OSB Group Q2 Earnings Call Highlights

Key Points

• Resilient first-half performance: OSB Group reported £187 million in profit before tax, down 3% year over year, while net interest income rose 1% to £340 million and the interim dividend increased 5%. The £100 million share buyback is progressing, with about £69 million completed.
• Deposit competition is pressuring margins: First-half net interest margin fell to 223 basis points, prompting OSB to lower its 2026 guidance to 215–220 basis points from around 225 basis points. The company now expects 2026 return on tangible equity to be closer to 12.5%, though it retained its longer-term mid-teens targets.
• Growth and transformation continue: The net loan book grew 1.3% to £26.3 billion, led by buy-to-let lending, while technology and AI investments improved processing times and fraud detection. Credit quality remained broadly stable, with arrears declining to 1.6%, and the CET1 ratio stood at 15.2% after the buyback.

OSB Group LON: OSB reported first-half profit before tax of £187 million and said it remained on track with its transformation program, while lowering its 2026 net interest margin outlook amid persistent competition for retail deposits.

The specialist lender said profit before tax for the six months was down 3% from the prior-year period. Net interest income rose 1% to £340 million, while basic earnings per share increased 3% to 38.4 pence, primarily because of a lower weighted average number of shares.

Andy, the group’s CEO, described the performance as resilient despite macroeconomic and geopolitical uncertainty, elevated oil prices and volatility in swap rates. The company reported a first-half return on tangible equity (ROTE) of 13.3% and tangible net asset value per share of £5.84, compared with £5.79 at the end of 2025.

The board increased the interim dividend by 5%. OSB also said its £100 million share repurchase program, announced in March, was progressing, with approximately £69 million of shares repurchased so far. The group said total capital distributions over the past 18 months would reach £360 million.

Loan growth and lending mix

OSB’s net loan book grew 1.3% during the first half to £26.3 billion, supported by £2.3 billion of originations, up 10% from the first half of 2025. Buy-to-let lending remained the largest segment, representing 68% of gross loans.

Andy said the company originated more than £1 billion of buy-to-let business during the period at what it considered sustainable margins. The company said demand was strong, helped by the launch of its Rely brand late last year.

Residential originations were broadly flat in the first half, though OSB expects momentum to increase in the second half as its residential mortgage proposition is rolled out more broadly through the Precise brand. Originations in higher-yielding sub-segments grew moderately despite elevated mortgage rates and economic uncertainty.

The company maintained its forecast for full-year net loan book growth broadly similar to that achieved in 2025. It also reiterated its intention to diversify the portfolio over time, with buy-to-let expected to decline to 60% of loans over the medium term.

Margins pressured by deposit costs

Net interest margin declined to 223 basis points in the first half from 226 basis points for full-year 2025. Victoria said higher retail funding costs placed pressure on margins as savings balances recycled into accounts with more costly spreads to SONIA.

OSB updated its 2026 NIM guidance to 215 to 220 basis points from around 225 basis points previously. The revised range assumes retail funding costs of SONIA plus 40 basis points in the second half, reflecting competition and volatility in the savings market.

Andy said the company no longer sees an indication that retail funding costs will normalize this year. As a result, OSB now expects 2026 ROTE to be closer to 12.5%.

Management nevertheless retained its medium-term targets for mid-teens ROTE in 2028 and the upper end of mid-teens ROTE in 2029. The company cited four principal drivers: the roll-off of lower-margin back-book lending, reduced funding costs from MREL debt call dates in September 2027 and January 2029, lending portfolio diversification, and benefits from the transformation program.

During the question-and-answer session, management said it was holding back central-bank funding capacity to support liquidity during the planned migration of Charter Savings Bank customers to the new platform. The group said it has £2.5 billion of drawing capacity under the Bank of England’s index long-term repo scheme, where funding costs SONIA plus 15 basis points, compared with its current planning assumption of SONIA plus 40 basis points for retail deposits.

Transformation investment and AI initiatives

Administrative expenses rose 4% to £136.5 million, driven by a £5 million increase in transformation-program costs. Core costs, however, declined 0.4% year over year as OSB optimized its U.K. real estate footprint.

The cost-to-income ratio was 40.1%, compared with 40.3% in the prior-year period, while the management expense ratio was unchanged at 88 basis points. OSB reiterated its expectation for about £280 million in 2026 administrative expenses, excluding costs associated with its incoming CEO.

The company said its technology investment was improving pricing agility, processing times and broker service. It said agreements in principle can now be delivered in under 10 minutes and cases can be completed in as little as two hours through the new platform. Automated valuations are being used for around 10% of cases originated through the platform, compared with none previously.

OSB also outlined early applications of artificial intelligence, saying AI had reduced note-taking time in contact centers by around 35%. The company said AI-supported fraud and document-verification processes had prevented fraudulent applications worth approximately £8 million.

Management said the next phases of the program include completing the Kent Reliance customer migration, transferring Charter Savings Bank customers in product-based cohorts, and expanding the residential lending proposition on the new platform. Andy said some Charter Savings Bank products would be temporarily removed from sale for roughly a month at a time during migration.

Credit quality and capital

OSB recognized an impairment charge of £15.8 million, equivalent to a 12-basis-point loan loss ratio, compared with 2 basis points in the prior-year period. Victoria said the ratio was broadly consistent with the group’s long-term average of 10 basis points.

The balance-sheet expected credit loss coverage ratio increased to 50 basis points from 47 basis points at the end of 2025. Three-month-plus arrears fell to 1.6% at the end of June from 1.7% at year-end.

The group’s CET1 ratio was 15.2% at June 30. Before the effect of the £100 million buyback, the ratio would have been 16%, with the repurchase reducing the measure by 0.8 percentage points. OSB said Basel 3.1 implementation, as currently written, would reduce the June CET1 ratio by 1.2 percentage points, producing a pro forma ratio of 14%.

Andy, who said he will leave as CEO at the end of August, told investors that the group had “a strong strategy” and a leadership team capable of moving the business forward. He said the company’s medium-term return objective remained unchanged, with the timing of improvement dependent in part on funding-market conditions.

About OSB Group (LON:OSB)

OSB Group Plc, through its subsidiaries, operates as a specialist mortgage lending and retail savings company in the United Kingdom and the Channel Islands. It provides private rented sector related buy-to-let, commercial and semi-commercial mortgages, residential development finance, secured funding, bridging, and asset finance services. The company also provides buy-to-let and specialist residential mortgages, mortgage servicing, administration and analytical, mortgage originator and servicer, and retail savings products; and back office processing services.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.

Continue following MarketBeat

Add MarketBeat as your preferred source on Google to see our latest stories in your feed.

Add As Preferred Source