OSB Group H2 Earnings Call Highlights

Core Viewpoint - OSB Group reported its 2025 full-year results, highlighting steady loan growth, improved lending spreads, and a focus on higher-yielding segments, while navigating challenges related to funding costs and transformation investments. Financial Performance - Net interest income for 2025 was £679.4 million, down 2% year-on-year, with a net interest margin (NIM) of 228 basis points, a decrease of 2 basis points from the previous year [1] - Profit before tax for 2025 was £382.5 million, with earnings per share (EPS) of 75.6p, reflecting a 6% increase in EPS in the second half of the year [6][18] - The full-year dividend was raised by 5%, and a £100 million share buyback was announced for 2026 [6][18] Loan and Credit Quality - Net loans grew by 3.2% in 2025, with originations from higher-yielding segments increasing by 53%, now representing 12% of the total loan book [3][6] - The three-month-plus arrears rate remained stable at 1.7% at the end of 2025, indicating strong credit performance [2][6] Cost and Transformation - Administrative expenses rose to £270.1 million, up 5% year-on-year, primarily due to transformation investments [11] - The cost-to-income ratio increased to 40.4% from 38.7%, reflecting the impact of transformation expenditure [12] - The technology transformation is on track, with new products launched on the platform and significant customer adoption of self-service features [13][14] Funding and Capital Position - Retail deposit balances were £24.3 billion at year-end, up 2% year-on-year, supporting loan growth [17] - The Common Equity Tier 1 (CET1) ratio ended at 15.8%, with a new target range set at 13%–13.5% [19] - The group generated 150 basis points of capital in 2025, and the total expected credit loss (ECL) provision was £123.6 million [15][19] Outlook - Management guided for a NIM of approximately 225 basis points in 2026, assuming normalization of funding costs [8] - Expectations for net loan book growth in 2026 are similar to 2025, with a focus on maintaining pricing discipline in a competitive market [20]