year-end and interim fi nancial statements.
– Monitor the integrity of the fi nancial statements, including
annual and interim reports, trading updates, Pillar 3
disclosures and any other formal announcements relating to
fi nancial performance.
– Provide challenge and oversight on the consistency, quality
and appropriateness of signifi cant accounting policies and
judgements and on the methods used to account for signifi cant
or unusual transactions.
– Ensure compliance with all appropriate accounting standards
and regulatory reporting requirements.
– Consider and recommend changes to accounting policies to
the Board.
– Review and challenge, where appropriate, all material
information included in the Annual Report and the
fi nancial statements, such as the business review and
the corporate governance statements relating to the
audit and to risk management.
Internal and External Audit
– Review and monitor the eff ectiveness of the Group’s internal
and external audit arrangements.
OSB GROUP PLC
Annual Report and Accounts 2022
Activities during 2022
The principal activities undertaken by the Committee during the year
are described below.
Viability and going concern
The Committee reviewed 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 for
approval by 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 fi nancial statements.
Further details are set out on pages 76, 77 and 166.
Alternative performance measures
The Committee provided oversight and challenge in relation to the use
of alternative performance measures (APMs) in the Annual Report and
Accounts to ensure that these were applied consistently and remained
relevant. The Group presents APMs on an underlying basis, alongside
the statutory basis, which helps demonstrate the performance of the
Group on a consistent basis and enables meaningful comparisons to
prior years. See pages 246-250 for further details.
As APMs 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 effi ciently and economically. The
Committee was satisfi ed that this assignment did not aff ect Deloitte’s
independence as external auditor. A copy of Deloitte’s independent
assurance statement can be found on page 247.
Financial reporting and regulatory disclosures
The Committee’s review of fi nancial reporting during the year
included the approval of the Annual Report and Accounts, the Interim
Results, quarterly trading updates and analysts’ presentations. The
Committee also 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.
As part of its review, the Committee assessed management’s
application of key accounting policies, signifi cant 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 and underlying basis to ensure
transparency and consistency throughout.
The Committee’s primary
objective is to assist the Board
in overseeing the systems of
internal control and external
fi nancial and narrative reporting
across the Group.
Rajan Kapoor
Chair of the Group Audit Committee
135
Fair, balanced and understandable
The Committee considered, on behalf of the Board, whether the 2022
Annual Report and Accounts taken as a whole are fair, balanced and
understandable and whether the disclosures are appropriate. The
Committee also considered whether the non-financial information
within the Annual Report was consistent with the financial statements,
the use of APMs and associated disclosures.
Following its review, the Committee advised the Board that it 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 16-21.
Significant issues considered
How these were addressed by the Committee
Significant areas of judgement and estimates considered by
the Committee
The Committee considered management’s significant accounting
judgements and use of accounting policies in relation to the interim
and full-year results of the Group. In its assessment, the Committee
received reports from management and provided challenge in
relation to each area of significant judgement and management’s
recommended approach. The Committee also sought the views of
the external auditor on the accounting treatment and judgements
underpinning the financial statements.
Loan book expected
credit losses
The Committee received reports from management and challenged the approach to provisioning for loan book ECLs.
The Committee provided oversight of the IFRS 9 Framework including the Group’s enhancements to models, which were
incorporated into the Group’s IFRS 9 Framework as part of the Internal Ratings-Based (IRB) programme.
The Committee consulted the Group’s economic advisers who provided their view and insight into macroeconomic
scenarios and proposed probability weightings. The Committee focused on management’s proposals on the
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.
The Committee reviewed the key assumptions and judgements to ensure that these appropriately reflect the economic
and social environment. The Group has ensured that the identification of Significant Increases in Credit Risk remains
appropriate, in addition to making post model adjustments for model limitations, including the impacts of cost of living
and cost of borrowing, as well as climate change factors.
Effective interest rate A number of assumptions are made when calculating the EIR for newly-originated loan assets. These include their
expected redemption profiles, product switching activity 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 the economic outlook and market conditions.
The Committee reviewed and challenged management’s assessment of the drivers of recent prepayment behaviour,
in both the fixed and reversionary periods, and whether these were expected to be temporary or longer-term in
nature. The assessment considered higher than expected early repayments during the fixed period, which increased
ERC income and accelerated the recognition of net fee income, and concluded that this was temporary in nature as
customers looked to lock in their cost of borrowing in a period of extreme interest rate volatility. The assessment also
included prepayment behaviour in the reversionary period, which had accelerated during the year as customers looked
to lock in their cost of borrowing, and concluded that this was likely to continue in a less volatile rate environment, due
to the significant step up in rates in the reversionary period, and the Group’s active retention programmes, offering
more favourable rates.
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. The
Committee noted that the portfolios were most sensitive to the assumption of time spent on the higher reversion rates
and reviewed and challenged Management’s proposed sensitivity disclosures. Having considered all of the evidence,
the Committee is satisfied that the approach taken and judgements and estimates made were reasonable.
Further details of the above significant areas of judgement and estimation can be found in note 2 to the
financial statements.
OSB GROUP PLC
Annual Report and Accounts 2022
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Group Audit Committee Report continued
Significant areas of judgement and estimates considered by the Committee continued
Significant issues considered
How these were addressed by the Committee
Intangibles and
investments in
subsidiaries
The Committee reviewed management’s assessment of the economic and political changes in the year, along with
the latest economic forecast and the Group’s business plans to determine whether there were any indications of an
impairment of the Group’s intangible assets and investments in subsidiaries at the Company level. The Committee
noted the reduced balances for merger related intangibles (following the Combination with CCFS in October 2019) and
was satisfied that there was no impairment in intangibles or investments in subsidiaries at the Company level.
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 endorsed the Group’s UK tax
strategy, which is available on our website, www.osb.co.uk.
Internal Audit
The Committee is responsible for approving the remit of Group Internal
Audit, together with the annual Internal Audit 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 approved the Group
Internal Audit Charter in October 2022, which formally defines Internal
Audit’s purpose, authority and responsibility and can be found on our
website, www.osb.co.uk.
The Internal Audit function is resourced with an in-house team
supported by a panel of third party independent accountancy firms
that provide expert resource (on a co-source basis) for specific
technical/specialist audits. The Group Internal Audit team has grown in
size, developed its methodology and matured its assurance to support
the growth ambitions of the Group.
The Committee holds private sessions with the Group Chief Internal
Auditor and ensures that the Internal Audit function has adequate
standing and is free from management, or other restrictions, which
may impair its independence and objectivity. On an annual basis, the
Committee assesses the effectiveness of the Internal Audit function.
In 2022, 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. The Committee confirms that it is satisfied that
the Internal Audit function operated effectively during the year.
The Committee received regular updates from the Group Chief
Internal Auditor on progress against the 2022 Internal Audit Plan
and noted the results of audit assignments, significant findings
and themes; and any outstanding audit action points. This is a
dynamic plan, which is updated on a quarterly basis to capture any
emerging risks that required assurance. In addition, 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 were
tracked and reported to the Committee. As well as monitoring progress
with the 2022 Internal Audit Plan, the Committee also considered and
approved the 2023 Plan, which is based on an assessment of the key
risks faced by the Group.
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 to support 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 continues to review operational incidents and ensures
that appropriate follow up action is taken.
The Committee received and reviewed reports from management on
key controls over the accuracy and completeness of the financial
statements, the status of the substantiation of balance sheet general
ledger accounts at the reporting date and judgements made in the
calculation of regulatory capital disclosures and the supporting
external professional advice. In addition, the Committee requested and
reviewed reports from management on the Group’s Finance function.
The Committee also received and reviewed reports on planned
enhancements to internal IT access controls to address control
deficiencies identified by internal and external audit. 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; 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,
financial crime systems and controls and received 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. Training is also provided to Line Managers
and those involved in any investigations to ensure that they comply
with relevant regulations. No concerns were raised that required a
report to be made to the regulators.
OSB GROUP PLC
Annual Report and Accounts 2022
137
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. The Committee holds
regular private sessions with the external auditor.
External auditor effectiveness and independence
The Committee assesses the effectiveness of the external audit
function on an annual basis. In 2022, 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; and some minor areas for improvement were suggested.
The FRC’s Audit Quality Review (AQR) team monitors the quality of
audit work of certain UK audit firms through annual inspections of
a sample of audits and related procedures at individual audit firms.
The FRC’s AQR team reviewed Deloitte’s audit of the Group’s financial
statements for the year ended 31 December 2020 as part of its annual
inspection of audit firms. The Audit Committee received and reviewed
the final report from the AQR team, which indicated that there were no
significant areas of concern.
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.
External auditor appointment and tenure
The Group’s external audit contract was put out for tender for the 2019
financial year and the next external audit tender is expected to be
2028 for the financial year 2029.
Rob Topley has been the statutory auditor since 2019 and in
compliance with mandatory lead partner rotation standards will rotate
off the audit at the conclusion of the 2023 audit. In anticipation of this
change, the Committee met with a number of potential successors
and considered that Ben Jackson has the experience and knowledge
to take on this role.
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 10 years. There are no restrictive contractual provisions or third
parties limiting the Company’s choice of auditor and a resolution to
re-appoint Deloitte as external auditor will be presented at the AGM.
External audit plan and reports
The Committee reviewed the plan for the 2022 audit and was satisfied
that appropriate audit effort was being directed at all significant
areas. The auditors attended all meetings of the Committee and
presented their detailed reports for their half-year review and the year
end audit 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.
Non-audit services
The Committee reviewed and approved the policy governing the use
of the external auditor for non-audit services which is designed to
ensure that any provision of non-audit services to the Group by the
external auditor does not impact its independence and objectivity.
The Committee closely monitors and receives regular reports on 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.
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
insertion of a holding company in 2020, the Group contains multiple
PIEs and the application of the rules are 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
maintained a cap for non-audit services in 2022 of 50% of audit
services. The Committee pre-approved a number of non-audit
services including proposed Tier 2 debt issuances, compliance tools
in India, interim profit verifications, the half-year review, assurance
review of certain key performance indicators in the Annual Report
and Accounts, TCFD, and reporting on the Inline Extensible Business
Reporting Language (iXBRL) tagging of Financial Statements. The
Committee also agreed mandates for the CFO and the Chair of the
Committee to approve additional permitted engagements subject to
agreed thresholds.
OSB GROUP PLC
Annual Report and Accounts 2022
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Group Audit Committee Report continued
The fees paid to the external auditor in respect of non-audit services
during 2022 totalled £546,000, representing 16% of 2022 Group audit
services of £3,415,000 (2021: £619,000 representing 26% of 2021 Group
audit services of £2,398,000) and are summarised in the table below.
All non-audit services provided by Deloitte were assurance-related in
nature and consistent with the role of the external auditor. No advisory
or consulting services were provided.
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
Total fees payable to the Group’s auditor
Group
2022
£’000
Group
2021
£’000
75
68
3,340
3,415
254
259
33
546
3,961
2,330
2,398
258
121
240
619
3,017
Committee effectiveness
The Committee formally evaluates its performance on an annual basis.
This year, 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 2022 with no significant improvements required.
An internally facilitated Board and Committee effectiveness review
was also undertaken, which included the Committee and further
details can be found on page 128.
The Committee undertook training during the year, including making
extensive use of training programmes run by the major accountancy
firms and other external advisers. In addition, Committee members
attended a number of in-house workshops on specific areas and
completed all mandatory training. Some members of the Committee
also interacted with key employees during the year to increase their
knowledge and understanding of the business.
Common membership across the Group’s Committees facilitates
effective communication lines between the Committees regarding
finance, risk and remuneration matters; and ensures that agendas are
aligned and duplication of responsibilities is avoided.
Audit-related assurance services include the interim review and profit
verifications for regulatory purposes. Other assurance services in
2022 include an assurance review of APMs, iXBRL and ESG disclosures
and certain ESG metrics (2021: assurance review of APMs, iXBRL and
synergy savings). Other non-audit services primarily comprise work
related to reporting accounting work and the Euro Medium-Term
Note comfort letter where we did not issue due to market volatility
(2021: work related to reporting accounting work and an opinion on
Additional Tier 1 (AT1) securities issuance and comfort letter for the
Euro Medium-Term Note programme).
OSB GROUP PLC
Annual Report and Accounts 2022
Group Risk Committee Report
Dear Shareholder,
139
The Committee has continued to
discharge its risk oversight, review
and challenge responsibilities
eff ectively during a period of
continuing uncertainty and change.
Committee member
Graham Allatt (Chair)
Noël Harwerth
Rajan Kapoor
Simon Walker
Meetings
attended
7/7
7/7
7/7
7/7
assessed provisions. It has also ensured that the total level of credit
provisions at the Group and its regulated entities are commensurate
with the wider risks and uncertainties. Assessment of risk-based
capital and funding requirements, including supporting methodologies
and assumptions, have been subject to Committee review and
recommendation for Board approval as part of the Group and
regulated entities’ ICAAPs, ILAAPs and Recovery Plans.
The Committee remains focused on the risks to the Group’s strategic,
business and regulatory agenda based on the Board-approved risk
appetite. Throughout the year, the Committee has ensured that
appropriate and timely decisions have been taken in order to manage
the Group’s risk profi le during a period of heightened economic
uncertainty and change.
Volatility in global markets, alongside continuing interest rate rises
and the rising cost of living and cost of borrowing in the UK, has been
an important backdrop against which the Committee has discharged
its duties. The Committee has also been mindful of the increasing
regulatory agenda and supervisory focus as a result of the
Group’s growth.
The Committee has overseen and further guided the Group’s
development of its risk management frameworks, risk appetite
and key regulatory submissions such as the Internal Capital
Adequacy Assessment Process (ICAAPs), Internal Liquidity Adequacy
Assessment Process (ILAAPs) and Recovery Plan, as well as ensuring
that appropriate levels of risk governance and oversight have been
maintained over the individually regulated entities. A number of key
regulatory projects have been subject to review and discussion by
the Committee including the Internal Ratings-Based Approach (IRB),
Resolvability Assessment Framework (RAF) and Operational Continuity
in Resolution (OCIR).
The Committee has closely scrutinised the Group and its regulated
entities’ risk profi les against the Board-approved risk appetites,
requesting focused reviews and deep dives to better understand
emerging trends and incidents.
IRB is an important strategic initiative that is intended to enhance risk
management capabilities. Regular updates have been provided to
the Committee on progress against plan, use and integration of IRB
outputs within credit underwriting, credit risk management, capital
planning and stress testing processes. The Committee has exercised
oversight and approval of IRB and IFRS 9 based models and policies
through its sub-committee, the Group Models and Ratings Committee.
The Committee has overseen eff orts to enhance the Group’s
operational resilience capabilities in line with industry good practice
and emerging regulatory requirements, as well as continuing to
oversee the alignment and enhancement of the Group’s approach to
risk and controls assessment based on a single system platform and
common standards.
I would like to off er my thanks to the members of this Committee, past
and present, whose contribution and engagement since I assumed the
role of Chair has been a great support. I will be stepping down from
both the Board and as Chair of this Committee at the AGM and will
be succeeded by Simon Walker, who has a wealth of experience in
fi nancial services and specifi cally risk management.
The Committee, jointly with the Group Audit Committee, has
provided a signifi cant level of review and challenge to IFRS 9 based
methodologies, judgements and estimates, economic scenario
calibrations and weightings, including the adequacy of individually
Graham Allatt
Chair of the Group Risk Committee
16 March 2023
OSB GROUP PLC
Annual Report and Accounts 2022
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Group Risk Committee Report continued
Membership and meetings
The Committee met seven times during the year. The current members are Graham Allatt as Chair, Noël Harwerth, Rajan Kapoor and Simon
Walker. Graham Allatt served as Chair of the Group Risk Committee throughout the year and will cease to hold this position following the AGM
on 11 May 2023. Simon Walker, on joining the Board, became a member of the Committee on 4 January 2022 and will succeed Graham Allatt as
Chair with eff ect from 11 May 2023.
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,
Group Chief Internal Auditor, Chairman of CCFS, Group Chief Risk Offi cer (CRO) and Group Chief Credit and Compliance Offi cer, unless the
Chairman of the Committee informs any of them that they should not attend a particular meeting or discussion.
Responsibilities
The specifi c responsibilities and duties of the Committee are set out in its terms of reference, which are available on our website, www.osb.co.uk.
Group Risk Committee – key responsibilities
– Set a clear tone from the top in relation to a risk-based culture to foster individual and collective accountability for risk management.
– Ensure the Group organises and resources its risk management and oversight functions across the fi rst and second line eff ectively.
– Provide oversight to key regulatory initiatives.
Risk appetite and assessment
– 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.
– 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.
– Continuously review, challenge and recommend enhancements to the Group’s Enterprise Risk Management Framework (ERMF).
– Challenge and oversee the ICAAP and ILAAP frameworks.
– Monitor actual and forecast risk and regulatory capital positions.
– Recommend changes to capital utilisation.
– 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.
– Monitor risks arising from Climate Change.
Group CRO and risk governance structure
– Consider and approve the remit of the Risk function.
– Recommend to the Board the appointment and removal of the Group CRO.
– Review all reports from the Group CRO and monitor management’s responsiveness to the Group CRO’s fi ndings
– Receive summary reports from senior risk management committees
Activity during 2022
The key areas of the Committee’s focus during 2022 are outlined in the
following pages.
Risk appetites were set at both Group and banking entity levels. The
Committee reviewed the Group’s position against risk appetite across
all principal risks and escalated issues to the Board, where appropriate.
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. The Committee reviewed
and recommended to the Board for approval, the Group’s risk
appetite metrics and thresholds, ensuring that they remained
appropriate and aligned to the Group’s strategic agenda, business
plans and stress testing capabilities. Members of the Committee
attended dedicated workshops run by management, which focused
on the risk appetite methodologies and details of how the supporting
analysis was conducted.
OSB GROUP PLC
Annual Report and Accounts 2022
Internal Ratings-Based (IRB) Programme
The Committee oversees the performance and regulatory compliance
of the Group’s IRB rating systems through regular updates from
management regarding the Group IRB programme including progress
made against key milestones in model development, model governance
and technical enhancements. The Committee has an established sub-
committee (Group Models and Ratings Committee) to ensure eff ective
governance of all the IRB related models. The Committee is well
positioned to provide oversight and approval of relevant supervisory
submissions relating to the IRB approval process.
141
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 and climate change.
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.
During 2022, the Committee (jointly with the Group Audit Committee)
provided oversight of the Group’s IFRS 9 methodologies focusing
on key assumptions and the appropriateness of judgements made
and assessed and approved the Group’s provision adequacy levels,
supported by analysis provided by the Risk function.
Market risk and liquidity risk
Market risk and liquidity risk are continually monitored by the Group
Assets and Liabilities Committee (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.
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 the year in
order to ensure that liquidity positions remained appropriate against
the uncertain economic backdrop arising from the Russian invasion
of Ukraine, lockdowns in China and the continuing increase in interest
rates, alongside the rising cost of living and cost of borrowing in the UK.
Solvency risk and ICAAP
The Committee reviewed the Group ICAAP, which demonstrates how
the Group would manage its capital resources and requirements
during a plausible but severe period of stress.
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 that risks were understood
and managed appropriately. The solvency risk appetite was reviewed
and recommended to the Board for approval.
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 also provided oversight and guidance in relation to the
programme of activities focused on enhancing the Group’s systems
and procedures for the assessment of operational risks and controls as
well as the management of operational risk events.
Conduct, regulatory and financial crime risks
The Committee received reports covering conduct, regulatory and
financial crime KRIs on a quantitative and qualitative basis, which
provided insight into changes in the Group’s conduct, regulatory
and financial crime risk profiles. The Committee also assessed
enhancements to the conduct, regulatory and financial crime risk
appetites before recommending them for approval by the Board.
Enterprise Risk Management Framework (ERMF)
In the first quarter of 2022, an independent review of the Group’s ERMF
and accompanying sub-frameworks was undertaken by an external
firm to ensure that the ERMF remains aligned to industry practice.
The Committee monitored the closure of all actions recommended by
the external firm to ensure that they were tracking in line with agreed
timetables. The Committee also oversaw the integration of Climate
Risk into the ERMF. It reviewed and recommended to the Board for
approval, the Climate Risk Management Framework. This sets out how
the Group identifies, assesses, monitors and manages the climate risk
to which it is exposed to ensure that the Group’s approach to climate
risk is in line with the regulator’s expectations.
Other risk types
The Committee reviewed the Group profiles of reputational risk,
climate change risk and business and strategic risk against their
respective risk appetites. Further details on climate-related risks are
set out in the TCFD report on pages 100-107.
Other Committees
Group Models and Ratings Committee
The Group Models and Ratings Committee is a sub-committee of the
Group Risk Committee and 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, including IRB, IFRS 9 and other risk-
based models. The Committee also exercises oversight over credit
risk models and provides 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.
The Committee is chaired by the Chair of the Group Risk Committee,
Graham Allatt. Rajan Kapoor, April Talintyre and Simon Walker are
members of the Committee. Graham Allatt will cease to hold the
position of Chair following the AGM on 11 May 2023. Simon Walker
joined the Board and became a member of the Committee on 4
January 2022. He will succeed Graham Allatt as Chair with effect
from 11 May 2023.
Board Capital and Funding Committee
The Board Capital and Funding Committee is a Committee of the
Board. Its primary objective is to approve capital, funding and equity
activities of the Group consistent with Board-approved plans.
The Committee met three times during the year. The current members
are David Weymouth as Chair, Graham Allatt, Andy Golding, Rajan
Kapoor and April Talintyre. Simon Walker joined the Board and became
a member of the Committee on 4 January 2022. Graham Allatt will
cease to be a member on 11 May 2023.
OSB GROUP PLC
Annual Report and Accounts 2022
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Directors’ Remuneration Report
Annual Statement by the Chair of the Group Remuneration and People Committee
Dear Shareholder,
Directors’ remuneration is
aligned with performance,
risk and pay policies
throughout the organisation.
Mary McNamara
Chair of the Group Remuneration and
People Committee
16 March 2023
Our customers and employees are key stakeholders of the business
and the BBS includes key barometers of how we treat both groups
including a robustly evaluated customer Net Promoter Score (NPS)
and an employee engagement score. Whilst our customer scores
were down on the previous high levels, they continue to be sector
leading. This resulted in 3.12% out of the 15% allocated to the customer
quadrant of the BBS being earned.
The achievements against the Quality category were particularly
strong with 15% out of the 15% allocated to the quality quadrant being
earned. This refl ects the strength of the controls environment within
the Group with the stretch targets being met for Overdue Actions,
Arrears and High Severity Incidents.
2022 was the fi rst year in which we operated a broader ESG quadrant
in the BBS, which covers both employee and environmental metrics.
Payouts against the ESG metrics were mixed with strong performance
against the employee metrics but, despite the progress on embedding
the ESG strategy, it has not yet delivered the targeted reductions
in emissions. As a result, 7.55% out of the 10% allocated to the ESG
quadrant of the BBS was earned.
As a result of this performance, the Executive Directors earned 75.67%
out of the 90% of their bonus assessed against the BBS. The remaining
10% of the Executive Bonus Scheme is based on the achievement of
stretching personal objectives. Performance against personal targets
was also considered by the Board and Committee to be strong. This
resulted in a payout of 9% out of a maximum 10% of bonus for both the
CEO and CFO.
As such, payouts under the 2022 Executive Bonus Scheme are 84.67%
of maximum for the CEO and CFO. The bonus is paid half in cash and
half in shares, which must be held for a minimum of three years and up
to seven years for a portion, in line with regulatory requirements.
Committee member
Mary McNamara (Chair)
Noël Harwerth
Sarah Hedger
Rajan Kapoor
David Weymouth
Meetings
attended
5/5
5/5
5/5
5/5
5/5
Overview of 2022 performance and incentive outcomes
Despite signifi cant challenges in the marketplace during 2022, the
Group has nevertheless delivered resilient performance across the
fi nancial, customer, quality and ESG quadrants of the Balanced
Business Scorecard (BBS) which determines 90% of the outcome from
the 2022 Executive Bonus Scheme.
Financial highlights in 2022 included delivering underlying pre-tax
profi ts of £591.1m, continued double digit net loan book growth of 12%
and delivering an underlying cost to income ratio of 25%. As a result,
fi nancial targets have signifi cantly outperformed expectations with
50% out of the 50% allocated to the fi nancial quadrant of the BBS
being earned.
Whilst 2022 fi nancial performance has benefi tted from net fair value
gains on fi nancial instruments, driven largely by unmatched mortgage
pipeline swaps of £57.1m (see page 196), the Committee is satisfi ed
that the outturn is in line with underlying performance with the
hedging being considered an operational decision, which the business
uses to manage its risk exposure.
OSB GROUP PLC
Annual Report and Accounts 2022
143
Directors’ remuneration is aligned with performance, risk and pay
policies throughout the organisation. The Directors’ Remuneration
Policy (the Remuneration Policy) was approved by shareholders at the
2021 AGM with over 99% support and provides the framework under
which remuneration is structured. The policy is included from page
157 within this report for reference and will be reviewed during 2023 to
ensure that it remains appropriate for the next policy period following
shareholder approval at the 2024 AGM.
The 2022 Directors’ Remuneration Report, page 142-156 sets out details
of the Directors’ remuneration in respect of 2022 and how we intend
to operate the Remuneration Policy in 2023, and will be presented to
shareholders for approval, along with this letter, at the 2023 AGM.
Full details of the performance conditions and bonus payments are
provided on page 151 of this report. The targets for each measure were
set at the start of the year and assessed by the Committee following
the end of the financial year, liaising as necessary with the Group Risk
and Group Audit Committee Chairs. The Committee believes that this
payout is appropriate, reflecting the underlying performance of the
Group and wider stakeholder experience and discretion was not used
to adjust the outturn from the performance metrics.
The 2020 Awards under the Performance Share Plan (PSP) are based
on performance over the three-year performance period which ended
on 31 December 2022. Performance was based 35% on Earnings Per
Share (EPS) growth; 35% on Total Shareholder Return (TSR) versus the
companies in the FTSE 250 Index (excluding Investment Trusts); and
15% each on Return on Equity (RoE) and a risk-based metric.
Performance against the EPS target range exceeded the maximum
target and so 100% of the EPS part of the award vested. The TSR of
28% growth over the period placed OSB in the top quartile of the
FTSE 250 peer group and therefore 100% of the TSR part of the award
vested. The average RoE over the performance period was 22.2%
resulting in 64.6% of the RoE part of the award vesting. As prescribed
by the performance condition, the Committee undertook a qualitative
assessment of the risk metric and concluded that 86.67% of maximum
had been achieved. Further detail on the assessment is included on
page 150.
In total, 92.56% of maximum has been achieved and the Committee
is comfortable that there has been a clear and strong link between
reward and performance so that discretion was not required to adjust
the incentive outcome. The Committee has also confirmed that the
outcome is aligned with risk and no further adjustments are required.
The Committee received an annual report, and a summary report
for the period from 2020 to 2022, from the Group Chief Risk Officer
regarding the Group’s performance against the Board-approved risk
appetite, which reflected upon adherence to the desired risk culture
and corporate values. The Committee also liaised with the Chair of the
Group Risk Committee in relation to aligning remuneration with risk.
As the Awards were granted in 2020 when the COVID-19 pandemic
was unfolding and global stock markets fell sharply; the Committee
agreed to assess, at the time of vesting whether, given the market
volatility at the time, the participants had benefitted from any windfall
gain through a market-led recovery in the share price and, if so,
whether awards should be scaled back on vesting. The Committee
has reviewed this and based on all the evidence, has determined that
discretion is not required to scale back the awards. This was concluded
based on the fact that: (i) the share price did not recover materially
above the grant price until over six months after grant; (ii) the grant
share price was 20% above the low point for the share price in 2020;
(iii) the Group has delivered top quartile TSR performance against both
the FTSE 250 and other UK listed banks over the performance period,
which started prior to the onset of the pandemic; (iv) the TSR over
the performance period has delivered 28% growth, which measured
performance from before the pandemic; and (v) vesting will be in equal
tranches over five years.
OSB GROUP PLC
Annual Report and Accounts 2022
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Directors’ Remuneration Report continued
Review of Non-Executive Directors’ fees
During the year, the Committee reviewed the Chairman’s fee and,
determined that the fee should increase from £330,000 to £346,500.
Further details on the changes to NED fees are on page 156.
Consideration of shareholder views
We have taken into account shareholder views when determining the
operation of the Remuneration Policy and we will undertake a full
consultation exercise in 2023 as part of the Remuneration Policy review.
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 the Workforce Advisory Forum (OurVoice), to understand
their views, including those on remuneration, and report these views
to the Board. During 2022, the HR policies were discussed with the
OurVoice forum, setting out how Executive remuneration is governed
and how the Remuneration Policy is aligned with the wider workforce
polices. Views were sought with regards to the approach to senior
management remuneration and they were supportive of the balanced
approach to measuring performance including environmental and
employee metrics. Further details on the activities of OurVoice can be
found on pages 164 and 165.
Concluding remarks
Having been a NED of OSB since the IPO in 2014, I will be stepping
down from the role at the 2023 AGM. It has been an enjoyable
challenge to Chair this Committee throughout this period. Sarah
Hedger, who has been a member of the Committee since 2020, will
assume the role of Chair of the Committee from the 2023 AGM and
will lead the Committee through the Remuneration Policy review ahead
of it being presented to shareholders at the 2024 AGM.
I would also like to welcome our newest NED, Kal Atwal, who joined the
Committee on 7 February 2023.
The Annual Report on Remuneration including this Chair’s Statement
will be presented to shareholders at the 2023 AGM as an advisory
resolution and I look forward to your continued strong support at such
time.
Mary McNamara
Chair of the Group Remuneration and People Committee
16 March 2023
With this being the first PSP award granted following the combination
of OSB and CCFS, there were additional regulatory requirements
applicable to the award meaning that vesting will be over three to
seven years from grant. As such, these awards will vest in five equal
tranches between 2023 and 2027, with the vested shares being subject
to a further one-year holding period.
Implementation of the remuneration policy in 2023
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 for the final year of the policy period.
– Salary: Following careful consideration by the Committee of
the impact of salary increases on total remuneration and market
positioning, the CEO and CFO will receive a salary increase of
5% in 2023. This is significantly lower than the average increase
applicable to the workforce, where the average increase is
expected to be c.7.8%, with the highest increases for the lowest
paid. Employees below senior management levels will also receive
two £600 cost of living payments in 2023 to assist with the impact
of high inflation.
– Pension: The pension contribution remains at 8% of salary, which
is aligned to the rate for the majority of the workforce.
– Annual Bonus: The 2023 annual bonus will be subject to a
maximum limit of 110% of salary and will continue to be based 90%
on performance against the BBS and 10% on personal objectives.
Half of any bonus will be in deferred shares, which may not be sold
for at least three years.
The Committee has reviewed the metrics to be used and the
measures are broadly consistent with 2022, albeit the Customer
NPS metric has been split to measure the performance of the
lending and savings and Lending businesses separately.
– PSP Awards: PSP awards of 110% of salary will be made to the
Executive Directors with performance being measured over the
period to 31 December 2025. Performance will continue to be based
on TSR (35% weighting), EPS growth (35% weighting), RoE (15%
weighting) and Risk (15% weighting). The Committee is supportive
of including an ESG metric within the PSP; however, this will be
considered as part of the in-depth Remuneration Policy review that
will be undertaken in 2023.
The targets for each measure are set out in this report together
with supporting rationale and the Committee is satisfied that these
provide the appropriate stretch, taking into account the business
plan, external operating environment and market expectations.
Furthermore, when assessing the performance outcome, the
Committee may adjust the formulaic vesting outcome to ensure
that it is aligned with the underlying performance, risk appetite and
individual conduct over the period.
In line with the changes implemented in 2020, the 2023 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.
OSB GROUP PLC
Annual Report and Accounts 2022
Group Remuneration and People Committee – key
responsibilities
– Review and recommend for Board approval the Group
Remuneration Policy.
– Review the ongoing appropriateness and alignment of the
Group Remuneration Policy to the Group strategy (including
ESG) and alignment with key stakeholder expectations.
– Review workforce remuneration and related implementation
policies and note annually, the remuneration trends across the
Group.
– Review and recommend for Board approval, the remuneration
policy for the Executive Directors, including pension rights and
any compensation payments.
– Review and approve the remuneration policy for senior
management and the Company Secretary and all employees
who are identifi ed as Material Risk Takers for the purposes
of the Prudential Regulation Authority’s Remuneration Code
(the Remuneration Code) including pension rights and any
compensation payments.
– Review and approve the total individual remuneration package
of the Chairman of the Board, each Executive Director, the
Company Secretary and other designated senior managers1
including bonuses, any other incentive payments and share-
based awards.
– Ensure that workforce remuneration practices and culture are
taken into account when determining individual remuneration
packages.
– Approve the appointment of remuneration consultants.
– Approve the design of, and determine targets for, any
performance-related pay schemes operated by the Group
and approve the total annual payments made under such
schemes.
The following responsibilities were reallocated to the
Committee from the Group Nomination and Governance
during the year:
– Provide oversight of people matters within the Group (in
conjunction with the Group Nomination and Governance
Committee) including targets set by the Women in Finance
Charter, Gender Pay Gap reporting, Culture, updates from
OurVoice and outputs from surveys relating to employee
engagement.
– Review and approve the Group’s Diversity, Equity and
Inclusion Policy.
145
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1. Designated senior managers include all members of the Group Executive
Committee and any other senior employees in independent control functions.
OSB GROUP PLC
Annual Report and Accounts 2022
146
Directors’ Remuneration Report continued
Directors’ Remuneration at a glance
An overview of the Directors’ remuneration policy
and its implementation
Feature
Alignment with
Workforce policies
Performance Metrics
(weighting)
y
r
a
a
S
l
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n
o
i
s
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e
P
s
t
fi
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B
e
v
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x
E
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m
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h
c
S
s
u
n
o
B
To reward for the role and duties
required, recognising experience,
responsibility and performance.
Executive salary increases
are normally in line with or
lower than the average of
the workforce.
Contributes to retirement
planning and market competitive
benefits to ensure the well-being
of employees.
To incentivise and reward the
achievement of pre-defined annual
financial, operational and individual
objectives which are closely linked to
the corporate strategy.
Maximum opportunity = 110% of salary
Deferral of 50% of value earned into shares
aligns payout with shareholders’ interests
over the longer term.
Pension contribution rates for
Executives are the same as
most of the workforce.
The benefits are generally in
line with those available to the
wider workforce.
The majority of our workforce
participate in an annual
bonus plan, with performance
metrics aligned to business
performance and individual
KPIs.
Senior employees are required
to defer a portion
of their bonus into shares.
N/A
N/A
Financial: 50% weighting
Customer: 15% weighting
Quality:
15% weighting
ESG:
10% weighting
Individual: 10% weighting
To incentivise and recognise
execution of the business strategy
over the longer term.
Payable in shares. Three-year performance period
with vesting in five annual tranches.
P
S
P
Maximum opportunity = 110% of salary
Only the most senior
individuals participate in the
Performance Share Plan.
In 2022, around 80 employees
participated in the scheme
thereby promoting longer-term
performance and aligning
them to our shareholders’
interests.
2020 Award vesting:
Relative TSR (35%)
EPS (35%)
ROE (15%)
Non-financial - Risk (15%)
2022 Award granted:
In line with 2020 Award
s To increase alignment between
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Executive Directors and
shareholders during employment
and following cessation.
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S
Shareholding requirements
are only in place for the
most senior employees to
strengthen the alignment of
their interests with those of our
shareholders.
Executive Directors are
required to build up and
maintain a shareholding
worth at least 250% of
salary for the CEO and
200% of salary for the CFO
OSB GROUP PLC
Annual Report and Accounts 2022
147
Salary
Pension/Benefits
Shareholding requirements
How we implemented the Policy in
2022 and how we intend to implement
the Policy in 2023
Pension:
8%
of salary
Benefits:
Standard benefits
provided to both
Executive Directors
How we implemented the Policy in 2022
CEO (A Golding)
£847,600
CFO (A Talintyre)
£530,400
How we intend to implement the
Policy in 2023
CEO (A Golding)
£889,980 (+5%)
CFO (A Talintyre)
£556,920 (+5%)
Executive Bonus Scheme
How we implemented the Policy in 2022
Value of direct shareholding
CEO:
CFO:
£3m
(365% of salary)
£1.3m
(244% of salary)
(based on share price on 31 December 2022 of £4.7980)
How we intend to implement the Policy
in 2023
No change
PSP
How we implemented the Policy in 2022
How we implemented the Policy in 2022
CEO:
CFO:
84.67%
of maximum
84.67%
of maximum
50% of bonus
deferred into
shares for at
least three years
Performance assessment
set out on page 150
2020 Award
92.56%
of the maximum award vested
based on performance over the
three years to 2022
Performance assessment
set out on page 151
2022 Award:
Awards granted at
110%
of salary
Targets set out on page 154
How we intend to implement the Policy in 2023
How we intend to implement the Policy in 2023
Maximum opportunity
110%
of salary
No change to
performance
measures
Targets disclosed
retrospectively together
with performance
assessment
2023 Awards expected to be
made over a maximum of 110%
of salary
No change to performance
measures
Targets set out on page 156
The link between pay and the Group’s performance,
strategy, culture and ESG commitments
Financial
Quality
Strategy & Culture
Purpose
ESG
Sustainable financial
growth of the business
through attractive margins
and exceptional returns,
measured across a range
of financial indicators
Strong governance and
quality of the business
underpins our operations
Tailored individual
objectives in line with our
strategic priorities and
values
Helping our customers
prosper in line with our
Purpose
To support our Purpose
to help our customers,
colleagues and
communities prosper
Executive Bonus Scheme
110% of salary opportunity with at least 50% deferred into shares for at least 3 years
50% of bonus opportunity 15% of bonus opportunity 10% of bonus opportunity 15% of bonus opportunity 10% of bonus opportunity
– Underlying PBT1
– All-in RoE1
– Cost to income ratio1
– Net loan book growth
– Overdue management
actions
– Arrears
– High-severity incidents
– Varies by Executive
– Customer satisfaction1
– Broker satisfaction
– Complaints
– Gender diversity1
– Ethnic diversity
– Environment (Carbon
emissions)
– Employee engagement
Performance Share Plan
110% of salary opportunity, with performance assessed over 3 years and any shares delivered over extended time-horizons
50% of PSP opportunity
15% of PSP opportunity
EPS1 (35% weighting)
ROE1 (15% weighting)
Non-financial – Risk
(15% weighting)
1Key performance indicators (see pages 2 and 3).
Total Shareholder Return (35% weighting)
OSB GROUP PLC
Annual Report and Accounts 2022
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Directors’ Remuneration Report continued
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 2022. This Annual Report on Remuneration will,
in conjunction with the Annual Statement of the Committee Chair on
pages 142-144, be proposed for an advisory vote by shareholders at
the forthcoming AGM to be held on 11 May 2023.
Some of the data provided has been audited by Deloitte, which is
indicated, where applicable.
Membership and meetings
The Committee met five times during 2022. The members of the
Committee are Mary McNamara (Chair), Noël Harwerth, Sarah Hedger,
Rajan Kapoor and David Weymouth. Following her appointment to the
Board on 7 February 2023, Kal Atwal was also appointed as a member
of the Committee. Mary McNamara will cease to be Chair of the
Committee on 11 May 2023 and Sarah Hedger will become Chair of the
Committee on the same date. 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.
– Provide oversight of people matters within the Group (in
conjunction with the Group Nomination and Governance
Committee) including targets set by the Women in Finance Charter,
Gender Pay Gap reporting, Culture, updates from OurVoice and
outputs from surveys relating to employee engagement.
Employees under the Committee’s scope include Executive Directors,
the Chairman of the Board, the Company Secretary and all employees
who are identified as Material Risk Takers for the purposes of the PRA
and FCA’s Dual-regulated firms Remuneration Code (Code Staff).
Key matters considered by the Committee in 2022
Key issues reviewed and discussed by the Committee during the year
included:
– Review and approval of 2022 salary increases.
– Review and approval of 2021 bonus awards.
– Determining the 2022 grants under the PSP.
– Consideration of remuneration arrangements for the CEO and CFO
for 2023.
– Approval of the 2023 personal objectives for the CEO, CFO and
Group Executive team.
– Updates on the performance of in-flight PSP awards.
– Regular shareholder updates, as well as the approach and strategy
in respect of shareholder engagement.
– Review of pay arrangements across the Group.
– Leaving arrangements for senior employees.
– Considering and recommending the Directors’ Remuneration
Report to the Board for approval.
– Annual review of the costs and performance of the external
remuneration consultant.
– Other business as usual matters for employees under the
Committee’s scope.
Advisers to the Committee
Korn Ferry provided independent advice to the Committee during
2022, having been appointed following a competitive tender process in
2017. The total fees paid to Korn Ferry in 2022 were £160,400 and were
charged on a time and materials basis.
A separate department within Korn Ferry also acts as the Group’s
Executive succession planning adviser. Korn Ferry has no other
connection with the Company or any individual Director, with the
exception of Mary McNamara; Korn Ferry act as Remuneration
Consultant to the Remuneration Committee of Motorpoint Group
Plc, of which Mary McNamara is Chair. 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 that objective
and independent advice is given to remuneration committees.
The Committee is satisfied that Korn Ferry provides objective and
independent advice.
The Committee consults with the CEO (as appropriate) and seeks
input from the Chair of 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.
The Committee also receives input on senior management
remuneration from the CEO, CFO and Group HR Director. The Group
Head of Company Secretariat 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.
OSB GROUP PLC
Annual Report and Accounts 2022
149
Directors’ pay outcomes for 2022
Remuneration and fees payable for 2022 – (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
2022 and 31 December 2021.
Executive Directors
Andy Golding
April Talintyre
Basic
salary
£’000
Taxable
benefits1
£’000
Pension2
£’000
839
815
525
508
22
22
16
16
67
65
42
41
Year
2022
2021
2022
2021
Annual
bonus
paid3
£’000
Amount
bonus
deferred3
£’000
395
389
247
244
395
389
247
244
Total
fixed pay
£’000
928
902
583
565
LTIP5
£’000
1,340
907
912
611
Total
variable
pay
£’000
2,130
1,685
1,406
1,099
Total
£’000
3,058
2,587
1,989
1,664
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 or longer, in line with regulatory requirements.
4. The LTIP figure for the year ended 31 December 2021 has been restated based on the share price on vesting of £5.206782 for the 2019 PSP.
5. The LTIP figure for the year ended 31 December 2022 has been valued using the fourth quarter share price of £4.6258. The value will be restated in next year’s report based
on the actual share price on vesting for the 2020 PSP.
Total fees £’000
Chairman
David Weymouth
Non-Executive Directors
Graham Allatt
Noël Harwerth1
Sarah Hedger2
Rajan Kapoor
Mary McNamara
Simon Walker
Total
2022
2021
330
300
127.5
127.5
102.5
130
115
105
1,037.5
115
110
83
118
105
–
831
NEDs cannot participate in any of the Company’s share schemes and are not eligible to join the Company pension scheme.
1. Noël Harwerth received £255 (2021: £631) for taxable travel expenses; total payments received £127,755 (2021: £110,631).
2. Sarah Hedger received £479 for taxable travel expenses; total payments received £102,979.
The achievements against the Quality category were particularly
strong with 15% out of the 15% allocated to the quality quadrant being
earned. This reflects the strength of the controls environment within
the Group with the stretch targets being met for Overdue Actions,
Arrears and High Severity Incidents.
2022 was the first year in which we operated a broader ESG quadrant
in the BBS, which covers both employee and environmental metrics.
Payouts against the ESG metrics was mixed with strong performance
against the employee metrics but, despite the progress on embedding
the ESG strategy, it has not yet delivered the targeted reductions
in emissions. As a result, 7.55% out of the 10% allocated to the ESG
quadrant of the BBS was earned.
Executive bonus scheme
Despite significant challenges in the marketplace during 2022, the
Group has nevertheless delivered resilient performance across the
financial, customer, quality and ESG quadrants of the Balanced
Business Scorecard (BBS); which determines 90% of the outcome from
the 2022 Executive Bonus Scheme.
Financial highlights in 2022 included delivering underlying pre-tax
profits of £591.1m, net loan book growth of 12% and delivering an
underlying cost to income ratio of 25%. As a result, financial targets
have significantly outperformed expectations with 50% out of the 50%
allocated to the financial quadrant of the BBS being earned.
Whilst 2022 financial performance has benefitted from net fair value
gains on financial instruments, driven largely by unmatched mortgage
pipeline swaps of £57.1m (see page 196), the Committee is satisfied
that the outturn is in line with underlying performance with the
hedging being considered an operational decision that the business
uses to manage its risk exposure.
Our customers and employees are key stakeholders of the business
and the BBS includes key barometers of how we treat both groups
including a robustly evaluated customer Net Promoter Score (NPS)
and an employee engagement score. Whilst our customer scores
were down on the previous high levels, they continue to be sector
leading. This resulted in 3.12% out of the 15% allocated to the customer
quadrant of the BBS being earned.
OSB GROUP PLC
Annual Report and Accounts 2022
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150
Directors’ Remuneration Report continued
The performance against the measures for 2022 is set out below.
Targets1
Category
Key performance indicator
Weighting
Threshold
(25%)
Budget
(50%)
Maximum
(100%)
Actual result
Outcome
CEO
Outcome
CFO
Financial (50%)
Customer (15%)
Quality (15%)
ESG (10%)
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 (#)
Gender diversity (%)2
Ethnic diversity (%)2
Environment
Employee engagement3
Personal (10%)
Varies by Executive
Total
25%
10%
7.5%
7.5%
6%
4%
5%
5%
5%
5%
2%
2%
3%
3%
10%
490m
18.9%
28.9%
8.5%
60
25
0.11%
5
2.0%
3
31.0%
10.0%
4%
690
516m
19.9%
27.5%
9.7%
65
35
0.10%
3
1.7%
2
31.5%
11.0%
7%
700
542m
20.9%
26.1%
10.9%
70
40
0.09%
2
1.5%
1
33.5%
12.0%
10%
710
591.1m
23.5%
24.7%
12.4%
59.3
37.8
0.12%
2
1.07%
0
31.4%
10.3%
11.63%
730.3
See section below
25%
10%
7.5%
7.5%
0%
3.12%
0%
5%
5%
5%
0.90%
0.65%
3%
3%
9%
25%
10%
7.5%
7.5%
0%
3.12%
0%
5%
5%
5%
0.90%
0.65%
3%
3%
9%
84.67%
84.67%
1. Targets – based on a sliding scale between threshold, target and maximum.
2. Gender diversity – based on the Group’s commitment to the Women in Finance Charter and the gender diversity of employees in senior roles.
3. Employee engagement – Best Companies to Work For survey score
2022 personal performance
The Executive Directors could earn up to a maximum of 10% of their
bonus based on their performance against agreed personal objectives.
The objectives set at the start of the year and the Committee’s
assessment of performance against them are set out below:
The objectives for 2022 were built around strategic priorities (as
identified in our 2021 Annual Report) and cultural indicators.
Performance against these objectives for both Executive Directors
was considered to be strong, with the delivery of key objectives in a
challenging and uncertain year.
Objectives
Key achievements
CEO
Deliver the 2022 strategic objectives in line with the
Board-approved operating plan and as underpinned
by a medium-term goal to position the Group for future
growth and development.
2022 strategic objectives delivered including strong financial
performance, completion of the three-year integration of OSB and
CCFS and positioning the Group to streamline processes in the
future.
Live the Purpose, Vision and Values of OSB as a role model
and cascade the message throughout the organisation.
Establish and embed the ESG strategy and framework
across the Group during 2022.
Refresh the succession planning for the Group Executive
Committee confirming the status of the talent pipeline for
all key roles and implementing development plans for
identified individuals.
Lived the OSB Group Values, leading by example and ensuring
that employees understand the behaviours expected of them with
employee engagement within the leadership category remaining
strong.
Strong, open and transparent relationship with regulators
maintained with ongoing and proactive communications on
key developments and initiatives.
ESG strategy and framework developed and well received by the
Board, employees and shareholders. Relevant and robust baselines
for specific measures have been established, enabling longer term
targets to be set for specific measures within the ESG strategy.
Key Executive appointments made in 2022 and work commenced
with the Group Nomination and Governance Committee to begin
Executive succession planning.
OSB GROUP PLC
Annual Report and Accounts 2022
151
Objectives
Key achievements
CFO
Deliver the 2022 strategic objectives in line with the
Board-approved operating plan and as underpinned by a
medium-term goal to position the Group for future growth
and development.
Live the Purpose, Vision and Values of OSB as a role model
and cascade the message throughout the organisation.
Establish and embed the ESG strategy and framework
across the Group during 2022.
Refresh the succession planning for the Group Executive
Committee confirming the status of the talent pipeline for
all key roles and implementing development plans for
identified individuals.
2022 strategic objectives delivered including strong financial
performance, completion of the three-year integration of OSB
and CCFS and positioning the Group to streamline processes in
the future. Implementation of new Treasury and HR systems; and
oversight of the management of the Group’s capital and funding and
capital strategy, including further optimisation of the capital stack.
Lived the OSB Group Values, leading by example and ensuring
that employees understand the behaviours expected of them with
employee engagement within leadership category remaining strong.
Strong, open and transparent relationship with regulators
maintained with ongoing and proactive communications on key
developments and initiatives.
ESG strategy and framework developed and well received by
employees and shareholders. Relevant and robust baselines for
specific measures have been established, enabling longer term
targets to be set for specific measures within the ESG strategy.
Key Executive appointments made in 2022 and work commenced
with the Group Nomination and Governance Committee to begin
Executive succession planning.
Based on this performance, the Committee determined that 9% of a possible 10% for the individual element of the bonus should be paid to each of
the CEO and CFO.
2022 bonus scheme payout
Taking into account the performance against the BBS and individual
objectives, the CEO and CFO therefore each earned 84.67% of
maximum (93% of salary). In line with regulatory requirements, half of
the bonus will be paid in cash with the remainder deferred into shares
with the majority released after three years and the remainder vesting
in equal tranches over three to seven years.
Long-term incentive plan (audited)
The 2020 PSP award was granted on 19 March 2020 and measured
performance over the three financial years to 31 December 2022.
Based on performance against EPS, TSR, RoE and risk measures,
92.56% of the maximum award has been achieved as set out below.
EPS growth
Relative TSR
Average RoE
Non-financial – Risk
Weighting
35%
35%
15%
15%
Threshold
(25% vesting)
5% CAGR
75.1p
Median
Stretch
(100% vesting)
12% CAGR
91.2p
Actual
Vesting of portion
16.2% CAGR
35% out of 35%
101.9p
Upper quartile Above upper quartile
35% out of 35%
(32 out of 159)
19%
25%
22.1%
9.56% out of 15%
Assessment by Group Risk Committee
13% out of 15%
1. EPS targets were set in 2020 following the Combination with CCFS based on a ‘Threshold’ target of 5% CAGR and a ‘Stretch’ target of 12% CAGR measured from the 2019
pro-forma Group EPS for the base year.
2. RoE targets were set in 2020 following the Combination with CCFS based on achieving average RoE over 2020, 2021 and 2022. The RoE portion is subject to an underpin
requiring that the CET1 ratio is not below the Board-approved minimum requirement, which has been met.
In relation to the 15% Risk element, there was a robust process for the
Committee’s assessment of this measure. This entailed papers being
prepared each year by the Risk function, which were considered
by the Group Risk Committee, together with an overall assessment
presented to the Committee, by the Chair of the Group Risk
Committee. This assessment noted the following points:
(i) A strong risk culture and excellent ‘tone from the top’ in relation to risk;
(ii) successful navigation of two extreme risk events being the COVID-19
pandemic and sharp rise in inflation and interest rates following the
Ukraine conflict;
(iii) steps taken to address the resourcing constraints within the
Risk function;
(iv) strong progress on the ESG agenda; and
(v) a constructive relationship with the regulator.
Windfall gain assessment
As the Awards were granted in 2020 when the COVID-19 pandemic
was unfolding, the Committee agreed to assess at the time of vesting
whether, given the market volatility at the time, the participants had
benefitted from any windfall gain through a market-led recovery in
the share price. The Committee has reviewed this and, based on all
the evidence, has determined that discretion is not required to scale
back the outturn. This was concluded based on the fact that; (i) the
share price did not recover materially above the grant price until over
six months after grant; (ii) the grant share price was 20% above the
low point for the share price in 2020; (iii) the Group has delivered top
quartile TSR performance against both the FTSE 250 and other UK listed
banks over the performance period, which started prior to the onset of
the pandemic; (iv) the TSR over the performance period has delivered
28% growth, which measured performance from before the pandemic;
and (v) vesting will be in equal tranches over five years.
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Directors’ Remuneration Report continued
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 five equal tranches between 2023 and 2027, with
the shares delivered being subject to a further one-year holding period
in each case.
The 2020 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
Total value
vesting2
312,935
212,881
289,653
197,043
23,282
15,838
£591,529
£1,339,875
£402,401
£911,480
1. Value of share price increased/(decreased) based on a £2.5836 share price at the time of grant of the award compared to the three-month average share price of £4.6258
to 31 December 2022. The Committee is comfortable that discretion is not required to scale back awards as a result of share price appreciation.
2. Value of shares based on a three-month average share price of £4.6258 to 31 December 2022. The 2020 Awards will vest in equal tranches from 2023 to 2027. Dividend
equivalents are not paid under the Performance Share Plan.
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 149. The percentage is not included for Non-Executive
Directors who joined the Board in the year as the disclosure would not
be meaningful.
The changes to salary/fees between 2019 and 2020 are as a result
of changes made to pay arrangements following the Combination
of OSB with CCFS, which is also the reason for the increase in salary
for the CEO between 2020 and 2021 when the second stage of his
phased increase was implemented. There have been no material
changes to the benefits between 2019 and 2020 or between 2020 and
2021. The reduction in bonus for Executive Directors and employees
between 2019 and 2020 is as a result of the pandemic impacting the
2020 BBS performance and the Executive Directors waiving the cash
portion of their bonus. The increase in annual bonus between 2020
and 2021 is as a result of strong performance across the BBS in 2021,
whereas the payout in 2020 was lower due to the pandemic impacting
performance. The increases to the Non-Executive Director fees in 2022
compared to 2021 were based on a market assessment of fee levels.
UK employees
CEO
CFO
Graham Allatt
Noël Harwerth1
Sarah Hedger2
Rajan Kapoor1
Mary McNamara
Simon Walker4
David Weymouth
Salary/NED fees
Taxable Benefits
Annual Bonus
2019/20
2020/21
2021/22
2019/20
2020/21
2021/22
5.5%
42.4%
44.1%
25.3%
n/a
n/a
n/a
16.2%
n/a
16.7%
5.1%
10.9%
1.6%
0.9%
0.9%
(1.2%)
(1.7%)
0%
n/a
2.7%
11.4%
3.0%
3.5%
10.9%
15.9%
23.5%
10.2%
9.5%
n/a
10.0%
0%
0%
0%
0%
n/a
n/a
n/a
0%
n/a
0%
21.87%4
0.6%
0%
0%
285% 5
n/a
n/a
n/a
n/a
n/a
0%
0%
0%
n/a
(168)% 5
198% 6
n/a
n/a
n/a
n/a
2019/20
-27.5%
-71.9%
-71.5%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2020/21
2021/22
34%
366.1%
330.1%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
24.8%
1.54%
1.23%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1. Noël Harwerth and Rajan Kapoor joined the Board in October 2019.
2. Sarah Hedger joined the Board in February 2019.
3. Simon Walker joined the Board in January 2022.
4. Relates to the broader provision of our medical cash plan and the revision of car allowances following the harmonisation of benefits post Combination.
5. This relates to taxable travel expenses of £255 (2021: £631)
6. This relates to taxable travel expenses of £479.
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 2022.
Annual bonus
(% of maximum opportunity)
LTIP vesting
(% of maximum opportunity)
CEO single figure of remuneration
(£’000)
2013
2014
2015
2016
2017
2018
2019
2020¹
2021
2022
92.5% 92.63% 93.00% 88.75% 85.00% 91.75% 75.89% 20.60% 86.83% 84.67%
–
–
–
– 100.00% 50.00%
75.1% 62.74% 87.16% 92.56%
518
777
848
910
1,614
1,602
1,382
1,510
2,587
3,058
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 2022
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Total shareholder return
The chart below shows the TSR performance of the Company over the period from listing to 31 December 2022 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
450
400
350
300
250
200
150
100
50
)
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31 December
2013
31 December
2014
31 December
2015
31 December
2016
31 December
2017
31 December
2018
31 December
2019
31 December
2020
31 December
2021
31 December
2022
OSB GROUP PLC
FTSE All Share Index
This graph shows the value, at 31 December 2022, 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 (Refinitiv)
CEO pay ratios
The ratio of the CEO’s single figure of total pay to median employee
pay is set out in the table below. 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 decreased in the period between 2017 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 2018 and 2019 was also due to the decrease in total pay for
the CEO.
The median ratio increased between 2019 and 2020 largely as a result
of the decrease in the total pay for the median employee. This was
primarily as a result of OSB’s Combination with CCFS. The increase
in the ratio between 2020 and 2021 is primarily due to changes in
the CEO pay, which was increased as a result of the staged salary
increase upon Combination with CCFS; and due to higher incentive
payouts than 2020, which were adversely impacted by COVID-19.
The increase in ratio between 2021 and 2022 is primarily due to the
increase in CEO pay caused by higher incentive payments and, in
particular, the PSP award which benefitted from strong share price
growth, reflecting the excellent recent performance of the business.
There has been no change to the Group’s employment models during
this 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.
CEO pay ratio
Method
CEO single figure
Upper quartile
Median
Lower quartile
2022
CEO
Lower quartile – Employee A
Median – Employee B
Upper quartile – Employee C
2017
B
1,614
24.8
46.1
62.1
2018
B
1,602
22.3
40.1
59.5
2019
B
1,382
22.5
32.0
54.6
2020
B
1,510
28.1
42.1
51.6
2021
B
2,571
35.9
56.1
82.2
2022
B
3,058
45.1
70.1
86.3
Basic salary
(£’000)
Total pay
(£’000)
839
27
38
57
3,058
35
44
68
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Directors’ Remuneration Report continued
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
underlying profit before tax for the year under review and the prior
year.
Total employee costs
Distributions to shareholders1
Distributions to shareholders - special
dividend1
Underlying profit before tax (PBT)
Total employee costs vs PBT
Average headcount
Average PBT per employee
2022
2021
£109.3m
£133.1m
£92.5m
£86.7m
£50.3m
£591.1m
18.5%
1,896
£311,762
–
£522.2m
17.7%
1,755
£297,550
1. See note 16 to the financial statements. In addition to dividends, the Company
repurchased 20,671,224 ordinary shares as part of its £100m share repurchase
programme announced to the market on 17 March 2002 (2021: none).
Other disclosures relating to 2022 Executive remuneration
Scheme interests awarded during the financial year (audited)
The table below shows the conditional share awards made to Executive
Directors on 23 March 2022 under the PSP and the performance
conditions attached to these awards. The Committee has discretion
to adjust the vesting level to ensure that the reward level reflects
underlying performance, risk and individual conduct. There will be full
disclosure of the Committee’s deliberations on these matters in the
2024 Directors’ Remuneration Report. The Awards will vest 20% each
year between three and seven years after grant, with each vested
tranche subject to a one-year holding period.
Executive
Andy Golding
Face value of award
(percentage of salary)
Face value of
award
Number of
shares1
Percentage of awards
released for achieving
threshold targets
End of performance period
110%
£932,360
166,991
25%
31 December 2024
April Talintyre
110%
£583,440
104,497
Performance conditions2
(weighting)
EPS (35%)
TSR (35%)
RoE (15%)
Non-financial/Risk (15%)
1. The number of shares awarded was calculated using a share price of £5.5833 (the average closing price over the three Dealing Days prior to the date of grant).
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 3% per annum increasing to maximum vesting for 10% per annum); (iii) 15% RoE (25% vesting for average RoE of 17% increasing
to maximum vesting for an average of 23%); and (iv) 15% non-financial/risk scorecard.
All-employee share plans (audited)
Executive
Andy Golding
April Talintyre
Date of grant
Exercise price
Market price
31 December
2022
Exercisable from
Exercisable to
28 October 2020
£2.29013
£4.7980
1 December 2023
1 June 2024
28 October 2020
£2.29013
£4.7980
1 December 2023
1 June 2024
Number
of options
granted
7,859
7,859
Number of options as
at 31 December 2022
7,859
7,859
Statement of Directors’ shareholdings and share interests (audited)
Total shares owned by Directors and connected persons:
Interest in shares
Interest in share awards1
Shareholding requirements
Beneficially
owned at
1 January
2022
Beneficially
owned at
31 December
2022
Without performance
conditions at
31 December
20222
Subject to performance
conditions as at
31 December
2022
Shareholding
requirement
(percentage
of basic salary)
Current
shareholding
(percentage
of basic salary)3
505,787
325,855
644,908
269,260
217,980
143,729
661,330
430,895
250%
200%
435% (Met)
320% (Met)
19,970
66,850
18,678
–
–
–
–
19,970
66,850
18,678
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Executive Directors
Andy Golding
April Talintyre
Non-Executive Directors
Rajan Kapoor
Mary McNamara4
David Weymouth
Graham Allatt
Noël Harwerth
Sarah Hedger
Simon Walker
1. Vested shares are held in a corporate nominee account and are subject to the relevant retention periods. This account is also used to monitor current and post-employment
shareholding guidelines. The details of share options relating to the Executive Directors are set out above. None of the current Directors hold vested but unexercised share
options and no share options have been exercised during 2022.
Includes DSBP awards granted on 15 April 2022 at a price of £5.5833 (CEO: 69,713 shares and CFO: 43,625 shares).
2.
3. Shareholding based on the closing share price on 31 December 2022 (£4.7980) and year-end salaries; it also includes interest in share awards without performance
conditions (where applicable, on a net of tax basis).
Includes 27,500 shares that are owned by spouse.
4.
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.
OSB GROUP PLC
Annual Report and Accounts 2022
155
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)
There were no payments made to past Directors nor any payments for
loss of office during 2022.
Annual bonus
The 2023 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 (BBS). The Committee has reviewed the
metrics to be used in the BBS and the measures are broadly consistent
with 2022, albeit the customer NPS metric has been split to measure
the performance of the lending and savings businesses separately.
How we will implement the Remuneration Policy for Directors in
2023
The Committee consider the Policy to be operating effectively and
as such there are no material changes proposed for the operation of
the Remuneration Policy in the full year for 2023. The Policy will be
implemented during 2023 as follows:
The objectives under the personal element of the bonus (10% of the
overall opportunity) are in line with the key areas of focus for the year
ahead, including efficiency initiatives, people, customer and ESG.
The weightings are split between the four quadrants and individual
objectives to provide a balanced assessment of performance for the
year, as set out below.
Salary
Following careful consideration by the Committee of the impact
of salary increases on total remuneration and market positioning,
the salaries for the CEO and CFO will be increased in 2023 by 5%
to £889,980 and £556,920 respectively on 1 April 2023 which is
significantly below the average workforce percentage increase of
c.7.8%. Employees below senior management levels will also receive
two £600 cost of living payments in 2023 to assist with the impact of
high inflation.
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 2023
Annual Report on Remuneration. The Committee may apply discretion
to adjust the resultant bonus if the result fails to reflect broader
performance and the wider shareholder experience.
At least half of any bonus will be delivered in shares and cannot be
sold for at least three years.
Financial
Customer
Quality
ESG
Individual objectives
Sustainable financial
growth of the business
through attractive margins
and exceptional returns,
measured across a range
of financial indicators
Helping our customers and
communities to prosper in
line with our purpose
Strong governance and
quality of the business
underpins our operations
To support our purpose
Tailored to our values and
strategic priorities
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50% of bonus opportunity
15% of bonus opportunity
15% of bonus opportunity
10% of bonus opportunity
10% of bonus opportunity
Underlying PBT
All-in RoE1
Customer satisfaction
(separate lending and
savings)1
Cost to income ratio1
Broker satisfaction
Net loan book growth
Complaints
1. Key performance indicators (see pages 2 and 3).
Overdue management
actions
Arrears
High-severity incidents
Carbon emissions
Varies by Executive
Gender diversity
Ethnic diversity
Employee engagement
Details of objectives (and
performance against
these) will be disclosed
retrospectively in next
year’s report
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 2025. Performance will be assessed against the same
performance metrics and weightings as 2022 awards being based on
relative TSR versus the FTSE 250 (35% weighting), adjusted EPS in 2025
(35% weighting), Return on Equity (15% weighting) and Non-financial/
Risk (15% weighting). The metrics and weightings provide a balanced
assessment of corporate performance over three-year periods taking
into account financial, share price and non-financial metrics. A
discretionary assessment at the time of vesting ensures that the level
is in line with underlying performance, risk appetite and individual
conduct over the period.
The target ranges for EPS and ROE have been set carefully by the
Committee taking into account a number of factors, including
those set out below, which will influence the outlook for business
performance over the three years to 2025. The Committee is therefore
satisfied that these are appropriately stretching, taking account of
the following:
– The 2022 EPS benefitted from after tax net fair value gains on
financial instruments of £36.8m, primarily due to the step up in
interest rate outlook following the September mini-budget.
These unrealised gains unwind over the life of the financial
instruments. Excluding the impact of these net gains on 2022 EPS,
the implicit profit growth required to achieve the EPS target range
would remain significant.
– The previously articulated changes in the Group’s funding mix are
factors which will act as a partial drag on the Group’s EPS growth
and ROE outlook, namely:
– The Group is subject to an interim MREL requirement of 18% of Risk
Weighted Assets by July 2024 with full bail-in MREL of 2x Pillar 1
and Pillar 2a from July 2026. The Group is required to issue MREL
eligible debt instruments to meet these requirements.
– The Group is required to repay the relatively lower-cost £4.2bn of
borrowings under the Bank of England’s Term Funding Scheme
with additional incentives for Small and Medium-sized Enterprises
(TFSME) by October 2025.
– The level of ROE required to be achieved represents a sector leading
level of performance.
Overall, the Committee is comfortable that these targets provide a
strong link between reward and performance delivered and are at least
as stretching as target ranges in prior years.
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Directors’ Remuneration Report continued
Performance Share Plan continued
Metrics
Adjusted EPS in 20251
Relative TSR versus FTSE 250
Average RoE1
Weighting
Threshold
(25% of maximum)
Stretch
(100% of maximum)
Rationale
35%
35%
15%
92p
105p
Median
Upper quartile
15%
21%
Non-financial/Risk
15%
See below
Measures the sustainable profitability
of the business
Measures the success of the Company
versus other listed companies
Measures the sustainable financial
performance and financial efficiency of
the business
Strong governance around risk and
quality of the business underpins our
operations
1.
Key performance indicators (see pages 2 and 3). No vesting below threshold and pro-rata vesting between threshold and stretch.
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.
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 conditions. 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. The guidelines also apply for two years following
cessation of employment.
Chair and Non-Executive Director fees
The fees for the Chair and NEDs were reviewed and the rates for 2023
are set out below. The fee payable to the Chair was reviewed by the
Committee and it agreed that the fee for 2023 would be increased by
5% from £330,000 to £346,500. The fees payable to the NEDs were
also reviewed by the Board (minus the NEDs) and will be increased by
5% for 2023. Additionally, Sarah Hedger, the ESG Champion, provides
independent input into the Group’s ESG strategy will receive an
additional fee of £7,875 for this role in 2023.
Base fees
Chairman1
Non-Executive Director
Senior Independent Director
£’000
346.5
84
21
Additional Board Committee fees
Chair
Member
Group Nomination and Governance
Committee
Group Audit Committee
Group Remuneration and People
Committee
Group Risk Committee
Group Models and Ratings Committee
21
31.5
31.5
31.5
10.5
5.25
7.875
7.875
7.875
5.25
1. The Chairman’s fee is inclusive of all duties; no additional Chair or Member fees
are paid in relation to Board Committees.
Statement of voting at the Annual General Meeting
Shareholders were asked to approve the 2021 Annual Report on Remuneration at the 2022 AGM and the Directors’ Remuneration Policy at the
2021 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 2021 Remuneration Report (2022 AGM)
384,316,369
96.47% 14,060,040
3.53% 398,376,409
To approve the Remuneration Policy (2021 AGM)
380,816,449
99.98%
65,570
0.02% 380,882,019
834,568
1,025,114
Approval
This report was approved by the Board of Directors (on the recommendation of the Group Remuneration and People Committee) and signed
on its behalf by:
Mary McNamara
Chair of the Group Remuneration and People Committee
16 March 2023
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Remuneration Policy
This section describes our Directors’ Remuneration Policy (the
Remuneration Policy) for which shareholder approval was sought at
the AGM on 27 May 2021 and which formally came 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. Certain factual data has
been updated where applicable (e.g. page references and illustration
of remuneration policy); the original version approved by shareholders
can be found on pages 149-155 of the 2020 Annual Report.
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.
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:
Principle
Committee approach
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.
– We aim to set out our approach to remuneration in this report as transparently
as possible.
– We will engage with our Workforce Advisory Forum (OurVoice) 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, 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.
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.
– 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.
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.
– 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 page 153, 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 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 OurVoice. The Chair attends OurVoice 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 and the Board. 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 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 at 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.
The Company currently provides:
– car allowance;
– life assurance;
– income protection;
– private medical insurance; and
– other benefits as appropriate for the role.
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.
Benefits
To provide market
competitive benefits to
ensure the well-being of
employees.
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.
OSB GROUP PLC
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Element
Purpose and link to strategy
Operation and performance conditions
Maximum
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.
Performance
Share Plan
To incentivise and
recognise execution of
the business strategy
over the longer-term.
Rewards strong
financial performance
over a sustained period.
The maximum bonus
opportunity is 110% of
salary per annum.
The threshold level for
payment is 25% of maximum
for any measure.
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.
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.
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.
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 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
vest in accordance with the terms of the previous Policy.)
Clawback and malus provisions apply as described in note
1 overleaf.
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Directors’ Remuneration Report continued
Directors’ Remuneration Policy continued
Element
Purpose and link to strategy
Operation and performance conditions
Maximum
All-employee
share plan
(Sharesave
Plan)
Share
ownership
guidelines
All employees, including
Executive Directors, are
encouraged to become
shareholders through
the operation of an all-
employee share plan.
To increase alignment
between Executive
Directors and
shareholders.
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.
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.
– 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.
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.
Choice of performance measures for Executive Directors’
awards
The use of a Balanced Business 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 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 and People 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).
OSB GROUP PLC
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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 of
each meeting.
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.
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.
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 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 would vary under various
performance scenarios. This chart has been updated from the version
in the Policy approved at the 2021 AGM to illustrate how it is intended
the Remuneration Policy will be implemented in 2023.
£3,500k
£3,000k
£2,500k
£2,000k
£1,500k
£1,000k
£3,431k
42.8%
£2,941k
33.3%
£1,717k
14.3%
£983k
28.5%
33.3%
28.5%
£500k
100%
57.2%
33.4%
28.7%
0
£1,077k
14.2%
28.5%
57.3%
£617k
100%
£1,843k
33.2%
33.2%
33.6%
£2,149k
42.8%
28.5%
28.7%
Minimum
Target
Maximum
CEO
Share price
growth
Minimum
Target
Maximum
CFO
Share price
growth
Fixed Pay
Annual Bonus
LTIPs
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.
Other than as noted in the chart above, share price growth and all-employee share plan participation are not considered in these scenarios.
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Directors’ Remuneration Report continued
Directors’ Remuneration Policy continued
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
Notice period
Termination payments
Remuneration
Post-termination
Contract date
Unexpired term
Policy
12 months on either side.
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.
Andy Golding, 12 February 2020; April Talintyre, 12 February 2020.
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.
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).
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.
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).
For all appointments, the Committee may agree that the Company
will meet certain appropriate relocation costs.
OSB GROUP PLC
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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 Director
Element
Fees
Purpose and link to strategy
Operation and performance conditions
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 People 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
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.
Payment in lieu of notice
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
Date of appointment
Graham Allatt
Kal Atwal
Noël Harwerth
Sarah Hedger
Rajan Kapoor
Mary McNamara
Simon Walker
David Weymouth
6 May 20141
7 February 2023
4 October 2019 (appointed to the CCFS Board in June 2017)1
1 February 20191
4 October 2019 (appointed to the CCFS Board in September 2016)1
6 May 20141
4 January 2022
1 September 20171
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 2022
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164
Directors’ Report: other information
Share capital and rights attaching to shares
The Company had 429,868,625 ordinary shares of £0.01 each in issue
as at 31 December 2022.
Directors and Directors’ interests
The names of the Directors who served during the year can be found in
the attendance chart on page 122.
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 12 May 2022, shareholders re-established the general authority
for the Directors to allot up to £1,499,087.56 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
£539,671.22 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 44,972,602 ordinary shares. During the
year, the Company repurchased 20,671,224 ordinary shares as part of
its £100m share repurchase programme announced to the market on
17 March 2022 (2021: none).
Employee share schemes
The details of the Company’s employee share schemes are set out on
pages 159 and 160 in the Directors’ Remuneration Report and in the
Employee engagement section below.
Results, dividends and dividend waiver
The results for the year are set out in the Statement of Comprehensive
Income on page 179. Our dividend policy for 2023 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 21.8 pence per share for 2022 (2021: 21.1 pence), making a
total ordinary dividend of 30.5 pence per share (2021: 26 pence). The
Board has also announced a special dividend of £50.3m, 11.7 pence
per share (2021: nil). The recommended final dividend is subject to
approval at the AGM on 11 May 2023. The final and special dividends
will be paid on 17 May 2023, with an ex-dividend date of 23 March
2023 and a record date of 24 March 2023.
The OSB GROUP PLC Employee Benefit Trust, which holds 442,568
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 2022 was £149,245.
Directors’ interests in the shares of the Company are set out on page
154 in the Directors’ Remuneration Report. None of the Directors had
interests in shares of the Company greater than 0.36% of the ordinary
shares in issue. There have been no changes to Directors’ interests in
shares since 31 December 2022.
Equal opportunities
The Group is committed to applying its Group Diversity, Equity and
Inclusion Policy at all stages of recruitment and selection. Short-listing,
interviewing and selection will always be conducted 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 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.
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.
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 £10 and £500 per month over a period
of three years, at the end of which the options, subject to leaver
provisions, are usually exercisable (options granted prior to 2021 have
a lower limit of £5 and only three-year schemes will be offered from
2021 onwards). 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 OurVoice) is in place 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 Group. OurVoice consists of volunteer representatives (of which
there are 33 in total) from each of the various business areas and
locations, as well as permanent members including 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 throughout the year and do so on a regular basis.
Sarah Hedger will become a permanent member of OurVoice and will
replace Mary McNamara as the designated NED with responsibility for
OurVoice with effect from 11 May 2023.
OSB GROUP PLC
Annual Report and Accounts 2022
Members of the Board are keen to engage with employees across all
locations and find the experience of visiting our branches and offices
within the UK and India invaluable.
Further information in relation to the Board’s engagement with
the Group’s stakeholders including customers, intermediaries,
shareholders, suppliers, regulators and communities, can be found on
pages 16-21.
Three OurVoice meetings were held during 2022, with employee
representatives encouraged to engage with colleagues within their
nominated business areas and across all Group locations in advance
of each meeting in order to identify topics impacting the workforce
and 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 OurVoice, including 2021 Bonus and Salary increase, Best
Companies survey results and Mental Health First Aiders, as well as
topics relating to ESG matters such as community activities, culture,
diversity and inclusion and the governance of pay within the Group.
The permanent members of OurVoice were particularly interested in
feedback from the workforce in respect of employee morale, employee
engagement and hybrid working/working from home.
The Group is committed to diversity and to making sure everyone in
our business feels included. The Diversity and Inclusion Working Group
continued to develop the Group’s Diversity and Inclusion Strategy in
line with the Respect Others value throughout 2022. The Diversity and
Inclusion Working Group brings together a broad mix of colleagues
from across the UK business, as well as representation from OSB India,
to drive our diversity and inclusion agenda to appreciate differences
in age, gender, ethnicity, religion, disability, sexual orientation,
education, socio-economic background and national origin and ensure
that all colleagues are treated fairly, with respect and given equal
opportunities. Jason Elphick, our Diversity Champion, along with the
Diversity and Inclusion Working Group, hosted a number of activities
throughout the year including International Women’s Day with
senior females from across the business taking part in a Q&A panel,
launching the Group’s menopause statement and National Inclusion
Week 2022, which included a range of daily activities under the annual
theme of ‘Time to Act: the Power of Now’ with a number of personal
stories from our colleagues. The 2022 annual calendar provided a
number of national days for colleagues to celebrate.
Further details can be found on pages 111-113.
Greenhouse gas emissions
Information relating to greenhouse gas emissions, energy consumption
and actions towards energy efficiency can be found on pages 91-99.
Political donations
Shareholder authority to make aggregate political donations not
exceeding £50,000 was obtained at the AGM on 12 May 2022. Neither
the Company nor any of its subsidiaries made any political donations
during the year.
165
Notifiable interests in share capital
As at 31 December 2022, 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
abrdn plc
BlackRock, Inc.2
Norges Bank
Eleva Capital SAS3
No. of
ordinary shares
% of issued
share capital
44,811,775
24,874,897
23,204,094
17,386,770
13,190,830
9.98
5.79
5.38
4.05
2.96
Since 31 December 2022, the Company received the following
notifications:
– On 18 January 2023, Jupiter Fund Management PLC notified
that it had decreased its shareholding to 21,553,335 (5.01%)
ordinary shares.
– On 23 January 2023, Jupiter Fund Management PLC notified
that it had decreased its shareholding to 21,468,978 (4.99%)
ordinary shares.
– On 30 January 2023, Jupiter Fund Management PLC notified
that it had increased its shareholding to 21,662,986 (5.03%)
ordinary shares.
– On 1 February 2023, GLG Partners LP notified that it had increased
its shareholding to 21,575,462 (5.019%) ordinary shares.
– On 3 February 2023, Jupiter Fund Management PLC notified that
it had decreased its shareholding to 21,411,775 (4.98%) ordinary
shares.
– On 6 February 2023, Jupiter Fund Management PLC notified that it
had increased its shareholding to 21,511,347 (5%) ordinary shares.
– On 7 February 2023, Jupiter Fund Management PLC notified that it
had decreased its shareholder to 21,407,948 (4.98%) ordinary shares.
1.
2.
3.
Includes up to 0.02% of financial instruments.
Includes 0.31% of financial instruments.
Includes 1.14 % of financial instruments.
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. This year’s AGM will be held at our offices at 90
Whitfield Street, Fitzrovia, London W1T 4EZ on 11 May 2023 at 11am.
Other information
Likely future developments in the Group are contained in the Strategic
Report on pages 8-114.
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 52-77.
Details on how the Company has complied with section 172 can be
found throughout the Strategic and Directors’ Reports and on page
16-21.
Details relating to post-balance sheet events are set out in note 51.
OSB GROUP PLC
Annual Report and Accounts 2022
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166
Directors Report: other information continued
Going concern statement
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.
The Group’s financial projections demonstrate that the Group has
sufficient capital and liquidity to continue to meet its regulatory
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 ERMF and objectives and
processes for mitigating risks, including liquidity risk, are set out in
detail on pages 52-59.
Approved by the Board and signed on its behalf by:
Jason Elphick
Group General Counsel and Company Secretary
OSB GROUP PLC
Registered number: 11976839
16 March 2023
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 economic
scenarios provided by the Group’s external economic advisors, as well
as reverse stress tests.
The assessments include the following:
– Financial and capital forecasts were prepared under stress
scenarios, which were assessed against the latest economic
forecasts provided by the Group’s external economic advisors.
Reverse stress tests were also run, to assess what combinations
of House Price Index (HPI), unemployment, default rates and
consumer price index 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 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, with the Group
maintaining sufficient liquidity throughout the going concern
assessment period.
– 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 the
Group’s Important Business Services, minimising the impact
of any service disruptions on the Group’s customers or wider
financial services industry. The Group’s response to the COVID-19
pandemic demonstrated the inherent resilience of the Group’s
critical processes and infrastructure and its agility in responding to
changing operational demands. The Group recognises the need to
continually invest in the resilience of its services, with specific focus
in 2023 on ensuring that the third parties on which it depends have
the appropriate levels of resilience and in further automating those
processes that are sensitive to increases in volume.
OSB GROUP PLC
Annual Report and Accounts 2022
Statement of Directors’ Responsibilities
in respect of the Annual Report and the financial statements
167
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 UK-adopted International Financial Reporting
Standards (IFRS) 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 UK;
– 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.
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.
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:
– 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.
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Approved by the Board and signed on its behalf by:
Jason Elphick
Group General Counsel and Company Secretary
16 March 2023
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OSB GROUP PLC
Annual Report and Accounts 2022
In this section...
Financial Statements
Independent Auditor’s Report
169
179 Consolidated Statement of Comprehensive Income
180 Consolidated Statement of Financial Position
181 Consolidated Statement of Changes in Equity
182 Consolidated Statement of Cash Flows
183 Notes to the Consolidated Financial Statements
239 Company Statement of Financial Position
240 Company Statement of Changes in Equity
241 Company Statement of Cash Flows
242 Notes to the Company Financial Statements
OSB GROUP PLC
Annual Report and Accounts 2022
169
Independent Auditor’s Report
to the members of OSB Group plc
Report on the audit of the financial statements
1. Opinion
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 2022 and of the Group’s profit for the year then ended;
•
•
•
the Group financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards;
the parent company financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and as applied in accordance with the provisions 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 flow;
the related notes 1-54 of the consolidated financial statements; and
the related notes 1-6 of the parent company financial statements.
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom adopted international accounting
standards and, as regards the parent company financial statements, as applied in accordance with the provisions 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. The non-audit services provided to the Group and
parent company for the year are disclosed in note 8 to the financial statements. We confirm that we have not provided any non-audit services
prohibited by the FRC’s Ethical Standard 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 £21.6m which was determined by reference to profit
before tax and net assets.
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 97% of the Group’s interest receivable and similar income, 94% of the Group’s profit before
tax, 98% of the Group’s total assets and 99% of the Group’s total liabilities. All audit work was performed by the Group
engagement team.
Significant
changes
in our approach
In the current year, the Group has assessed how increases in inflation and interest rates may impact customers, and
has recognised separate cost of living and cost of borrowing post model adjustments (PMAs) in estimating provisions for
expected credit losses on loans to address these emerging risks. The calculation of these PMAs is inherently judgemental
because there is limited recent data available to estimate how increases in inflation and interest rates may impact
customers. We have considered these PMAs in our loan impairment provisions key audit matter.
In the prior year, our key audit matter in respect of effective interest rate (EIR) income recognition included estimating
EIRs in respect of the Group’s legacy acquired portfolios. The legacy acquired portfolios continue to reduce in size and
the Group’s income recognition on the acquired portfolios is less sensitive to changes in customer prepayment behaviour
relative to our audit materiality. This area no longer features in our EIR income recognition key audit matter.
OSB GROUP PLC
Annual Report and Accounts 2022
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170
Independent Auditor’s Report
to the members of OSB Group plc continued
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 consideration of 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 assessed key assumptions, including
climate risk considerations, for reasonableness 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, evaluated key assumptions and methods used in
the capital reverse stress testing model and tested the mechanical accuracy of the capital reverse stress testing model;
• 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 regulator, the Prudential Regulation Authority, and discussed their views on existing and emerging risks to the
Group and considered whether these were reflected appropriately in management’s forecasts and stress tests;
• We assessed the historical accuracy of forecasts prepared by management;
• We assessed the impact of the ongoing economic uncertainty, including how further rises in living and borrowing costs may impact potential
credit losses; and
• We evaluated the Group’s disclosures on going concern against the requirements of IFRS and 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.
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.
OSB GROUP PLC
Annual Report and Accounts 2022
171
5.1. Loan impairment provisions
Refer to the judgements in applying accounting policies and critical accounting estimates on page 193 and note 23 on page 206.
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 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. ECL provisions as at 31 December 2022 were £130.0m
(2021: £101.5m), which represented 0.54% (2021: 0.48%) 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.
As set out on page 71, the Group has implemented various model and staging enhancements during the
year as well as updating the IFRS 9 models as part of the Internal Ratings Based (IRB) programme.
The uncertain economic environment continues to increase the complexity in estimating ECLs, particularly
with regards to determining appropriate forward looking macroeconomic scenarios and identifying
customers who have experienced significant increases in credit risk. Additionally, rising living and
borrowing costs observed over the past year have increased the degree of subjectivity in estimating an
appropriate probability of default (PD) for customers.
We identified four specific areas in relation to ECL that require significant 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 2022. There is
a risk that the Group’s staging criteria does not capture SICR or are applied incorrectly.
• Macroeconomic scenarios: As set out on page 73, the Group sources economic forecasts from a third-
party economics expert and then applies judgement to determine which scenarios to select and the
probability weightings to assign. The Group considered four probability weighted scenarios, including
base, upside, downside and severe downside scenarios. The key economic variables used within the
macroeconomics model were determined to be the house price index (HPI) and unemployment. The
estimation of these variables involves a high degree of subjectivity and estimation uncertainty.
•
•
Post model adjustments (PMAs): The Group has assessed how increases in inflation and interest
rates may impact customers, and has recognised separate cost of living and cost of borrowing PMAs
to reflect these emerging risks. The calculation of these PMAs is inherently judgemental because
there is limited recent data available to estimate how increases in inflation and interest rates may
impact customers.
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.
OSB GROUP PLC
Annual Report and Accounts 2022
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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 assumptions and judgements used in the ECL determination.
To challenge the Group’s SICR criteria, we:
•
• Assessed the quantitative and qualitative thresholds used in the SICR assessment by reference to
Evaluated the Group’s SICR policy and assessed whether it complies with IFRS 9;
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;
Tested the completeness and accuracy of the data used in applying the quantitative and qualitative
criteria in the SICR assessment to assess whether loans were assigned to the correct stage;
Supported by our credit risk specialists, performed a full review of the computer codes used to perform
the SICR assessment;
•
•
• As part of our testing of the application of the SICR criteria within the ECL model and with support
from our credit risk specialists, we independently reperformed the Group’s staging assessment across
all three stages using our in-house analytics tool; and
Performed an independent assessment for a sample of loan accounts which exited forbearance, to
determine whether they had 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 the scenarios considered and the
probability weightings assigned to them in light of the economic environment as at 31 December 2022;
•
• With the involvement of our economic specialists challenged the Group’s economic outlook by
•
reference to other available economic outlook data;
Supported by our credit risk specialists, assessed the model methodology and performed a full review
of the computer code used in the macroeconomics model which applies the scenarios to the relevant
ECL components;
•
• Compared the appropriateness of selected macroeconomic variables (HPI and unemployment) and
the four probability weightings used in the macroeconomics model to those used by peer lenders;
Supported by our credit risk specialists, assessed the performance of the macroeconomic model to
confirm whether the economic variables previously selected were still appropriate through considering
the modelled macroeconomic results relative to those observed in historical recessions; 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 cost of living and cost of borrowing PMAs we:
•
Supported by our credit risk specialists, we assessed whether the risks were already captured within
the existing macroeconomics models;
Evaluated the methodology , including key assumptions and reviewed the computer codes used to
determine the PMAs; and
Tested the completeness, accuracy and relevance of the data used.
•
•
To challenge the Group’s PPD and FSD assumptions we:
•
Supported by our credit risk specialists, performed a full review of the computer codes in the
LGD models;
• Recalculated the PPD rates observed on defaulted loans and compared them to the rates used by the
Group in the ECL models;
• Recalculated the FSD observed on recent property sales on defaulted loans and compared them to the
rates used by the Group in the ECL models;
• Considered the findings raised in the Group’s model monitoring and validation exercise and assessed
•
the impact on the year-end provision; and
Performed a stand back test to consider potential contradictory evidence and assessed the
appropriateness of PPD and FSD assumptions by comparison to industry peers.
Key observations
We determined that the methodology used, and the SICR criteria and PPD and FSD assumptions in
determining the ECL provision as at 31 December 2022 were reasonable.
We observed that the macroeconomic scenarios selected by the directors and the probability weightings
applied generate an appropriate portfolio loss distribution, and we determined the Group’s cost of living
and cost of borrowing PMAs were reasonable.
We therefore determined that loan impairment provisions were appropriately stated.
OSB GROUP PLC
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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 194, the accounting policy on pages 184
and 185 and Notes 3 and 4 on page 195.
Key audit matter description
How the scope of our audit
responded to the key audit
matter
In accordance with the requirements of IFRS 9, directly attributable fees, discounts, incentives and
commissions on a constant yield basis (effective interest rate, EIR) are required to be spread over the
expected 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 2022 was £709.9m (2021: £587.6m).
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
receivable 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 is increased where there is limited availability of historical repayment
information. For two of the loan portfolios, Kent Reliance and Precise, the EIR adjustments are sensitive to
changes in the behavioural life curves. As set out on page 46, changes in the modelled behavioural life of
these portfolios during the year resulted in an interest income loss of £31.6m (2021: £11.0m gain). The EIR
adjustments have increased as a result of the rising interest rate environment. The current economic
environment brings additional uncertainty with regards to forecasting expected behavioural lives and
prepayment rates. We therefore considered there to be an increased level of risk in respect of this key audit
matter in the current year.
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, Kent Reliance and Precise, with the involvement of our in-house analytics and modelling
specialists we run the 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 the Group.
A number of assumptions are made to adjust actual behavioural data over recent years to reflect
the Group’s best estimate of expected future behaviour. For material assumptions, we independently
challenged the reasonableness of the assumptions considering the context of the rising rate environment
that has been experienced over the last year. For the same portfolios referenced above, with the
involvement of our in-house analytics and modelling specialists we independently derived a behavioural
life curve using the Group’s actual loan data over recent years and incorporating those assumptions that
we considered reasonable. We used these curves in our own independent EIR model to calculate the EIR
adjustments. We compared this output to the amounts recorded by the Group.
We also tested the completeness and accuracy of a sample of inputs into the EIR model for originated loans.
Key observations
We determined that the EIR models and assumptions used were appropriate and that net interest income
for the period is appropriately stated.
OSB GROUP PLC
Annual Report and Accounts 2022
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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:
Materiality
£21.6m (2021: £20.1m)
£15.8m (2021: £15.8m)
Group financial statements
Parent company financial statements
Basis for determining
materiality
We determined materiality for the Group to be
approximately 1% of net assets of £2,201.0m (£21.6m)
which equates to 4% of statutory profit before tax of
£531.5m. The basis of materiality is consistent with prior
year.
We determined materiality for the parent company by
reference to 1% of net assets. This is consistent with prior
year.
Rationale for the
benchmark applied
Consistent with the prior year, we considered both
net assets and a profit before tax based measure as
benchmarks for determining materiality.
The parent company is principally a holding company
and we have therefore determined net assets to be the
most relevant benchmark to determine materiality.
We determined net assets to be the most relevant and
stable benchmark to determine materiality.
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% (2021: 60%) of Group materiality
60% (2021: 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 (2021: 60%). 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.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1.1m (2021: £1.0m), 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.
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 (2021: three significant components subject to a full scope audit). They represent 97% (2021: 98%) of the Group’s
interest receivable and similar income, 94% (2021: 96%) of profit before tax, 98% (2021: 97%) of total assets and 99% (2021: 99%) 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 £6.6m to £17.9m (2021: £5.5m to £16.7m).
OSB GROUP PLC
Annual Report and Accounts 2022
175
Interest receivable and
similar income
Total assets
Total liabilities
Profit before tax
Full audit scope
97%
Full audit scope
94%
Full audit scope
98%
Full audit scope
99%
Review at group level
3%
Review at group level
6%
Review at group level
2%
Review at group level
1%
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 financial reporting, lending and savings areas. For these controls with the
involvement of our IT specialists we performed testing over the general IT controls, including testing of user access and change management systems.
Where deficiencies were identified in the control environment, including deficiencies in IT controls, our risk assessment procedures included an
assessment of those deficiencies to determine the impact on our audit plan. Where we were unable to identify or test mitigating controls, we
adopted a non-controls reliance approach and performed additional substantive procedures. As a result of deficiencies identified in internal IT
access controls across the Group, we amended our planned audit procedures to adopt a non-controls reliance approach over lending and related
interest income, and over deposit balances and related interest expense.
7.3. Our consideration of climate-related risks
In planning our audit, we have considered the impact of climate change on the Group’s operations and impact on its financial statements. The
Group has set out its commitments, aligned with the goals of the Paris Climate Accord, to be a net zero bank by 2050. Further information is
provided in the Group’s Strategic Report and Task Force on Climate-Related Financial Disclosures (“TCFD”) on pages 7 and 100. The Group sets
out its assessment of the potential impact of climate change on ECL on page 71 of the Risk Management section of the Annual Report and the
potential impact on the financial statements in note 23 on page 206.
In conjunction with our climate risk specialists, we have held discussions with the Group to understand:
•
the process for identifying affected operations, including the governance and controls over this process, and the subsequent effect on the
financial reporting for the Group; and
•
the long-term strategy to respond to climate change risks as they evolve.
Our audit work has involved:
•
challenging the completeness of the physical and transition risks identified and considered in the Group’s climate risk assessment and the
conclusion that there is no material impact of climate change risk on current year financial reporting;
• with the involvement of our credit risk specialists, assessing management’s approach to the incorporation and quantification of climate
change risks within a PMA in the ECL provision, which included:
– assessing management’s selected climate pathway used in order to quantify the potential impact of physical risks on the Group’s loan
book and in particular how the underlying property may be impacted as a result;
– assessing how different lending segments may be impacted by transition risks and in particular how the buy-to-let portfolio may be
impacted by more stringent EPC criteria; and
– assessing the relevance of the data used in the assessment.
• assessing disclosures in the Annual Report, and challenging the consistency between the financial statements and the remainder of the
Annual Report.
We have been engaged to provide limited assurance on the description of activities undertaken to meet the Recommendations of the Task
Force on Climate-Related Financial Disclosures (“TCFD”) and selected Environmental, Social and Governance metrics (“Selected ESG Metrics”)
(together the “Assured ESG Information”) in the Annual Report for the year-ended 31 December 2022. Please refer to page 248 for our separate
assurance report.
OSB GROUP PLC
Annual Report and Accounts 2022
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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.
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;
•
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; and
the matters discussed among the audit engagement team and relevant internal specialists, including tax, valuations, real estate, IT, climate
risk, prudential risk, economics, credit risk 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 and effective interest rate income recognition. 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, Listing Rules and tax legislation.
OSB GROUP PLC
Annual Report and Accounts 2022
177
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 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; and
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.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, including internal
specialists, 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. Opinion on other matter prescribed by the Capital Requirements (Country-by-Country Reporting) Regulations 2013
In our opinion the information given in note 49 to the financial statements for the financial year ended 31 December 2022 has been properly
prepared, in all material respects, in accordance with the Capital Requirements (Country-by Country Reporting) Regulations 2013.
14. 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.
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 166;
•
•
•
•
•
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 76 and 77;
the directors' statement on fair, balanced and understandable as set out on page 135;
the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks as set out on page 123;
the section of the annual report that describes the review of effectiveness of risk management and internal control systems as set out on
page 123; and
the section describing the work of the Audit Committee as set out on pages 133 to 138.
OSB GROUP PLC
Annual Report and Accounts 2022
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15. Matters on which we are required to report by exception
15.1. 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.
15.2. 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.
16. Other matters which we are required to address
16.1. 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 ending 31 December 2020 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is three years, covering the years ending 31 December 2020 to 31
December 2022.
Prior to our appointment to audit the parent company, we were auditor of the Group headed by OneSavings Bank plc, since 9 May 2019. The
period of total uninterrupted engagement for OneSavings Bank plc, including previous renewals and reappointments of the firm, is four years,
covering the year ended 31 December 2019 to 31 December 2022.
16.2. 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).
17. 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.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements will
form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the UK
FCA in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report provides no assurance over whether the annual
financial report has been prepared using the single electronic format specified in the ESEF RTS. We have been engaged to provide assurance on
whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS and will report separately to
the members on this.
Robert Topley FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
16 March 2023
OSB GROUP PLC
Annual Report and Accounts 2022
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
Interest receivable and similar income
Interest payable and similar charges
Net interest income
Fair value gains on financial instruments
Gain on sale of financial instruments
Other operating income
Total income
Administrative expenses
Provisions
Impairment of financial assets
Impairment of intangible assets
Integration costs
Exceptional items
Profit before taxation
Taxation
Profit for the year
Other comprehensive expense
Items which may be reclassified to profit or loss:
Fair value changes on financial instruments measured at fair value through other comprehensive
income (FVOCI):
Arising in the year
Amounts reclassified to profit or loss for investment securities at FVOCI
Tax on items in other comprehensive expense
Revaluation of foreign operations
Other comprehensive expense
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 183-238 form part of these accounts.
The financial statements on pages 180-238 were approved by the Board of Directors on 16 March 2023.
Note
3
4
5
6
7
8
37
24
9
12
13
14
19
16
15
15
179
2021
£m
746.8
(159.2)
587.6
29.5
4.0
7.9
629.0
(166.5)
(0.2)
4.4
3.1
(5.0)
(0.2)
464.6
(119.3)
345.3
1.1
(2.0)
0.5
(0.1)
(0.5)
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a
n
c
e
2022
£m
1,069.3
(359.4)
709.9
58.9
–
6.6
775.4
(207.8)
1.6
(29.8)
–
(7.9)
–
531.5
(121.5)
410.0
0.3
(0.7)
0.1
(0.2)
(0.5)
409.5
344.8
409.5
–
409.5
42.2
90.8
89.8
340.1
4.7
344.8
26.0
76.0
75.2
i
F
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a
n
c
a
i
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s
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a
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m
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A
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OSB GROUP PLC
Annual Report and Accounts 2022
180
Consolidated Statement of Financial Position
As at 31 December 2022
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
Total equity and liabilities
Note
2022
£m
2021
£m
18
19
20
26
25
27
28
29
30
31
32
26
33
34
25
35
36
37
38
39
40
42
42
43
0.4
3,365.7
412.9
23,612.7
(789.0)
888.1
15.0
1.7
6.3
40.9
12.0
0.5
2,843.6
491.4
21,080.3
(138.9)
185.7
10.2
–
5.6
35.1
18.4
27,566.7
24,531.9
5,092.9
19,755.8
(55.1)
113.1
265.9
106.6
9.9
38.7
0.4
–
22.3
–
15.2
4,319.6
17,526.4
(19.7)
92.6
460.3
19.7
10.7
29.6
2.0
1.0
39.8
10.3
15.2
25,365.7
22,507.5
4.3
2.4
3,389.4
(1,195.1)
2,201.0
4.5
0.7
3,215.1
(1,195.9)
2,024.4
27,566.7
24,531.9
The notes on pages 183-238 form part of these accounts. The financial statements on pages 180-238 were approved by the Board of Directors on
16 March 2023 and signed on its behalf by
Andy Golding
Chief Executive Officer
April Talintyre
Chief Financial Officer
Company number: 11976839
OSB GROUP PLC
Annual Report and Accounts 2022
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
181
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A
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Share-
based
payment
reserve
£m
Retained
earnings
£m
Additional
Tier 1 (AT1)
securities
£m
Non-
controlling
interest
securities
£m
Total
£m
Capital
redemption
and
transfer
reserve2
£m
(1,355.3)
–
–
Own
shares3
£m
(4.0)
–
–
Foreign
exchange
reserve
£m
(1.0)
–
(0.1)
FVOCI
reserve
£m
1.0
–
(0.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
–
–
–
–
–
–
–
0.5
(0.1)
(0.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Share
capital1
£m
Share
premium
£m
1,359.8
–
–
–
–
–
–
–
–
(1,355.3)
–
–
–
–
–
–
–
–
–
–
–
–
0.7
–
–
–
–
–
–
–
7.8 1,608.6
345.3
–
–
–
–
–
–
–
4.0
–
–
345.3
(4.7)
(86.7)
2.9
(0.5)
– 1,355.3
–
–
–
–
1.6
–
(3.5)
–
(1.6)
–
4.5
–
–
0.7
–
–
(1,355.3)
–
–
(3.5)
–
–
(1.1)
–
(0.2)
0.6
–
(0.4)
13.4 3,215.1
410.0
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
(0.2)
4.3
–
–
–
1.7
–
–
–
–
–
–
–
0.2
–
–
–
–
1.3
–
2.4
(1,355.1)
(2.2)
(0.2)
–
–
–
–
–
(1.3)
(0.3)
–
–
–
–
–
0.3
–
–
–
(0.2)
–
–
410.0
(9.0)
(133.1)
8.4
(1.3)
(100.7)
At 1 January 2021
Profit for the year
Other comprehensive expense
Tax on items in other
comprehensive expense
Total comprehensive (expense)/
income
Coupon paid on non-controlling
interest securities
Dividends paid
Share-based payments
Own shares3
Capital reduction of OSB GROUP
PLC (OSBG) share capital1
Redemption of non-controlling
interest securities
Transactions costs on redemption
of non-controlling interest
securities
Issuance of AT1 securities
Transactions costs on issuance of
AT1 securities
Tax recognised in equity
At 31 December 2021
Profit for the year
Other comprehensive expense
Tax on items in other
comprehensive expense
Total comprehensive (expense)/
income
Coupon paid on AT1 securities
Dividends paid
Share-based payments
Own shares3
Share repurchase
At 31 December 2022
–
–
–
–
–
–
–
–
–
–
–
60.0
–
–
1,676.9
345.3
(1.0)
–
–
–
–
–
–
–
0.5
344.8
(4.7)
(86.7)
7.6
–
–
(60.0)
(60.0)
–
150.0
–
–
150.0
–
–
–
–
–
–
–
–
–
–
–
–
–
(3.5)
150.0
(1.6)
1.6
– 2,024.4
410.0
–
(0.6)
–
–
–
–
–
–
–
–
0.1
409.5
(9.0)
(133.1)
9.9
–
(100.7)
13.2 3,389.4
150.0
– 2,201.0
1.
On 26 February 2021, OSBG reduced the nominal value of 447,312,780 shares from three hundred and four (304) pence each to one (1) penny each, see note 42 for
further details.
Includes Capital redemption reserve of £0.2m (2021: nil) and Transfer reserve of £(1,355.3)m (2021: £(1,355.3)m).
2.
3. The Group has adopted look-through accounting (see note 1 d)) and recognised the Employee Benefit Trust within OSBG.
Share capital and premium is disclosed in note 42 and the reserves are further analysed in note 43.
OSB GROUP PLC
Annual Report and Accounts 2022
182
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
Cash flows from operating activities
Profit before taxation
Adjustments for non-cash items
Changes in operating assets and liabilities1
Cash generated/(used) in operating activities1
Net tax paid
Net cash generated/(used) in operating activities
Cash flows from investing activities
Maturity and sales of investment securities
Purchases of investment securities
Interest received on investment securities
Sales of financial instruments
Proceeds from sale of property, plant and equipment
Purchases of property, plant and equipment and intangible assets
Cash generated from investing activities
Cash flows from financing activities
Financing received1
Financing repaid
Interest paid on financing
Share repurchase2
Coupon paid on non-controlling interest securities
Coupon paid on AT1 securities
Dividends paid
Redemption of non-controlling interest securities
Issuance of AT1 securities
Proceeds from issuance of shares under employee Save As You Earn (SAYE) schemes
Cash payments on lease liabilities
Cash (used)/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
1. 2021 figures restated see note 1 b) for further details.
2. Comprises £100.0m for shares repurchased, £0.7m transaction costs and £1.3m incentive fee.
Note
50
50
6
29
29,30
41
41
41
16
35
17
17
2022
£m
531.5
63.7
(24.2)
571.0
(142.5)
428.5
663.7
(596.5)
7.7
–
–
(11.7)
63.2
429.5
(324.2)
(45.3)
(102.0)
–
(9.0)
(133.1)
–
–
1.7
(1.9)
(184.3)
307.4
2,736.7
3,044.1
307.4
Restated1
2021
£m
464.6
(10.0)
(683.6)
(229.0)
(117.3)
(346.3)
547.7
(468.2)
1.9
4.0
2.0
(6.8)
80.6
4,943.2
(4,295.4)
(8.4)
–
(4.7)
–
(86.7)
(63.5)
148.4
0.8
(1.9)
631.8
366.1
2,370.6
2,736.7
366.1
OSB GROUP PLC
Annual Report and Accounts 2022
183
Notes to the Consolidated Financial Statements
For the year ended 31 December 2022
1. Accounting policies
a) Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the United
Kingdom (UK) and interpretations issued by the IFRS Interpretations Committee (IFRS IC).
The financial statements have been prepared on a historical cost basis, as modified by the revaluation of investment securities held at FVOCI and
derivative contracts and other financial assets held at fair value through profit or loss (FVTPL) (see note 1 p) vi.).
The financial statements are presented in Pounds Sterling. All amounts in the financial statements have been rounded to the nearest £0.1m (£m).
Foreign operations are included in accordance with the policies set out in this note.
b) Restatement
In the prior year, cash collateral and margin received on interest rate swaps of £115.4m was included in financing cash flows in the Consolidated
Statement of Cash Flows. As the cash flows arise on hedging activities related to items classified as operating assets and liabilities within the
Consolidated Statement of Cash Flows, the cash flows should be included within operating cash flows. In the current year, cash collateral and
margin received on interest rate swaps has been classified as an operating cash flow in 2022 and the 2021 Consolidated Statement of Cash Flows
restated to reclassify a cash inflow of £115.4m from financing activities to operating activities.
c) 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 economic scenarios provided by the Group’s external
economic advisors, as well as reverse stress tests.
The assessments include the following:
•
•
•
Financial and capital forecasts were prepared under stress scenarios which were assessed against the latest economic forecasts provided
by the Group’s external economic advisors. Reverse stress tests were also run, to assess what combinations of House Price Index (HPI) 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 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 Internal Liquidity Adequacy Assessment Process
(ILAAP) stress scenarios.
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 continues to be on the provision of the Group’s Important Business
Services, minimising the impact of any service disruptions on the Group’s customers or the wider financial services industry. The Group’s
response to the COVID-19 pandemic demonstrated the inherent resilience of its critical processes and infrastructure and its agility in
responding to changing operational demands. The Group recognises the need to continually invest in the resilience of its services, with
specific focus in 2023 on ensuring that the third parties on which it depends have the appropriate levels of resilience and in further
automating those processes that are sensitive to increases in volume.
The Group’s financial projections demonstrate that the Group has sufficient capital and liquidity to continue to meet its regulatory capital
requirements as set out by the Prudential Regulation Authority (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.
d) Basis of consolidation
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.
OSB GROUP PLC
Annual Report and Accounts 2022
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Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
d) Basis of consolidation continued
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.
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 (OCI) 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 relevant risk management tables in note 45 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 and FVOCI 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.
Interest income on financial assets categorised as stage 1 or 2 are recognised on a gross basis, with interest income on stage 3 assets recognised
net of expected credit losses (ECL). For purchased or credit-impaired assets (see note 1 o) vii.), interest income is calculated by applying the credit-
adjusted EIR to the amortised cost of the asset. The calculation of interest income does not revert to a gross basis even if the credit risk of the
asset improves. See note 1 p) ii. for further information on IFRS 9 stage classifications.
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.
The Group monitors the actual cash flows for each book and resets cash flows on a monthly basis, 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 movement in the reference interest rate (SONIA, synthetic 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.
OSB GROUP PLC
Annual Report and Accounts 2022
185
When the contractual terms of non-derivative financial instruments have been amended as a direct consequence of IBOR reform during 2021
and the new basis for determining the contractual cash flows is economically equivalent to the previous basis, the Group changes the basis for
determining the contractual cash flows prospectively by revising the EIR.
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 and AT1 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 recorded in
other operating income and 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 expense 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 Consolidated
Statement of Comprehensive Income and the Notes to the Consolidated Financial Statements.
j) Taxation
Income tax comprises current and deferred tax. It is recognised in profit or loss, OCI or directly in equity, consistent with the recognition of items it
relates to. The Group recognises tax on coupons paid on non-controlling interest securities and AT1 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.
Deferred tax liabilities are recognised for all taxable temporary differences.
The Company and its tax-paying UK subsidiaries are in a group payment arrangement for corporation tax and show a net corporation tax liability
and deferred tax liability accordingly, with the exception of WSE Bourton Road Limited which is applying to join the arrangement.
The Company and its UK subsidiaries are in the same VAT group.
k) Dividends
Dividends are recognised in equity in the period in which they are paid or, if earlier, approved by shareholders.
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 credit
institutions and highly liquid financial assets with maturities of less than three months from date of acquisition, subject to an insignificant risk of
changes in their fair value and are used by the Group in the management of its short-term commitments.
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.
OSB GROUP PLC
Annual Report and Accounts 2022
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Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
m) Intangible assets continued
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.
Software-as-a-service (SaaS), is an arrangement that provides the Group with the right to receive access to the supplier’s application software in
the future which is treated as a service contract, rather than a software lease or the acquisition of a software intangible asset.
An intangible asset is only recognised if:
•
•
The Group has the contractual right to take possession of the software during the hosting period without significant penalty; and
It is feasible for the Group to run the software on its own hardware or contract with a party unrelated to the supplier to host the software.
The costs of configuring or customising supplier application software in a SaaS arrangement that is determined to be a service contract is
recognised as an expense or prepayment. Where the configuration and customisation services are not distinct from the right to receive access to
the software, then the costs are recognised as an expense over the term of the arrangement.
Intangible assets are reviewed for impairment semi-annually, and if they are considered to be impaired, are written down immediately to their
recoverable amounts. Impairment losses previously recognised for intangible assets, other than goodwill, are reversed when there has been
a change in the estimates used to determine the asset’s recoverable amount. An impairment loss reversal is recognised in the Consolidated
Statement of Comprehensive Income and the carrying amount of the asset is increased to its recoverable amount.
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
For development costs that are under construction, no amortisation will be applied until the asset is available for use and is calculated using a full
month when available for use.
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 243.
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 subsidiary’s net asset values at the reporting date for indication of impairment. Where there is
indication of impairment, the Company estimates the subsidiary’s 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.
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p) Financial instruments
i. 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 or FVOCI, 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. Financial instruments classified as amortised
cost are subsequently measured using the EIR method.
Transaction costs relating to the acquisition or issue of a financial instrument at FVTPL are recognised in the profit or loss as incurred.
AT1 securities are designated as equity instruments and recognised at fair value on the date of issuance in equity along with incremental costs
directly attributable to the issuance of equity instruments.
ii. 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.
•
•
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.
FVTPL – assets not measured at amortised cost or FVOCI. The Group measures derivatives, an acquired mortgage portfolio and an
investment security under this category.
The Group classifies non-derivative financial liabilities as measured at amortised cost.
The Group has no non-derivative financial assets or 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.
During the year equity financial instruments comprised own shares, and AT1 securities (2021: and non-controlling interest securities). Accordingly,
the coupons paid on the non-controlling interest securities and AT1 securities are recognised directly in retained earnings when paid.
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.
The Group offers refinancing options to customers which have been assessed within the principles of IFRS 9 and relevant guidance. The
assessment concludes the original mortgage asset is derecognised at the refinancing point 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 a substantial modification 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.
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Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
p) Financial instruments continued
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, less principal payments or receipts, 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 of assets.
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 its investment securities and Perpetual Subordinated Bonds (PSBs) at fair value using quoted market prices
where available.
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 SONIA curves to value its derivatives, previously a combination of LIBOR and SONIA curves. 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 Group’s two banking entities 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.
The fair value of investment securities held at FVTPL is measured using a discounted cash flow model.
vii. Identification and measurement of impairment of financial assets
The Group assesses all financial assets for impairment.
Loans and advances to customers
The Group uses the IFRS 9 three-stage 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 ECL allowance is recognised 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.
For all individually assessed loans with a confirmed sale, should the present value of estimated future cash flows discounted at the original EIR be
less than the carrying value of the loan, a provision is recognised for the difference with such loans being classified as impaired. However, should
the present value of the estimated future cash flows exceed the carrying value, no provision is recognised. For all remaining individually assessed
loans, should a full loss be expected, the provision is set to the carrying value, with all other individually assessed loans applying the greater of
either the modelled or individual assessment.
The Group applies a modelled assessment to all loans with no individually assessed provision.
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IFRS 9 modelled impairment
Measurement of ECL
The assessment of credit risk and the estimation of ECL are unbiased and probability weighted. 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 SICR has occurred is based on quantitative relative PD thresholds and a suite
of qualitative triggers.
In accordance with PRA COVID-19 guidance, the Group did 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, such as forbearance, and external information, such as changes in income and adverse credit
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 is considered to have 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:
•
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 unlikely 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 ECL 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 HPI, unemployment rate (UR), Consumer Price Index (CPI), Gross domestic product (GDP), Commercial
Real Estate Index (CRE) and the Bank of England Base Rate (BBR).
The Group has developed 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 sources economic forecast information from an appropriately qualified third party when determining scenarios. 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
ECL 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 unlikely to pay position) at acquisition are treated as POCI
assets. These assets attract a lifetime ECL allowance over the full term of the loan, even when these loans no longer meet the definition of default
post acquisition. The Group does not originate credit-impaired loans.
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Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
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 Bank of England (BoE) and other credit institutions and high grade investment securities.
The Group deems the likelihood of default across these counterparties as low and does not recognise a provision against the carrying balances.
Share repurchase
Upon Board authorisation of a share repurchase programme and signing an irrevocable agreement, a share repurchase liability is recognised in
other liabilities with the offset in retained earnings. Each share repurchase reduces the provision. Upon share cancellation, share capital is debited
with a credit to the capital redemption reserve equal to £0.01 for each share cancelled.
q) Loans and advances to customers
Loans and advances to customers 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 there is a shortfall remaining after the underlying security is sold. Subsequent recoveries of
amounts previously written off are taken through profit or loss.
Loans and advances to customers over which the Group transfers its rights to the collateral thereon to the BoE under the Term Funding Scheme
with additional incentives for SMEs (TFSME) are not derecognised from the Consolidated 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 TFSME as amortised cost under IFRS 9 Financial Instruments.
Loans and advances to customers include a small acquired mortgage portfolio where the contractual cash flows include payments that are not
SPPI and interest and as such are measured at FVTPL.
Loans and advances to customers 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 include securities held for liquidity purposes (UK treasury bills, UK Gilts and Residential Mortgage-Backed Securities (RMBS)).
These assets are non-derivatives that are designated on an individual basis as amortised cost, FVOCI or FVTPL.
Assets classified as amortised cost are initially 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 OCI and accumulated in the FVOCI reserve within equity, except for
impairment losses which are taken to profit or loss. Where the instrument is sold, the gain or loss accumulated in equity is reclassified to profit or
loss.
Assets held at FVTPL are measured at fair value with movements taken to the Consolidated Statement of Comprehensive Income.
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 TFSME, 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 TFSME 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.
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u) Derivative financial instruments
The Group uses derivative financial instruments (interest rate swaps) to manage its exposure to interest rate risk. In accordance with the Group
Market and Liquidity Risk 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 Consolidated 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.
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, hedge relationships are clearly documented and derivatives must be expected to be highly effective
in offsetting the hedged risks. In addition, effectiveness must be tested throughout the life of the hedge relationship. This applies to all derivatives
including SONIA-linked derivatives entered into to replace LIBOR-linked derivatives, as a result of IBOR reforms during 2021.
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 during 2021 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 Consolidated 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, including LIBOR-linked derivatives cancelled
as a result of IBOR reforms during 2021, 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 Consolidated 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 two banking entities defaulting. 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;
•
•
•
the expected EAD;
the expected LGD; and
the average maturity of the swaps.
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Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
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.
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 increase 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 from 2021 are not
subject to future service conditions and are expensed in the year 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’s leases are predominantly for offices and Kent Reliance branches. 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. Lease liability payments are
recognised 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.
For modifications that increase the length of a lease; the modified lease term is determined and the lease liability remeasured by discounting the
revised lease payments using a revised discount rate, at the effective date of the lease modification; a corresponding adjustment is made to the
right-of-use asset. Where modifications decrease the length of a lease, the lease liability and right-of-use asset are reduced in proportion to the
reduction in the lease term, with any gain or loss recognised in the profit or loss.
Leases with low future payments or terms less than 12 months are recognised on an accruals basis directly in profit or loss.
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bb) Adoption of new standards
International financial reporting standards issued and adopted for the first time in the year ended 31 December 2022
There were a number of minor amendments to financial reporting standards that are effective for the current year. 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 effective which are applicable to the Group
Certain amendments to accounting standards and interpretations that were not effective on 31 December 2022 have not been early adopted
by the Group. The adoption of these amendments are not expected to have a material impact on the financial statements of the Group in
future periods.
2. 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 future financial years. Actual results may differ from these estimates.
As set out in the Task Force on Climate-related Financial Disclosures (TCFD) report on page 100, climate change is a global challenge and an
emerging risk to businesses, people and the environment. Therefore, in preparing the financial statements, the Group has considered the impact
of climate-related risks on its financial position and performance, including the impact on ECL and redemption profiles included in EIR. While the
effects of climate change represent a source of uncertainty, the Group does not consider there to be a material impact on its judgements and
estimates from the physical or transition risks in the short term. Accordingly, there is no significant risk of material adjustment to the carrying
amount of assets and liabilities within the next financial year as a result of climate change. As set out on page 71, whilst not material, the Group
has recognised a post model adjustment (PMA) within the ECL provision of £4.4m in relation to climate change.
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 SICR rules considers changes in default risk, internal impairment measures, changes in customer credit bureau files, or whether
forbearance measures had been applied. As the COVID-19 payment deferrals initiative has ceased, newly granted payment holidays are
considered a SICR event.
Other SICR adjustments made during the pandemic to account for high risk accounts have since been removed with SICR adjustments updated
as the Group identified increases in credit risk as a result of the cost of living and cost of borrowing stresses in the UK, caused by high inflation
and increases in interest rates.
(ii) IFRS 9 classification
Application of the ‘business model’ requirements under IFRS 9 requires the Group to conclude on the business models that it operates and is a
fundamental aspect in determining the classification of the Group’s financial assets.
Management assess the intention for holding financial assets and the contractual terms of those assets, concluding that the Group’s business
model is a ‘held to collect’ business model. This conclusion was reached on the basis that the Group originates and purchases loans and advances
in order with the intention to collect contractual cash flows over the life of the originated or purchased financial instrument.
The Group considers whether the contractual terms of a financial asset give rise on specified dates to cash flows that are SPPI on the principal
amount outstanding when applying the classification criteria of IFRS 9. The majority of the Group’s assets being loans and advances to customers
which have been accounted for under amortised cost with the exception of one acquired mortgage book of £14.6m (2021: £17.7m) that is
recognised at FVTPL.
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 £130.0m (2021: £101.5m) at the reporting date as
disclosed in note 23.
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
LGD and forward-looking macroeconomic scenarios.
OSB GROUP PLC
Annual Report and Accounts 2022
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Notes to the Consolidated Financial Statements continued
2. Judgements in applying accounting policies and critical accounting estimates continued
Loss given default model
The Group has a number of LGD models, which include estimates regarding propensity to go to possession given default (PPD), forced sale
discount, time to sale and sale costs. The LGD is sensitive to the application of the HPI, with a 10% haircut seen to be a reasonable percentage
change when reviewing historical and expected 12 month outcomes. The table below shows the resulting incremental provision required of an 10%
house price haircut being directly applied to all exposures which not only adjust the sale discount but the propensity to go to PPD.
31 December 2022
31 December 2021
OSB segment CCFS segment
Group
£28.0m
£22.7m
£10.7m
£8.3m
£38.7m
£31.0m
The Group’s forecasts of HPI movements used in the impairment models are disclosed in the Risk profile performance review on page 71.
Forward-looking macroeconomic scenarios
The forward-looking macroeconomic scenarios affect all model components of the ECL thus the calculation remains sensitive to both the
scenarios utilised and their associated probability weightings.
The Company 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, together with a plausible upside scenario. Two downside scenarios are also provided
(downside and a severe downside).The Group’s macroeconomic scenarios can be found in the Credit Risk section of the Risk profile performance
overview on page 71.
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-22
Total loans before provisions, £m
Modelled ECL, £m
Non-modelled ECL, £m
Total ECL, £m
ECL coverage, %
As at 31-Dec-21
Total loans before provisions, £m
Modelled ECL, £m
Non-modelled ECL, £m
Total ECL, £m
ECL coverage, %
Weighted (see
note 23)
100% Base
case scenario
100% Upside
scenario
23,728.1
54.4
75.6
130.0
0.55
23,728.1
41.7
75.6
117.3
0.49
23,728.1
32.8
75.6
108.4
0.46
100%
Downside
scenario
100% Severe
downside
scenario
23,728.1
79.3
75.6
154.9
0.65
23,728.1
120.0
75.6
195.6
0.82
21,164.1
48.3
53.2
101.5
0.48
21,164.1
26.5
53.2
79.7
0.38
21,164.1
13.1
53.2
66.3
0.31
21,164.1
74.0
53.2
127.2
0.60
21,164.1
120.3
53.2
173.5
0.82
(ii) Effective interest rate on 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 rate plus a margin for the Kent Reliance brand or a SONIA/Base rate plus a margin
for the Precise brand. Subsequent to origination, changes in actual and expected customer prepayment rates are reflected as increases or
decreases in the carrying value of loan assets with a corresponding increase or decrease in interest income. The Group uses historical customer
behaviours, expected take-up rate of retention products and macroeconomic forecasts in its assessment of expected prepayment rates. Customer
prepayments in a fixed rate or incentive period can give rise to Early Repayment Charge (ERC) income.
Judgement 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 determines the period over which net
fee income and expected reversionary income is recognised. Estimates are reviewed regularly and, as a consequence of the reviews, adjustments
with an adverse impact of £31.6m were made in 2022 predominantly due to reducing the time Precise customers are expected to spend on
reversion rates (2021: £19.0m favourable), decreasing net interest income and loans and advances to customers.
There were a number of base rate rises in quick succession in 2022, increasing the sensitivity to changes in behavioural assumptions because
higher reversion rates both increase the income earned on loans in the reversion period and can lead to higher repayment rates and therefore less
time spent on reversion.
OSB GROUP PLC
Annual Report and Accounts 2022
195
A three months’ reduction in the weighted average lives of loans in the reversion period was considered to be a reasonably possible change in
assumption based on observed changes in repayment rates in reversion periods over the last two years and what could happen to repayment
rates in a high interest rate environment and an uncertain macroeconomic outlook.
The sensitivity has been applied to both the Kent Reliance and the Precise portfolios. In previous years the Precise portfolio sensitivity was split
between loans originated pre and post the combination with CCFS on 4 October 2019. The combined sensitivity reflects how the Group now
assesses customer behaviour in the portfolio.
Applying a three month reduction to the expected weighted average life of the loan book in the reversion period would result in a reset loss of
c. £80.8m in 2023 (2021: c. £45.9m on a six month basis in 2022).
3. Interest receivable and similar income
At amortised cost:
On OSB mortgages
On CCFS mortgages
On finance leases
On investment securities
On other liquid assets
Amortisation of fair value adjustments on CCFS loan book at Combination
Amortisation of fair value adjustments on hedged assets1
At FVTPL:
Net income/(expense) on derivative financial instruments – lending activities
At FVOCI:
On investment securities
2022
£m
591.6
411.2
9.4
4.7
39.3
(61.5)
(34.1)
960.6
2021
£m
541.3
342.9
6.3
2.1
2.7
(66.1)
(39.9)
789.3
106.6
(42.9)
2.1
1,069.3
0.4
746.8
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1. The amortisation relates to hedged assets where the hedges were terminated before maturity and were effective at the point of termination.
4. Interest payable and similar charges
At amortised cost:
On retail deposits
On BoE borrowings
On PSBs
On subordinated liabilities
On wholesale borrowings
On debt securities in issue
On lease liabilities
Amortisation of fair value adjustments on CCFS customer deposits at Combination
Amortisation of fair value adjustments on hedged liabilities1
At FVTPL:
Net expense/(income) on derivative financial instruments – savings activities
2022
£m
257.7
64.8
0.7
1.1
3.9
7.7
0.2
(1.0)
(0.8)
334.3
25.1
359.4
2021
£m
156.7
4.5
1.2
0.8
0.8
3.9
0.3
(1.5)
(1.1)
165.6
(6.4)
159.2
1. The amortisation relates to hedged liabilities where the hedges were terminated before maturity and were effective at the point of termination.
OSB GROUP PLC
Annual Report and Accounts 2022
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196
Notes to the Consolidated Financial Statements continued
5. Fair value gains 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 gains on unmatched swaps
Amortisation of inception adjustments1
Amortisation of acquisition-related inception adjustments2
Amortisation of de-designated hedge relationships3
Fair value movements on mortgages at FVTPL
Debit and credit valuation adjustment
2022
£m
(620.6)
621.9
33.0
(42.4)
(8.1)
57.1
1.2
10.2
(0.1)
(0.9)
(0.5)
58.9
2021
£m
(297.8)
298.9
27.4
(26.1)
2.4
10.3
3.0
13.4
0.2
1.2
(1.0)
29.5
1.
2.
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.
Relates to hedge accounting assets and liabilities recognised on the Combination. The inception adjustments are being amortised over the life of the derivative
instruments acquired on Combination subsequently designated in hedging relationships.
3. Relates to the amortisation of hedged items where hedge accounting has been discontinued due to ineffectiveness.
6. Gain on sales of financial instruments
There were no sales of financial instruments during the year ended 31 December 2022.
On 10 February 2021, the Group sold the Precise Mortgage Funding 2019-1B plc A2 notes for £287.0m, generating a gain on sale of £4.0m.
Excluding the impact of the fair value adjustment on Combination of £1.7m, the underlying gain on sale was £2.3m.
7. Other operating income
Interest received on mortgages held at FVTPL
Fees and commissions receivable
8. Administrative expenses
Staff costs
Facilities costs
Marketing costs
Support costs
Professional fees
Other costs
Depreciation (see note 29)
Amortisation (see note 30)
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
2022
£m
0.6
6.0
6.6
2022
£m
109.3
6.4
4.5
31.2
30.2
12.8
5.2
8.2
207.8
2022
£’000
75
3,340
3,415
254
259
33
546
2021
£m
0.5
7.4
7.9
2021
£m
92.5
6.0
4.0
25.3
16.9
7.3
5.0
9.5
166.5
2021
£’000
68
2,330
2,398
258
121
240
619
Total fees payable to the Company’s auditor
3,961
3,017
OSB GROUP PLC
Annual Report and Accounts 2022
197
1.
2.
3.
Includes review of interim financial information and profit verifications.
Costs comprise assurance reviews of Alternative Performance Measures (APMs), Environmental, social and governance (ESG) and European Single Electronic Format
(ESEF) tagging (2021: assurance reviews of APMs, integration costs and ESEF tagging).
Costs primarily comprise work related to the European Medium Term note (EMTN) programme (2021: work related to the AT1 securities issuance, a gap analysis in
relation to TCFD and the EMTN programme).
Staff costs comprise the following:
Salaries, incentive pay and other benefits
Share-based payments
Social security costs
Other pension costs
The average number of people employed by the Group (including Executive Directors) during the year is analysed below.
UK
India
2022
£m
87.3
8.1
9.5
4.4
109.3
2022
1,274
622
1,896
2021
£m
72.9
6.7
7.7
5.2
92.5
2021
1,220
535
1,755
9. 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.
During 2020 an impairment of £7.0m was recognised arising from changes to CCFS anticipated lending volumes over three years post
combination, which are a key input to the calculation of the fair value, and which were revised due to COVID-19 impacts. During 2021 an
impairment assessment was performed and as actual lending volumes were higher than anticipated the Group has recognised an impairment
reversal of £3.1m. The remaining carrying value of the broker relationships intangible asset at 31 December 2022 is £2.0m (2021: £5.0m).
10. Directors’ emoluments and transactions
Short-term employee benefits1
Post-employment benefits
Share-based payments2
2022
£’000
3,213
109
2,291
5,613
2021
£’000
2,825
106
1,267
4,198
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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 £642k (2021: £633k) in the form
of shares. DSBP awards granted from April 2021 have a holding period of three to seven years with no further conditions attached other than
standard clawback situations. In March 2020 and prior years, 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 Performance Share Plan (PSP) with a grant date fair value of £1,516k
(2021: £1,458k) using a share price of £5.58 (2021: £4.94) (the mid-market quotation on the day preceding the date of grant). These shares
vest annually from year three in tranches of 20 per cent, subject to performance conditions discussed in note 11 and the Annual Report
on Remuneration.
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The Directors of the Company are employed and compensated by OneSavings Bank plc.
No compensation was paid for loss of office during 2022 and 2021.
There were no outstanding loans granted in the ordinary course of business to Directors and their connected persons as at 31 December 2022
and 2021.
The Annual Report on Remuneration and note 11 Share-based payments provide further details on Directors’ emoluments.
OSB GROUP PLC
Annual Report and Accounts 2022
198
Notes to the Consolidated Financial Statements continued
11. Share-based payments
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 £10 and £500 per month over a period of three 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 OSBG ordinary share over the three dealing days prior to the Invitation Date and applying a discount
of 20%.
Deferred Share Bonus Plan
The DSBP applies to Executive Directors and certain senior managers with 50% of their performance bonuses to be deferred in shares for three
to seven years for Executive Directors and one year 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.
Performance Share Plan
Executive Directors and certain senior managers are also eligible for a PSP award based on performance conditions which 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. The EPS element assesses the compound annual
growth rate over the performance period, that is, the annualised growth from a base year 0 to final year 3. For example, the 2022 Award will
measure the EPS growth from 1 January 2021 to 31 December 2024. 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,
market risk and credit risk. For the ROE element, growth rates are assessed against the Group’s underlying profit after taxation as a percentage of
average shareholders’ equity.
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 8 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:
2022
£m
0.6
4.2
3.3
8.1
2021
£m
0.7
3.8
2.2
6.7
Sharesave Scheme
Deferred Share
Bonus Plan
Performance
Share Plan
Weighted
average
exercise
price, £
2.65
4.29
2.67
2.82
3.08
Number
2,421,260
596,692
(624,664)
(245,316)
2,147,972
Number
Number
797,116
478,901
(511,034)
(1,593)
5,225,080
1,761,174
(1,181,949)
(413,036)
763,390
5,391,269
35,015
2.85
–
–
At 1 January 2022
Granted
Exercised/Vested
Forfeited
At 31 December 2022
Exercisable at:
31 December 2022
OSB GROUP PLC
Annual Report and Accounts 2022
199
At 1 January 2021
Granted
Exercised/Vested
Forfeited
At 31 December 2021
Exercisable at:
31 December 2021
2,745,332
339,097
(270,709)
(392,460)
2,421,260
2.53
3.96
3.10
2.63
2.65
1,119,757
363,624
(683,456)
(2,809)
4,986,527
1,477,111
(513,927)
(724,631)
797,116
5,225,080
8,480
3.37
–
–
For the share-based awards granted during the year, the weighted average grant date fair value was 396 pence (2021: 286 pence).
The range of exercise prices and weighted average remaining contractual life of outstanding awards are as follows:
Exercise price
Sharesave Scheme
229 – 429 pence (2021: 227 – 335 pence)
Deferred Share Bonus Plan
Nil
Performance Share Plan
Nil
2022
2021
Weighted
average
remaining
contractual
life (years)
Weighted
average
remaining
contractual life
(years)
Number
Number
2,147,972
1.8
2,421,260
763,390
5,391,269
8,302,631
0.9
2.7
2.3
797,116
5,225,080
8,443,456
Sharesave Scheme
Contractual life, years
Share price at issue, £
Exercise price, £
Expected volatility, %
Dividend yield, %
Grant date fair value, £
2022
3
4.20
4.29
31.4
7.3
0.68
2021
3
5.13
3.96
37.9
4.5
1.46
2020
2019
2018
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
The sharesave 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
5
4.04
11.8
4.0
3.37
For awards granted from 2021, there are no further performance or vesting conditions attached to deferred awards, for further details see
DSBP above.
For DSBP awards where conditions exist, 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.
OSB GROUP PLC
Annual Report and Accounts 2022
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0.7
2.4
2.1
2017
5
3.93
3.15
17.3
4.1
0.70
200
Notes to the Consolidated Financial Statements continued
11. Share-based payments continued
Performance Share Plan
Performance awards are typically made annually at the discretion of the Group Remuneration and People Committee. Awards are based on a
mixture of internal financial performance targets, risk-based measures and relative TSR.
Non-market performance conditions exist for the scheme notably that a participant is 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.
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
the scheme grant date.
The fair value of an option that is subject to market conditions (the relative share price element of the PSP) 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, £
12. Integration costs
Consultant fees
Staff costs
Impairment
2022
3–7
5.58
6.9
37.4
4.7
32.3
4.64
2021
3–7
4.94
12.8
59.5
3.8
40.8
4.26
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
2022
£m
4.9
3.0
–
7.9
Consultant fees relate to advice on the Group’s future operating structure.
Staff costs relate to personnel who will leave or have left the Group through the transition of operations to the new operating model.
Impairment relates to a property sold during 2021.
13. Exceptional items
Consultant fees
Legal and professional fees
2022
£m
–
–
–
2018
3
4.11
9.7
29.1
4.6
54.0
3.61
2021
£m
2.2
2.2
0.6
5.0
2021
£m
–
0.2
0.2
Exceptional items relate to the insertion of OSBG as the new holding company and listed entity of the Group.
14. 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 tax - current year
Corporation tax - prior year
Deferred tax - current year
Deferred tax - prior year
Release of deferred tax on CCFS Combination1
Total tax charge
2022
£m
141.4
(0.9)
(1.2)
(0.3)
(17.5)
121.5
2021
£m
128.0
–
(0.2)
–
(8.5)
119.3
1.
Release of deferred tax on CCFS Combination relates to the unwind of the deferred tax liabilities recognised on the fair value adjustments of the CCFS assets and
liabilities at the acquisition date £(12.8)m (2021: £(14.1)m) and the impact of the bank surcharge decrease on these deferred tax liabilities £(4.7)m (2021: the impact of
the corporation tax rate increase £5.6m).
OSB GROUP PLC
Annual Report and Accounts 2022
201
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%
(2021: 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
Securitisation profits not taxable
Impact of deferred tax rate change2
Adjustments in respect of earlier years
Tax adjustments in respect of share-based payments
Tax on coupon paid on AT1 securities
Tax on coupon paid on non-controlling interest securities
Timing differences on capital items
Total tax charge
2022
£m
531.5
101.0
30.2
0.5
(2.2)
(5.1)
(1.2)
–
(1.7)
–
–
2021
£m
464.6
88.3
27.7
0.7
–
5.2
–
1.2
–
(2.5)
(1.3)
121.5
119.3
1. Tax charge for the two banking entities of £34.3m (2021: £31.9m) offset by the tax impact of unwinding CCFS Combination items of £4.1m (2021: £4.2m).
2. Due to change in bank surcharge rate from 8% to 3% on 1 April 2023 (2021: due to change in corporation tax rate from 19% to 25% on 1 April 2023).
Factors affecting tax charge for the year
The effective tax rate for the year ended 31 December 2022, excluding the impact of adjustments in respect of earlier years and the deferred tax
rate change, was 24.0% (2021: 24.6%).
The £(4.7)m credit (2021: £5.2m charge) impact of the deferred tax rate change relates predominantly to the deferred tax liability from the CCFS
combination (see note 28 and 38).
A tax charge of nil (comprising a deferred tax debit of £0.9m and current tax credit of £0.9m) (2021: credit of £1.6m) has been recognised directly
within equity relating to the Group’s share-based payment schemes.
A tax credit of £0.1m (2021: credit of £0.5m) has been recognised within OCI relating to investment securities classified as FVOCI.
Factors that may affect future tax charges
On 24 May 2021, the government substantively enacted legislation to increase the corporation tax rate from 19% to 25% from 1 April 2023.
Further, on 24 February 2022, the government substantively enacted legislation to decrease the bank surcharge rate from 8% to 3% from 1 April
2023, together with an increase in the surcharge annual allowance (the level of taxable profits above which are subject to the surcharge) from
£25m to £100m.
In September 2022, the government announced that the above changes would be cancelled, but then in October 2022 announced that the
changes would go ahead as enacted.
Deferred tax expected to unwind after 1 April 2023 is recognised for entities that incur the bank surcharge at 28% (2021: 33%).
15. Earnings per share
EPS is 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 coupon on
securities classified as equity:
Statutory profit after tax
Less: Coupon on non-controlling interest securities classified as equity
Less: Coupon on AT1 securities classified as equity
Statutory profit attributable to ordinary shareholders
2022
£m
410.0
–
(9.0)
401.0
2021
£m
345.3
(4.7)
–
340.6
OSB GROUP PLC
Annual Report and Accounts 2022
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Notes to the Consolidated Financial Statements continued
15. Earnings per share continued
Weighted average number of shares, millions
Basic
Dilutive impact of share-based payment schemes
Diluted
Earnings per share, pence per share
Basic
Diluted
16. Dividends
Final dividend for the prior year
Interim dividend for the current year
2022
2021
441.5
5.1
446.6
90.8
89.8
448.1
4.6
452.7
76.0
75.2
2022
2021
Pence per
share
21.1
8.7
£m
94.8
38.3
133.1
Pence per
share
14.5
4.9
£m
64.8
21.9
86.7
The Directors recommend a final dividend of £93.7m, 21.8 pence per share (2021: £94.8m, 21.1 pence per share) payable on 17 May 2023 with an
ex-dividend date of 23 March 2023 and a record date of 24 March 2023. This dividend is not reflected in these financial statements as subject to
approval by shareholders at the AGM on 11 May 2023.
The Directors have also announced a special dividend of £50.3m, 11.7 pence per share (2021: nil) payable on 17 May 2023 with an ex-dividend
date of 23 March 2023 and a record date of 24 March 2023.
If the final dividend is approved, this will make up the total dividend for 2022 of £182.0m, 42.2 pence per share (2021: £116.6m, 26.0 pence per
share).
A summary of the Company’s distributable reserves is shown below:
Retained earnings
Own shares1
Distributable reserves
2022
£m
1,359.3
(2.2)
1,357.1
2021
£m
1,358.4
(3.5)
1,354.9
1. Own Shares comprises own shares held in the Group’s EBT of £2.2m (2021: £3.5m) which are recognised within OSBG under look-through accounting.
Further additional distributable reserves can be realised over time from dividend receipts from profits generated from the subsidiaries including
two regulated banks within the Group.
17. 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
2022
£m
0.4
2,953.7
90.0
3,044.1
2021
£m
0.5
2,636.2
100.0
2,736.7
OSB GROUP PLC
Annual Report and Accounts 2022
18. Loans and advances to credit institutions
Unencumbered:
BoE call account
Call accounts
Cash held in special purpose vehicles (SPVs)1
Term deposits
Encumbered:
BoE cash ratio deposit
Cash held in SPVs1
Cash margin given
203
2022
£m
2021
£m
2,806.5
73.2
63.8
10.2
62.8
111.8
237.4
2,496.4
43.3
89.6
6.9
59.5
48.0
99.9
3,365.7
2,843.6
1.
Cash held in SPVs is ring-fenced for use in managing the Group’s securitised debt facilities under the terms of securitisation agreements. Cash held in SPVs is treated
as unencumbered in proportion to the retained interest in the SPV based on the nominal value of the bonds held by the Group to total bonds in the securitisation, and
included in cash and cash equivalents. Cash retained in SPVs designated as cash reserve credit enhancement is treated as encumbered in proportion to the external
holdings in the SPV and excluded from cash and cash equivalents.
19. Investment securities
Held at amortised cost:
UK Sovereign debt
RMBS loan notes
Less: Expected credit losses
Held at FVOCI:
UK Sovereign debt1
RMBS loan notes
Held at FVTPL:
RMBS loan notes
2022
£m
–
262.6
262.6
–
262.6
149.8
–
149.8
0.5
0.5
412.9
2021
£m
100.0
223.1
323.1
–
323.1
152.1
15.5
167.6
0.7
0.7
491.4
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1. Includes £90.0m of UK Treasury bills which had a maturity of less than three months from date of acquisition (2021: nil).
At 31 December 2022, the Group had no RMBS held at FVOCI or FVTPL (2021: nil) and £11.5m of RMBS held at amortised cost (2021: £119.5m) 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 amortised cost, FVOCI and FVTPL in accordance with the
Group’s business model for each security.
The credit risk on investment securities held at amortised cost has not significantly increased since initial recognition and they are categorised as stage 1.
The ECLs are less than £0.1m.
Movements during the year in investment securities held by the Group are analysed as follows:
At 1 January
Additions1
Disposals and maturities2
Movement in accrued interest
Changes in fair value
At 31 December
2022
£m
491.4
686.5
(764.4)
(0.9)
0.3
412.9
2021
£m
471.2
568.2
(549.7)
0.6
1.1
491.4
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1. Additions include £90.0m of UK Treasury bills which had a maturity of less than three months from date of acquisition (2021: £100.0m).
2. Disposals and maturities include £100.0m of UK Treasury bills which had a maturity of less than three months from date of acquisition (2021: nil).
At 31 December 2022, investment securities included investments in unconsolidated structured entities (see note 45) of £100.7m notes in PMF
2020-1B (2021: £100.7m notes in PMF 2020-1B and £21.0m notes in PMF 2017-1B). The investments represent the maximum exposure to loss from
unconsolidated structured entities.
OSB GROUP PLC
Annual Report and Accounts 2022
204
Notes to the Consolidated Financial Statements continued
20. Loans and advances to customers
Held at amortised cost:
Loans and advances (see note 21)
Finance leases (see note 22)
Less: Expected credit losses (see note 23)
Held at FVTPL:
Residential mortgages
21. Loans and advances
Gross carrying amount
Stage 1
Stage 21
Stage 3
Stage 3 (POCI)
2022
£m
2021
£m
23,564.9
163.2
23,728.1
(130.0)
21,047.9
116.2
21,164.1
(101.5)
23,598.1
21,062.6
14.6
17.7
23,612.7
21,080.3
OSB
£m
10,188.4
2,508.9
345.7
38.5
2022
CCFS
£m
8,375.5
1,907.4
156.0
44.5
Total
£m
OSB
£m
18,563.9
4,416.3
501.7
83.0
10,393.2
1,142.3
360.4
45.2
13,081.5
10,483.4
23,564.9
11,941.1
2021
CCFS
£m
7,685.7
1,269.8
99.1
52.2
9,106.8
Total
£m
18,078.9
2,412.1
459.5
97.4
21,047.9
1. For further detail relating to movements by stage see the Risk review on pages 52-75.
The mortgage loan balances pledged as collateral for liabilities are:
BoE under TFSME and Indexed Long-Term Repo (ILTR)
Securitisation
2022
£m
6,439.7
265.4
6,705.1
2021
£m
5,887.2
486.5
6,373.7
The Group’s securitisation programmes and use of TFSME and ILTR result in certain assets being encumbered as collateral against such funding.
As at 31 December 2022, the percentage of the Group’s gross loans and advances to customers that are encumbered was 28% (2021: 30%).
OSB GROUP PLC
Annual Report and Accounts 2022
Stage 3
£m
Stage 3 (POCI)
£m
The table below show the movement in loans and advances to customers by IFRS 9 stage during the year:
At 1 January 2021
Originations1
Acquisitions2
Disposals2
Repayments and write-offs3
Transfers:
– To Stage 1
– To Stage 2
– To Stage 3
At 31 December 2021
Originations1
Repayments and write-offs3
Transfers:
– To Stage 1
– To Stage 24
– To Stage 3
At 31 December 2022
Stage 1
£m
16,060.3
4,523.4
277.7
(214.4)
(2,539.8)
1,401.0
(1,339.7)
(89.6)
18,078.9
5,829.6
(2,855.3)
1,121.6
(3,524.0)
(86.9)
Stage 2
£m
2,689.6
–
–
–
(160.3)
(1,370.2)
1,384.1
(131.1)
2,412.1
–
(353.6)
(1,098.0)
3,574.6
(118.8)
18,563.9
4,416.3
392.6
–
–
–
(78.6)
(30.8)
(44.4)
220.7
459.5
–
(89.3)
(23.6)
(50.6)
205.7
501.7
205
Total
£m
19,257.1
4,523.4
280.4
(214.4)
(2,798.6)
–
–
–
114.6
–
2.7
–
(19.9)
–
–
–
97.4
–
(14.4)
21,047.9
5,829.6
(3,312.6)
–
–
–
–
–
–
83.0
23,564.9
1. Originations include further advances and drawdowns on existing commitments.
2.
The Group acted as co-arranger in the re-securitisation of £229.6m of third party mortgages from the Rochester Financing No.2 PLC securitisation to the new
Rochester Financing No.3 PLC securitisation on 15 June 2021. Neither securitisation is a subsidiary of the Group. Under the terms of the mortgage sale agreements, the
Group recognised the mortgages as a purchase from Rochester Financing No.2 PLC and immediately derecognised them as a sale to Rochester Financing No.3 PLC.
OneSavings Bank plc is the master servicer of the mortgages, and has retained 5% of these mortgages, as required under the retention rules. In addition to the Group
acting as co-arranger for the re-securitisation of Rochester Financing No.2 PLC, the Group purchased an external mortgage book, a c. £55m portfolio of UK residential
mortgages, at a discount to the then current balances.
Repayments and write-offs include customer redemptions and write-offs which are immaterial.
3.
4. For further details relating to movements by stage see Risk review on pages 52-75.
The contractual amount outstanding on loans and advances that were written off during the reporting period and are still subject to collections
and recovery activity is £0.8m at 31 December 2022 (2021: £1.5m).
As at 31 December 2022, £110.0m of loans and advances (2021: £97.4m) are in a probation period before they can move out of Stage 3,
see note 1 p) for further details.
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22. 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 two years
Between two and three years
Between three and four years
Between four and five years
More than five years
Unearned finance income
Net investment in finance leases
Net investment in finance leases, receivable
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
More than five years
The Group has recognised £4.8m of ECLs on finance leases as at 31 December 2022 (2021: £4.3m).
2022
£m
60.7
49.5
36.0
23.4
9.9
1.3
180.8
(17.6)
163.2
52.4
44.4
33.2
22.3
9.6
1.3
163.2
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£m
39.7
27.7
27.5
17.2
14.6
0.9
127.6
(11.4)
116.2
34.7
26.0
25.5
15.8
13.3
0.9
116.2
OSB GROUP PLC
Annual Report and Accounts 2022
206
Notes to the Consolidated Financial Statements continued
23. Expected credit losses
The ECL has been calculated based on various scenarios as set out below:
Scenarios
Upside
Base case
Downside scenario
Severe downside scenario
Total weighted provisions
Non-modelled provisions:
Individually assessed provisions
Post model adjustments
Total provision
2022
2021
ECL provision
£m
Weighting
%
Weighted ECL
provision
£m
ECL provision
£m
Weighting
%
Weighted ECL
provision
£m
13.1
26.5
74.0
120.3
20
40
28
12
32.8
41.7
79.3
120.0
30
40
20
10
9.8
16.7
15.9
12.0
54.4
45.8
29.8
130.0
2.6
10.6
20.7
14.4
48.3
40.4
12.8
101.5
The Group reflected on the ongoing appropriateness of probabilities attached to the suite of IFRS 9 scenarios as the macroeconomic outlook
evolved throughout the year. Scenarios were adjusted to a symmetrical probability, where the upside and downside scenarios carry equal
weightings, as a result of separate post-model adjustments being raised to ensure that the current IFRS 9 framework adequately provisioned for
the underlying portfolio risk.
As at 31 December 2022, the Group identified increases in credit risk due to the cost of living and cost of borrowing stresses caused by high
inflation and increases in interest rates. As a result, the Group held an additional £16.0m of ECL in PMA for risks not sufficiently accounted for
in the IFRS 9 framework (£7.3m for cost of living and £8.7m for cost of borrowing) as at 31 December 2022. The approach to identify the PMA
for the cost of living is an increase in PD through analysing the effect of the increases in living costs, such as house hold bills and groceries, on
affordability, which is used to increase the default risk to all customers, with those on lower income more impacted. The cost of borrowing PMA
specifically identified those that are more at risk of default due to reverting onto variable rate in the near future, causing a payment increase and
higher affordability risk, which is used both to apply an additional significant increase in credit risk SICR and stage 2 criteria and in some cases a
higher default risk.
The Group continued to observe an elongated time to sale, which was in excess of modelled expectations and observations prior to the pandemic
which accounted for an additional £8.7m as a PMA as at 31 December 2022. Whilst the Group expects the process delays to reduce in time, a
PMA was held to reflect an extended time to sale in line with most recent observations for those in default.
As part of the Group's appreciation of climate risk and overall ESG agenda, the Group recognises that properties with lower energy efficiency
are likely to require investment to reach minimum energy efficiency standards in the future. As a result, to reflect the expected transition risk and
physical risks of climate change, the Group held £4.4m of PMA as at 31 December 2022.
To reflect the ongoing cladding concerns, the Group identified a valuation risk to a small number of properties and accounted for a further sale
discount for these properties by a PMA of £0.7m as at 31 December 2022.
The Group’s ECL by segment and IFRS 9 stage is shown below:
Stage 1
Stage 2
Stage 3
Stage 3 (POCI)
2022
2021
OSB
£m
5.9
35.3
60.5
1.5
103.2
CCFS
£m
1.3
15.6
7.8
2.1
26.8
Total
£m
7.2
50.9
68.3
3.6
130.0
OSB
£m
9.3
14.2
56.6
2.1
82.2
CCFS
£m
2.8
10.8
3.8
1.9
19.3
Total
£m
12.1
25.0
60.4
4.0
101.5
OSB GROUP PLC
Annual Report and Accounts 2022
207
The tables below show the movement in the ECL by IFRS 9 stage during the year. ECLs on originations and acquisitions reflect the IFRS 9 stage
of loans originated or acquired during the year as at 31 December and not the date of origination. Re-measurement 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 1 January 2021
Originations
Acquisitions
Repayments and write-offs
Re-measurement of loss allowance
Transfers:
– To Stage 1
– To Stage 2
– To Stage 3
Changes in assumptions and model parameters
At 31 December 2021
Originations
Repayments and write-offs
Re-measurement of loss allowance
Transfers:
– To Stage 1
– To Stage 2
– To Stage 3
Changes in assumptions and model parameters
At 31 December 2022
Stage 1
£m
Stage 2
£m
Stage 3
£m
Stage 3 (POCI)
£m
21.2
5.7
0.1
(2.8)
(21.8)
11.3
(2.3)
(0.3)
1.0
12.1
6.9
(1.3)
(15.1)
10.0
(2.0)
(0.1)
(3.3)
7.2
31.0
–
–
(3.3)
(0.8)
(10.5)
5.1
(3.1)
6.6
25.0
–
(3.0)
26.4
(9.2)
3.9
(2.1)
9.9
50.9
51.7
–
–
(7.4)
12.8
(0.8)
(2.8)
3.4
3.5
60.4
–
(6.9)
17.5
(0.8)
(1.9)
2.2
(2.2)
68.3
7.1
–
0.1
(1.1)
(2.1)
–
–
–
–
4.0
–
(0.3)
(0.7)
–
–
–
0.6
3.6
Total
£m
111.0
5.7
0.2
(14.6)
(11.9)
–
–
–
11.1
101.5
6.9
(11.5)
28.1
–
–
–
5.0
130.0
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The table below shows the stage 2 ECL balances by transfer criteria:
Criteria:
Relative PD movement
Qualitative measures
30 days past due backstop
Total
2022
2021
Carrying
value
£m
3,090.2
1,277.6
49.3
4,417.1
ECL
£m
Coverage
%
Carrying value
£m
42.9
7.5
0.5
50.9
1.39
0.59
1.01
1.15
1,251.6
1,125.0
37.0
2,413.6
ECL
£m
17.1
7.4
0.5
25.0
Coverage
%
1.37
0.66
1.35
1.04
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.
24. Impairment of financial assets
The charge/(credit) for impairment of financial assets in the Consolidated Statement of Comprehensive Income comprises:
Write-offs in year
Increase/(decrease) in ECL provision
2022
£m
2.1
27.7
29.8
2021
£m
6.7
(11.1)
(4.4)
OSB GROUP PLC
Annual Report and Accounts 2022
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Notes to the Consolidated Financial Statements continued
25. Derivatives
The table below reconciles the gross amount of derivative contracts to the carrying balance shown in the Consolidated Statement of Financial
Position:
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
Net amount
£m
888.1
888.1
(104.9)
(545.7)
237.5
(106.6)
(106.6)
104.9
206.9
205.2
185.7
185.7
(16.9)
(115.3)
53.5
(19.7)
(19.7)
16.9
98.3
95.5
At 31 December 2022
Derivative assets:
Interest rate risk hedging
Derivative liabilities:
Interest rate risk hedging
At 31 December 2021
Derivative assets:
Interest rate risk hedging
Derivative liabilities:
Interest rate risk hedging
Derivative assets and liabilities include an initial margin of £198.6m with swap counterparties.
Included within the Group’s derivative assets is £203.4m (2021: £48.7m) relating to derivative contracts not covered by master netting agreements
on which no cash collateral has been paid.
The table below profiles the maturity of nominal amounts for interest rate risk hedging derivatives based on contractual maturity:
At 31 December 2022
Derivative assets
Derivative liabilities
At 31 December 2021
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
15,662.6
9,518.0
25,180.6
464.8
1,503.0
1,967.8
3,400.3
6,001.0
9,401.3
11,590.5
1,789.0
13,379.5
12,968.3
7,378.0
20,346.3
245.2
1,361.0
1,606.2
2,345.4
4,747.0
7,092.4
10,235.7
1,150.0
11,385.7
207.0
225.0
432.0
142.0
120.0
262.0
The Group has 916 (2021: 841) derivative contracts with an average fixed rate of 1.34% (2021: 0.34%).
OSB GROUP PLC
Annual Report and Accounts 2022
26. 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
Cancelled hedge relationships
De-designated hedge relationships
Fair value adjustments on hedged liabilities
209
2021
£m
(190.9)
(26.2)
78.2
(138.9)
19.6
3.3
(1.4)
(1.8)
19.7
2022
£m
(827.9)
44.1
(5.2)
(789.0)
58.0
(2.3)
(0.6)
–
55.1
The swap inception adjustment relates to hedge accounting adjustments arising when hedge accounting commences, primarily on derivative
instruments previously taken out against the mortgage pipeline and on derivative instruments previously taken out against new retail deposits.
De-designated hedge relationships relates to hedge accounting adjustments on failed hedge accounting relationships. These adjustments are
amortised over the remaining lives of the original hedged items.
Cancelled hedge relationships predominantly represent the unamortised fair value adjustment for interest rate risk hedges that have been
cancelled and replaced due to securitisation activities, legacy long-term fixed rate mortgages (c. 25 years at origination) and during 2021 IBOR
transition.
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 of hedged item/fair value of hedging instrument
Changes in the fair value adjustment of hedged item/hedging instrument used for
recognising the hedge ineffectiveness for the period
Cumulative fair value on cancelled hedge relationships
2022
2021
Hedged item
£m
14,493.8
(827.9)
Hedging
instrument
£m
14,667.7
833.2
Hedged item
£m
12,364.3
(190.9)
Hedging
instrument
£m
12,550.2
187.4
(620.6)
(5.2)
621.9
–
(297.8)
78.2
298.9
–
In the Consolidated Statement of Financial Position, £854.3m (2021: £187.7m) of hedging instruments were recognised within derivative assets; and
£21.1m (2021: £0.3m) within derivative liabilities.
The movement in cancelled hedge relationships is as follows:
Hedged assets
At 1 January
New cancellations1
Amortisation
At 31 December
2022
£m
78.2
(49.3)
(34.1)
(5.2)
2021
£m
84.6
33.5
(39.9)
78.2
1.
Following the securitisation of mortgages during the year and LIBOR swaps transferred to SONIA swaps through the IBOR transition during 2021, 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.
OSB GROUP PLC
Annual Report and Accounts 2022
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210
Notes to the Consolidated Financial Statements continued
26. Hedge accounting continued
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 of hedged item/fair value of hedging instrument
Changes in the fair value adjustment of hedged item/hedging instrument used for
recognising the hedge ineffectiveness for the period
2022
2021
Hedged item
£m
9,167.3
58.0
Hedging
instrument
£m
9,180.0
(67.9)
Hedged item
£m
6,386.0
19.6
Hedging
instrument
£m
6,390.0
(18.5)
33.0
(42.4)
27.4
(26.1)
In the Consolidated Statement of Financial Position, £2.4m (2021: £0.3m) of hedging instruments were recognised within derivative assets; and
£70.3m (2021: £18.8m) within derivative liabilities.
27. Other assets
Falling due within one year:
Prepayments
Other assets
Falling due more than one year:
Prepayments
28. Deferred taxation asset
At 1 January 2021
Profit or loss (charge)/credit
Transferred to corporation tax liability
Tax taken directly to OCI
Tax taken directly to equity
At 31 December 2021
Profit or loss (charge)/credit2
Tax taken directly to OCI
Tax taken directly to equity
At 31 December 2022
2022
£m
7.8
1.8
5.4
15.0
Others1
£m
(0.4)
(1.2)
–
0.5
–
(1.1)
1.6
0.1
–
0.6
2021
£m
7.1
0.9
2.2
10.2
Total
£m
4.7
0.2
(1.4)
0.5
1.6
5.6
1.5
0.1
(0.9)
6.3
Losses carried
forward
£m
Accelerated
depreciation
£m
Share-based
payments
£m
IFRS 9
transitional
adjustments
£m
0.9
(0.4)
–
–
–
0.5
–
–
–
0.5
0.4
0.1
–
–
–
0.5
(0.5)
–
–
–
3.1
1.7
(1.4)
–
1.6
5.0
0.5
–
(0.9)
4.6
0.7
–
–
–
–
0.7
(0.1)
–
–
0.6
1. Others includes deferred taxation assets recognised on financial assets classified as FVOCI, derivatives and short-term timing differences.
2.
Includes £0.3m in respect of prior year deferred tax.
In 2022, the profit or loss credit for deferred tax includes a credit of £0.2m from the corporation tax rate change (2021: credit of £0.4m).
As at 31 December 2022, the Group had £3.5m (2021: £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.
As at 31 December 2022 deferred tax assets of £2.3m (2021: £3.0m) of are expected to be utilised within 12 months and £4.0m (2021: £2.6m)
utilised after 12 months.
OSB GROUP PLC
Annual Report and Accounts 2022
29. Property, plant and equipment
Cost
At 1 January 2021
Additions1
Disposals and write-offs2
Foreign exchange difference
At 31 December 2021
Additions1
Disposals and write-offs2
Foreign exchange difference
At 31 December 2022
Depreciation
At 1 January 2021
Charged in year3
Disposals and write-offs2
At 31 December 2021
Charged in year
Disposals and write-offs2
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Freehold land
and buildings
£m
Leasehold
improvements
£m
Equipment
and fixtures
£m
Property
leases
£m
Other leases
£m
Right of use assets
19.2
–
(2.8)
0.1
16.5
3.5
–
–
20.0
1.4
0.9
(0.8)
1.5
0.2
–
1.7
18.3
15.0
3.0
–
(0.1)
–
2.9
0.1
–
–
3.0
0.9
0.2
(0.1)
1.0
0.2
–
1.2
1.8
1.9
13.8
2.6
(1.3)
0.1
15.2
2.9
(1.7)
0.1
16.5
6.0
2.9
(1.3)
7.6
3.0
(1.7)
8.9
7.6
7.6
13.1
0.6
(0.5)
–
13.2
0.9
(0.3)
–
13.8
2.6
1.5
(0.5)
3.6
1.6
(0.3)
4.9
8.9
9.6
1.3
0.1
(0.2)
–
1.2
3.5
(0.1)
–
4.6
0.3
0.1
(0.2)
0.2
0.2
(0.1)
0.3
4.3
1.0
211
Total
£m
50.4
3.3
(4.9)
0.2
49.0
10.9
(2.1)
0.1
57.9
11.2
5.6
(2.9)
13.9
5.2
(2.1)
17.0
40.9
35.1
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1. Additions include property leases modifications of £0.5m (2021: £0.4m) of right of use assets.
2.
In 2022, the Group wrote off fully depreciated assets of £2.1m. During 2021 the Group disposed of a property for proceeds of £2.0m and wrote off fully depreciated
assets of £2.9m.
3. 2021 includes £0.6m of impairment on property sold during the year which is included in note 12 Integration costs.
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Annual Report and Accounts 2022
212
Notes to the Consolidated Financial Statements continued
30. Intangible assets
Cost
At 1 January 2021
Additions
Disposals and write-offs1
At 31 December 2021
Additions
Disposals and write-offs1
At 31 December 2022
Amortisation
At 1 January 2021
Charged in year
Impairment in the year
Disposals and write-offs1
At 31 December 2021
Charged in year
Disposals and write-offs1
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
Development
costs
£m
Computer
software and
licences
£m
Assets
arising on
Combination2
£m
2.3
1.4
–
3.7
0.1
–
3.8
0.1
0.5
–
–
0.6
0.7
–
1.3
2.5
3.1
16.7
2.8
(3.5)
16.0
1.7
(3.6)
14.1
9.1
3.2
–
(3.5)
8.8
3.2
(3.6)
8.4
5.7
7.2
23.6
–
(0.2)
23.4
–
(1.9)
21.5
12.8
5.8
(3.1)
(0.2)
15.3
4.3
(1.9)
17.7
3.8
8.1
Total
£m
42.6
4.2
(3.7)
43.1
1.8
(5.5)
39.4
22.0
9.5
(3.1)
(3.7)
24.7
8.2
(5.5)
27.4
12.0
18.4
1. During the year the Group wrote off fully amortised assets.
2.
Assets arising on Combination comprise broker relationships of £2.0m (2021: £5.0m), technology of £0.4m (2021: £1.9m), brand name of £0.3m (2021: £0.8m) and
banking licence of nil (2021: £0.4m). The carrying value of the intangible assets are reviewed each reporting period, no impairment reversal (2021: £3.1m impairment
reversal) was recognised in relation to broker relationships due to less severe impacts of the COVID-19 pandemic than originally estimated.
The Directors have considered the carrying value of intangible assets and determined that there are no indications of impairment at the year end.
2022
£m
4,232.0
300.9
549.7
10.2
0.1
4,543.2
549.7
5,092.9
2021
CCFS
£m
4,703.4
3,083.6
7,787.0
2021
£m
4,203.1
–
115.4
0.5
0.6
4,204.2
115.4
4,319.6
Total
£m
10,925.1
6,601.3
17,526.4
OSB
£m
8,085.9
3,046.3
11,132.2
2022
CCFS
£m
5,899.6
2,724.0
Total
£m
13,985.5
5,770.3
8,623.6
19,755.8
OSB
£m
6,221.7
3,517.7
9,739.4
31. Amounts owed to credit institutions
BoE TFSME
BoE ILTR
Cash collateral and margin received
Commercial repo
Loans from credit institutions
Cash collateral and margin received
32. Amounts owed to retail depositors
Fixed rate deposits
Variable rate deposits
OSB GROUP PLC
Annual Report and Accounts 2022
33. Amounts owed to other customers
Fixed rate deposits
Variable rate deposits
34. Debt securities in issue
Asset-backed loan notes at amortised cost
Amount due for settlement after 12 months
213
2021
£m
50.3
42.3
92.6
2021
£m
460.3
460.3
460.3
2022
£m
100.9
12.2
113.1
2022
£m
265.9
265.9
265.9
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 mainly from 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. The Group expects that a large proportion of the underlying mortgage
assets, and therefore these notes, will be repaid within five years.
Where the Group owns the call rights for a transaction, it may repurchase the asset-backed loan notes on any interest payment date on or
after the call dates, or on 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 SONIA.
As at 31 December 2022, notes were issued through the following funding vehicles:
CMF 2020-1 plc
Canterbury Finance No.3 plc
Canterbury Finance No.4 plc
35. Lease liabilities
At 1 January
New leases
Lease termination
Lease repayments
Interest accruals
At 31 December
During the year, the Group incurred expenses of £0.3m (2021: £0.2m) in relation to short-term leases.
36. Other liabilities
Falling due within one year:
Accruals
Deferred income
Other creditors
2022
£m
141.8
21.0
103.1
265.9
2022
£m
10.7
0.9
–
(1.9)
0.2
9.9
2022
£m
28.0
0.6
10.1
38.7
2021
£m
199.8
76.9
183.6
460.3
2021
£m
11.7
0.7
(0.1)
(1.9)
0.3
10.7
2021
£m
23.2
0.9
5.5
29.6
OSB GROUP PLC
Annual Report and Accounts 2022
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214
Notes to the Consolidated Financial Statements continued
37. 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 Financial Conduct Authority (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 reduced its provision to less than £0.1m as at 31 December 2022 (2021: £0.3m).
The Group has released its provision for conduct related exposures of £1.2m following completion of an internal review.
An analysis of the Group’s FSCS and other provisions is presented below:
2022
Other
regulatory
provisions
£m
ECL on
undrawn loan
facilities
£m
1.5
(1.5)
–
0.4
–
0.4
FSCS
£m
0.1
(0.1)
–
2021
Other
regulatory
provisions
£m
ECL on
undrawn loan
facilities
£m
1.5
–
1.5
0.2
0.2
0.4
Total
£m
1.8
0.2
2.0
Total
£m
2.0
(1.6)
0.4
FSCS
£m
0.1
–
0.1
At 1 January
(Credit)/charge
At 31 December
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 has responded to information requests from the FCA. It is not possible to
reliably predict or estimate the outcome of the review and therefore its financial effect, if any, on the Group.
38. 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 1 January 2021
Profit or loss credit
At 31 December 2021
Profit or loss credit
At 31 December 2022
CCFS
Combination
£m
48.3
(8.5)
39.8
(17.5)
22.3
In 2022, the profit or loss credit includes £4.7m impact of the corporation tax rate change (2021: a debit of £5.6m).
As at 31 December 2022 deferred tax liabilities of £5.6m (2021: £17.5m) are expected to be due within 12 months and £16.7m (2021: £22.3m) due
after 12 months.
OSB GROUP PLC
Annual Report and Accounts 2022
39. Subordinated liabilities
The Group’s outstanding subordinated liabilities are summarised below:
At 1 January
Repayment of debt
At 31 December
The table below shows a reconciliation of the Group’s subordinated liabilities during the year:
Linked to LIBOR:
Floating rate subordinated loans 2022 (LIBOR +2%)
Fixed rate:
Subordinated liabilities 2024 (7.45%)
215
2021
£m
10.5
(0.2)
10.3
2021
£m
0.1
10.2
10.3
2022
£m
10.3
(10.3)
–
2022
£m
–
–
–
During the year, the fixed rate subordinated liabilities were fully repaid at a premium of £0.7m, which is recognised in interest payable and similar
charges.
The LIBOR linked subordinated liabilities were redeemed in September 2022.
40. Perpetual Subordinated Bonds
Sterling PSBs (4.6007%)
The bonds are listed on the London Stock Exchange.
2022
£m
15.2
2021
£m
15.2
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.
41. 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:
At 1 January 2021
Cash movements:
Principal drawdowns1
Principal repayments
Interest paid
Non-cash movements:
Interest charged
At 31 December 20211
Cash movements:
Principal drawdowns
Principal repayments
Interest paid
Non-cash movements:
Interest charged
At 31 December 2022
1. 2021 figures restated see note 1 b) for further details.
Restated1
Amounts
owed to credit
institutions
(see note 31)
£m
Debt
securities in
issue
(see note 34)
£m
3,570.2
421.9
4,747.6
(4,113.7)
(4.4)
4.5
4,204.2
429.5
(120.5)
(34.8)
64.8
4,543.2
195.6
(159.5)
(1.6)
3.9
460.3
–
(193.6)
(8.5)
7.7
265.9
Subordinated
liabilities
(see note 39)
£m
PSBs
(see note 40)
£m
Total
£m
10.5
–
(0.2)
(0.8)
0.8
10.3
–
(10.1)
(1.3)
1.1
–
37.6
4,040.2
–
(22.0)
(1.6)
1.2
15.2
–
–
(0.7)
0.7
15.2
4,943.2
(4,295.4)
(8.4)
10.4
4,690.0
429.5
(324.2)
(45.3)
74.3
4,824.3
OSB GROUP PLC
Annual Report and Accounts 2022
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216
Notes to the Consolidated Financial Statements continued
42. Share capital
Ordinary shares
At 1 January 2021
Capital reduction of £3.04 nominal value shares to £0.01 nominal value shares
Shares issued under OSBG employee share plans
At 31 December 2021
Shares cancelled under repurchase programme
Shares issued under OSBG employee share plans
At 31 December 2022
Number of
shares issued
and fully paid
447,312,780
–
1,315,075
448,627,855
(20,671,224)
1,911,994
429,868,625
Nominal value
£m
Premium
£m
1,359.8
(1,355.3)
–
4.5
(0.2)
–
4.3
–
–
0.7
0.7
–
1.7
2.4
The Group’s share repurchase programme commenced on 18 March 2022, and allowed the Group to repurchase a maximum of 44,799,505
shares, restricted by a total cost of £100m. The programme completed during the year and 20,671,224 shares, representing 4.6% of the issued
share capital, have been repurchased and cancelled at an average price of £4.84 per share and a total cost of £100m excluding transaction costs.
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.
43. Other reserves
The Group’s other reserves are as follows:
Share-based payment
Capital redemption & transfer
Own shares
FVOCI
Foreign exchange
AT1 securities
2022
£m
13.2
(1,355.1)
(2.2)
0.3
(1.3)
150.0
(1,195.1)
2021
£m
13.4
(1,355.3)
(3.5)
0.6
(1.1)
150.0
(1,195.9)
Capital redemption and transfer reserve
The capital redemption reserve represents the shares cancelled through the Group’s share repurchase programme.
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 2022, the EBT held
442,568 OSBG shares (2021: 848,221 OSBG shares). The Group and Company show these shares as a deduction from equity, being the cost at
which the shares were acquired of £2.2m (2021: £3.5m).
FVOCI reserve
The FVOCI reserve represents the cumulative net change in the fair value of investment securities measured at FVOCI.
Foreign exchange reserve
The foreign exchange reserve relates to the revaluation of the Group’s Indian subsidiary, OSB India Private Limited.
AT1 Securities
On 5 October 2021, OSBG issued AT1 securities. AT1 securities comprise £150.0m of Fixed Rate Resetting Perpetual Subordinated Contingent
Convertible Securities that qualify as AT1 capital under CRD IV. The securities will be subject to full conversion into ordinary shares of OSBG in
the event that the Group’s Common Equity Tier 1 (CET1) capital ratio falls below 7%. The securities will pay interest at a rate of 6% per annum
until the first reset date of 7 April 2027, with the reset interest rate equal to 539.3 basis points over the 5-year Gilt Rate (benchmark gilt) for such
a period. Interest is paid semi-annually in April and October. OSBG 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. OSBG may, in its discretion and subject to satisfying certain conditions, redeem all (but not some) of the AT1 securities at the
principal amount outstanding plus any accrued but unpaid interest from the first reset date and on any interest payment date thereafter.
OSB GROUP PLC
Annual Report and Accounts 2022
217
44. Financial commitments and guarantees
a) The Group did not have any contracted or anticipated capital expenditure commitments not provided for as at 31 December 2022 (2021: 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
Two to five years
c) Undrawn loan facilities:
OSB mortgages
CCFS mortgages
Asset finance
2022
£m
0.3
0.3
0.6
2022
£m
741.6
455.1
15.5
2021
£m
–
–
–
2021
£m
706.4
434.5
14.4
1,212.2
1,155.3
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 2022 (2021: nil).
45. 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, RMBS and UK 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 TFSME and ILTR, supported by debt securities, wholesale and
other funding. Equity instruments include own shares and AT1 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.
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.
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 compliance/regulatory,
which are covered in the Risk review on pages 52-75.
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Notes to the Consolidated Financial Statements continued
45. Risk management continued
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.
The change, during the period and cumulatively, in the fair value of investments in debt securities and loans and advances to customers at FVOCI
and FVTPL that is attributable to changes in credit risk is not material.
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 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. The collateral value is determined
by indexing against House Price Index data.
Stage 1
Stage 21
Stage 3
Stage 3 (POCI)
OSB
2022
CCFS
Total
Gross carrying
amount
£m
Capped
collateral held
£m
Gross carrying
amount
£m
Capped
collateral held
£m
Gross carrying
amount
£m
Capped
collateral held
£m
10,346.8
2,509.7
349.7
38.5
10,320.4
2,508.5
319.2
37.5
8,375.5
1,907.4
156.0
44.5
8,374.4
1,907.1
156.0
44.4
18,722.3
4,417.1
505.7
83.0
18,694.8
4,415.6
475.2
81.9
13,244.7
13,185.6
10,483.4
10,481.9
23,728.1
23,667.5
1. For further detail relating to movements by stage see Risk review on pages 52-75.
Stage 1
Stage 2
Stage 3
Stage 3 (POCI)
OSB
2021
CCFS
Total
Gross carrying
amount
£m
Capped
collateral held
£m
Gross carrying
amount
£m
Capped
collateral held
£m
Gross carrying
amount
£m
Capped
collateral held
£m
10,502.7
1,143.8
365.6
45.2
12,057.3
10,478.1
1,141.9
337.9
43.6
12,001.5
7,685.7
1,269.8
99.1
52.2
9,106.8
7,684.6
1,269.7
99.1
52.2
9,105.6
18,188.4
2,413.6
464.7
97.4
21,164.1
18,162.7
2,411.6
437.0
95.8
21,107.1
The Group’s main form of collateral held is property, based in the UK and the Channel Islands.
OSB GROUP PLC
Annual Report and Accounts 2022
219
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%
Total loans before
provisions
2022
OSB
£m
CCFS
£m
Total
£m
2,768.8
2,770.7
4,647.5
2,150.7
548.3
181.3
177.4
914.7
1,361.1
3,561.7
4,277.3
365.5
2.5
0.6
3,683.5
4,131.8
8,209.2
6,428.0
913.8
183.8
178.0
%
16
17
35
26
4
1
1
OSB
£m
2,293.3
1,935.3
4,179.0
2,887.7
513.2
77.8
171.0
2021
CCFS
£m
428.2
490.1
1,241.9
6,100.7
844.4
1.5
–
Total
£m
2,721.5
2,425.4
5,420.9
8,988.4
1,357.6
79.3
171.0
%
13
11
26
43
6
–
1
13,244.7
10,483.4
23,728.1
100
12,057.3
9,106.8
21,164.1
100
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%
Total loans before
provisions
2022
2021
BTL/SME
£m
Residential
£m
Total
£m
1,301.4
2,497.2
4,386.0
1,977.1
418.1
167.3
172.9
1,467.4
273.5
261.5
173.6
130.2
14.0
4.5
2,768.8
2,770.7
4,647.5
2,150.7
548.3
181.3
177.4
%
21
21
36
16
4
1
1
BTL/SME
£m
Residential
£m
Total
£m
1,007.6
1,693.7
3,903.0
2,647.7
452.8
66.2
165.1
1,285.7
241.6
276.0
240.0
60.4
11.6
5.9
2,293.3
1,935.3
4,179.0
2,887.7
513.2
77.8
171.0
%
19
16
35
24
4
1
1
10,920.0
2,324.7
13,244.7
100
9,936.1
2,121.2
12,057.3
100
The tables below show the LTV analysis of the OSB BTL/SME sub-segment:
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0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
Total loans before provisions
Buy-to-Let
£m
Commercial
£m
2022
Residential
development
£m
Funding lines
£m
Total
£m
1,137.6
2,324.1
4,111.4
1,741.5
232.8
77.1
130.5
9,755.0
114.7
112.8
164.4
235.6
151.6
63.8
38.4
881.3
16.1
57.2
110.2
–
–
–
1.0
184.5
33.0
3.1
–
–
33.7
26.4
3.0
99.2
1,301.4
2,497.2
4,386.0
1,977.1
418.1
167.3
172.9
10,920.0
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Annual Report and Accounts 2022
220
Notes to the Consolidated Financial Statements continued
45. Risk management continued
OSB
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
Total loans before provisions
Buy-to-Let
£m
Commercial
£m
804.0
1,532.0
3,708.1
2,423.7
249.5
46.4
104.0
8,867.7
118.9
105.1
130.1
224.0
165.9
19.8
30.6
794.4
2021
Residential
development
£m
19.0
40.1
61.6
–
–
–
–
120.7
Funding lines
£m
Total
£m
65.7
16.5
3.2
–
37.4
–
30.5
153.3
1,007.6
1,693.7
3,903.0
2,647.7
452.8
66.2
165.1
9,936.1
The tables below show the LTV analysis of the OSB Residential sub-segment:
2022
2021
OSB
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
Total loans before
provisions
First charge
£m
1,357.6
238.1
242.9
168.3
128.8
13.4
3.8
Second
charge
£m
109.8
35.4
18.6
5.3
1.4
0.6
0.7
2,152.9
171.8
Funding lines
£m
Total
£m
First charge
£m
Second charge
£m
Funding lines
£m
Total
£m
–
–
–
–
–
–
–
–
1,467.4
273.5
261.5
173.6
130.2
14.0
4.5
1,173.3
189.8
240.2
221.3
56.5
10.3
4.5
111.8
51.8
35.8
18.7
3.9
1.3
1.4
2,324.7
1,895.9
224.7
0.6
–
–
–
–
–
–
0.6
1,285.7
241.6
276.0
240.0
60.4
11.6
5.9
2,121.2
The table below shows the LTV analysis of the four CCFS sub-segment:
2022
Buy-to-Let
£m
Residential
£m
Bridging
£m
308.6
799.5
2,587.6
3,613.8
215.1
0.2
-
7,524.8
498.3
501.8
924.2
622.9
146.8
0.8
0.1
2,694.9
62.9
29.9
25.6
26.9
2.4
1.5
0.5
149.7
Second
charge
lending
£m
44.9
29.9
24.3
13.7
1.2
–
–
114.0
Total
£m
914.7
1,361.1
3,561.7
4,277.3
365.5
2.5
0.6
10,483.4
%
9
13
34
41
3
–
–
100
CCFS
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
Total loans before provisions
OSB GROUP PLC
Annual Report and Accounts 2022
CCFS
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
Total loans before provisions
Buy-to-Let
£m
Residential
£m
104.8
205.4
702.4
4,827.7
560.5
0.1
6,400.9
261.0
246.8
480.1
1,234.5
268.9
1.4
2,492.7
2021
Bridging
£m
Second charge
lending
£m
30.2
9.3
14.9
1.4
0.5
–
56.3
32.2
28.6
44.5
37.1
14.5
–
156.9
Total
£m
428.2
490.1
1,241.9
6,100.7
844.4
1.5
9,106.8
221
%
5
5
14
67
9
–
100
Forbearance measures undertaken
The Group has a range of options available where borrowers experience financial difficulties that impact their ability to service their financial
commitments under the loan agreement. These options are explained in the Risk review on pages 52-75.
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-occupier1
Buy-to-Let
Commercial
Total
Number of
accounts
2022
At 31
December
2022
£m
Number of
accounts
2021
At 31 December
2021
£m
70
91
53
194
5
55
27
359
854
217
460
107
70
854
12.2
7.5
2.9
34.0
1.2
12.0
9.0
9.6
88.4
27.8
8.9
37.1
14.6
88.4
159
437
271
499
7
51
65
1,078
2,567
424
1,931
160
52
2,567
18.6
8.1
16.6
43.0
0.8
12.1
1.1
22.6
122.9
34.8
38.7
34.6
14.8
122.9
1.
Through 2021 and the first quarter of 2022, the Group undertook an exercise and provided a series of forbearance solutions and options to long-term arrears
customers on the Second charge portfolio to support and remedy the accrued delinquency.
OSB GROUP PLC
Annual Report and Accounts 2022
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Notes to the Consolidated Financial Statements continued
45. Risk management continued
Geographical analysis by region
An analysis of loans, excluding asset finance leases, 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
Total loans before
provisions
2022
2021
OSB
£m
453.5
609.9
5,559.3
21.5
75.6
169.8
906.6
10.0
36.9
2,802.8
893.7
297.5
908.9
335.5
CCFS
£m
1,136.4
691.6
3,293.0
–
–
274.5
921.8
–
261.3
1,681.5
659.6
284.7
761.3
517.7
Total
£m
1,589.9
1,301.5
8,852.3
21.5
75.6
444.3
1,828.4
10.0
298.2
4,484.3
1,553.3
582.2
1,670.2
853.2
%
7
6
38
–
–
2
7
–
1
19
7
2
7
4
OSB
£m
361.8
543.8
4,983.7
26.3
99.3
153.9
762.3
10.9
35.2
2,792.6
825.5
272.1
706.9
366.8
CCFS
£m
967.1
555.8
3,052.6
–
–
244.4
755.0
–
226.0
1,452.4
544.3
240.6
629.8
438.8
Total
£m
1,328.9
1,099.6
8,036.3
26.3
99.3
398.3
1,517.3
10.9
261.2
4,245.0
1,369.8
512.7
1,336.7
805.6
%
6
5
39
–
–
2
7
–
1
20
7
2
7
4
13,081.5
10,483.4
23,564.9
100
11,941.1
9,106.8
21,047.9
100
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 and are aligned with Capital models to
generate the risk grades which are then 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 following tables disclose the credit risk quality ratings of loans and advances to customers by IFRS 9 stage. The assessment of whether credit
risk has increased significantly since initial recognition is performed for each reporting period for the life of the loan. Loans and advances to
customers initially booked on very low PDs and graded as excellent quality loans can experience a SICR and therefore be moved to Stage 2. Such
loans may still be graded as excellent quality, if they meet the overall criteria.
During 2022, the Group developed capital models as part of the IRB programme. As a result, the disclosures provided below are now aligned to
internal capital models and rating systems. The 2021 figures were updated to reflect the revised alignment with capital models which, compared
to 2021 Annual report disclosures, resulted in a reduction of 11% from OSB segment’s Excellent quality, a 6% increase in Good, a 3% increase in
Satisfactory and a 2% increase in Lower. CCFS segment figures remain largely aligned with minor movements across segments.
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Stage 1
£m
Stage 2
£m
Stage 3
£m
Stage 3
(POCI)
£m
Total
£m
PD lower
range
%
PD upper
range
%
4,136.6
5,848.5
331.8
29.9
–
–
5,800.2
2,394.2
151.4
29.7
–
–
470.6
1,248.4
374.2
416.5
–
–
910.1
668.2
143.9
185.2
–
–
18,722.3
4,417.1
–
–
–
–
349.7
–
–
–
–
–
156.0
–
505.7
Stage 1
£m
Stage 2
£m
Stage 3
£m
3,949.2
6,045.0
435.9
72.6
–
–
5,102.2
2,468.5
96.2
18.8
–
–
159.6
486.8
237.2
260.2
–
–
443.2
487.5
171.5
167.6
–
–
–
–
–
–
365.6
–
–
–
–
–
99.1
–
18,188.4
2,413.6
464.7
–
–
–
–
–
38.5
–
–
–
–
–
44.5
83.0
Stage 3
(POCI)
£m
–
–
–
–
–
45.2
–
–
–
–
–
52.2
97.4
4,607.2
7,096.9
706.0
446.4
349.7
38.5
6,710.3
3,062.4
295.3
214.9
156.0
44.5
23,728.1
Total
£m
4,108.8
6,531.8
673.1
332.8
365.6
45.2
5,545.4
2,956.0
267.7
186.4
99.1
52.2
21,164.1
–
0.3
2.0
7.4
100.0
100.0
–
0.3
2.0
7.4
100.0
100.0
0.3
2.0
7.4
100.0
100.0
100.0
0.3
2.0
7.4
100.0
100.0
100.0
PD lower
range
%
PD upper
range
%
–
0.3
2.0
7.4
100.0
100.0
–
0.3
2.0
7.4
100.0
100.0
0.3
2.0
7.4
100.0
100.0
100.0
0.3
2.0
7.4
100.0
100.0
100.0
2022
OSB
Excellent
Good
Satisfactory
Lower
Impaired
POCI
CCFS
Excellent
Good
Satisfactory
Lower
Impaired
POCI
2021
OSB
Excellent
Good
Satisfactory
Lower
Impaired
POCI
CCFS
Excellent
Good
Satisfactory
Lower
Impaired
POCI
The tables below show the Group’s other financial assets and derivatives by credit risk rating grade. The credit grade is based on the external
credit rating of the counterparty; AAA to AA- are rated Excellent; A+ to A- are rated Good; and BBB+ to BBB- are rated Satisfactory.
2022
Investment securities
Loans and advances to credit institutions
Derivative assets
2021
Investment securities
Loans and advances to credit institutions
Derivative assets
Excellent
£m
412.9
2,923.2
400.1
3,736.2
Excellent
£m
491.4
2,688.9
43.0
3,223.3
Good
£m
Satisfactory
£m
–
435.4
488.0
923.4
Good
£m
–
151.8
142.7
294.5
–
7.1
–
7.1
Satisfactory
£m
–
2.9
–
2.9
Total
£m
412.9
3,365.7
888.1
4,666.7
Total
£m
491.4
2,843.6
185.7
3,520.7
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Notes to the Consolidated Financial Statements continued
45. Risk management continued
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 Group Market and Liquidity Risk 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
£3,496.9m (2021: £2,926.0m).
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
Total
2022
£m
2,869.3
496.4
149.8
263.1
3,778.6
2021
£m
2,555.9
287.7
252.1
239.3
3,335.0
%
76
13
4
7
100
1. Balances with the BoE include £62.8m (2021: £59.5m) 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
2022
£m
3,765.7
12.9
3,778.6
2021
£m
3,328.0
7.0
3,335.0
%
100
–
100
%
76
9
8
7
100
%
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.
For further information on credit risk see page 71.
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 call
accounts with the BoE and has access to its contingent liquidity facilities.
The Board has delegated the responsibility for liquidity management to the Chief Executive Officer, assisted by ALCO, with day-to-day
management delegated to Treasury as detailed in the Group Market and Liquidity Risk Policy. The Board is responsible for setting risk appetite
limits over the level and maturity profile of funding and for monitoring the composition of the Group financial position. The tables below analyse
the financial assets and liabilities of the Group based on the contractual maturity on the remaining period at balance sheet date.
The Group also monitors a range of triggers, defined in the recovery 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 Group Chief Risk Officer, Chief Executive Officer, Chief Financial Officer and the Group Treasurer.
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The tables below show the maturity profile for the Group’s financial assets and liabilities based on contractual maturities at the reporting date:
2022
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
PSBs
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
2021
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
PSBs
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
Less than 3
months
£m
3 – 12 months
£m
1 – 5 years
£m
More than 5
years
£m
19,755.8
5,092.9
113.1
106.6
265.9
9.9
–
15.2
25,359.4
0.4
3,365.7
412.9
23,612.7
888.1
28,279.8
6,770.7
–
–
–
–
–
–
–
6,770.7
0.4
3,104.0
0.5
2.3
–
3,107.2
2,632.4
191.4
29.7
7.5
0.3
0.4
–
–
2,861.7
–
71.4
144.8
223.8
2.7
442.7
7,807.7
310.3
76.5
46.3
–
1.3
–
–
8,242.1
–
–
22.1
421.8
55.5
499.4
2,545.0
4,218.9
6.9
43.8
265.6
7.6
–
15.2
7,103.0
–
–
245.5
1,341.6
828.2
–
372.3
–
9.0
–
0.6
–
–
381.9
–
190.3
–
21,623.2
1.7
2,415.3
21,815.2
(3,663.5)
(6,082.6)
(13,825.2)
(18,512.9)
2,920.4
Carrying
amount
£m
On demand
£m
Less than 3
months
£m
3 – 12 months
£m
1 – 5 years
£m
More than 5
years
£m
17,526.4
4,319.6
92.6
19.7
460.3
10.7
10.3
15.2
22,454.8
0.5
2,843.6
491.4
21,080.3
185.7
24,601.5
5,004.6
42.1
14.8
–
–
–
–
–
5,061.5
0.5
2,667.8
–
3.3
–
2,671.6
2,350.3
1.0
8.1
0.7
–
0.3
–
–
2,360.4
–
52.0
172.7
163.8
0.1
388.6
7,458.5
–
45.0
10.4
–
0.6
0.1
–
7,514.6
–
10.1
6.1
383.5
5.4
405.1
2,713.0
4,203.2
24.7
8.6
460.3
3.7
10.2
15.2
7,438.9
–
–
312.6
1,327.4
179.9
1,819.9
(2,389.9)
(4,361.7)
(11,471.2)
(17,090.2)
–
73.3
–
–
–
6.1
–
–
79.4
–
113.7
–
19,202.3
0.3
19,316.3
2,146.7
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Notes to the Consolidated Financial Statements continued
45. Risk management continued
Liquidity risk – undiscounted contractual cash flows
The following tables provide an analysis of the Group’s gross contractual undiscounted cash flows, derived using interest rates and contractual
maturities at the reporting date and excluding impacts of early payments or non-payments:
2022
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
PSBs
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
Carrying
amount
£m
Gross inflow/
outflow
£m
Up to 3
months
£m
3 – 12 months
£m
1 – 5 years
£m
More than 5
years
£m
19,755.8
5,092.9
113.1
106.6
265.9
9.9
–
15.2
20,083.0
5,459.8
113.1
103.9
277.3
11.4
–
16.1
25,359.4
26,064.6
1,212.2
1,212.2
0.4
3,365.7
412.9
23,612.7
888.1
0.4
3,365.7
444.3
57,940.1
820.5
9,566.2
227.1
29.7
16.2
34.4
0.5
–
0.3
9,874.4
1,212.2
0.4
3,175.4
148.2
430.7
76.9
7,911.0
410.9
76.5
39.1
64.5
1.5
–
0.3
8,503.8
–
–
–
30.2
1,657.2
259.4
2,605.8
4,449.5
6.9
46.7
178.4
8.8
–
15.5
7,311.6
–
–
–
265.9
8,028.9
484.6
–
372.3
–
1.9
–
0.6
–
–
374.8
–
–
190.3
–
47,823.3
(0.4)
Total assets
28,279.8
62,571.0
3,831.6
1,946.8
8,779.4
48,013.2
2021
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
PSBs
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
More than 5
years
£m
17,526.4
4,319.6
92.6
19.7
460.3
10.7
10.3
15.2
17,554.7
4,359.8
92.6
6.0
473.2
13.1
12.2
16.8
22,454.8
22,528.4
1,155.3
1,155.3
0.5
2,843.6
491.4
21,080.3
185.7
24,601.5
0.5
2,843.6
497.0
41,290.2
75.8
44,707.1
9,305.7
45.2
22.9
(0.4)
25.1
0.6
0.2
0.2
9,399.5
1,155.3
0.5
2,756.3
172.6
374.4
(1.4)
3,302.4
5,883.7
5.2
45.0
5.1
75.0
1.6
0.7
0.5
6,016.8
2,365.3
4,236.1
24.7
1.2
373.1
7.7
11.3
16.1
7,035.5
–
–
–
73.3
–
0.1
–
3.2
–
–
76.6
–
–
10.1
108.8
1,331.0
11.2
1,461.1
–
–
215.6
5,711.9
66.0
–
77.2
–
33,872.9
–
5,993.5
33,950.1
The actual repayment profile of retail deposits may differ from the analysis above due to the option of early withdrawal with a penalty.
Cash flows on PSBs are disclosed up 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.
OSB GROUP PLC
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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 customers2
Derivative assets
Non-financial assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers2
Derivative assets
Non-financial assets
2022
Encumbered
Unencumbered
Pledged as
collateral
£m
–
237.4
46.4
6,705.1
–
–
6,988.9
Other1
£m
–
174.6
–
–
–
–
174.6
Available as
collateral
£m
0.4
2,806.5
366.5
16,424.5
–
–
19,597.9
2021
Other
£m
–
147.2
–
483.1
888.1
(713.1)
Total
£m
0.4
3,365.7
412.9
23,612.7
888.1
(713.1)
805.3
27,566.7
Encumbered
Unencumbered
Pledged as
collateral
£m
–
99.9
121.8
6,373.7
–
–
6,595.4
Other1
£m
–
107.5
–
–
–
–
107.5
Available as
collateral
£m
0.5
2,496.4
369.6
2,746.3
–
–
Other
£m
–
139.8
–
11,960.3
185.7
(69.6)
Total
£m
0.5
2,843.6
491.4
21,080.3
185.7
(69.6)
5,612.8
12,216.2
24,531.9
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.
Unencumbered loans and advances to customers classified as other are restricted for use as collateral as they are; registered outside of UK (Jersey and Guernsey), not
secured by immovable property or are non-performing.
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
2022
£m
2,806.5
147.2
0.4
366.5
3,320.6
2021
£m
2,496.4
139.8
0.5
369.6
3,006.3
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 and in fixed rate retail deposits. Exposure is mitigated on a continuous basis
through the use of natural offsets between mortgages and savings with a similar tenor, interest rate 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 pipeline take up. Expected
prepayments are monitored and modelled on a regular basis based upon historical analysis. The reserve allocation strategy is approved by ALCO
and set to reflect the current balance sheet and future plans.
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Notes to the Consolidated Financial Statements continued
45. Risk management continued
Interest rate risk continued
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:
OSB
CCFS
2022
£m
13.5
1.9
15.4
2021
£m
9.9
1.1
11.0
Exposure for earnings at risk as at 31 December 2022 is measured by the impact of a +/-100bps parallel shift in interest rates on the expected
profitability of the Group in the next 12 months. The risk appetite limit is 4% of full year net interest income. The table below shows the maximum
decreases after taking into account the derivatives:
OSB1
CCFS1,2
2022
£m
7.5
8.8
16.3
2021
£m
0.5
(0.4)
0.1
1.
2.
Exposure for earnings at risk as at 31 December 2021 was 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 was 2% of full year net interest income.
Increases for CCFS 2021 due to product floors earnings increases in both the +50bps and -50bps scenarios.
Exposure for earnings at risk measured by the impact of a +/-100bps parallel shift in interest rates on the expected profitability of the Group in the
next 3 years. The risk appetite limit is 4% of full year net interest income.
OSB
CCFS
1. Not measured during 2021.
2022
£m
26.2
24.1
50.3
20211
£m
–
–
–
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 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 four scenarios on net interest income over a one-year period including movements such as
diverging base, overnight and term 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 2.5% of full year net interest income. The table below shows the maximum decreases to net interest
income at 31 December 2022 and 2021:
OSB
CCFS
2022
£m
5.8
4.5
10.3
2021
£m
3.2
3.8
7.0
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
£0.7m (2021: £0.4m) effect in profit or loss and £0.5m (2021: £0.5m) in equity.
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Structured entities
The structured entities consolidated within the Group at 31 December 2022 were Canterbury Finance No.2 plc, Canterbury Finance No.3 plc,
Canterbury Finance No.4 plc, Canterbury Finance No.5 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 2021 were Canterbury Finance No.2 plc, Canterbury Finance No.3 plc,
Canterbury Finance No.4 plc and CMF 2020-1 plc.
Unconsolidated structured entities
Structured entities, which were sponsored by the Group include 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.
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 19 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 2022 the Group received £2.6m interest income (2021: £1.8m) and £4.3m servicing income (2021: £4.4m) from unconsolidated
structured entities.
46. Financial instruments and fair values
i. Financial assets and financial liabilities
The following table sets out the classification of financial instruments in the Consolidated Statement of Financial Position:
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Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Derivative assets
Other assets1
Liabilities
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Debt securities in issue
Derivative liabilities
Other liabilities2
Subordinated liabilities
PSBs
1. Balance excludes prepayments.
2. Balance excludes deferred income.
Designated
FVTPL
£m
Mandatorily
FVTPL
£m
Note
18
19
20
25
27
32
31
33
34
25
36
39
40
–
–
0.5
14.6
–
–
15.1
–
–
–
–
–
–
–
–
–
–
–
–
–
888.1
–
888.1
–
–
–
–
106.6
–
–
–
106.6
2022
FVOCI
£m
–
–
149.8
–
–
–
149.8
–
–
–
–
–
–
–
–
–
Amortised
cost
£m
Total carrying
amount
£m
0.4
3,365.7
262.6
23,598.1
–
1.8
27,228.6
19,755.8
5,092.9
113.1
265.9
–
38.1
–
15.2
25,281.0
0.4
3,365.7
412.9
23,612.7
888.1
1.8
28,281.6
19,755.8
5,092.9
113.1
265.9
106.6
38.1
–
15.2
25,387.6
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Notes to the Consolidated Financial Statements continued
46. Financial instruments and fair values continued
i. Financial assets and financial liabilities continued
Assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Derivative assets
Other assets1
Liabilities
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Debt securities in issue
Derivative liabilities
Other liabilities2
Subordinated liabilities
PSBs
1. Balance excludes prepayments.
2. Balance excludes deferred income.
Designated
FVTPL
£m
Mandatorily
FVTPL
£m
Note
FVOCI
£m
Amortised cost
£m
Total carrying
amount
£m
2021
18
19
20
25
27
32
31
33
34
25
36
39
40
–
–
0.7
17.7
–
–
18.4
–
–
–
–
–
–
–
–
–
–
–
–
–
185.7
–
185.7
–
–
–
–
19.7
–
–
–
19.7
–
–
167.6
–
–
–
167.6
–
–
–
–
–
–
–
–
–
0.5
2,843.6
323.1
21,062.6
–
0.9
24,230.7
17,526.4
4,319.6
92.6
460.3
–
28.8
10.3
15.2
22,453.2
0.5
2,843.6
491.4
21,080.3
185.7
0.9
24,602.4
17,526.4
4,319.6
92.6
460.3
19.7
28.8
10.3
15.2
22,472.9
The Group has no non-derivative financial assets or financial liabilities classified as held for trading.
ii. Fair values
The following tables summarise the carrying value and estimated fair value of financial instruments not measured at fair value in the Consolidated
Statement of Financial Position:
Assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Other assets1
Liabilities
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Debt securities in issue
Other liabilities2
Subordinated liabilities
PSBs
1. Balance excludes prepayments.
2. Balance excludes deferred income.
2022
2021
Carrying
value
£m
Estimated fair
value
£m
Carrying
value
£m
Estimated fair
value
£m
0.4
3,365.7
262.6
23,598.1
1.8
27,228.6
19,755.8
5,092.9
113.1
265.9
38.1
–
15.2
25,281.0
0.4
3,365.7
260.5
22,746.0
1.8
26,374.4
19,693.0
5,092.9
113.1
265.9
38.1
–
14.0
25,217.0
0.5
2,843.6
323.1
21,062.6
0.9
24,230.7
17,526.4
4,319.6
92.6
460.3
28.8
10.3
15.2
22,453.2
0.5
2,843.6
323.8
21,079.5
0.9
24,248.3
17,524.9
4,319.6
92.6
460.3
28.8
10.6
14.7
22,451.5
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.
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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.
Investment securities
Investment securities’ fair values are provided by a third party and are based on the market values of similar financial instruments. The fair value
of investment securities held at FVTPL is measured using a discounted cash flow model.
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 ECL. 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.
Other assets
Other assets disclosed in the table above exclude prepayments and the fair value is considered 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 TFSME and commercial repos. Fair value is considered to be equal to carrying value.
Amounts owed to other customers
This represents saving products to corporations and local authorities. The fair value of fixed rate deposits is estimated by discounting future cash
flows at current market rates of interest. Deposits at variable rates are considered to be at current market rates and the fair value is estimated to
be equal to carrying value.
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.
Other liabilities
Other liabilities disclosed in the table above exclude deferred income and the fair value is considered to be equal to carrying value.
Subordinated liabilities and PSBs
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.
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Notes to the Consolidated Financial Statements continued
46. Financial instruments and fair values continued
iii. Fair value classification
The following tables provide an analysis of financial assets and financial liabilities measured at fair value in the Consolidated Statement of
Financial Position grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
2022
Financial assets
Investment securities
Loans and advances to customers
Derivative assets
Financial liabilities
Derivative liabilities
2021
Financial assets
Investment securities
Loans and advances to customers
Derivative assets
Financial liabilities
Derivative liabilities
Carrying
amount
£m
Principal
amount
£m
150.3
14.6
888.1
150.5
17.7
15,662.6
1,053.0
15,830.8
Level 1
£m
149.8
–
–
149.8
Level 2
£m
–
–
888.1
888.1
Level 3
£m
Total
£m
0.5
14.6
–
15.1
150.3
14.6
888.1
1,053.0
106.6
9,518.0
–
106.6
–
106.6
Carrying
amount
£m
Principal
amount
£m
168.3
17.7
185.7
371.7
166.2
19.7
12,968.3
13,154.2
Level 1
£m
152.1
–
–
152.1
Level 2
£m
15.5
–
185.7
201.2
Level 3
£m
0.7
17.7
–
18.4
Total
£m
168.3
17.7
185.7
371.7
19.7
7,378.0
–
19.7
–
19.7
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.
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The following tables provide an analysis of financial assets and financial liabilities not measured at fair value in the Consolidated Statement of
Financial Position grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
2022
Financial assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Other assets1
Financial liabilities
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Debt securities in issue
Other liabilities2
Subordinated liabilities
PSBs
1. Balance excludes prepayments.
2. Balance excludes deferred income.
2021
Financial assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Other assets1
Financial liabilities
Amounts owed to retail depositors
Amounts owed to credit institutions
Amounts owed to other customers
Debt securities in issue
Other liabilities2
Subordinated liabilities
PSBs
1. Balance excludes prepayments.
2. Balance excludes deferred income.
Carrying
amount
£m
Principal
amount
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Estimated fair value
0.4
3,365.7
262.6
23,598.1
1.8
27,228.6
19,755.8
5,092.9
113.1
265.9
38.1
–
15.2
25,281.0
0.4
3,360.9
262.1
23,646.2
1.8
27,271.4
19,620.8
5,057.8
112.1
265.4
38.1
–
15.0
25,109.2
–
–
–
–
–
–
–
–
–
–
–
–
14.0
14.0
0.4
3,365.7
260.5
2,515.0
1.8
6,143.4
5,770.3
5,092.9
–
265.9
38.1
–
–
11,167.2
–
–
–
20,231.0
–
20,231.0
13,922.7
–
113.1
–
–
–
–
14,035.8
0.4
3,365.7
260.5
22,746.0
1.8
26,374.4
19,693.0
5,092.9
113.1
265.9
38.1
–
14.0
25,217.0
Carrying
amount
£m
Principal
amount
£m
Estimated fair value
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
0.5
2,843.6
323.1
21,062.6
0.9
24,230.7
17,526.4
4,319.6
92.6
460.3
28.8
10.3
15.2
22,453.2
0.5
2,843.6
322.9
21,076.7
0.9
24,244.6
17,469.0
4,318.5
92.5
460.2
28.8
10.1
15.0
22,394.1
–
–
–
–
–
–
–
–
–
–
–
–
14.7
14.7
0.5
2,843.6
323.8
3,323.0
0.9
6,491.8
6,601.3
4,319.6
–
460.3
28.8
–
–
11,410.0
–
–
–
17,756.5
–
17,756.5
10,923.6
–
92.6
–
–
10.6
–
11,026.8
0.5
2,843.6
323.8
21,079.5
0.9
24,248.3
17,524.9
4,319.6
92.6
460.3
28.8
10.6
14.7
22,451.5
47. 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 £4.4m (2021: £5.2m).
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Notes to the Consolidated Financial Statements continued
48. 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.
The financial position and results of operations of the above segments are summarised below:
2022
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)
Impairment of financial assets
Contribution to profit
Administrative expenses
Provisions
Integration costs
Profit/(loss) before taxation
Taxation1
Profit/(loss) for the year
OSB
£m
CCFS
£m
Combination
£m
Total
£m
13,244.7
(103.2)
13,141.5
7.6
6.2
10,416.3
(28.0)
10,388.3
0.7
3.4
460.7
8.9
469.6
(22.3)
447.3
(130.9)
1.6
(6.8)
311.2
(70.1)
241.1
308.4
46.2
354.6
(8.4)
346.2
(73.1)
–
(1.1)
272.0
(70.2)
201.8
81.7
1.2
82.9
–
3.8
(59.2)
10.4
(48.8)
0.9
(47.9)
(3.8)
–
–
(51.7)
18.8
(32.9)
23,742.7
(130.0)
23,612.7
8.3
13.4
709.9
65.5
775.4
(29.8)
745.6
(207.8)
1.6
(7.9)
531.5
(121.5)
410.0
1.
The taxation on Combination credit includes release of deferred taxation on CCFS Combination relating to the unwind of the deferred tax liabilities recognised on
the fair value adjustments of the CCFS assets and liabilities at the acquisition date of £17.5m and the release of other deferred tax assets on Combination adjustments
of £1.3m.
2021
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)
Impairment of financial assets
Contribution to profit
Administrative expenses
Provisions
Impairment of intangible assets
Integration costs
Exceptional items
Profit/(loss) before taxation
Taxation1
Profit/(loss) for the year
OSB
£m
CCFS
£m
Combination
£m
Total
£m
12,057.3
(82.2)
11,975.1
5.0
6.5
414.8
8.7
423.5
(3.5)
420.0
(97.9)
(0.3)
–
(4.0)
(0.2)
317.6
(76.0)
241.6
8,981.4
(19.6)
8,961.8
1.8
3.2
235.7
20.0
255.7
8.4
264.1
(63.8)
0.1
–
(1.0)
–
199.4
(51.8)
147.6
143.1
0.3
143.4
–
4.8
(62.9)
12.7
(50.2)
(0.5)
(50.7)
(4.8)
–
3.1
–
–
(52.4)
8.5
(43.9)
21,181.8
(101.5)
21,080.3
6.8
14.5
587.6
41.4
629.0
4.4
633.4
(166.5)
(0.2)
3.1
(5.0)
(0.2)
464.6
(119.3)
345.3
1.
The tax on Combination credit includes a credit of £14.1m relating to the unwind of the deferred tax liabilities recognised on the fair value adjustments of the CCFS
assets and liabilities at the acquisition date, offset by a £5.6m deferred tax charge due to the 6% increase in the main rate of the corporation tax liability from 1 April
2023.
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49. Country by country reporting (CBCR)
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
Country
Name
Activities
UK1
England
Guernsey
Jersey
England
UK
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
Canterbury Finance No. 2 plc
Canterbury Finance No. 3 plc
Canterbury Finance No. 4 plc
Canterbury Finance No. 5 plc
CMF 2020-1 plc
UK
India
England
WSE Bourton Road Limited
India
OSB India Private Limited
Commercial banking
Special purpose vehicle
Land lease investment
Back office processing
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.
Other disclosures required by the CBCR directive are provided below:
2022
Average number of employees
Turnover1, £m
Profit/(loss) before tax, £m
Corporation tax paid, £m
2021
Average number of employees
Turnover1, £m
Profit/(loss) before tax, £m
Corporation tax paid, £m
UK
1,274
775.1
531.2
142.0
UK
1,220
628.9
464.4
117.0
India Consolidation2
622
13.6
2.2
0.5
–
(13.3)
(1.9)
–
India Consolidation2
535
9.6
1.2
0.3
–
(9.5)
(1.0)
–
Total
1,896
775.4
531.5
142.5
Total
1,755
629.0
464.6
117.3
1.
Turnover represents total income before impairment of financial and intangible assets, regulatory provisions and operating costs, but after net interest income, gains
and losses on financial instruments and other operating income.
2. Relates to a management fee from Indian subsidiaries to OneSavings Bank plc for providing back office processing.
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Notes to the Consolidated Financial Statements continued
49. Country by country reporting (CBCR) continued
The tables below reconcile tax charged and tax paid during the year.
2022
Tax charge
Effects of:
Other timing differences
Tax outside of profit or loss
Prior year tax paid during the year
Prior year tax included within tax charge
Tax in relation to future periods prepaid
Tax paid
2021
Tax charge
Effects of:
Other timing differences
Tax outside of profit or loss
Current period tax paid in prior years
Tax in relation to future periods prepaid
Tax paid
50. Adjustments for non-cash items and changes in operating assets and liabilities
Adjustments for non-cash items:
Depreciation and amortisation
Interest on investment securities
Integration cost
Interest on subordinated liabilities
Interest on PSBs
Interest on securitised debt
Interest on financing debt
Impairment charge/(credit) on loans
Impairment credit on intangible assets acquired on Combination
Gain on sale of financial instruments
Administrative expenses
Provisions
Interest on lease liabilities
Fair value gains on financial instruments
Share-based payments
Total adjustments for non-cash items
Changes in operating assets and liabilities:
(Increase)/decrease in loans and advances to credit institutions
Increase in loans and advances to customers
Increase in amounts owed to retail depositors
Increase in cash collateral and margin received1
Net increase in other assets
Net increase in derivatives and hedged items
Net increase in amounts owed to other customers
Net increase in other liabilities
Exchange differences on working capital
Total changes in operating assets and liabilities1
1. 2021 figures restated see note 1 b) for further details.
OSB GROUP PLC
Annual Report and Accounts 2022
UK
£m
121.0
19.0
(0.9)
1.0
0.9
1.0
India
£m
0.5
–
–
–
–
–
Total
£m
121.5
19.0
(0.9)
1.0
0.9
1.0
142.0
0.5
142.5
UK
£m
118.9
9.6
(1.3)
(9.1)
(1.1)
117.0
India
£m
0.4
(0.1)
–
–
–
0.3
2022
£m
13.4
(6.8)
–
1.1
0.7
7.7
68.7
29.8
–
–
1.3
(1.6)
0.2
(58.9)
8.1
63.7
(204.6)
(2,563.1)
2,229.4
434.3
(4.7)
59.1
16.6
9.1
(0.3)
(24.2)
Total
£m
119.3
9.5
(1.3)
(9.1)
(1.1)
117.3
Restated1
2021
£m
14.5
(2.5)
0.6
0.8
1.2
3.9
5.3
(4.4)
(3.1)
(4.0)
–
0.2
0.3
(29.5)
6.7
(10.0)
98.7
(1,844.0)
923.3
115.4
(1.1)
3.6
18.9
1.7
(0.1)
(683.6)
237
51. Events after the reporting date
The Board has authorised a share repurchase of up to £150.0m of shares in the market from 17 March 2023. The Company has authority to make
such purchases under a resolution approved by shareholders at the AGM on 11 May 2023. Any purchases made under this programme will be
announced to the market each day in line with regulatory requirements.
52. Controlling party
As at 31 December 2022 there was no controlling party of the ultimate parent company of the Group, OSB GROUP PLC.
53. Transactions with key management personnel
All related party transactions were made on terms equivalent to those that prevail in arm’s length transactions. During the year, there were no
related party transactions between the key management personnel and the Group other than as described below.
The Directors and Group Executive team are considered to be key management personnel.
Directors’ remuneration is disclosed in note 10 and in the Directors’ Remuneration Report on page 142. The Group Executive team are all
employees of OSB, the table below shows their aggregate remuneration:
Short-term employee benefits
Post-employment benefits
Share-based payments
2022
£’000
4,000
62
2,667
6,729
2021
£’000
5,144
44
2,414
7,602
Key management personnel and connected persons held deposits with the Group of £2.1m (2021: £0.9m).
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.
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Under Pillar 2, the Group, and its regulated entities, complete an annual self-assessment of risks known as the 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 PRA issued, on 30th November 2022, a consultation paper on the implementing Basel 3.1 in the UK. The Group has taken account of this in
planning for future capital requirements.
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.
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OSB GROUP PLC
Annual Report and Accounts 2022
238
Notes to the Consolidated Financial Statements continued
54. Capital management continued
The Group’s Pillar 1 capital information is presented below:
CET1 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 dividends1
IFRS 9 transitional adjustment2
COVID-19 ECL transitional adjustment3
Deductions from CET1 capital
Prudent valuation adjustment4
Intangible assets
Deferred tax asset
CET1 capital
AT1 capital
AT1 securities
Total Tier 1 capital
Total regulatory capital
Risk-weighted assets (unaudited)
(Unaudited)
2022
£m
(Unaudited)
2021
£m
4.3
15.6
3,389.4
(1,355.1)
(3.2)
2,051.0
(144.0)
1.4
25.9
(1.0)
(12.0)
(0.6)
4.5
14.1
3,215.1
(1,355.3)
(4.0)
1,874.4
(94.7)
2.9
19.0
(1.0)
(18.4)
(0.5)
1,920.7
1,781.7
150.0
2,070.7
2,070.7
10,494.7
150.0
1,931.7
1,931.7
9,101.6
2022 includes special dividend of £50.3m (£50.0m announced by the Board rounded up on a pence per share basis totals £50.3m).
1.
2. The regulatory capital includes a £1.4m add-back under IFRS 9 transitional arrangements. This represents 25.0% of the IFRS 9 transitional adjustment booked directly
3.
4.
to retained earnings of £5.9m.
The COVID-19 ECL transitional adjustment relates to 75% of 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.
The Group has adopted the simplified approach under the Prudent Valuation rules, recognising a deduction equal to sum of absolute value to 0.1% of fair value assets
and liabilities excluding offsetting fair-valued assets and liabilities.
The movement in CET1 during the year was as follows:
(Unaudited)
2022
£m
(Unaudited)
2021
£m
1,781.7
174.3
1.7
0.6
(49.3)
(1.5)
6.9
-
6.4
(0.1)
1,920.7
1,566.0
1,606.5
0.7
(1,349.7)
(29.8)
(2.0)
(12.0)
(0.6)
2.2
0.4
1,781.7
At 1 January
Movement in retained earnings
Share premium from Sharesave Scheme vesting
Movement in other reserves
Movement in foreseeable dividends
IFRS 9 transitional adjustment
COVID-19 ECL transitional adjustment
Movement in prudent valuation adjustment
Net decrease in intangible assets
Movement in deferred tax asset for carried forward losses
At 31 December
OSB GROUP PLC
Annual Report and Accounts 2022
Company Statement of Financial Position
As at 31 December 2022
Assets
Investments in subsidiaries and intercompany loans
Current taxation asset
Total assets
Liabilities
Intercompany loans
Other liabilities
Equity
Share capital
Share premium
Retained earnings
Other reserves
Total equity and liabilities
239
Note
2022
£m
2021
£m
2
2
3
3
4
1,590.7
–
1,590.7
1,582.6
0.3
1,582.9
0.8
–
0.8
4.3
2.4
1,359.3
223.9
1,589.9
1,590.7
0.6
0.2
0.8
4.5
0.7
1,358.4
218.5
1,582.1
1,582.9
The profit after tax for the year ended 31 December 2022 of OSBG was £240.8m (2021: £87.0m). As permitted by section 408 of the Companies
Act 2006, no separate Statement of Comprehensive Income is presented in respect of the Company.
The notes on pages 242-245 form an integral part of the Company financial statements.
The financial statements were approved by the Board of Directors on 16 March 2023 and were signed on its behalf by:
Andy Golding
Chief Executive Officer
April Talintyre
Chief Financial Officer
Company number: 11976839
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OSB GROUP PLC
Annual Report and Accounts 2022
240
Company Statement of Changes in Equity
For the year ended 31 December 2022
Share capital
£m
Share
premium
£m
Capital
redemption
and transfer
reserve1
£m
Share-based
payment
reserve
£m
AT1 securities
£m
Own shares2
£m
At 1 January 2021
Profit for the year
Dividend paid
Share-based payments
Issuance of AT1 securities
Transactions costs on
issuance of AT1 securities
Own shares2
Capital reduction
At 31 December 2021
Profit for the year
Dividend paid
Share-based payments
Own shares2
Coupon paid on AT1
securities
Share repurchase
At 31 December 2022
1,359.8
–
–
–
–
–
–
(1,355.3)
4.5
–
–
–
–
–
(0.2)
4.3
–
–
–
0.7
–
–
–
–
0.7
–
–
1.7
–
–
–
2.4
65.7
–
–
–
–
–
–
–
65.7
–
–
–
–
–
0.2
65.9
(4.0)
–
–
–
–
–
0.5
–
(3.5)
–
–
–
1.3
–
–
0.4
–
–
5.9
–
–
–
–
6.3
–
–
3.9
–
–
–
–
–
–
–
150.0
–
–
–
150.0
–
–
–
–
–
–
Retained
earnings
£m
4.0
87.0
(86.7)
0.9
–
(1.6)
(0.5)
1,355.3
1,358.4
240.8
(133.1)
4.2
(1.3)
(9.0)
(100.7)
Total
£m
1,425.9
87.0
(86.7)
7.5
150.0
(1.6)
–
–
1,582.1
240.8
(133.1)
9.8
–
(9.0)
(100.7)
(2.2)
10.2
150.0
1,359.3
1,589.9
1.
2.
Includes Capital redemption reserve of £0.2m (2021: nil) and Transfer reserve of £65.7m (2021: £(65.7)m).
The Company has adopted look-through accounting (see note 1 to the Group's consolidated financial statements) and recognised the Employee Benefit Trusts within
OSBG.
OSB GROUP PLC
Annual Report and Accounts 2022
Company Statement of Cash Flows
For the year ended 31 December 2022
Cash flows from operating activities
Profit before taxation
Adjustments for non-cash items:
Administrative expenses
Changes in operating assets and liabilities:
Net (decrease)/increase in other liabilities
Change in intercompany loans1
Cash generated in operating activities
Cash flows from investing activities
Change in investments in subsidiaries
Cash used in investing activities
Cash flows from financing activities
Share repurchase2
Dividend paid
Coupon paid on AT1 securities
Issuance of AT1 securities
Proceeds from issuance of shares under employee SAYE scheme
Cash (used)/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 year3
Movement in cash and cash equivalents
Includes £0.3m of current taxation asset surrendered to OSB.
1.
2.
Includes £100.0m for shares repurchased, £0.7m transaction costs and £1.3m success fee.
3. The Company’s bank balance is swept to OneSavings Bank plc daily resulting in a nil balance.
241
2022
£m
2021
£m
240.8
86.7
1.3
(0.2)
0.5
242.4
–
–
(102.0)
(133.1)
(9.0)
–
1.7
(242.4)
–
–
–
–
–
0.2
0.6
87.5
(150.0)
(150.0)
–
(86.7)
–
148.4
0.8
62.5
–
–
–
–
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OSB GROUP PLC
Annual Report and Accounts 2022
242
Notes to the Company Financial Statements
For the year ended 31 December 2022
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 IFRSs as adopted by the UK, and are presented in Pounds Sterling.
The financial statements have been prepared on the historical cost basis. The financial statements are presented in Pounds Sterling. All amounts
in the financial statements have been rounded to the nearest £0.1m (£m). The functional currency of the Company is Pounds Sterling, which is the
currency of the primary economic environment in which the Company operates.
The principal accounting policies adopted are the same as those set out in note 1 to the Group’s consolidated financial statements, aside from
accounting policy 1 z), Share-based payments. For the Company, the cost of the awards are recognised on a straight-line basis to investment
in subsidiaries (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.
There are no critical judgements and estimates that apply to the Company.
2. Investments in subsidiaries and intercompany loans
The Company holds an investment in ordinary shares of £1,440.7m (2021: £1,432.6m) and in AT1 securities of £90.0m (2021: £90.0m) in its
direct subsidiary, OneSavings Bank plc (OSB). The Company also holds an investment in AT1 securities of £60.0m (2021: £60.0m) in an indirect
subsidiary, Charter Court Financial Services Limited.
At 1 January 2021
Additions1
Repayments
At 31 December 2021
Additions1
Repayments
At 31 December 2022
Investment in
subsidiaries
£m
Intercompany
loans payable
£m
1,425.9
156.7
–
1,582.6
8.1
–
1,590.7
–
(1.4)
0.8
(0.6)
(2.1)
1.9
(0.8)
1.
Additions in investment in subsidiaries include £8.1m relating to share-based payments (2021: includes purchase of AT1 securities of £90.0m issued by OSB and £60.0m
issued by Charter Court Financial Services Limited; and £6.7m relating to share-based payments).
The transactions with OSB during the year include £2.1m of additions in relation to costs on shares repurchased funded by OSB. Repayments of
£1.9m comprise £1.6m of cash received from issuing shares under SAYE and £0.3m of tax losses surrendered to OSB (2021: additions comprised
£1.4m transaction costs for the issuance of AT1 securities funded by OSB and repayments of £0.8m comprised cash received from issuing shares
under SAYE).
Investments in subsidiaries are financial assets and intercompany loans are financial liabilities, all carried at amortised cost. Intercompany loans
are payable on demand and no interest is charged on these loans.
OSB GROUP PLC
Annual Report and Accounts 2022
243
A list of the Company’s direct and indirect subsidiaries as at 31 December 2022 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
Canterbury Finance No.4 plc
Canterbury Finance No.5 plc
Charter Court Financial Services Group Plc
Charter Court Financial Services Limited
Charter Mortgages Limited
CMF 2020-1 plc
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
Prestige Finance Limited
Reliance Property Loans Limited
WSE Bourton Road Limited
Rochester Mortgages Limited
Reliance House
Mortgage servicer
Charter Court
Mortgage administration services
Churchill Place
Special purpose vehicle
Churchill Place
Special purpose vehicle
Churchill Place
Special purpose vehicle
Churchill Place
Special purpose vehicle
Charter Court
Holding company
Mortgage lending and deposit taking
Charter Court
Mortgage administration and analytical services Charter Court
Churchill Place
Special purpose vehicle
Reliance House
Holding company
Charter Court
Group service company
Reliance House
Mortgage provider
Guernsey
Mortgage provider
Reliance House
Mortgage originator and servicer
Reliance House
Holding company
Reliance House
Holding company
Reliance House
Asset finance and mortgage provider
Reliance House
Mortgage servicer
Reliance House
Holding company
Reliance House
Holding company
Reliance House
Mortgage provider
Reliance House
Mortgage provider
Jersey
Mortgage provider
India
Back office processing
Reliance House
Mortgage originator and servicer
Reliance House
Mortgage provider
OSB House
Land lease investment
Reliance House
Mortgage provider
100%
100%
–
–
–
–
100%
100%
100%
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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OSB GROUP PLC
Annual Report and Accounts 2022
244
Notes to the Company Financial Statements continued
2. Investments in subsidiaries and intercompany loans continued
A list of the Company’s direct and indirect subsidiaries as at 31 December 2021 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
Canterbury Finance No.4 plc
Charter Court Financial Services Group Plc
Charter Court Financial Services Limited
Charter Mortgages Limited
CMF 2020-1 plc
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
Prestige Finance Limited
Reliance Property Loans Limited
Rochester Mortgages Limited
Reliance House
Mortgage servicer
Charter Court
Mortgage administration services
Churchill Place
Special purpose vehicle
Churchill Place
Special purpose vehicle
Churchill Place
Special purpose vehicle
Charter Court
Holding company
Mortgage lending and deposit taking
Charter Court
Mortgage administration and analytical services Charter Court
Churchill Place
Special purpose vehicle
Churchill Place
Special purpose vehicle
Reliance House
Holding company
Charter Court
Group service company
Reliance House
Mortgage provider
Guernsey
Mortgage provider
Reliance House
Mortgage originator and servicer
Reliance House
Holding company
Reliance House
Holding company
Reliance House
Asset finance and mortgage provider
Reliance House
Mortgage servicer
Reliance House
Holding company
Reliance House
Holding company
Reliance House
Mortgage provider
Reliance House
Mortgage provider
Jersey
Mortgage provider
India
Back office processing
Reliance House
Mortgage originator and servicer
Reliance House
Mortgage provider
Reliance House
Mortgage provider
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.
SPVs 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 location of the entities listed above
are disclosed in note 49 to 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
cash flows generated by the investment.
The following are the registered offices of the subsidiaries:
Charter Court – 2 Charter Court, Broadlands, Wolverhampton, WV10 6TD
Churchill Place – 5 Churchill Place, 10th Floor, London, E14 5HU
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
OSB House – Quayside, Chatham Maritime, Chatham, England, ME4 4QZ
Reliance House – Reliance House, Sun Pier, Chatham, Kent, ME4 4ET
OSB GROUP PLC
Annual Report and Accounts 2022
245
3. Share capital
At 1 January 2021
Capital reduction of £3.04 nominal value shares to £0.01 nominal value shares
Shares issued under employee share plans
At 31 December 2021
Share cancelled under repurchase programme
Shares issued under employee share plans
At 31 December 2022
Number of shares
issued and fully paid
Nominal value
£m
Premium
£m
447,312,780
–
1,315,075
448,627,855
(20,671,224)
1,911,994
429,868,625
1,359.8
(1,355.3)
–
4.5
(0.2)
–
4.3
–
–
0.7
0.7
–
1.7
2.4
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.
4. Other reserves
The Company’s distributable reserves are disclosed in note 43 of the Group’s consolidated financial statements.
The Company’s other reserves are as follows:
Share-based payment
Capital redemption and transfer
Own shares
AT1 securities
2022
£m
10.2
65.9
(2.2)
150.0
223.9
2021
£m
6.3
65.7
(3.5)
150.0
218.5
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Capital redemption and transfer reserve
The capital redemption reserve represents the shares cancelled through the Group’s share repurchase programme.
The transfer reserve represents the difference between the net assets of the Group at the point of insertion of OSBG as the listed holding company
and the fair value of the newly issued share capital of OSBG.
For own shares and AT1 securities see note 43 of the Group’s consolidated financial statements.
5. Directors and employees
The Company has no employees. OneSavings Bank plc provides the Company with employee services and bears the costs, along with other
subsidiaries in the Group, associated with the Directors of the Company. These costs are not recharged to the Company.
6. Controlling party
As at 31 December 2022 there was no controlling party of OSB GROUP PLC.
OSB GROUP PLC
Annual Report and Accounts 2022
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In this section...
Appendices
Independent Assurance Statement
Independent Limited Assurance Report
247
248
250 Alternative Performance Measures
253 Glossary
254 Company Information
OSB GROUP PLC
Annual Report and Accounts 2022
Appendix 1
Independent Assurance Statement by Deloitte LLP to OSB GROUP PLC
on selected Alternative Performance Measures
247
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
2022. The assured APMs are highlighted with the symbol ∆ throughout
the OSB GROUP PLC (OSB Group) 2022 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 2022 ARA on pages
250-252 (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 31
December 2022, 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.
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, issued by
the International Auditing and Assurance Standards Board (IAASB), in
order to state whether the Selected KPIs have been prepared, in all
material respects, in accordance with the applicable criteria.
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 2022 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 2022 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 2022 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.
Our independence and quality control
We have complied with the independence and other ethical
requirements of the FRC’s 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
16 March 2023
OSB GROUP PLC
Annual Report and Accounts 2022
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248
Appendix 2
Independent Limited Assurance Report to the Board of Directors of
OSB GROUP PLC
Independent Limited Assurance Report by Deloitte LLP to the Directors
of OSB GROUP PLC on the description of activities undertaken to
meet the Recommendations of the Task Force on Climate-Related
Financial Disclosures (“TCFD”) and selected Environmental, Social
and Governance (“Selected ESG Metrics”) (together the “Assured ESG
Information”) within the Annual Report for the reporting year ended 31
December 2022.
What we found: our limited assurance conclusion
Based on our procedures described in this report, and evidence we have
obtained, nothing has come to our attention that causes us to believe
that the Assured ESG Information, as listed below, for the year ended
31 December 2022, has not been prepared, in all material respects, in
accordance with the Basis of Reporting (“Applicable Criteria”) defined
by the Directors.
The Applicable Criteria can found at:
https://www.osb.co.uk/corporate-responsibility/focused-on-the-
environment/.
What we looked at: scope of our work
OSB GROUP PLC has engaged us to provide independent limited
assurance in accordance with the International Standard on Assurance
Engagements 3000 (Revised) Assurance Engagements Other than
Audits or Reviews of Historical Financial Information (“ISAE 3000
(Revised)”) and the International Standard on Assurance Engagements
3410 Assurance Engagements on Greenhouse Gas Statements (“ISAE
3410”), issued by the International Auditing and Assurance Standards
Board (“IAASB”) and our agreed terms of engagement.
The Assured ESG Information in scope of our engagement includes the
ESG Metrics listed in the table below and as indicated with a ◆ in the
Annual Report, and the TCFD as disclosed on pages 100-107 in the
Annual Report:
Assured ESG Information
Reported Value
Applicable Criteria
153.87 tCo2
0 tCo2
Greenhouse Gas (“GHG”) emissions:
– Total direct (Scope 1) emissions
– Total indirect (Scope 2) emissions – Market-based
– Total indirect (Scope 2) emissions - Location-based 322.13 tCo2
GHG Intensity:
– Metric tonnes of CO2e per employee
– Metric tonnes of CO2e per £m turnover
TCFD
The description of activities undertaken to meet the
Recommendations of the TCFD included within the
2022 Annual Report.
0.38
0.61
Page 100-107 in
the Annual Report
Greenhouse Gas Protocol: A Corporate Accounting and Reporting
Standard, Revised Edition (2004). Plus, any applicable methodology
as published by the company (commonly referred to as a ‘basis of
reporting’).
Section D (“Supplemental Guidance for the Financial Sector”)
part 1 (Banks) of the TCFD Annex entitled “Implementing the
Recommendations of the Task Force on Climate-related Financial
Disclosures (October 2021)”, incorporating Guidance for All Sectors
and Supplemental Guidance for Banks
In relation to the Assured ESG Information, as listed in the above
table, the Assured ESG Information needs to be read and understood
together with the Applicable Criteria available here:
https://www.osb.co.uk/corporate-responsibility/focused-on-the-
environment/
Directors’ responsibilities
The Directors are responsible for preparing an Annual Report which
complies with the requirements of the Companies Act 2006 and
for being satisfied that the Annual Report, taken as a whole, is fair,
balanced and understandable.
Inherent limitations of the Assured ESG Information
We obtained limited assurance over the preparation of the Assured
ESG Information in accordance with the Applicable Criteria. Inherent
limitations exist in all assurance engagements. Any internal control
structure, no matter how effective, cannot eliminate the possibility
that fraud, errors or irregularities may occur and remain undetected
and because we use selective testing in our engagement, we cannot
guarantee that errors or irregularities, if present, will be detected.
The self-defined Applicable Criteria, the nature of the Assured ESG
Information, and absence of consistent external standards allow
for different, but acceptable, measurement methodologies to be
adopted which may result in variances between entities. The adopted
measurement methodologies may also impact comparability of the
Assured ESG Information reported by different organisations and from
year to year within an organisation as methodologies develop.
TCFD as applied by all companies includes information based on
climate-related scenarios that are subject to inherent uncertainty
because of incomplete scientific and economic knowledge about
the likelihood, timing, or effect of possible future physical and
transitional climate-related impacts. The scope of our engagement
and our responsibilities do not involve us performing work necessary
for any assurance on the reliability, proper compilation or accuracy
of the prospective information provided as part of the TCFD scenario
analysis and transition plans.
The Directors are also responsible for:
– Selecting and establishing the Applicable Criteria;
– Preparing, measuring, presenting and reporting the Assured ESG
Information in accordance with the Applicable Criteria;
– Publishing the Applicable Criteria publicly in advance of, or at the
same time as, the publication of the Assured ESG Information;
– Designing, implementing, and maintaining internal processes
and controls over information relevant to the preparation of the
Assured ESG Information to ensure that they are free from material
misstatement, including whether due to fraud or error;
– Providing sufficient access and making available all necessary
records, correspondence, information and explanations to allow the
successful completion of the Services; and
– Confirming to us through written representations that you have
provided us with all information relevant to our Services of which you
are aware, and that the measurement or evaluation of the underlying
subject matter against the Applicable Criteria, including that all
relevant matters, are reflected in the Assured ESG Information.
Our responsibilities
We are responsible for:
– Planning and performing procedures to obtain sufficient
appropriate evidence in order to express an independent limited
assurance conclusion on the Assured ESG Information;
– Forming an independent conclusion, based on the procedures we
have performed and the evidence we have obtained;
OSB GROUP PLC
Annual Report and Accounts 2022
249
– Communicating matters that may be relevant to the Assured ESG
– the nature of climate-related risk and opportunities identified
Information, including identified or suspected non-compliance with
laws and regulations, fraud or suspected fraud, and bias in the
preparation of the Assured ESG Information; and
– Reporting our conclusion in the form of an independent limited
Assurance Report to the Directors.
Our independence and competence
In conducting our engagement, we complied with the independence
requirements of the FRC’s Ethical Standard and the ICAEW Code
of Ethics. The ICAEW Code is founded on fundamental principles
of integrity, objectivity, professional competence and due care,
confidentiality and professional behaviour.
We applied the International Standard on Quality Management
(UK) 1 (“ISQM (UK) 1”), issued by the Financial Reporting Council.
Accordingly, we maintained a comprehensive system of quality
including documented policies and procedures regarding compliance
with ethical requirements, professional standards and applicable legal
and regulatory requirements.
What we did: key procedures
We are required to plan and perform our work to address the areas
where we have identified that a material misstatement of the
description of activities undertaken in respect of the Assured ESG
Information is likely to arise. The procedures we performed were based
on our professional judgment.
In carrying out our limited assurance engagement on the description
of activities undertaken in respect of the Assured ESG Information, we
performed the following procedures:
– Evaluated the suitability of the criteria as the basis for preparing
the Assured ESG Information;
– Considered the risks of material misstatement of the Assured ESG
Information, including performing analytical review procedures;
– Through inquiries of management, obtained an understanding of
the Group, its environment, processes and information systems
relevant to the preparation of the Assured ESG Information
sufficient to identify and assess risks of material misstatement in
the Assured ESG Information, and provide a basis for designing and
performing procedures to respond to assessed risks and to obtain
limited assurance to support a conclusion;
– Through inquiries of management, obtained an understanding
of internal controls relevant to the Assured ESG Information, the
quantification process and data used in preparing the Assured ESG
Information, the methodology for gathering qualitative information,
and the process for preparing and reporting the Assured ESG
Information. We did not evaluate the design of particular internal
control activities, obtain evidence about their implementation or
test their operating effectiveness;
– Inspected documents relating to the Assured ESG Information,
including board committee minutes and where applicable internal
audit outputs to understand the level of management awareness
and oversight of the Assured ESG Information;
– Read the narrative accompanying the Assured ESG Information
with regard to the Applicable Criteria, and for consistency with our
findings; and
– Accumulated misstatements and control deficiencies identified,
assessing whether material.
Additionally, in relation to TCFD only, we:
– Reviewed documentation relating to the governance, strategy and
financial planning and risk management processes;
– Interviewed those responsible within the organisation to
understand:
– the role of the Board in relation to climate-related risk and
opportunities and management’s role in assessing and
managing climate-related risks and opportunities;
including time horizons; the impact of climate-related risks and
opportunities on the business, strategy and financial planning;
and the impact of identified and considered climate scenarios
on the strategy;
– the process for identifying climate-related risks; the process for
managing climate-related risks; and how these processes are
integrated into the overall risk management; and
– Evaluated and reviewed the TCFD disclosure for consistency of
knowledge and understanding obtained during the course of
our work.
Additionally, in relation to the Selected ESG Metrics only, we:
– Performed enquires and interviews with management to
understand how the applicable criteria were applied in the
preparation of the Selected ESG Metrics;
– Performed procedures over the Selected ESG Metrics, including
recalculation of relevant formulae used in manual calculations and
assessed whether the data has been appropriately consolidated;
and
– Performed procedures over underlying data on a statistical sample
basis to assess whether the data has been collected and reported
in accordance with the Applicable Criteria, including verifying to
source documentation.
We were not engaged to and did not perform the following procedures
as part of our assurance work:
– An assessment as to if the activities undertaken, as described in the
TCFD disclosures, fulfil the requirements to comply in full with TCFD.
– An assessment as to the appropriateness of assumptions made
including those made in preparation and application of climate
scenarios and setting of targets.
– Testing of the design, implementation and operating effectiveness
of controls over the underlying data, nor have we sought to obtain
an understanding of the systems and controls beyond those
relevant to the Assured ESG Information.
The procedures performed in a limited assurance engagement vary in
nature and timing from, and are less in extent than for, a reasonable
assurance engagement. Consequently, the level of assurance
obtained in a limited assurance engagement is substantially lower
than the assurance that would have been obtained had a reasonable
assurance engagement been performed.
Use of our report
This report is made solely to the Board of Directors of the Company
in accordance with ISAE 3000 (Revised) and ISAE3410 and our agreed
terms of engagement. Our work has been undertaken so that we might
state to the Board of Directors of the Company those matters we have
agreed to state to them in this report and for no other purpose.
Without assuming or accepting any responsibility or liability in respect
of this report to any party other than the Company, we acknowledge
that the Board of Directors of the Company may choose to make this
report publicly available for others wishing to have access to it, which
does not and will not affect or extend for any purpose or on any basis
our responsibilities. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company
and the Board of Directors of the Company as a body, for our work,
for this report, or for the conclusions we have formed.
Deloitte LLP, London
London
16 March 2023
OSB GROUP PLC
Annual Report and Accounts 2022
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250
Appendix 3
Alternative Performance Measures (APMs)
In this Annual report, the Group used APMs when presenting underlying results in 2022 and 2021 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.
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 of APMs used throughout this Annual report both on a statutory basis and underlying basis for
2022 and 2021.
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
Add back: acquisition-related items2
Net interest income – underlying
13 point average of interest earning assets – statutory C
13 point average of interest earning assets – underlying D
NIM statutory equals A/C
NIM underlying equals B/D
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
Add back: acquisition-related items2
Administrative expenses – underlying B
Total income – statutory C
Add back: acquisition-related items2
Total income underlying D
Cost to income statutory equals A/C
Cost to income underlying equals B/D
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 (as in cost to income ratio above) B
13 point average of total assets – statutory C
13 point average of total assets – underlying D
Management expense ratio statutory equals A/C on an annualised basis
Management expense ratio underlying equals B/D on an annualised basis
2022
£m
709.9
59.2
769.1
2021
£m
587.6
62.9
650.5
25,518.8
25,403.2
2.78%
3.03%
23,207.7
23,033.7
2.53%
2.82%
207.8
(3.8)
204.0
775.4
48.8
824.2
27%
25%
166.5
(4.8)
161.7
629.0
50.2
679.2
26%
24%
207.8
204.0
166.5
161.7
25,641.5
25,537.4
23,382.6
23,231.5
0.81%
0.80%
0.71%
0.70%
OSB GROUP PLC
Annual Report and Accounts 2022
Loan loss ratio
The loan loss ratio is defined as impairment losses 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 losses – statutory A
Add back: acquisition-related items2
Impairment losses – underlying B
13 point average of gross loans – statutory C
13 point average of gross loans – underlying D
Loan loss ratio statutory equals A/C on an annualised basis
Loan loss ratio underlying equals B/D on an annualised basis
Return on equity (RoE)
RoE is defined as profit attributable to ordinary shareholders, which is profit after tax and after deducting coupons
on AT1 securities as a percentage of a 13 point average1 of shareholders’ equity (excluding £60m of non-controlling
interest securities up to September 2021 and £150m of AT1 securities from October 2021).
Profit after tax - statutory
Coupons on AT1 securities
Coupons on non-controlling interest securities
Profit attributable to ordinary shareholders – statutory A
Add back: acquisition related items2
Profit attributable to ordinary shareholders – underlying B
13 point average of shareholders’ equity (excluding AT1 and non-controlling interest securities) – statutory C
13 point average of shareholders’ equity (excluding AT1 and non-controlling interest securities) – underlying D
Return on equity statutory equals A/C on an annualised basis
Return on equity underlying equals B/D on an annualised basis
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 AT1 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 (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 D
Basic earnings per share statutory equals A/C
Basic earnings per share underlying equals B/D
13 point average is calculated as an average of opening balance and closing balances for 12 months of the financial year.
1.
2. The acquisition-related items are detailed in the reconciliation of statutory to underlying results in the Financial review.
251
2021
£m
(4.4)
(0.5)
(4.9)
2022
£m
29.8
0.9
30.7
22,120.4
22,005.4
20,327.5
20,164.3
0.13%
0.14%
(0.02)%
(0.02)%
410.0
(9.0)
–
401.0
38.7
439.7
345.3
–
(4.7)
340.6
47.8
388.4
1,943.4
1,869.9
1,741.1
1,632.4
21%
24%
20%
24%
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439.7
441.5
441.5
90.8
99.6
340.6
388.4
448.1
448.1
76.0
86.7
OSB GROUP PLC
Annual Report and Accounts 2022
252
Appendix 3 continued
Calculation of 2022 final dividend
The table below shows the basis of calculation of the Company’s recommended final dividend for 2022:
Statutory profit after tax
Less: coupons on AT1 securities (2021: 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
Less: Impairment reversal of intangible assets recognised on Combination
Release of deferred taxation on the above amortisation adjustments
Gain on sale of financial assets
Add back: ECL on Combination
Underlying profit attributable to ordinary shareholders
Total dividend: 30% (2021: 30%) of underlying profit attributable to ordinary shareholders
Less: interim dividends paid
Recommended final dividend
Number of ordinary shares in issue
Recommended final dividend per share (pence)
2022
£m
410.0
(9.0)
401.0
7.9
(2.1)
–
60.4
(10.4)
(1.2)
3.8
–
(18.8)
–
(0.9)
2021
£m
345.3
(4.7)
340.6
5.0
(1.3)
0.2
64.5
(11.0)
(1.6)
4.8
(3.1)
(8.5)
(1.7)
0.5
439.7
388.4
131.9
(38.3)
93.6
116.6
(21.9)
94.7
429,868,625
448,627,855
21.8
21.1
OSB GROUP PLC
Annual Report and Accounts 2022
Glossary
Bank of England
AGM Annual General Meeting
ALCO Group Assets and Liabilities Committee
BoE
CCFS Charter Court Financial Services
CEO Chief Executive Officer
CET1 Common Equity Tier 1
CFO Chief Financial Officer
CRD IV Capital Requirements Directive and Regulation
CRO Chief Risk Officer
DSBP Deferred Share Bonus Plan
Exposure at Default
EAD
Expected Credit Loss
ECL
Effective Interest Rate
EIR
Earnings Per Share
EPS
European Union
EU
Financial Conduct Authority
FCA
FRC
Financial Reporting Council
FSCS Financial Services Compensation Scheme
FSD
FTSE
HMRC Her Majesty’s Revenue and Customs
HPI
IAS
IBOR
ICAAP
ICR
IFRS
ILAAP
ILTR
IPO
House Price Index
International Accounting Standards
Interbank Offered Rate
Internal Capital Adequacy Assessment Process
Interest Coverage Ratio
International Financial Reporting Standards
Internal Liquidity Adequacy Assessment Process
Indexed Long-Term Repo
Initial Public Offering
Forced Sale Discount
Financial Times Stock Exchange
253
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Liquidity Coverage Ratio
Loss Given Default
IRB
Internal Ratings-Based approach to credit risk
ISA
Individual Savings Account
Kent Reliance for Intermediaries
KRFI
KRPS Kent Reliance Provident Society Limited
LCR
LGD
LIBOR London Interbank Offered Rate
Long-Term Incentive Plan
LTIP
Loan to value
LTV
Net Interest Margin
NIM
NPS
Net Promoter Score
OSB OneSavings Bank plc
OSBG OSB GROUP PLC
Probability of Default
PD
Propensity to go to Possession Given Default
PPD
PRA
Prudential Regulation Authority
PSBs Perpetual Subordinated Bonds
Performance Share Plan
PSP
RMBS Residential Mortgage-Backed Securities
RoE
RWA
SAYE
SDLT
SICR
SID
SME
SONIA Sterling Overnight Index Average
SRMF Strategic Risk Management Framework
TFS
TFSME Term Funding Scheme with additional incentives
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 and Medium Enterprises
Term Funding Scheme
for SMEs
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OSB GROUP PLC
Annual Report and Accounts 2022
254
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.
OSB GROUP PLC
Annual Report and Accounts 2022
Notes
255
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OSB GROUP PLC
Annual Report and Accounts 2022
256
Notes continued
OSB GROUP PLC
Annual Report and Accounts 2022
OSB GROUP PLC
OSB House,
Quayside,
Chatham,
Kent, ME4 4QZ
T +44 (0) 1634 848944
www.osb.co.uk