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Charter Court Financial Services Group plc

Charter Court Financial Services Group plc Pre-tax profit up 42%

Charter Court Financial Services Group plc (LON:CCFS) announced today another strong year of profitable growth in 2018, meeting or exceeding all guidance and targets for the year. Loan book growth of over 24% to £6.7 billion on higher originations of £2.8 billion reflected continuing strong demand for our specialist mortgage propositions. We grew pre-tax profit by over 40% to £158.2 million on substantially higher net interest income and further improvement to our cost income ratio to below 30%, as we continued to leverage the high scalability and efficiency of our operating platform, our dynamic funding strategy and maintained our market-leading cost of risk. On the basis of this strong performance, the Board has increased the dividend pay-out ratio to 25% of retained profit for the year.

Financial highlights

2018

2017

Profit before tax

£158.2m

£111.7m

Profit after tax

£120.8m

£81.3m

Net interest margin

3.08%

3.19%

Loan book

£6.7bn

£5.4bn

Mortgage originations

£2.8bn

£2.7bn

Retail deposits

£5.1bn

£4.4bn

Cost income ratio

28.7%

34.1%

Cost of risk

0.036%

0.011%

Cost of funds

1.5%

1.3%

Return on equity

30.8%

28.6%

CET1 ratio

15.7%

15.6%

Earnings per share

basic

50.5p

35.0p

diluted

50.1p

34.9p

Inaugural total dividend per share

12.7p

High quality balance sheet growth

· 24.2% loan book growth (2017: 40.9%) driven by increased origination volumes on strong demand for our specialist buy to let and residential product ranges

Disciplined risk management

· Market-leading 0.036% cost of risk (2017: 0.011%) maintained through continued strong credit performance driven by proprietary risk management and underwriting systems

Optimisation of funding mix

· Optimal cost of funds maintained through successful implementation of dynamic funding strategy across retail and wholesale sources

· Retail savings deposit base up by 15.3% to £5.1 billion (2017: £4.4 billion) supported by incremental new savings channels

· Established new partnerships with Hargreaves Lansdown and Flagstone Wealth that provide access to pooled funding channels

· Successful execution of three securitisations totaling £906.1 million (2017: £597.3 million)

Strong profitability generating enhanced returns

· Robust net interest margin of 3.08% (2017: 3.19%) maintained, in line with guidance, and net interest income up 25.3% to £180.5 million (2017: £144.1 million), driven by strong origination volumes and an optimised funding strategy

· Profit before tax up 41.6% to £158.2 million (2017: £111.7 million) reflecting the significant increase in net interest income and higher gains on structural asset sales of £36.4 million (2017: £17.7 million)

· Improvement in return on equity to 30.8% (adjusted: 30.8%) (2017: 28.6% (adjusted: 30.4%))

Increasing operational efficiency

· Cost income ratio reduced to 28.7% (adjusted 28.7%) (2017: 34.1% (adjusted: 31.2%)) reflecting efficiency and high scalability of our platform

Enhanced inaugural dividend payout

· Final dividend of 9.9 pence per share makes an inaugural total dividend for 2018 of 12.7 pence per share, a dividend payout ratio of 25% for the year, ten percentage points higher than initially proposed. In determining the level of dividend in any year the Directors assess that the Group is still able to meet its regulatory capital and liquidity requirements after dividends are paid.

Leading employer

· Top 10 best place to work for third year running and highest placed bank in the ‘mid’ sized business category in the Sunday Times ‘Top 100 companies to work for’ in 2018

Ian Lonergan, CEO of Charter Court, said:

“In our first full year as a listed company, we again continued to meet or exceed all our guidance and targets as we demonstrated the capability of our specialist lending platform to drive significant growth from the increasing sophistication and professionalisation of demand in our chosen buy to let and specialist residential mortgage markets.

“We continued to build our high quality balance sheet, growing our loan book more than 24% to £6.7 billion on increased originations of £2.8 billion, as we extended our range of specialist products and further enhanced our intermediary service standards. Alongside significantly increased uptake of our Limited Company and HMO buy to let mortgages, we introduced new specialist products to meet increasing buy to let mortgage demand for Multi Unit buildings, holiday rental properties and refurbishment projects.

“Our market leading Cost of Risk of less than four basis points, with a three-months-or-more arrears rate of just 0.2%, reflects the continuing quality of our loan book and the centrality of our risk management systems to our business model.

“As importantly, we optimised our funding costs throughout the year by continuing to leverage our agility in calibrating our retail-wholesale funding mix to prevailing market conditions, contributing to a robust net interest margin of 3.08%. We grew our retail deposit base to £5.1 billion in the year, extending our reach across new retail funding sources through the successful launches of our new postal account and pooled funding channels via the Hargreaves Lansdown and Flagstone Wealth platforms. In parallel, we took advantage of wholesale market opportunities as they arose in the year to securitise £906.1 million of our lending at attractive rates.

“We further reduced our cost income ratio to 28.7%, demonstrating the efficiency and scalability of our operating platform. Against strong net interest income growth of 25.3% to £180.5 million and higher gains on structural asset sales of £36.4 million in the year, we grew pre-tax profit by 41.6% to £158.2 million, profit after tax by 48.6% to £120.8 million and lifted our return on equity to 30.8%.

“Reflecting this strong performance, the Board has proposed a final dividend of 9.9 pence per share, bringing the total 2018 dividend to 12.7 pence per share, which represents an inaugural payout ratio of 25%, ten percentage points higher than initially proposed at the time of our IPO in 2017.

“With a resulting CET1 Ratio of 15.7%, against 15.6% last year, we continue to generate significant capital and remain strongly positioned for future growth in our specialist markets.”

Charter Court Financial Services Group plc Outlook

Given the prevailing uncertainty in the wider economy we are closely monitoring macroeconomic developments for any events that could impact our chosen specialist mortgage markets. We believe that the ongoing economic uncertainty creates challenges and opportunities and we are well positioned to respond to events and capitalise on changes in our markets. We remain focused on asset classes where we have significant experience and expertise, with a resilient business model purpose built to exploit structural drivers in these areas.

We continuously monitor wholesale funding markets for securitisation opportunities and will execute funding transactions or sell additional residual positions in our securitisations when market conditions are advantageous.

Charter Court has a robust pipeline going into 2019 and has made a positive start to the year. In line with our strategy, we remain focused on delivering strong loan book growth, whilst maintaining high levels of efficiency and a low cost of risk.

On 9 March 2019 the Board announced that it was considering a possible all-share combination of Charter Court and OneSavings Bank PLC (“OSB”). The Board believes that the possible combination creates a highly compelling opportunity to:

· create a leading specialist mortgage lender in the UK with greater scale and resources to deploy on growth opportunities;

· leverage complementary strengths to create a comprehensive and diversified platform across product capabilities, brands and team cultures;

· leverage complementary underwriting capabilities to enhance the customer proposition;

· establish a well-balanced, resilient and diversified retail-wholesale funding platform;

· maintain two leading, independent broker distribution platforms to create an enhanced proposition to the broker community; and

· maintain operational centres of excellence to drive service levels and platform efficiency.

Subject to the successful outcome of ongoing discussions, the boards of Charter Court and OneSavings Bank plc expect to recommend the possible combination to their respective shareholders.

The proposed combination is subject to shareholder approval, agreement of the terms and conditions of the possible combination and approval from the relevant UK regulatory authorities. The forward looking statements contained within this preliminary results report take no account of the possible transaction and this statement has therefore been prepared on a stand-alone basis.