TIDMOSB 
 
 
   LEI: 213800ZBKL9BHSL2K459 
 
   8 April 2021 
 
   OSB GROUP PLC 
 
   Preliminary results for the year ended 31 December 2020 
 
   This press release includes results on a statutory and an underlying 
basis for 2020, and a statutory and pro forma underlying basis for 2019. 
Underlying results for 2020 exclude exceptional items, integration costs 
and other acquisition-related items. Pro forma underlying results for 
2019 assume that the combination with CCFS occurred on 1 January 2019 
and include 12 months of results from CCFS. They also exclude 
exceptional items, integration costs and other acquisition-related 
items. 
 
   Financial and operational highlights 
 
 
   -- Statutory profit before tax increased by 25% to GBP260.4m (2019: 
      GBP209.1m). Underlying profit before tax decreased by 9% to GBP346.2m 
      (2019: pro forma underlying GBP381.1m) 
 
   -- Net loan book grew 4% to GBP19.2bn (2019: GBP18.4bn) on a statutory basis 
      and 5% to GBP19.0bn on an underlying basis (2019: pro forma underlying 
      GBP18.2bn), or 9% excluding the impact of structured asset sales. 
      Statutory gross originations fell by 9% to GBP3.8bn (2019: GBP4.1bn) and 
      by 42% on an underlying basis to GBP3.8bn (2019: GBP6.5bn) reflecting the 
      impact of COVID-19 
 
   -- On a statutory basis, the cost to income ratio improved to 31% from 32% 
      in 2019 and on an underlying basis, it improved to 27% (2019: pro forma 
      underlying 29%) benefitting from delivery of synergies, lower 
      discretionary spend during lockdowns and continued focus on cost 
      discipline and efficiency 
 
   -- Net interest margin was 216bps on a statutory basis (2019: 243bps) and 
      247bps on an underlying basis (2019: pro forma underlying 266bps) due 
      primarily to a delay in passing on the base rate cuts in full to retail 
      savers, which was completed by the end of the third quarter 
 
   -- Statutory and underlying loan loss ratios increased to 38bps (2019: 13bps 
      statutory and 10bps pro forma underlying) due primarily to the impact of 
      adopting COVID-19 forward-looking assumptions in our IFRS 9 models and an 
      impairment provision of GBP20m (11bps of the loan loss ratio) in relation 
      to potential fraudulent activity by a third party on a secured funding 
      line provided by the Group 
 
   -- Strong credit performance, with balances greater than three months in 
      arrears stable at 0.9% at the end of 2020 (2019: 0.9%) and the majority 
      of customers granted COVID-19 payment deferrals having resumed payment. 
      Active deferrals only 1.3% of the Group's loan book by value at 31 
      December 2020 
 
   -- Statutory return on equity (RoE) of 13% and underlying RoE of 19% were 
      delivered despite significantly higher expected credit losses under IFRS 
      9 and a strengthened equity position (2019: 18% statutory and 25% pro 
      forma underlying) 
 
   -- Statutory basic earnings per share (EPS) fell 19% to 42.8 pence (2019: 
      52.6 pence) and underlying basic EPS decreased by 10% to 58.1 pence 
      (2019: pro forma underlying 64.9 pence) 
 
   -- Statutory Common Equity Tier 1 capital ratio strengthened to 18.3% (2019: 
      16.0%) 
 
   -- Integration progressing well, with run rate savings of GBP15m delivered 
      by the first anniversary of the Combination, significantly ahead of 
      schedule 
 
   -- Recommended final dividend of 14.5 pence per share, representing 25% of 
      full year underlying earnings attributable to ordinary shareholders, in 
      line with our stated dividend policy 
 
 
   Andy Golding, CEO of OSB Group, said: 
 
   "I am extremely proud of the Group's performance in a very challenging 
year. Our business model proved its resilience in 2020 and we produced 
another year of strong returns despite the impact of the pandemic. We 
have a positive culture and our customers, clients, colleagues and 
communities were always at the forefront of mind as we supported all 
stakeholders to the best of our ability, whether that was by providing 
mortgage payment deferrals, supporting colleagues' well-being or 
continuing to allow our customers to access financial services in the 
easiest and safest way. I commend all my colleagues for their excellent 
response to the challenges that the pandemic has presented. 
 
   We entered 2020 in a position of strength, with an attractive pipeline, 
growing opportunities and robust capital position. Lockdowns inevitably 
impacted our business and we reacted by tightening our risk appetite to 
protect margin and credit quality over growth. I am pleased that 
applications have now recovered to near pre-COVID levels in our core 
Buy-to-Let and Residential sub-segments on tighter criteria and we have 
a strong pipeline of new business. We continue to control volumes in our 
more cyclical product lines, reflecting the economic outlook and our 
prudent approach to risk management. 
 
   We celebrated the milestone of being a combined Group for a year in 
October 2020, and the progress in aligning OneSavings Bank (OSB) and 
Charter Court Financial Services Group (CCFS) continued at pace. We have 
delivered synergies earlier than anticipated, and by the end of the 
first year we had achieved more than 65% of our end of year three 
synergy target and expect to marginally exceed our run-rate pledge for 
the third anniversary of the Combination. 
 
   Further to our trading update on 17 March, the Group has recognised an 
impairment provision of GBP20m in 2020 in relation to potential 
fraudulent activity by a third party on a funding line of GBP28.6m 
provided by the Group, secured against lease receivables and the 
underlying hard assets. We believe that this is an isolated incident. 
 
   Based on our pipeline and current application levels and risk appetite, 
we currently expect to deliver underlying net loan book growth for 2021 
of c.10%, although we remain cognisant of continued uncertainty in the 
economic outlook. Based on current pricing and cost of funds, we expect 
underlying NIM for 2021 to return to 2019 levels. We expect the 
underlying cost to income ratio to be marginally higher in 2021, as the 
ratio in 2020 benefitted from higher income from gains on structured 
asset sales and lower discretionary spending in lockdowns. 
 
   After a year of unprecedented uncertainty, it seems there is finally 
reason for some cautious optimism and we hope the country will begin to 
return to some sense of normality. However, many businesses, families 
and individuals are currently receiving support from government 
initiatives and there is ongoing uncertainty over the true impact of the 
pandemic on the economy, our customers and the Group's business when 
that support ends. 
 
   In 2020, we have proven the resilience and flexibility of our business 
model and looking forward we will continue to be there for our customers, 
supporting them in the best way that we can. The foundations of our 
business remain extremely robust, with a very strong capital position 
and a resilient business model, all of which position us well to respond 
to the challenges and opportunities ahead and to deploy our resources to 
deliver attractive, sustainable returns to our shareholders over the 
long-term. Our confidence in the strength of OSB Group is reflected in 
the Board's decision to recommend a dividend of 14.5 pence per share for 
2020, representing 25% of full year underlying earnings attributable to 
ordinary shareholders, in line with our stated dividend policy." 
 
   Enquiries: 
 
   OSB GROUP PLC:                                Alastair Pate t: 01634 
835728 
 
   Brunswick Group:                               Robin Wrench / Simone 
Selzer t: 020 7404 5959 
 
   Analyst presentation 
 
   A webcast presentation for analysts will be held at 9:30am on Thursday 8 
April. 
 
   The presentation will be webcast or call only and available on the OSB 
Group website at www.osb.co.uk/investors/results-reports-presentations. 
 
   The UK dial in number is 020 3936 2999 and the password is 810296. 
Registration is open immediately. 
 
   About OSB GROUP PLC 
 
   OSB began trading as a bank on 1 February 2011 and was admitted to the 
main market of the London Stock Exchange in June 2014 (OSB.L). OSB 
joined the FTSE 250 index in June 2015. On 4 October 2019, OSB acquired 
Charter Court Financial Services Group plc (CCFS) and its subsidiary 
businesses. On 30 November 2020, OSB GROUP PLC became the listed entity 
and holding company for the OSB Group. The Group provides specialist 
lending and retail savings and is authorised by the Prudential 
Regulation Authority, part of the Bank of England, and regulated by the 
Financial Conduct Authority and Prudential Regulation Authority. The 
Group reports under two segments, OneSavings Bank and Charter Court 
Financial Services. 
 
   OneSavings Bank 
 
   OSB primarily targets market sub-sectors that offer high growth 
potential and attractive risk-adjusted returns in which it can take a 
leading position and where it has established expertise, platforms and 
capabilities. These include private rented sector Buy-to-Let, commercial 
and semi-commercial mortgages, residential development finance, bespoke 
and specialist residential lending, secured funding lines and asset 
finance. 
 
   OSB originates mortgages organically via specialist brokers and 
independent financial advisers through its specialist brands including 
Kent Reliance for Intermediaries and InterBay Commercial. It is 
differentiated through its use of highly skilled, bespoke underwriting 
and efficient operating model. 
 
   OSB is predominantly funded by retail savings originated through the 
long-established Kent Reliance name, which includes online and postal 
channels as well as a network of branches in the South East of England. 
Diversification of funding is currently provided by securitisation 
programmes and the Bank of England funding schemes including, the Term 
Funding Scheme and the Term Funding Scheme for SMEs. 
 
   Charter Court Financial Services Group 
 
   CCFS focuses on providing Buy-to-Let and specialist residential 
mortgages, mortgage servicing, administration and retail savings 
products. It operates through its brands: Precise Mortgages and Charter 
Savings Bank. 
 
   It is differentiated through risk management expertise and best-of-breed 
automated technology and systems, ensuring efficient processing, strong 
credit and collateral risk control and speed of product development and 
innovation. These factors have enabled strong balance sheet growth 
whilst maintaining high credit quality mortgage assets. 
 
   CCFS is predominantly funded by retail savings originated through its 
Charter Savings Bank brand. Diversification of funding is currently 
provided by securitisation programmes and the Bank of England funding 
schemes including, the Term Funding Scheme and the Term Funding Scheme 
for SMEs. 
 
   Important disclaimer 
 
   This document should be read in conjunction with the documents 
distributed by OSB GROUP PLC (OSBG) through the Regulatory News Service 
(RNS). This document is not audited and contains certain forward-looking 
statements, beliefs or opinions, including statements with respect to 
the business, strategy and plans of OSBG and its current goals and 
expectations relating to its future financial condition, performance and 
results. Such forward-looking statements include, without limitation, 
those preceded by, followed by or that include the words 'targets', 
'believes', 'estimates', 'expects', 'aims', 'intends', 'will', 'may', 
'anticipates', 'projects', 'plans', 'forecasts', 'outlook', 'likely', 
'guidance', 'trends', 'future', 'would', 'could', 'should' or similar 
expressions or negatives thereof. Statements that are not historical 
facts, including statements about OSBG's, its directors' and/or 
management's beliefs and expectations, are forward-looking statements. 
By their nature, forward-looking statements involve risk and uncertainty 
because they relate to events and depend upon circumstances that may or 
may not occur in the future. Factors that could cause actual business, 
strategy, plans and/or results (including but not limited to the payment 
of dividends) to differ materially from the plans, objectives, 
expectations, estimates and intentions expressed in such forward-looking 
statements made by OSBG or on its behalf include, but are not limited 
to: general economic and business conditions in the UK and 
internationally; market related trends and developments; fluctuations in 
exchange rates, stock markets, inflation, deflation, interest rates and 
currencies; policies of the Bank of England, the European Central Bank 
and other G8 central banks; the ability to access sufficient sources of 
capital, liquidity and funding when required; changes to OSBG's credit 
ratings; the ability to derive cost savings; changing demographic 
developments, and changing customer behaviour, including consumer 
spending, saving and borrowing habits; changes in customer preferences; 
changes to borrower or counterparty credit quality; instability in the 
global financial markets, including Eurozone instability, the potential 
for countries to exit the European Union (the EU) or the Eurozone, and 
the impact of any sovereign credit rating downgrade or other sovereign 
financial issues; technological changes and risks to cyber security; 
natural and other disasters, adverse weather and similar contingencies 
outside OSBG's control; inadequate or failed internal or external 
processes, people and systems; terrorist acts and other acts of war or 
hostility and responses to those acts; geopolitical, pandemic or other 
such events; changes in laws, regulations, taxation, accounting 
standards or practices, including as a result of an exit by the UK from 
the EU; regulatory capital or liquidity requirements and similar 
contingencies outside OSBG's control; the policies and actions of 
governmental or regulatory authorities in the UK, the EU or elsewhere 
including the implementation and interpretation of key legislation and 
regulation; the ability to attract and retain senior management and 
other employees; the extent of any future impairment charges or 
write-downs caused by, but not limited to, depressed asset valuations, 
market disruptions and illiquid markets; market relating trends and 
developments; exposure to regulatory scrutiny, legal proceedings, 
regulatory investigations or complaints; changes in competition and 
pricing environments; the inability to hedge certain risks economically; 
the adequacy of loss reserves; the actions of competitors, including 
non-bank financial services and lending companies; and the success of 
OSBG in managing the risks of the foregoing. 
 
   Accordingly, no reliance may be placed on any forward-looking statement 
and no representation, warranty or assurance is made that any of these 
statements or forecasts will come to pass or that any forecast results 
will be achieved.  Any forward-looking statements made in this document 
speak only as of the date they are made and it should not be assumed 
that they have been revised or updated in the light of new information 
of future events. Except as required by the Prudential Regulation 
Authority, the Financial Conduct Authority, the London Stock Exchange 
PLC or applicable law, OSBG expressly disclaims any obligation or 
undertaking to release publicly any updates or revisions to any 
forward-looking statements contained in this document to reflect any 
change in OSBG's expectations with regard thereto or any change in 
events, conditions or circumstances on which any such statement is 
based. For additional information on possible risks to OSBG's business, 
please see the Risk review in the OSBG 2020 Annual Report and Accounts. 
Copies of this are available at www.osb.co.uk and on request from OSBG. 
 
   Nothing in this document and any subsequent discussion constitutes or 
forms part of a public offer under any applicable law or an offer to 
purchase or sell any securities or financial instruments. Nor does it 
constitute advice or a recommendation with respect to such securities or 
financial instruments, or any invitation or inducement to engage in 
investment activity under section 21 of the Financial Services and 
Markets Act 2000. Past performance cannot be relied on as a guide to 
future performance. Nothing in this document is intended to be, or 
should be construed as, a profit forecast or estimate for any period. 
 
   Liability arising from anything in this document shall be governed by 
English law, and neither the Company nor any of its affiliates, advisors 
or representatives shall have any liability whatsoever (in negligence or 
otherwise) for any loss howsoever arising from any use of this document 
or its contents or otherwise arising in connection with this document. 
Nothing in this document shall exclude any liability under applicable 
laws that cannot be excluded in accordance with such laws. 
 
   Certain figures contained in this document, including financial 
information, may have been subject to rounding adjustments and foreign 
exchange conversions. Accordingly, in certain instances, the sum or 
percentage change of the numbers contained in this document may not 
conform exactly to the total figure given. 
 
   Non-IFRS performance measures 
 
   OSB GROUP PLC believes that the non-IFRS performance measures included 
in this document provide valuable information to the readers as they 
enable the reader to identify a more consistent basis for comparing the 
business' performance between financial periods, and provide more detail 
concerning the elements of performance which the Group is most directly 
able to influence or are relevant for an assessment of the Group. They 
also reflect an important aspect of the way in which operating targets 
are defined and performance is monitored by the Board. However, any 
non-IFRS performance measures in this document are not a substitute for 
IFRS measures and readers should consider the IFRS measures as well. 
Refer to Alternative performance measures in the Financial review for 
further details, reconciliations and calculations of non-IFRS 
performance measures included throughout this document, and the most 
directly comparable IFRS measures. 
 
   Chief Executive's Statement 
 
   2020 was an extremely challenging year, with the impact of COVID-19 felt 
by all businesses, the wider economy and society as a whole. I am 
incredibly proud of how the Group responded to this unprecedented event 
and the proven operational and financial resilience of our business. Our 
track record in generating attractive and sustainable returns continued 
and we delivered strong financial results amidst the turmoil, whilst 
ensuring we protected our colleagues, customers and other stakeholders. 
We achieved this whilst positioning the Group well for further 
challenges or new opportunities in the future, with a strong balance 
sheet, prudent underwriting and a tested, resilient business model. 
 
   As the year evolved, we continued to adapt all areas of the business, to 
ensure our colleagues could safely and confidently deliver the service 
our customers have come to expect. Quick and clear decision making at 
the start of the pandemic positioned us well to manage subsequent 
lockdowns. I am particularly pleased that we continue to deliver a 
class-leading return on equity despite taking significant impairment 
charges in the year under IFRS 9, with an underlying return on equity of 
19% and 13% on a statutory basis (2019: 25% and 18% respectively). 
 
   I am delighted that we continued to successfully deliver against our 
integration plans, with colleagues across the Group pulling together 
under a common purpose and culture. 
 
   The Board considered it prudent to preserve the Group's capital when we 
made the difficult and cautious decision, at the start of the pandemic, 
not to pay the 2019 final dividend given the unprecedented level of 
economic uncertainty at that time. However, the income needs of our 
shareholders are important to us and given our strong performance in 
2020 and record CET1 ratio, I am pleased that the Board is recommending 
the payment of a dividend of 14.5 pence per share for 2020, representing 
25% of full year underlying earnings attributable to ordinary 
shareholders, in line with our stated dividend policy. 
 
   Financial performance 
 
   Our financial performance in 2020 was resilient, but clearly impacted by 
the pandemic and the ensuing deterioration in the outlook for the 
economy, which led to a significant increase in expected credit losses 
despite broadly stable arrears. Expected credit losses also included an 
impairment provision of GBP20m in relation to potential fraudulent 
activity by a third party on a secured funding line provided by the 
Group. However, I am very pleased that we demonstrated our ability to 
continue to generate strong profit and, on an underlying basis, pre-tax 
profit was GBP346.2m, equating to underlying basic earnings per share of 
58.1 pence (2019: GBP381.1m and 64.9 pence respectively). Statutory 
pre-tax profit was GBP260.4m and statutory basic earnings per share 
decreased by 19% to 42.8 pence (2019: GBP209.1m and 52.6 pence 
respectively). 
 
   We continued to grow our business and the underlying net loan book 
increased in line with management expectations by 9%, excluding the 
impact of structured asset sales in January. This growth was achieved 
despite the second lockdown towards the end of the last quarter of 2020. 
The statutory net loan book increased by 4%. 
 
   The underlying net interest margin for the year of 247bps (2019: 266bps) 
was broadly flat to the first half. The NIM run rate in the fourth 
quarter improved significantly as the base rate cuts were passed on to 
retail savers in full by the end of the third quarter and we maintained 
our discipline and control over mortgage pricing. The statutory NIM was 
216bps for 2020 (2019: 243bps). 
 
   The Group maintained its strong focus on cost discipline and efficiency 
and benefitted from the delivery of synergies and lower discretionary 
spending such as reduced travel, entertainment and marketing expense 
during lockdowns. This resulted in an underlying cost to income ratio of 
27% and 31% on a statutory basis for the year (2019: 29% and 32% 
respectively). 
 
   We have not yet seen any significant deterioration in customers' credit 
performance or arrears; however, we retain our conservative view on the 
macroeconomic outlook whilst UK Government support remains in place, 
with the full impact of the pandemic yet to be felt. 
 
   Adapting to COVID-19 
 
   More than in any other year in our history, it was essential that we 
were there for our stakeholders throughout 2020. 
 
 
 
   I continue to be very grateful to each and every colleague for the 
effort, perseverance and dedication that they have shown throughout this 
difficult time, displaying excellent adaptability as government rules 
changed in line with fluctuating infection rates. To enable our 
colleagues to assist our customers to the best of their ability, it was 
important to ensure that they were supported and kept safe, which we 
managed whilst everyone did a fantastic job of keeping operations 
running effectively. I am particularly pleased with the operational 
performance and resilience shown by our wholly-owned subsidiary OSB 
India. The majority of our colleagues, both in the UK and India, are 
currently working from home and we are responsibly helping those who are 
unable to work from home by operating under appropriate protocols in our 
offices. We recognise the additional strains that the changed 
circumstances can cause and made emotional well-being support available 
for all our colleagues. The Group did not participate in any of the 
government COVID-related business support schemes nor did we place any 
of our employees on the furlough scheme. 
 
   Across the Group, resources were redeployed quickly to assist borrowers 
who may have been in financial difficulty. Payment deferrals peaked in 
the second quarter at 26,000 accounts, representing 28% of the loan book 
by value. However, active deferral requests reduced to only 1.3% of the 
Group's loan book by value by year end and we experienced low levels of 
new arrears on accounts exiting payment deferrals. At the same time, we 
continued processing existing mortgage applications. 
 
   Mortgage intermediaries continued to be supported and our frequent 
interactions were maintained, as video and telephone calls became the 
norm. We were proactive in understanding the communication channels that 
brokers would prefer us to use and communicated clearly and effectively 
the changes we had to make as the impact of the pandemic unfolded. I am 
delighted that, for the first time, both Kent Reliance and Precise 
Mortgages were awarded a five star rating at the Financial Adviser 
Services Awards 2020, highlighting the Group's unwavering dedication to 
serving our clients through the pandemic. 
 
   We supported our savings customers by enhancing our online services and 
our small branch network remained open and was quickly adapted to be a 
safe environment for our customers and colleagues. Our strong savings 
proposition also helped the Group maintain strengthened levels of 
liquidity. 
 
   The Group maintained a prudent appetite to risk in light of the 
unprecedented macroeconomic uncertainty and continues to control growth 
through pricing and lending criteria, especially in our more cyclical 
sub-segments. The strong demand for our core Buy-to-Let and Residential 
mortgages still enabled us to grow our overall net loan book in a 
controlled manner and we continued to concentrate on our high 
underwriting standards and protecting the credit quality of our book. 
These deliberate actions demonstrate our approach to maintaining 
profitability, protecting our balance sheet and generating strong 
returns for shareholders. 
 
   Lending through the pandemic 
 
   We entered 2020 with a robust pipeline of new mortgages and originated 
GBP3.8bn of new business in the year (2019: GBP4.1bn statutory, GBP6.5bn 
pro forma underlying). Application levels in our core businesses were 
strong prior to COVID-19, but the initial lockdown inevitably impacted 
application and completion volumes in the second and third quarters, 
mirroring the overall mortgage market. As restrictions eased in the 
middle of the year, we chose to increase lending in our core Buy-to-Let 
and Residential businesses at higher pricing, albeit with reduced 
maximum LTVs and loan size. We remained vigilant regarding market 
uncertainty and managed our risk appetite accordingly to maintain strong 
credit quality. However, I am pleased that new business volumes have now 
recovered to near pre-COVID levels in these sub-segments, with a strong 
pipeline of new business. 
 
   Net loan book growth was impacted by our sensible, clear decisions to 
reduce lending in our more cyclical market sub-segments. We continue to 
control new lending in our commercial, bridging, development finance, 
funding lines and second charge residential businesses. In addition, we 
have seen strong early repayments from our residential development 
finance customers, demonstrating the strength of this proposition. 
 
   The Group recognised an impairment provision of GBP20m in 2020 in 
relation to potential fraudulent activity by a third party on a funding 
line of GBP28.6m provided by the Group, secured against lease 
receivables and the underlying hard assets. The Group's funding line 
business is primarily secured against property-related mortgages(1) and 
the Board believes that this is an isolated incident. The Board has 
commissioned an external review of processes and controls in relation to 
the funding lines business and will make enhancements based on 
recommendations received. 
 
   InterBay Asset Finance saw increased levels of new business as we 
entered the fourth quarter of the year and in October launched products 
under the Coronavirus Business Interruption Loan Scheme. This enabled us 
to finance new deals for SME customers who had been affected by 
COVID-19. 
 
   Sophisticated funding model 
 
   The Group remained predominantly retail funded in 2020 and our strong 
savings propositions, through Kent Reliance and Charter Savings Bank, 
continued to attract increased customer numbers. This allowed us to fund 
the business at an increasingly favourable cost as base rate cuts were 
passed on to retail savers in full by the end of the third quarter. The 
Group had GBP16.6bn of statutory retail deposits as at 31 December, up 
2% on the prior year (2019: GBP16.3bn). 
 
   Customer satisfaction, measured through the Net Promoter Score, remained 
high at +67 and +72 for Kent Reliance and Charter Savings Bank, 
respectively. I am very pleased that retention rates for savers 
continued to be exceptionally high, reaching 93% amongst Kent Reliance 
customers and 77% for Charter Savings Bank. I am also delighted that our 
savings brands received recognition with Charter Savings Bank awarded 
Best Bank Savings Provider in the Moneyfacts Awards and Best Savings 
Provider in the Savings Champion Awards. Kent Reliance won Best Easy 
Access Savings provider in the Moneynet awards. These awards demonstrate 
our dedication to delivering excellent customer service, supported by 
the outstanding skills and adaptability of the dedicated people in our 
operations in India and the UK. 
 
   We continued to complement our retail savings franchises by utilising 
our capabilities in the wholesale funding market, demonstrating one of 
the strengths of our successful Combination with CCFS. In 2020, the 
Group completed three securitisation transactions with a combined value 
of GBP2.8bn across the Canterbury Finance and Precise Mortgage Funding 
programmes. We were also successful in generating gains through the sale 
of residual positions and in 2020 we recorded a gain of GBP33m on an 
underlying basis, or GBP20m on a statutory basis, while derecognising 
GBP0.8bn of securitised mortgages from the Group's balance sheet. 
 
   We were also accepted to the Term Funding Scheme with additional 
incentives for SMEs (TFSME) in 2020 with borrowings of GBP1bn at the end 
of the year. We intend to use the TFSME funding to refinance and extend 
the duration of the remaining GBP2.6bn of drawings under the TFS scheme. 
TFSME drawings may also be used to fund additional growth opportunities 
subject to our encumbrance policy. 
 
   Building our business 
 
   The integration of OSB and CCFS has progressed very well, with the 
synergies set out for the first year of the Combination achieved earlier 
than anticipated, and by the end of the first year we had achieved more 
than 65% of our end of year three synergy target. We are currently ahead 
of schedule towards delivering our year two synergy target and expect to 
marginally exceed our run-rate pledge by the end of the final year. We 
streamlined the Board and de-duplicated a significant proportion of 
senior management roles early and also achieved efficiencies from 
combining various central and support functions. Our costs to date are 
lower than originally expected. Operational resilience has had an 
increased focus in light of the pandemic and the Board is taking the 
opportunity to review whether some planned consolidation of locations 
and suppliers is still the best way forward. Any decision is not 
expected to have a material impact on the quantum of synergies. 
 
   I am delighted that colleagues across the Group worked well together, 
ensuring that we offered excellent service to customers across our 
franchises. We have taken two great cultures and combined them as one 
under a common purpose, to help our customers, colleagues and 
communities prosper. Our values are also combined and we have added more 
emphasis on stewardship. This will ensure we act positively with 
conscience and have environmental, social and governance factors front 
of mind when making decisions. 
 
   Sustainability is important to us and the Group operates under the 
highest governance and ethical standards. We are focused on reducing our 
impact on the environment and are cognisant of the impact of social and 
environmental change on our business and stakeholders. We regularly 
review our policies, activities and outcomes and I am looking forward to 
reporting further on ESG matters as we progress. 
 
   In July 2020, the Group received its Annual Resolution Letter from the 
Bank of England setting out its preferred resolution strategy. As 
anticipated, the Group is subject to a single point of entry bail-in 
requirement which, from July 2023, is expected to be equal to 18% of 
risk-weighted assets, rising to a final requirement of two times Pillar 
1 and Pillar 2a from July 2025. The Group intends to fulfil its minimum 
requirement for own funds and eligible liabilities through senior debt 
issued by OSB GROUP PLC, which became the Group's holding company in 
November 2020, with the first anticipated debt issue during the first 
half of 2022, subject to market conditions. 
 
   We continued to make good progress towards IRB during the year, albeit 
some elements of the project were inevitably delayed by the impact of 
COVID-19, which created the need to deploy significant resources to 
support additional stress testing and expected credit loss modelling and 
also restricted the ability of external advisers to access our premises 
and systems. Nevertheless, we are still aiming to submit our module 1 
application by the end of the year. In the meantime the Group continues 
to benefit from the enhanced risk models and assessment in its 
decision-making. 
 
   Looking forward to 2021 
 
   After a year of unprecedented uncertainty, it seems there is finally 
reason for some cautious optimism. Vaccinations are being rolled out at 
an impressive pace and we hope the country will begin to return to some 
sense of normality. There is positive news in the fact that a Brexit 
deal was agreed, reducing some uncertainty, although there may be 
further twists and turns as the UK builds its relationships with the EU 
and other trading partners. However, we remain cognisant of the many 
businesses, families and individuals currently receiving support from 
government initiatives and the ongoing uncertainty about the true impact 
of the pandemic on the economy, our customers and the Group's business 
when the support ends. 
 
   We have demonstrated that OSB Group is a strong and resilient business 
in the face of economic slowdown and uncertainty and that we do not seek 
growth at the expense of quality. We have continued to generate very 
attractive returns, despite taking significant impairment charges under 
COVID-19 forward-looking assumptions. Whilst we continue to control 
lending in our more cyclical businesses, applications remain strong in 
our Buy-to-Let and Residential sub-segments, at higher pricing and lower 
LTVs than pre-COVID and we have a strong pipeline. The Group is 
well-placed to accelerate lending when the macroeconomic outlook becomes 
clearer, with a very strong capital position, secured loan book and 
strong risk management capabilities. 
 
   Based on our pipeline and current application levels and risk appetite, 
we currently expect to deliver underlying net loan book growth for 2021 
of c. 10%, although we remain cognisant of continued uncertainty in the 
economic outlook. Based on current pricing and cost of funds, we expect 
underlying NIM for 2021 to return to 2019 levels. We expect the 
underlying cost to income ratio to be marginally higher in 2021, as the 
ratio in 2020 benefitted from higher income from gains on structured 
asset sales and lower discretionary spending in lockdowns. 
 
   Andy Golding 
 
   Chief Executive Officer 
 
   8 April 2021 
 
   (1. The Group's gross loans to customers include GBP175.7m in relation 
to funding lines of which 66% is secured on property-related mortgages.) 
 
 
 
 
   Segment review 
 
   Coronavirus impact on the Group's lending segments 
 
   The Group's segment results reflect the impact of the pandemic on its 
lending activities throughout 2020. The reduction in new business 
volumes reflects multiple dynamics which developed over the course of 
the year as the pandemic evolved. 
 
   The Group attracted strong levels of applications and completions for 
nearly all of the first quarter of 2020 across all of its lending 
brands. In late March, as the lockdown and social distancing measures 
were imposed by the government, the Group took the decision to 
temporarily suspend new business activity across its lending 
sub-segments. This decision was largely due to the ban on home visits 
making physical property valuations, a critical component of the Group's 
bespoke underwriting process, all but impossible. As a result, the Group 
concentrated on progressing the pipeline of applications with existing 
physical valuations, whilst ensuring resources were deployed to 
prioritise the needs of customers, including those who wished to request 
a mortgage payment deferral. 
 
   Self-certified mortgage payment deferrals were announced by the 
government in March 2020. Payment deferrals peaked in the second quarter 
at 26,000 accounts, representing 28% of the Group's mortgage book by 
value. Anecdotal evidence suggested that many people who requested a 
payment deferral were doing so to prudently safeguard their cash flow, 
rather than as a necessity, and the underlying performance of the 
Group's loan book seemed to confirm it: arrears remained broadly stable 
throughout the year and as at 31 December 2020 the percentage of loans 
and advances in three months plus arrears remained broadly stable at 
1.3% for OSB (2019: 1.3%) and 0.5% for CCFS (2019: 0.3%). Volumes of 
mortgage payment deferrals reduced significantly and as at 31 December 
2020 active payment deferrals represented only 1.3% of the Group's loan 
book by value. 
 
   As the restrictions on physical valuations began to ease in the middle 
of May, the Group took the opportunity to undertake a controlled 
increase of business volumes in its core Buy-to-Let and residential 
sub-segments, although with a limited suite of products, tighter lending 
criteria and higher headline rates. Gradually, additional products were 
introduced and criteria expanded, however certain products in more 
cyclical business lines including commercial, residential development 
finance, funding lines and second charge residential were greatly 
reduced with tightly controlled and limited product sets introduced 
later in the year. 
 
   The second national lockdown, imposed in early November, did not 
significantly impact lending volumes since new processes, policies and 
procedures agreed during the first lockdown were already in place and 
market disruption was limited as physical valuations continued to be 
carried out. The Group maintained its prudent risk assessment and a 
controlled approach to its lending proposition for the remainder of the 
year. 
 
   Segment review 
 
   Following the Combination, the Group segmented its lending business into 
two segments: OSB and CCFS. 
 
   OneSavings Bank segment 
 
   The following tables show the OSB segment's statutory loans and advances 
and contribution to profit: 
 
 
 
 
                               BTL/SME    Residential    Total 
                                 GBPm         GBPm        GBPm 
Year ended 31-Dec-2020 
Gross loans and advances 
 to customers                   9,164.6        1,966.8  11,131.4 
Expected credit losses           (67.0)         (16.6)    (83.6) 
Net loans and advances to 
 customers                      9,097.6        1,950.2  11,047.8 
 
Risk-weighted assets            4,282.9          874.4   5,157.3 
 
Profit or loss for the year 
Net interest income               264.7           68.1     332.8 
Gain on sale of loans              18.0              -      18.0 
Other income                        0.2            0.6       0.8 
Total income                      282.9           68.7     351.6 
Impairment of financial 
 assets                          (47.0)          (3.7)    (50.7) 
Contribution to profit            235.9           65.0     300.9 
 
 
                                BTL/SME    Residential     Total 
                                   GBPm           GBPm      GBPm 
Year ended 31-Dec-2019 
Gross loans and advances 
 to customers                   8,983.2        1,837.4  10,820.6 
Expected credit losses           (21.6)         (14.0)    (35.6) 
Net loans and advances to 
 customers                      8,961.6        1,823.4  10,785.0 
 
Risk-weighted assets            4,244.0          846.0   5,090.0 
 
Profit or loss for the year 
Net interest income               253.5           62.7     316.2 
Other expense                     (8.0)          (4.9)    (12.9) 
Total income                      245.5           57.8     303.3 
Impairment of financial 
 assets                          (13.8)            1.9    (11.9) 
Contribution to profit            231.7           59.7     291.4 
 
 
 
 
 
 
   OSB - Buy-to-Let/SME 
 
   Buy-to-Let/SME sub-segment: gross loans 
 
 
 
 
                              Group         Group 
                            31-Dec-2020   31-Dec-2019 
                               GBPm          GBPm 
-------------------------  ------------  ------------ 
Buy-to-Let                      8,044.6       7,727.0 
Commercial                        821.9         888.0 
Residential development           133.1         146.1 
Funding lines                     165.0         222.1 
Gross loans to customers        9,164.6       8,983.2 
Expected credit losses           (67.0)        (21.6) 
Net loans to customers          9,097.6       8,961.6 
 
 
   This sub-segment comprises Buy-to-Let mortgages secured on residential 
property held for investment purposes by experienced and professional 
landlords, commercial mortgages secured on commercial and 
semi-commercial properties held for investment purposes or for 
owner-occupation, bridge finance, residential development finance to 
small and medium-sized developers, secured funding lines to other 
lenders and asset finance. 
 
   The Buy-to-Let/SME net loan book was GBP9,097.6m, up 2% from GBP8,961.6m 
in 2019, or 7% excluding structured assets sales in the year. Organic 
originations in this sub-segment decreased 46% versus 2019 to 
GBP1,542.5m (2019: GBP2,847.2m), reflecting reduced activity from late 
March, before a controlled return to the market in the second half of 
the year. 
 
   The gross loan book in the Buy-to-Let sub-segment increased 4% to 
GBP8,044.6m (2019: GBP7,727.0m) or 10% excluding structured asset sales 
in the year. The Group restricted its product range and tightened 
criteria, including property types, customer credit history and reduced 
maximum loan to values (LTVs) upon market re-entry, when physical 
valuations resumed. At the same time, the Group took the opportunity to 
increase interest rates marginally. A controlled increase in lending 
activity commenced in the second half of the year and was mostly 
dominated by professional, multi-property landlords who represented 84% 
of completions by value for the Kent Reliance brand, whilst the 
proportion of mortgage applications from landlords borrowing via a 
limited company remained unchanged at 75% (2019: 81% and 75%, 
respectively). 
 
   Refinancing levels were broadly stable and represented 58% of Kent 
Reliance Buy-to-Let completions and the percentage of completions for 
five-year fixed rate products was flat to the prior year at 52% (2019: 
60% and 52%, respectively). OSB's retention programme, Choices, 
continued to be popular with borrowers, with 75% (2019: 69%) of existing 
borrowers choosing a new product with the Bank within three months of 
their original product term ending. 
 
   The weighted average LTV of the Buy-to-Let book as at 31 December 2020 
was 67% with an average loan size of GBP260,000 (2019: restated 68%(1) 
and GBP260,000). The weighted average interest coverage ratio for 
Buy-to-Let origination during 2020 was 201% (2019: restated 199%(2) ). 
 
   Through its InterBay brand, OSB lends to borrowers investing in 
commercial and semi-commercial property, reported in the Commercial 
total, and more complex Buy-to-Let properties, reported in the 
Buy-to-Let total. The commercial sub-segment gross loan book reduced by 
7% to GBP821.9m (2019: GBP888.0m) as the Group paused new lending 
activity in late March and returned to the market with a much reduced 
product suite in May, offering semi-commercial loans only to a maximum 
LTV of 60%. As the commercial market is traditionally more sensitive to 
economic downturns, the Group reduced its appetite for lending and new 
loans were underwritten with tightened criteria. The InterBay 
proposition began to be extended in November when the maximum LTV limit 
for semi-commercial loans was lifted to 70% and standard commercial 
lending was relaunched to a maximum LTV of 65%. The weighted average LTV 
of the commercial book was 71% and the average loan size was GBP385,000 
in 2020 (2019: 67% and GBP375,000, respectively). 
 
   InterBay Asset Finance, which predominantly targets UK SMEs and small 
corporates financing business-critical assets, had a good start to the 
year. As the pandemic progressed, there was a significant reduction in 
new business volumes from April and the primary focus was on supporting 
customers with payment deferral requests. The launch of the Group's 
products under the Coronavirus Business Interruption Loan Scheme in 
October coincided with a general recovery in business activity in the 
asset finance market in the final quarter of the year. The gross 
carrying amount under finance leases increased to GBP65.5m as at 31 
December 2020 (31 December 2019: GBP47.7m). 
 
   The Heritable residential development business provides development 
finance to small and medium-sized residential developers. Our preference 
is to fund house builders who operate outside central London and provide 
relatively affordable family housing, as opposed to complex city centre 
schemes, where affordability and construction cost control can be more 
challenging. New applications come primarily from a mixture of repeat 
business from the team's extensive existing relationships and referrals. 
 
   The residential development funding gross loan book at the end of 2020 
was GBP133.1m, with a further GBP145.6m committed (31 December 2019: 
GBP146.1m and GBP115.1m, respectively). In late March 2020, government 
guidance on closing development sites meant that construction projects 
were deferred and advances reduced. When restrictions were relaxed in 
May, our developer customers experienced rapidly increasing rates of 
sale which continued to the year end. Consequently, loan repayments were 
higher than in any previous year. 
 
   Since inception in 2014, Heritable has written GBP1,231m of loans, of 
which GBP703m had been repaid by the end of 2020. The Group continues to 
be cautious on approving new developments given current macroeconomic 
uncertainty and remains focused on the cash flow requirements of our 
developer customers. As at the end of December 2020, the business had 
commitments to finance the development of 1,882 residential units, the 
majority of which are houses located outside central London. 
 
   In 2020, the Group continued to provide secured funding lines to 
non-bank lenders which operate in certain high-yielding, specialist 
sub-segments, primarily secured against property-related mortgages. 
Total credit approved limits as at 31 December 2020 were GBP520.0m, with 
85% in respect of property-related funding lines and gross loans 
outstanding were GBP165.0m, with 64% secured against property-related 
mortgages (31 December 2019: GBP540.0m and GBP222.1m, respectively). 
Given macroeconomic uncertainties, a cautious risk approach was adopted 
and no new secured funding line facilities were added during the year, 
as the Group chose to focus on servicing existing borrowers and applying 
amended, restricted lending criteria. The Group recognised an impairment 
provision of GBP20.0m in relation to potential fraudulent activity by a 
third party on a funding line provided by the Group, secured against 
lease receivables and the underlying hard assets. The Group had an 
outstanding receivable on this funding line of GBP28.6m as at 31 
December 2020. 
 
   Net interest income in the Buy-to-Let/SME sub-segment increased 4% to 
GBP264.7m from GBP253.5m as a result of the loan book growth, partially 
offset by a delay in passing on the base rate cuts to depositors in 
full. The Buy-to-Let/SME sub-segment also benefitted from the gain on 
structured asset sales of GBP18.0m which was offset by impairment losses 
of GBP47.0m (2019: GBP13.8m). Impairment losses increased due primarily 
to the impact of adopting COVID-19 forward-looking assumptions in the 
Group's IFRS 9 models and an impairment provision of GBP20m in relation 
to potential fraudulent activity by a third-party on a secured funding 
line provided by the Group. Overall, the Buy-to-Let/SME sub-segment made 
a contribution to profit of GBP235.9m in 2020, up 2% compared with 
GBP231.7m in 2019. 
 
   The Group remains highly focused on the risk assessment of new lending, 
as demonstrated by the average book LTV in the Buy-to-Let/SME 
sub-segment(3) as at 31 December 2020 of 67% (31 December 2019: restated 
68%(1) ) with only 2.9% of loans exceeding 90% LTV (31 December 2019: 
1.8%). The average LTV for new Buy-to-Let/SME origination(3) remained 
stable at 71% (2019: restated 71%(1) ). 
 
   1. The Group restated the comparative LTVs due to a change in 
aggregation methodology. 
 
   2. Interest coverage ratio for 2019 was restated due to an improvement 
in calculation methodology. 
 
   3. Buy-to-Let/SME sub-segment average weighted LTVs include KR and 
Interbay Buy-to-Let, semi-commercial and commercial lending. 
 
   OSB - Residential mortgages 
 
   Residential sub-segment: gross loans 
 
 
 
 
                              Group         Group 
                            31-Dec-2020   31-Dec-2019 
                               GBPm          GBPm 
-------------------------  ------------  ------------ 
First charge                    1,660.7       1,466.6 
Second charge                     295.4         358.6 
Funding lines                      10.7          12.2 
Gross loans to customers        1,966.8       1,837.4 
Expected credit losses           (16.6)        (14.0) 
Net loans to customers          1,950.2       1,823.4 
 
 
   This sub-segment comprises lending to owner occupiers, secured via 
either first or second charge against their residential home. The Group 
also provides funding lines to non-bank lenders which operate in 
high-yielding, specialist sub-segments such as residential bridge 
finance. 
 
   The residential net loan book was GBP1,950.2m as at 31 December 2020, up 
7% compared with GBP1,823.4m in 2019 with organic originations of 
GBP354.2m during the year (2019: GBP540.5m). 
 
   OSB's first charge residential gross loan book grew in the year to 
GBP1,660.7m, 13% up from GBP1,466.6m in 2019 with the strong performance 
largely due to the success of the Group's shared ownership proposition, 
which has proven extremely popular since it was relaunched in June. 
First charge lending to high net worth individuals or borrowers in more 
complex income circumstances was restricted following the March lockdown, 
in line with the Group's controlled approach to market re-entry in light 
of the uncertain macroeconomic outlook. 
 
   Prestige Finance, OSB's second charge mortgage brand, no longer offers 
new mortgages to borrowers and its loan book is in run-off and managed 
by Precise Mortgages. Second charge mortgages are currently offered by 
the Group under the Precise Mortgages brand as a sub-segment of CCFS. 
The OSB second charge residential loan book had a gross value of 
GBP295.4m at the end of 2020 (31 December 2019: GBP358.6m). 
 
   OSB continued to provide secured funding lines to non-bank lenders which 
operate in certain high-yielding, specialist sub-segments, such as 
residential first and second charge finance. The Bank continued to adopt 
a cautious approach to these more cyclical businesses given 
macroeconomic uncertainty. Total credit approved limits as at 31 
December 2020 were GBP29.2m with total loans outstanding of GBP10.7m 
(2019: GBP31.0m and GBP12.2m, respectively). 
 
   Residential mortgages made a contribution to profit of GBP65.0m in 2020, 
up 9% compared with GBP59.7m in 2019 and in line with the growth in net 
interest income to GBP68.1m from GBP62.7m in 2019. The growth in net 
interest income was due primarily to growth in the first charge loan 
book, partially offset by a delay in passing on the base rate cuts in 
full to savers. Impairment losses increased due primarily to the impact 
of adopting COVID-19 forward-looking assumptions in the Group's IFRS 9 
models. 
 
   The average book LTV(1) remained low at 54% (2019: restated 57%(2) ) 
with only 1.6% of loans by value with LTVs exceeding 90% (2019: 3.3%). 
The average LTV of new residential origination(1) during 2020 reduced to 
61% (2019: restated 70%(2) ) primarily as a result of growth in shared 
ownership originations which complete at much lower LTVs. 
 
   1. Residential sub-segment average weighted LTVs include first and 
second charge lending. 
 
   2. The Group restated the comparative LTVs due to a change in 
aggregation methodology. 
 
   Segment review -- Charter Court Financial Services 
 
   The tables below present underlying results for the CCFS segment for 
2020 and 2019 and a reconciliation to the statutory results. 
 
   The 2020 table is presented on an underlying basis, which excludes 
acquisition-related items. The 2019 table is presented on a pro forma 
underlying basis, which assumes that the Combination with CCFS occurred 
on 1 January 2019 and includes 12 months of results from CCFS. It also 
excludes acquisition-related items 
 
 
 
 
                  Buy-to-                                                        Total                          Total 
Year ended            Let  Residential  Bridging  Second charge  Other(1)   underlying  Acquisition- related   statutory 
31-Dec-2020          GBPm         GBPm      GBPm           GBPm      GBPm         GBPm         Items(2) GBPm     GBPm 
Gross loans and 
 advances to 
 customers        5,292.0      2,386.1     106.1          197.9      19.1      8,001.2                 209.1     8,210.3 
Expected credit 
 losses            (18.1)        (7.5)     (1.9)          (0.7)         -       (28.2)                   0.8      (27.4) 
Loans and 
 advances to 
 customers        5,273.9      2,378.6     104.2          197.2      19.1      7,973.0                 209.9     8,182.9 
 
Risk-weighted 
 assets           2,163.8      1,001.5      59.6           82.9       7.0      3,314.8                  93.6     3,408.4 
 
Profit or loss account 
Net interest 
 income             114.8         67.8      11.8            7.4     (0.6)        201.2                (61.8)       139.4 
Gain on sale of 
 loans                  -            -         -              -      15.1         15.1                (13.1)         2.0 
Other income          0.3          0.3         -              -       1.7          2.3                  13.3        15.6 
Total income        115.1         68.1      11.8            7.4      16.2        218.6                (61.6)       157.0 
Impairment of 
 financial 
 assets            (14.9)        (4.0)     (1.3)          (0.3)         -       (20.5)                   0.2      (20.3) 
Contribution to 
 profit             100.2         64.1      10.5            7.1      16.2        198.1                (61.4)       136.7 
 
   1. Other relates to acquired loan portfolios and related net interest 
income as well as gains on structured asset sales and fee income from 
third party mortgage servicing. 
 
   2. For more details on acquisition-related adjustments, see 
Reconciliation of statutory to underlying and pro forma underlying 
results in the Financial review. 
 
 
 
 
 
 
                  Buy-to-                                                  Total pro forma                                                   Total 
Year ended            Let  Residential  Bridging  Second charge  Other(1)       underlying  Pre-acquisition profits  Acquisition- related   statutory 
31-Dec-2019          GBPm         GBPm      GBPm           GBPm      GBPm             GBPm                     GBPm         Items(2) GBPm     GBPm 
Gross loans and 
 advances to 
 customers        4,748.5      2,170.8     214.4          218.6      22.1          7,374.4                        -                 294.7     7,669.1 
Expected credit 
 losses             (3.5)        (3.6)     (0.5)          (0.4)         -            (8.0)                        -                   0.7       (7.3) 
Loans and 
 advances to 
 customers        4,745.0      2,167.2     213.9          218.2      22.1          7,366.4                        -                 295.4     7,661.8 
 
Risk-weighted 
 assets           2,002.4        934.0     127.9           95.4       8.4          3,168.1                        -                 124.9     3,293.0 
 
Profit or loss account 
Net interest 
 income             114.3         63.6      15.5            7.1       1.7            202.2                  (152.1)                (21.6)        28.5 
Gain on sale of 
 loans                  -            -         -              -      58.7             58.7                   (58.7)                     -           - 
 
Other income          0.1          0.2       0.1              -     (2.1)            (1.7)                     10.0                   3.3        11.6 
 
Total income        114.4         63.8      15.6            7.1      58.3            259.2                  (200.8)                (18.3)        40.1 
Impairment of 
 financial 
 assets             (2.1)        (1.7)     (0.5)          (0.1)         -            (4.4)                      4.3                 (3.6)       (3.7) 
Contribution to 
 profit             112.3         62.1      15.1            7.0      58.3            254.8                  (196.5)                (21.9)        36.4 
 
   1. Other relates to acquired loan portfolios and related net interest 
income as well as gains on structured asset sales and fee income from 
third party mortgage servicing. 
 
   2. For more details on acquisition-related adjustments, see 
Reconciliation of statutory to underlying and pro forma underlying 
results in the Financial review. 
 
   Charter Court Financial Services segment 
 
   CCFS gross loans 
 
 
 
 
                              Group         Group 
                            31-Dec-2020   31-Dec-2019 
                               GBPm          GBPm 
-------------------------  ------------  ------------ 
Buy-to-Let                      5,292.0       4,748.5 
Residential                     2,386.1       2,170.8 
Bridging                          106.1         214.4 
Second charge                     197.9         218.6 
Other(1)                           19.1          22.1 
Gross loans to customers        8,001.2       7,374.4 
Expected credit losses           (28.2)         (8.0) 
Net loans to customers          7,973.0       7,366.4 
 
 
   1. Other relates to acquired loan portfolios. 
 
   Charter Court Financial Services targets specialist mortgage market 
segments with a focus on specialist Buy-to-Let, residential, bridging 
and second charge lending. 
 
   The CCFS underlying net loan book grew 8% to GBP7,973.0m at the end of 
2020 (2019: GBP7,366.4m) supported by organic originations of 
GBP1,870.2m at attractive margins (2019: GBP3,108.2m). Excluding 
structured asset sales in the year, the net loan book grew 13%. 
 
   Buy-to-Let sub-segment 
 
   During 2020, CCFS' organic originations in the Buy-to-Let sub-segment 
were GBP1,122.6m (2019: GBP1,895.2m), a decrease of 41% directly 
attributable to the impact of the coronavirus pandemic. As at 31 
December 2020, the underlying gross loan book in this sub-segment 
increased 11% to GBP5,292.0m (2019: GBP4,748.5m), or 19% excluding 
structured asset sales. 
 
   CCFS' Buy-to-Let products saw increasing application levels in the 
second half of the year, despite the introduction of tighter 
underwriting criteria and increased headline interest rates after the 
March lockdown. Demand was especially strong from those borrowing via a 
limited company structure, which represented 56% of Buy-to-Let 
completions for the Precise brand in 2020, up from 50% in 2019. The 
remortgage levels remained largely unchanged at 57% of completions for 
Precise Mortgages Buy-to-Let (2019: 60%). Loans for specialist property 
types remained relatively resilient, despite the Group choosing to limit 
its risk appetite, achieved in part through earlier policy restrictions 
on the maximum number of bedrooms and units for houses in multiple 
occupation and multi-unit properties respectively, while lending on 
holiday lets was suspended. These property types made up 30% of 
Buy-to-Let completions for Precise Mortgages in 2020 and in 2019. 
 
   Precise mortgages continued to rank highly, according to research by BVA 
BDRC, as the specialist lender mortgage intermediaries are most likely 
to recommend to portfolio landlords. 
 
   Net interest income in this sub-segment remained broadly flat compared 
with the prior year at GBP114.8m (2019: GBP114.3m) as it was impacted by 
index repricing and a delay in passing on the base rate cuts to savers 
in full. On an underlying basis, Buy-to-Let made a contribution to 
profit of GBP100.2m in 2020, down 11% compared with GBP112.3m in 2019 as 
GBP14.9m of impairment losses were recognised in the year (2019: 
GBP2.1m) reflecting primarily the impact of adopting COVID-19 
forward-looking assumptions in the Group's IFRS 9 models. On a statutory 
basis, the Buy-to-Let sub-segment made a contribution to profit of 
GBP71.5m. 
 
   Average loan to value for new lending in this segment was 74% with an 
average loan size of GBP170,000 (2019: 73% and GBP183,000). The book 
loan to value was 69% as at 31 December 2020 (2019: 71%). The weighted 
average interest coverage ratio for Buy-to-Let origination during 2020 
was 193% (2019: restated 187%(1) ). 
 
   Residential sub-segment 
 
   The underlying gross loan book in CCFS' residential sub-segment was 10% 
up in the year to GBP2,386.1m (2019: GBP2,170.8). 
 
   Even though organic originations reduced 28% in the year, they remained 
strong, reaching GBP573.9m in 2020 (2019: GBP797.2m). Throughout the 
year, the Group saw robust demand for Precise Mortgages' residential 
products despite a shift in focus towards prime borrowers. Lending under 
the government's Help to Buy scheme performed exceptionally well in the 
year as applications increased compared with 2019. The scheme helps 
first time buyers to take their first step onto the property ladder as 
the number of mortgage products available for borrowers with small 
deposits reduced significantly due to the effects of the coronavirus 
pandemic. 
 
   The CCFS residential sub-segment made a contribution to profit of 
GBP64.1m on an underlying basis, up 3% compared with GBP62.1m in 2019. 
The net interest income increased by 7% to GBP67.8m from GBP63.6m in 
2019 due to the growth in the Residential loan book partially offset by 
a delay in passing on the base rate cuts to savers in full. Impairment 
losses increased to GBP4.0m from GBP1.7m in 2019 due to the impact of 
adopting COVID-19 forward-looking assumptions in the Group's IFRS 9 
models. On a statutory basis, the residential sub-segment made a 
contribution to profit of GBP45.4m. 
 
   The average loan size for the residential sub-segment was GBP160,000 
(2019: restated GBP150,000) with average LTV for new lending of 67% 
(2019: restated 68%(2) ) and book LTV of 62% (2019: restated 65%(2) ) as 
at 31 December 2020. 
 
   Bridging sub-segment 
 
   Short-term bridging originations decreased to GBP141.8m in 2020 and 
gross underlying loans in this sub-segment were GBP106.1m at the end of 
2020. In late March, the Group paused lending in this sub-segment and 
returned with a much reduced suite of products and highly restricted 
underwriting criteria in the second half of the year, with a focus on 
high-quality lending in the regulated sector of the market. 
 
   On an underlying basis, the contribution to profit from the bridging 
sub-segment reduced to GBP10.5m in 2020 (2019: GBP15.1m) due to lower 
net interest income of GBP11.8m as the loan book reduced (2019: 
GBP15.5m) and higher impairment losses of GBP1.3m (2019: GBP0.5m). On a 
statutory basis, the bridging sub-segment made a contribution to profit 
of GBP9.7m. 
 
   Second charge sub-segment 
 
   The second charge underlying gross loan book reduced to GBP197.9m at the 
end of 2020 (2019: GBP218.6m) with a reduction in originations to 
GBP31.9m from GBP82.2 in 2019. Second charge products were withdrawn 
from the market in late March and once the Group returned to lending, 
risk criteria were tightened with a focus on prime borrowers, offering a 
maximum LTV of 50% and a maximum loan size of GBP200,000, demonstrating 
control over new business written whilst the outlook remains uncertain. 
 
   The second charge sub-segment made a contribution to profit of GBP7.1m 
on an underlying basis, broadly flat compared with GBP7.0m in 2019 and 
GBP6.6m on a statutory basis. Net interest income in this sub-segment 
remained broadly flat at GBP7.4m versus GBP7.1m in 2019. 
 
   1. Interest coverage ratio for 2019 was restated due to alignment of the 
calculation across both Banks. 
 
   2. The Group restated the comparative LTVs due to a change in 
calculation methodology. 
 
   Wholesale funding overview 
 
   Securitisation is central to the Group's liability management strategy, 
as well as a key funding source, with c. GBP8bn of issuance since 
December 2013 across the CCFS and OSB trading entities. In addition to 
providing cost efficient funding, the Group utilises securitisations to 
accelerate organic capital generation through the sale of residual 
positions, as well as to provide efficient access to commercial and 
central bank repo facilities. 
 
   The Group's strategy is to be fleet-of-foot and dynamic rather than 
deterministic with its securitisation issuance plans, enabling it to 
maximise the opportunity of a strong market with repeat issuances and 
utilise other options when the market is poor. 
 
   2020 exemplified the strength of this approach. The Group was able to 
complete the majority of its intended capital markets transactions early 
in the year whilst markets were strong. It then utilised central bank 
repo facilities for its wholesale funding needs through the rest of the 
period at a time during which the capital markets were exceptionally 
volatile. 
 
   Included within this early activity were a number of strategically 
important transactions. In particular, the Group completed its first 
Simple, Transparent, and Standardised eligible prime residential 
mortgage-backed securities (RMBS) transaction, CMF 2020-1, which priced 
at SONIA +60 basis points (S+60bps) on the senior notes and S+66bps 
across the GBP330m of mortgage collateralised bonds placed into the 
market. The CMF series continues to provide the Group with a source of 
attractively priced funding: the near GBP1bn of mortgage collateralised 
bonds placed through the series to date have been sold at a combined day 
one spread over SONIA/LIBOR of 62bps. 
 
   Meanwhile, the first two months of the year also saw the Group structure 
and sell its economic interest in the Precise Mortgage Funding (PMF) 
2020-1B transaction, as well as the A2 notes and residual certificates 
in the Canterbury No. 1 transaction. 
 
   The sale of the residual interest in these two deals was completed 
through an auction process and generated a statutory gain on sale of 
GBP19.9m (GBP33.0m on an underlying basis). As well as generating a 
significant gain on sale, the trade released GBP287m of risk-weighted 
assets, providing a substantial increase in Group and bank entity 
capital headroom ahead of a period of protracted market uncertainty. 
 
   In addition to the placement of around GBP1.1bn RMBS bonds into the 
market during the period, the Group also completed two significant 
retained RMBS transactions, Canterbury No.2, which closed in March and 
Canterbury No.3 which closed in September. These transactions, totalling 
more than GBP2bn in issuance, provide the Group with a substantial 
portfolio of AAA rated senior bonds which can be sold into the market at 
short notice for liquidity purposes, as well as being eligible for 
commercial and central bank funding repo facilities. The trade forms 
part of a broader strategy to increase the Group's wholesale funding 
options and, in particular, to increase its encumbrance efficiency; 
meaning that it can access more wholesale funding for each pound of 
assets encumbered and thus utilise wholesale funding to a greater degree 
than would otherwise be possible. 
 
   This is particularly pertinent given the Group's access to the Term 
Funding Scheme for SMEs, which provides four-year funding at an 
anticipated cost of Bank Base Rate flat. The Group's combined initial 
allowance through the scheme is GBP2.0bn, with a further GBP5.1bn of 
additional allowance due to subsequent net loan book growth through to 
31 December 2020. The Group intends to utilise the scheme to repay all 
outstanding balances under the original TFS scheme. In addition, there 
should be an opportunity to utilise the scheme further to help fund net 
loan book growth through to 31 October 2021, when it closes to new 
drawdowns, subject to collateral availability and encumbrance 
constraints. By improving the encumbrance efficiency of the Group's 
collateral used for drawing down against the TFSME, it is likely that 
the Group will be able to take greater advantage of this allowance, in 
conjunction with other Bank of England repo facilities. 
 
   Retained RMBS deals also provide the Group with the flexibility to 
subsequently place bonds into the market at short notice, should an 
attractive economic opportunity present itself. 
 
   Financial review 
 
   Summary statutory results for 2020 and 2019 
 
 
 
   Group                                      Group 
 
   31 Dec 2020                              31 Dec 2019 
 
   Summary Profit or Loss                                   GBPm                                           GBPm 
 
 
   Net interest income                                            472.2                                        344.7 
 
 
   Net fair value gain/(loss) on 
 
   financial instruments                                         7.4                                            (3.3) 
 
 
   Gain/(loss) on sale of financial 
 
   instruments                                                       20.0                                          (0.1) 
 
 
   Other operating income                                     9.0                                            2.1 
 
 
   Administrative expenses                                    (157.0)                                      (108.7) 
 
 
   Provisions                                                        (0.1)                                          - 
 
 
   Impairment of financial assets                            (71.0)                                        (15.6) 
 
 
   Impairment of intangible assets                          (7.0)                                          - 
 
 
   Gain on Combination with CCFS            -                                               10.8 
 
 
   Integration costs                                               (9.8)                                          (5.2) 
 
 
   Exceptional items                                              (3.3)                                          (15.6) 
 
 
   Profit before taxation                                        260.4                                        209.1 
 
 
   Profit after taxation                                           196.3                                        158.8 
 
 
   Key ratios(1) 
 
   Net interest margin                                            216bps                                    243bps 
 
 
   Cost to income ratio                                          31%                                          32% 
 
 
   Management expense ratio                                71bps                                       76bps 
 
 
   Loan loss ratio                                                  38bps                                       13bps 
 
 
   Basic EPS, pence per share                              42.8                                          52.6 
 
 
   Return on equity                                                13%                                          18% 
 
 
   Dividend per share, pence per share                  14.5                                          4.9 
 
 
   Extracts from the Statement of Financial Position 
 
   GBPm                                           GBPm 
 
   Loans and advances to customers                     19,230.7                                    18,446.8 
 
 
   Retail deposits                                                  16,603.1                                    16,255.0 
 
 
   Total assets                                                       22,654.5                                   21,417.1 
 
 
   Key ratios 
 
   Common equity tier 1 ratio                                 18.3%                                       16.0% 
 
 
   Total capital ratio                                               18.3%                                       17.3% 
 
 
   Leverage ratio                                                     6.9%                                         6.5% 
 
 
   1. For more detail on the calculation of key ratios, see the Appendix 
 
   Insertion of a new ultimate holding company 
 
   A new ultimate holding company, OSB GROUP PLC (OSBG), was inserted in 
November 2020 as part of the Group's integration strategy following the 
Combination with Charter Court Financial Services Group (CCFS). OSBG 
became the new ultimate holding company and listed entity of the Group. 
 
   The new structure will allow the Group to fulfil its MREL requirements 
more efficiently through senior debt issuance via OSBG. The Bank of 
England has given the Group a transitional period of three years to 13 
July 2023 to meet its new interim MREL requirement of 18% of 
risk-weighted assets and five years to 13 July 2025 to meet its new 
end-state MREL requirement of two times Pillar 1 and Pillar 2A. 
 
   Upon insertion of OSBG, each OSB share was cancelled and replaced with 
one OSBG share with no change to voting rights or ranking. 
 
   The insertion of OSBG is treated as a business combination under common 
control. OSBG has adopted the predecessor value method, with an 
investment in subsidiary in OSBG being the book value of the balance 
sheet of OSB at the date of insertion and the financial statements 
prepared predominantly as if OSBG had been inserted as the new ultimate 
parent company on 1 January 2019. 
 
   Statutory profit before and after tax 
 
   The Group reported 25% growth in statutory profit before taxation to 
GBP260.4m (2019: GBP209.1m) after exceptional items, integration costs 
and other acquisition-related items of GBP85.8m(1) (2019: GBP33.2m(2) ) 
primarily due to the inclusion of a full year of profits from CCFS 
following the Combination in October 2019, which more than offset the 
impact of higher impairment charges as the Group adopted more adverse 
COVID-19 related forward-looking assumptions in its IFRS 9 models and 
recognised an impairment provision in relation to potential fraudulent 
activity by a third party on a secured funding line provided by the 
Group. 
 
   Statutory profit after taxation in 2020 increased by 24% to GBP196.3m 
(2019: GBP158.8m) including the after-tax exceptional items, integration 
costs and other acquisition-related items of GBP68.6m(1) (2019: 
GBP27.4m(2) ), broadly in line with the increase in profit before tax. 
 
   The Group's effective tax rate increased to 23.1%(3) in 2020 (2019: 
22.8%), primarily due to the impact of the government's cancellation of 
planned corporation tax rate reductions on 19 March 2020 on the deferred 
tax liability in relation to the Combination and a larger portion of the 
profit being subject to the Bank Corporation Tax Surcharge from the 
inclusion of a full year of profits from CCFS. 
 
   Statutory return on equity for 2020 fell to 13% (2019: 18%), primarily 
due to a full year of amortisation of the net fair value uplift to CCFS' 
net assets on Combination, higher impairment charges and a strengthened 
equity position, which benefitted from the cancellation of the 2019 
final dividend and strong capital generation from profitability. 
 
   Statutory basic earnings per share fell by 19% to 42.8 pence per share 
(2019: 52.6 pence per share) as the increase in profit after taxation 
was more than offset by the impact of the additional shares issued for 
the all-share Combination with CCFS. 
 
   Net interest margin (NIM) 
 
   The Group reported an increase in statutory net interest income of 37% 
to GBP472.2m in 2020 (2019: GBP344.7m), reflecting the inclusion of a 
full year of net interest income from CCFS, which more than offset the 
impact of higher amortisation of the net fair value uplift to CCFS' net 
assets on Combination. 
 
   Statutory NIM for 2020 reduced to 216bps (2019: 243bps), primarily due 
to the dilutive impact of including CCFS' results post Combination as 
well as the dilutive impact of a delay in passing on the base rate cuts 
in full to retail savers. 
 
   The CCFS business has a lower NIM than the OSB business and statutory 
NIM in 2020 was also adversely impacted by a full year of amortisation 
of the fair value uplift on acquisition of CCFS' net assets. 
 
   Net fair value gain/(loss) on financial instruments 
 
   The statutory net fair value gain on financial instruments of GBP7.4m in 
2020 (2019: GBP3.3m loss) included a GBP13.0m gain (2019: GBPnil) from 
the amortisation of hedge accounting inception adjustments, a GBP17.0m 
gain from the unwind of acquisition-related inception adjustments (2019: 
GBP3.3m) and a GBP2.2m gain (2019: GBP5.3m loss) from other items 
including the amortisation of the fair value relating to de-designated 
hedge relationships due to ineffectiveness, offset by a net loss of 
GBP6.8m (2019: GBP4.8m loss) in respect of the ineffective portion of 
hedges and an GBP18.0m net loss on unmatched swaps (2019: GBP3.5m net 
gain). 
 
   The net loss on unmatched swaps primarily related to fair value 
movements on mortgage pipeline swaps, prior to them being matched 
against completed mortgages and was caused by a fall in outlook on the 
LIBOR and SONIA yield curves. The Group economically hedges its 
committed pipeline of mortgages and this unrealised loss unwinds over 
the life of the swaps through hedge accounting inception adjustments. 
 
   The amortisation of fair value relating to de-designated hedge 
relationships occurs when hedge relationships are cancelled due to 
ineffectiveness. 
 
   Gain on sale of financial instruments 
 
   The gain on sale of financial instruments of GBP20.0m in 2020 on a 
statutory basis, comprised a gain of GBP19.9m on disposal of the 
remaining notes under the Canterbury No.1 and PMF 2020-1B 
securitisations in January and a gain of GBP0.1m on the sale of 
GBP150.0m of AAA notes from the Canterbury No. 3 securitisation in 
September. 
 
   In 2019 the Group identified that an additional GBP0.1m of customer 
receipts was due to the purchaser of the personal loan portfolio, 
recognising an additional loss on sale of GBP0.1m. 
 
   Other operating income 
 
   Statutory other operating income of GBP9.0m (2019: GBP2.1m) largely 
related to fees and commissions receivable, and the increase was due to 
the inclusion of a full year of CCFS fees and commissions and servicing 
fees, including those relating to securitised loans which have been 
deconsolidated from the Group's balance sheet. 
 
   Administrative expenses 
 
   Statutory administrative expenses increased 44% to GBP157.0m in 2020 
(2019: GBP108.7m) primarily due to the inclusion of CCFS' administrative 
expenses for the full year, which more than offset the impact of the 
delivery of synergies and lower discretionary spending during lockdowns. 
 
   The Group's statutory cost to income ratio of 31% (2019: 32%) improved 
with the delivery of synergies and the benefit of lower discretionary 
spend during lockdowns, which more than offset the impact of lower 
income due to a full year of acquisition-related adjustments (including 
the amortisation of the fair value uplift on CCFS' net assets), 
partially offset by gains on structured asset sales in the year. 
 
   The statutory management expense ratio improved to 71bps (2019: 76bps) 
reflecting the delivery of synergies and lower discretionary spend 
during lockdown. 
 
   Impairment of financial assets 
 
   Statutory impairment losses increased to GBP71.0m in 2020 (2019: 
GBP15.6m) representing 38bps of average gross loans and advances (2019: 
13bps). 
 
   Impairment losses in 2020 increased primarily due to the impact of 
adopting more adverse forward-looking macroeconomic scenarios as the 
coronavirus pandemic changed the outlook for the UK economy, changes to 
the Group's staging criteria in line with PRA guidance, which moved 
certain higher risk accounts with payment deferrals to stage 2, and 
COVID-related enhancements to the Group's models. For more detail see 
the Risk review. The Group also recognised an impairment provision of 
GBP20.0m in relation to potential fraudulent activity by a third party 
on a funding line provided by the Group, secured against lease 
receivables and the underlying hard assets. 
 
   Impairment of intangible assets 
 
   The impairment of intangible assets of GBP7.0m related to the intangible 
assets recognised on the acquisition of CCFS and the impact of lower 
actual and expected lending volumes in CCFS due to COVID-19 on the 
recoverable amount of the broker relationship intangible. 
 
   Integration 
 
   Progress towards achieving the synergies from the Combination has been 
strong. By the first anniversary of the Combination, we had delivered 
run rate savings of over GBP15m, well ahead of our GBP6.6m target and 
representing more than 65% of our end of year three target run rate. 
This was achieved primarily by streamlining the Board and senior 
management team earlier than planned and through efficiencies from 
combining various central and support functions. The synergies realised 
during 2020 from these efficiencies were equivalent to a c.2% points 
improvement in the Group's underlying cost to income ratio. We continue 
to find additional synergies and are ahead of schedule towards realising 
the planned run rate savings for the end of year two, with a projected 
end of year three run rate marginally in excess of the GBP22m target. 
 
   The Board is taking the opportunity to review whether some planned 
consolidation of locations and suppliers should take place, based on a 
heightened focus on operational resilience. In light of additional 
opportunities found, any decision is not expected to have a material 
impact on the overall quantum of run-rate synergies targeted by the end 
of year three. No material dis-synergies have been identified to date. 
 
   In the first year following the Combination, costs to achieve the 
synergies were GBP10m against an expectation of GBP13m. However, some 
costs were delayed into the second year meaning that we anticipate being 
closer to plan at the end of year two. Final costs are expected to be 
marginally below the target of GBP39m by the end of year three. 
 
   Integration costs 
 
   The Group recorded GBP9.8m (2019: GBP5.2m) of integration costs largely 
related to staff costs for key personnel retained to assist in the 
integration for a fixed period and fees incurred for external advice on 
the Group's future operating structure. 
 
   Exceptional items 
 
   Statutory exceptional items of GBP3.3m in 2020 related to the insertion 
of OSB GROUP PLC as the new holding company and listed entity of the 
Group. 
 
   The exceptional items of GBP15.6m in 2019 comprised transaction costs 
incurred by OSB in relation to the Combination with CCFS. 
 
   Dividend 
 
   The Board has recommended a final dividend for 2020 of 14.5 pence per 
share, representing 25% of full year underlying profit attributable to 
ordinary shareholders, as no interim dividend which is normally one 
third of the prior year total dividend, was paid in the year. See the 
Appendix for the calculation. 
 
   The recommended final dividend will be paid on 2 June 2021, subject to 
approval at the AGM on 27 May 2021, with an ex-dividend date of 15 April 
2021 and a record date of 16 April 2021. 
 
   Balance sheet growth 
 
   Net loans and advances to customers increased by 4% in 2020 to 
GBP19,230.7m (31 December 2019: GBP18,446.8m) on a statutory basis, 
reflecting subdued originations due to the pandemic as well as 
structured asset sales in the year. Excluding the impact of structured 
asset sales, the statutory net loan book increased by 9%. 
 
   On a statutory basis, retail deposits increased by 2% to GBP16,603.1m 
from GBP16,255.0m, which the Group supplemented by participating in the 
Bank of England's funding schemes. 
 
   As at 31 December 2020, the Group's drawings under the Term Funding 
Scheme (TFS) remained at GBP2.6bn (2019: GBP2.6bn) with a repayment of 
GBP60.0m during the year. In the first half of 2020, the Group was 
accepted to participate in the Term Funding Scheme for SMEs (TFSME) with 
drawings of GBP1.0bn as at the end of 2020, which were used to replace 
Indexed Long-Term Repo (ILTR) funding and support net loan book growth. 
All of the Group's borrowings under the ILTR scheme were repaid during 
the year (2019: GBP290m). 
 
   The TFS drawdowns are offered in the form of collateralised cash loans. 
The scheme closed to new drawings at the end of February 2018 and the 
Group has four years from the date of drawing to repay the existing 
loans. TFSME drawdowns are also offered in the form of collateralised 
cash loans. The scheme commenced in March 2020 and offers four-year 
funding of at least 10% of participants' stock of real economy lending 
at interest rates at, or very close to, Bank base rate. Additional 
funding is available for banks that increase lending, especially to 
small and medium-sized enterprises. The TFSME is available for new 
funding until 31 October 2021. 
 
   The Group had up to GBP350m (2019: GBP600m) of contingent wholesale 
funding capacity available to it through the CCFS warehouse facilities, 
none of which was utilised at the year end. 
 
   The Group also utilises sophisticated securitisation platforms to 
complement its retail funding requirements and to optimise its 
collateral for commercial and central bank funding. For further details 
of securitisation activity in 2020, see the Wholesale funding overview. 
 
   Total assets grew by 6% to GBP22,654.5m (31 December 2019: GBP21,417.1m) 
primarily reflecting the growth in loans and advances and liquid assets. 
 
   Liquidity 
 
   Both OSB and CCFS operate under the Prudential Regulation Authority's 
liquidity regime and are managed separately for liquidity risk. Both 
Banks hold their own significant liquidity buffer of liquidity coverage 
ratio (LCR) eligible high-quality liquid assets (HQLA). 
 
   As at 31 December 2020, OSB had GBP1,366.7m (2019: GBP1,231.8m) and CCFS 
had GBP1,069.1m (2019: GBP1,077.3m) of HQLA LCR eligible assets. Both 
Banks also held a significant portfolio of unencumbered prepositioned 
Bank of England level C eligible collateral in the Bank of England 
Single Collateral Pool. 
 
   Both Banks operate within a target liquidity runway in excess of the 
minimum LCR regulatory requirement, which is based on internal stress 
testing. Both Banks have a range of contingent liquidity and funding 
options available for possible stress periods. 
 
   As at 31 December 2020, OSB had a liquidity coverage ratio of 254% 
(2019: 199%) and CCFS 146% (2019: 145%), and the Group LCR was 198%, all 
significantly in excess of the 2020 regulatory minimum of 100%. 
 
   The Group maintained prudent levels of liquidity as at 31 December 2020 
in light of the continued uncertainty due to COVID-19. 
 
   Capital 
 
   The Group's capital position remained exceptionally strong with 
fully-loaded CET1 capital and total capital ratios of 18.3% as at 31 
December 2020 (31 December 2019: 16.0% and 17.3% respectively). The 
total capital ratio was the same as the CET1 ratio following the 
insertion of OSBG as the ultimate holding company, as non-controlling 
interest securities (previously AT1 securities), subordinated debt and 
PSBs issued by OSB no longer qualify as regulatory capital at the Group 
level. 
 
   The capital ratios as at 31 December 2020 benefitted from the cancelled 
final dividend for 2019, the application of the Capital Requirements 
Regulation 'Quick Fix' package and strong capital generation from 
profitability. 
 
   The Group had a leverage ratio of 6.9% as at 31 December 2020 (31 
December 2019: 6.5%). 
 
   The combined Group had a Pillar 2a requirement of 1.18% of risk-weighted 
assets (excluding a static integration add-on of GBP19.5m) as at 31 
December 2020 (31 December 2019: 1.67% excluding the static integration 
add-on). The reduction in the Pillar 2a requirement was notified by the 
PRA in anticipation of the Counter Cyclical Buffer (CCyB) being 
increased to 2%. Until such time as the CCyB is increased, it is offset 
by a PRA buffer such as to have a neutral effect on the Group's minimum 
CET1 requirement. 
 
   Summary cash flow statement 
 
 
 
 
 
                                                  Group          Group 
                                               31-Dec-2020    31-Dec-2019 
                                                  GBPm           GBPm 
-------------------------------------------  -------------  ------------- 
Profit before tax                                    260.4          209.1 
Net cash generated/(used in): 
Operating activities                             (1,326.3)        (536.1) 
Investing activities                                 755.8          826.6 
Financing activities                                 838.3          488.1 
Net increase in cash and cash equivalents            267.8          778.6 
Cash and cash equivalents at the beginning 
 of the period                                 2,102.8        1,324.2 
 Cash and cash equivalents at the end          2,370.6        2,102.8 
 of the period 
 
 
   Cash flow statement 
 
   The Group's cash and cash equivalents increased by GBP267.8m during the 
year to GBP2,370.6m as at 31 December 2020. 
 
   Loans and advances to customers increased by GBP1,705.0m during the year, 
partially funded by GBP348.1m of deposits from retail customers offset 
by an increase in loans and advances to credit institutions (primarily 
the Bank of England call account) of GBP154.0m. Additional funding was 
provided by cash generated from financing activities of GBP838.3m and 
included GBP935.9m of net drawings under the Bank of England's TFS and 
TFSME schemes and GBP381.6m of net proceeds from securitisation of 
mortgages, partially offset by the repayment of warehouse funding, ILTR 
and commercial repos during the year. Cash generated from investing 
activities was GBP755.8m, mainly from the sale of RMBS securities and 
derecognition of securitisations. 
 
   In 2019, the increase in the Group's loans and advances to customers of 
GBP2,230.8m was partially funded by GBP1,637.8m of deposits from retail 
customers. Additional funding was provided by cash generated from 
financing activities of GBP488.1m and included GBP170.0m of net drawings 
under the Indexed Long-Term Repo scheme, GBP220.4m of proceeds from 
securitisation of mortgages, warehouse funding of GBP93.5m and GBP41.3m 
from commercial repos offset by a dividend payment of GBP37.3m. Cash 
generated from investing activities was GBP826.6m, largely as a result 
of GBP870.4m of cash and cash equivalents acquired on the Combination 
with CCFS. 
 
   1. As shown in the reconciliation of statutory to underlying results in 
Financial review. 
 
   2. In 2019, this comprised GBP48.9m (GBP42.9m after tax) of 
acquisition-related items as shown in the reconciliation of statutory to 
pro forma underlying results in Financial review, less CCFS' 
pre-acquisition transaction costs of GBP15.7m (GBP15.5m after tax). 
 
   3. Effective tax rate excludes a GBP4.4m charge for the impact of the 
deferred tax rate change and a benefit of GBP0.4m in respect of earlier 
years. 
 
   Summary of underlying results for 2020 and results on a pro forma 
underlying basis for 2019 
 
 
 
   Group                                      Group 
 
   31 Dec 2020                              31 Dec 2019 
 
   Summary Profit or Loss                                   GBPm                                           GBPm 
 
 
   Net interest income                                            534.0                                        518.4 
 
 
   Net fair value loss on financial instruments         (5.9) 
(20.3) 
 
   Gain on sale of financial instruments                  33.1                                          58.6 
 
 
   Other operating income                                    9.0                                            5.8 
 
 
   Administrative expenses                                    (152.7)                                      (165.1) 
 
 
   Provisions                                                        (0.1)                                          - 
 
 
   Impairment of financial assets                            (71.2)                                        (16.3) 
 
 
   Profit before taxation                                        346.2                                        381.1 
 
 
   Profit after taxation                                           264.9                                        294.2 
 
 
   Key ratios(1) 
 
   Net interest margin                                            247bps                                    266bps 
 
 
   Cost to income ratio                                          27%                                          29% 
 
 
   Management expense ratio                                70bps                                       84bps 
 
 
   Loan loss ratio                                                   38bps                                       10bps 
 
 
   Basic EPS, pence per share                              58.1                                          64.9 
 
 
   Return on equity                                                19%                                          25% 
 
 
   Extracts from the Statement of Financial Position 
 
   GBPm                                           GBPm 
 
   Loans and advances                                         19,020.8                                    18,151.4 
 
 
   Retail deposits                                                  16,600.0                                    16,248.6 
 
 
   Total assets                                                       22,472.2                                   21,166.5 
 
 
   1. For more detail on the calculation of key ratios, see the Appendix 
 
   Alternative performance measures 
 
   The Group presents alternative performance measures (APMs) as management 
believe they provide a more consistent basis for comparing the Group's 
performance between financial periods. Underlying results for 2020 
exclude exceptional items, integration costs and other 
acquisition-related items. Pro forma underlying results for 2019 assume 
that the Combination occurred on 1 January 2019 and include 12 months of 
results from CCFS. They also exclude exceptional items, integration 
costs and other acquisition-related items. 
 
   APMs reflect an important aspect of the way in which operating targets 
are defined and performance is monitored by the Board. However, any APMs 
in this document are not a substitute for IFRS measures and readers 
should consider the IFRS measures as well. 
 
   For more information on the APMs and the reconciliation between APMs and 
the statutory equivalents, see the Appendix. 
 
   Underlying profit before and after tax 
 
   Underlying profit before taxation was GBP346.2m for the year, down 9% 
from pro forma underlying profit before taxation of GBP381.1m in 2019, 
primarily due to higher impairment losses as the Group adopted more 
adverse COVID-19 related forward-looking assumptions in its IFRS 9 
models and recognised an impairment provision of GBP20.0m in relation to 
potential fraudulent activity by a third party on a funding line 
provided by the Group, secured against lease receivables and the 
underlying hard assets, which more than offset the benefit from balance 
sheet growth. 
 
   Underlying profit after taxation was GBP264.9m in 2020, down 10% from 
pro forma underlying profit after taxation of GBP294.2m in 2019, in line 
with the decrease in profit before tax and a higher effective tax rate. 
On an underlying basis, the Group's effective tax rate was 23.5% in 2020 
(2019: 22.8%) as a larger portion of the Group's profit was subject to 
the Bank Corporation Tax Surcharge. 
 
   Underlying return on equity for 2020 remained strong at 19%, although it 
was lower than 25% in 2019, due primarily to the higher impairment 
charges and a strengthened equity position, which benefitted from the 
cancellation of the 2019 final dividend and strong capital generation 
from profitability. 
 
   Underlying basic earnings per share decreased to 58.1 pence per share 
(2019: 64.9 pence per share) due to the reduction in profit after 
taxation. 
 
   Net interest margin 
 
   On an underlying basis, net interest income increased 3% in 2020 to 
GBP534.0m from GBP518.4m in 2019 and underlying net interest margin 
(NIM) was 247bps (2019: 266bps). 
 
   The reduction in underlying NIM to 247bps from 266bps in 2019, primarily 
reflects the dilutive impact of a delay in passing on the base rate cuts 
in full to retail savers. The full impact of the base rate cuts was 
passed on to savers by the end of the third quarter of 2020. 
 
   Net fair value loss on financial instruments 
 
   The underlying net fair value loss on financial instruments decreased to 
GBP5.9m from a pro forma underlying loss of GBP20.3m in 2019. 
 
   The loss for 2020 included a loss of GBP6.8m (2019: GBP4.8m loss) from 
hedge ineffectiveness, a loss on unmatched swaps of GBP18.0m (2019: 
GBP13.3m loss) and a GBP16.7m gain (2019: GBP1.7m) relating to the 
amortisation of hedging adjustments arising when hedge accounting 
commences on derivative instruments previously taken out against the 
mortgage pipeline and other hedge accounting inception adjustments. 
Other hedging and fair value movements amounted to a gain of GBP2.2m 
(2019: GBP3.9m loss). 
 
   The net loss on unmatched swaps primarily relates to fair value 
movements on mortgage pipeline swaps, prior to them being matched 
against completed mortgages and due to a fall in outlook on the LIBOR 
and SONIA yield curves. The Group economically hedges its committed 
pipeline of mortgages and this unrealised loss unwinds over the life of 
the swaps through hedge accounting inception adjustments. 
 
   Gain on sale of financial instruments 
 
   The underlying gain on structured asset sales of GBP33.1m in the year 
(2019: GBP58.6m) related to a gain of GBP33.0m on disposal of the 
remaining notes under the Canterbury No.1 and PMF 2020-1B 
securitisations in January 2020. In September, the Group sold GBP150.0m 
of notes from the Canterbury No. 3 securitisation generating a gain of 
GBP0.1m. 
 
   In 2019, the gain on sale of loans consisted of a gain of GBP58.7m from 
sales of residual interests in three CCFS securitisations to third party 
investors prior to the Combination and a GBP0.1m loss from customer 
receipts due to the purchaser of the personal loan portfolio. 
 
   Other operating income 
 
   Other operating income of GBP9.0m (2019: GBP5.8m) primarily related to 
CCFS' fees for servicing third party mortgage portfolios and servicing 
fees for derecognised securitised mortgages, where the Group continued 
to service the loans. 
 
   Administrative expenses 
 
   Underlying administrative expenses were GBP152.7m in 2020, a decrease of 
8% from GBP165.1m in 2019, as the synergies from the integration of OSB 
and CCFS continued to be delivered and the Group benefitted from lower 
discretionary spend in lockdowns, including those relating to travel, 
accommodation and marketing, as employees continued to follow COVID-19 
restrictions in the UK and India. 
 
   The underlying cost to income and underlying management expense ratios 
improved to 27% and 70bps respectively (2019: 29% and 84bps 
respectively) reflecting the delivery of synergies and lower 
discretionary spend during lockdowns. 
 
   Impairment of financial assets 
 
   Impairment losses on an underlying basis increased to GBP71.2m in 2020 
(2019: GBP16.3m) representing 38bps of average gross loans and advances 
(2019: pro forma underlying 10bps). 
 
   Impairment losses in 2020 increased primarily due to the impact of 
adopting more adverse forward-looking macroeconomic scenarios as the 
onset of the coronavirus pandemic changed the outlook for the UK economy, 
changes to the Group's staging criteria in line with PRA guidance, which 
moved certain higher risk accounts with payment deferrals to stage 2, 
and COVID-related enhancements to the Group's models. For more detail, 
see the Risk review. The Group also recognised an impairment provision 
of GBP20.0m in relation to potential fraudulent activity by a third 
party on a funding line provided by the Group, secured against lease 
receivables and the underlying hard assets. 
 
   Balance sheet 
 
   On an underlying basis, the loan book increased 5% to GBP19,020.8m 
(2019: GBP18,151.4m) reflecting reduced originations due to the pandemic 
as well as structured asset sales at the start of the year. Excluding 
the impact of the structured asset sales, the underlying net loan book 
growth would have been 9%. 
 
   Underlying retail deposits increased by 2% during 2020 to GBP16,600.0m 
(2019: GBP16,248.6m) as both Banks continued to attract new savers by 
offering attractively priced savings products and outstanding customer 
service. The balance of the Group's funding requirement was provided by 
the Bank of England's funding schemes and RMBS which provided GBP935.9m 
and GBP381.6m of net new funding respectively. For further details of 
the Group's securitisation activity in 2020, see the Wholesale funding 
overview. 
 
   The Group's total underlying assets increased in the year by 6% to 
GBP22,472.2m from GBP21,166.5m in 2019, primarily reflecting the growth 
in loans and advances and liquid assets. 
 
   Reconciliation of statutory to underlying and pro forma underlying 
results 
 
 
 
 
 2020                                                                                               2019 
                                                                                                                                   CCFS 
                       Statutory                    Reverse                                                             pre-acquisition                     Reverse 
                        results    acquisition- related and exceptional items  Underlying results   Statutory results           results   acquisition-related items  Pro forma underlying results 
                          GBPm                        GBPm                                   GBPm                GBPm              GBPm                        GBPm                          GBPm 
                                                                               ------------------ 
Net interest income        472.2                                      61.8(1)               534.0               344.7             152.1                        21.6                         518.4 
Net fair value 
 gain/(loss) on 
 financial 
 instruments                 7.4                                    (13.3)(2)               (5.9)               (3.3)            (13.7)                       (3.3)                        (20.3) 
Gain/(loss) on sale 
 of loans                   20.0                                      13.1(3)                33.1               (0.1)              58.7                           -                          58.6 
Other operating 
 income                      9.0                                            -                 9.0                 2.1               3.7                          --                           5.8 
Total income               508.6                                         61.6               570.2               343.4             200.8                        18.3                         562.5 
Administrative 
 expenses                (157.0)                                       4.3(4)             (152.7)             (108.7)            (57.7)                         1.3                       (165.1) 
Provisions                 (0.1)                                            -               (0.1)                   -                --                          --                             - 
Impairment of 
 financial assets         (71.0)                                     (0.2)(5)              (71.2)              (15.6)             (4.3)                         3.6                        (16.3) 
Impairment of 
 intangible assets         (7.0)                                       7.0(6)                   -                   -                 -                           -                             - 
Gain on Combination 
 with CCFS                     -                                            -                   -                10.8                 -                      (10.8)                            -- 
Integration costs          (9.8)                                       9.8(7)                   -               (5.2)                --                         5.2                            -- 
Exceptional costs          (3.3)                                       3.3(8)                   -              (15.6)            (15.7)                        31.3                            -- 
Profit before tax          260.4                                         85.8               346.2               209.1             123.1                        48.9                         381.1 
Profit after tax           196.3                                         68.6               264.9               158.8              92.5                        42.9                         294.2 
 
Summary Balance Sheet 
Loans and 
 advances to 
 customers              19,230.7                                   (209.9)(9)            19,020.8            18,446.8                 -                     (295.4)                      18,151.4 
Other financial 
 assets                  3,341.8                                     36.8(10)             3,378.6             2,878.2                 -                        63.2                       2,941.4 
Other non-financial 
 assets                     82.0                                    (9.2)(11)                72.8                92.1                 -                      (18.4)                          73.7 
Total assets            22,654.5                                      (182.3)            22,472.2            21,417.1                 -                     (250.6)                      21,166.5 
 
Amounts owed to 
 retail depositors      16,603.1                                    (3.1)(12)            16,600.0            16,255.0                 -                       (6.4)                      16,248.6 
Other financial 
 liabilities             4,296.6                                      4.4(13)             4,301.0             3,544.0                 -                        10.0                       3,554.0 
Other non-financial 
 liabilities                77.9                                   (61.4)(14)                16.5               141.1                 -                      (63.1)                          78.0 
Total liabilities       20,977.6                                       (60.1)            20,917.5            19,940.1                 -                      (59.5)                      19,880.6 
Net assets               1,676.9                                      (122.2)             1,554.7             1,477.0                                       (191.1)                       1,285.9 
 
   1. Amortisation of the net fair value uplift to CCFS' mortgage loans and 
retail deposits on Combination. 
 
   2. Reversal of GBP17m of acquisition-related inception adjustments and 
the recognition of GBP3.7m of inception adjustments under CCFS' entity 
level hedge accounting. 
 
   3. Recognition of additional gain on sale of securitised loans. 
 
   4. Amortisation of intangible assets recognised on Combination. 
 
   5. Adjustment to expected credit losses on CCFS loans on Combination. 
 
   6. Impairment of intangible asset post Combination. 
 
   7. Costs of integration of the two Banks post Combination. 
 
   8. Reversal of exceptional costs incurred during the year. 
 
   9. Recognition of a fair value uplift to CCFS' loan book less 
accumulated amortisation of the fair value uplift and a movement on 
credit provisions. 
 
   10. Fair value adjustment to hedged assets. 
 
   11. Adjustment to current tax asset and recognition of acquired 
intangibles on Combination. 
 
   12. Fair value adjustment to CCFS' retail deposits less accumulated 
amortisation. 
 
   13. Fair value adjustment to hedged liabilities. 
 
   14. Adjustment to deferred tax liability and other acquisition-related 
adjustments. 
 
   Risk review 
 
   Executive summary 
 
   During the year, the Group primarily focused on developing a considered 
and measured response to the global pandemic based on its strategic 
objectives, risk appetite and risk management capabilities. In 
particular, the Board and senior management ensured that the Group 
continued to operate with sufficient financial buffers and operational 
capacity to withstand any future extreme but plausible economic shocks. 
 
   The Group leveraged the underlying risk management frameworks to assess, 
monitor and respond to the emerging economic, business and operational 
challenges arising from the pandemic. The Group's response was subject 
to extensive planning, coordination and implementation oversight by the 
Board and senior management through both formal Committee meetings and 
ad hoc engagement sessions. The Group benefitted greatly from the 
extensive and diverse risk management experience of the Board and senior 
management during all phases of the pandemic. 
 
   The Group's response to the pandemic has been centrally coordinated 
whilst being cognisant of the specific business and operational 
characteristics of the individual banking entities. The Board and senior 
management responded quickly to assess the potential implications and 
impacts of the emerging pandemic across all identified principal risks, 
with a particular focus on credit, capital, liquidity and operational 
risks. 
 
   Well established stress testing and analytical capabilities were 
leveraged to identify the risks and vulnerabilities to the business, and 
economic and operational drivers which may be impacted by the pandemic. 
This analysis highlighted the potential implications of the pandemic on 
the Group's assets, liabilities, funding and solvency positions, 
operational capacity and customers. Continued and progressive 
enhancements were made to the risk assessment approaches to ensure that 
the Group's response was aligned to the evolving nature of the pandemic. 
 
   The Board and senior management maintained an open and active dialogue 
with primary stakeholders including employees, customers and regulatory 
authorities throughout 2020. 
 
   At the onset of the pandemic, the Group took appropriate actions to 
ensure full compliance with social distancing and lockdown guidelines, 
utilising its business continuity and operational resilience frameworks. 
As the majority of the Group's workforce transitioned to working from 
home, the Group took appropriate actions to ensure operational risks 
were subject to active identification, assessment and monitoring. 
 
   As payment deferral guidelines were introduced, the Group took timely 
actions to ensure effective compliance with the emerging regulatory 
guidelines, swiftly updating its risk modelling and provisioning 
approaches, whilst modifying its operational procedures to ensure an 
effective response to customers requesting payment deferrals. 
 
   The Group updated its IFRS 9 provisioning approach to reflect the 
emerging pandemic-based economic scenarios, including the varied 
permutations of how the UK economy may be impacted. Appropriate 
adjustments were also applied to the underlying model-based judgements 
and estimates. The Group continuously monitored and updated its credit 
provisioning approach. The Group remains mindful of the potential for 
future risks which may manifest themselves post the removal of the 
government support schemes, particularly the furlough scheme, and is 
confident that its provisioning approach is sufficiently agile and 
responsive to emerging trends and issues. 
 
   To ensure that the quantum of model-based provisions remained 
appropriate, a top-down triangulation exercise was commissioned by the 
Board. The top-down assessment benchmarked IFRS 9 provisions to 
historical stresses, peer assessment and look through assessments of 
Buy-to-Let (BTL), residential and commercial portfolios, to underlying 
borrower and tenant characteristics. The IFRS 9 based provisions were 
supported by the independent top-down triangulation exercise. 
 
   The Group also adjusted its risk appetite, primarily through tightening 
its lending criteria to effectively manage the risk of lending in a 
highly disrupted and economically uncertain market. The actions taken 
were framed to ensure that the Group maintained its asset quality 
profile whilst sustaining its core lending brands and delivering 
appropriate levels of balance sheet growth. 
 
   Following extensive review, the Board approved actions to strengthen the 
liquidity positions across both banking entities through drawdowns under 
the Bank of England Indexed Long-Term Repo facility, which were later 
replaced with drawings from the new Term Funding Scheme for SMEs 
(TFSME). Both bank entities continued to retain prudent levels of 
liquidity, considering the uncertain economic outlook. The Group's 
capital position strengthened throughout the year, supported by actions 
taken such as the cancellation of the 2019 final dividend, tightened 
lending criteria and the impact of regulatory capital preservation rule 
changes as outlined within the PRA's 'Quick Fix' package, which included 
revisions to the IFRS 9 transitional arrangements for the capital impact 
of IFRS 9 expected credit losses and revisions to the small and 
medium-sized enterprises support factor. 
 
   The Risk and Compliance function provided extensive oversight and 
advisory support to customer-facing functions enabling the Group to 
respond effectively to customer expectations, regulatory guidelines and 
the conduct and compliance-based risk appetite. The Group ensured that 
customers' account performance was reported to credit reference agencies, 
in accordance with regulatory guidance. 
 
   To enable the Board and senior management to remain fully abreast of the 
evolving impact of the pandemic, the level and frequency of risk-based 
analysis and management information were increased. Information provided 
was used to monitor customer behaviours and outcomes, whilst also 
detailing sensitivity and stress test analysis on capital, IFRS 9 
provision levels and funding metrics. Reverse stress test and recovery 
option analysis was also performed to inform the going concern 
assessment of the Group and its banking entities. Operational capacity 
thresholds were actively monitored and reported to ensure timely action 
was taken to enable continuity of all key services. 
 
   Despite the highly disruptive and uncertain business, economic and 
operating environment, the Group continued to operate within the defined 
risk appetite levels. Some risk metrics have operated outside acceptable 
thresholds, such as expected credit losses, however, the underlying 
performance of the loan portfolios remained broadly stable with respect 
to borrower credit profiles, arrears and loan to value (LTV) levels, 
notwithstanding the potential fraud by a third-party on a funding line 
provided by the Group, secured against lease receivables and the 
underlying hard assets. The number of customers who requested payment 
deferrals reduced progressively throughout 2020 to only 1.3% of the 
Group's loan book by value as at year end. 
 
   We continued to make good progress towards IRB during the year, albeit 
some elements of the project were inevitably delayed by the impact of 
COVID-19, which created the need to deploy significant resources to 
support additional stress testing and expected credit loss modelling and 
also restricted the ability of external advisers to access our premises 
and systems. Nevertheless, we are still aiming to submit our module 1 
application by the end of 2021. In the meantime, the Group continues to 
benefit from the enhanced risk models and assessment in its decision 
making. 
 
   The Group maintained prudent levels of contingent financial resources to 
sustain its business operations and to withstand an extreme but 
plausible stress. Operational resilience was also demonstrated by the 
fact that, during lockdowns, a fundamental change to the Group's 
operating model did not result in a material operational risk incident 
or an increase in realised operational risk losses. 
 
   The Board and senior management remain mindful of the continuously 
evolving nature of the pandemic and are fully engaged to ensure that 
appropriate and timely actions continue to be taken, such that the Group 
continues to operate within its specific risk appetite levels and 
delivers against its stated strategic objectives. 
 
   Key achievements in 2020 
 
   During the year, the Group sustained momentum on strategically important 
risk and compliance initiatives. In particular, the Board and senior 
management were mindful of ensuring that the pandemic did not impact 
continued progress and investment in the following initiatives: 
 
 
   -- Design and implementation of a comprehensive framework to assess and 
      report on pandemic-based risks, leveraging enhanced risk data and 
      analytical capabilities. 
 
   -- The development and implementation of key Group level frameworks and 
      policies. In particular, a transitional overarching Group Risk Management 
      Framework was developed, including Group risk appetite statements and 
      limits. 
 
   -- Though the Group continues to maintain two independently regulated 
      banking entities, the Risk and Compliance functions have been 
      transitioned to a shared service operating model, whereby the individual 
      functions and teams are Group based, providing necessary supporting 
      services to the entity specific Boards and wider business functions. 
 
   -- Completion of Group and banking entity Internal Capital Adequacy 
      Assessment Processes (ICAAPs), including risk and capital-based 
      assessments which were consistent in approach but reflect the individual 
      banking entity risk profiles. Climate change risks, including physical 
      risks and transitional risks, associated with transitioning to a low 
      carbon economy, were also assessed as part of the ICAAP development 
      process. 
 
   -- Delivery of aligned liquidity and funding risk assessment and monitoring 
      capabilities, which will support the Group and solo banks Internal 
      Liquidity Adequacy Assessment Processes (ILAAPs). 
 
   -- Continued progress against the Group IRB programme agenda, including 
      development of next generation models, enhanced model performance 
      monitoring, governance and integration of IRB-based outputs within wider 
      business and decision-making processes. 
 
   -- Integration risk was also identified as a principal risk and is subject 
      to the necessary disciplines as articulated in the Group Risk Management 
      Framework. Integration risk is identified as a risk to and from the 
      integration programme which is subject to review, monitoring and 
      reporting against an integration risk appetite. Key integration 
      activities are subject to second and third line oversight and assurance 
      activity. 
 
   -- Operational resilience assessment and management has progressively been 
      aligned across the two banking entities, and was subject to a review 
      against emerging regulatory expectations. The Group's operational 
      resilience capabilities helped to guide the response to the operational 
      disruptions resulting from the pandemic. 
 
   -- Continued improvement and alignment of vulnerable customer identification 
      and management procedures. During the period, the Group performed a 
      number of internal thematic reviews to ensure that account management 
      procedures resulted in fair customer outcomes and any learning from these 
      reviews were used to further enhance customer management strategies. 
 
   Priority areas for 2021 
 
   The ongoing COVID-19 pandemic continues to contribute to significant 
uncertainty around the macroeconomic outlook and operating environment 
for 2021. Therefore, continued close monitoring of the Group's risk 
profile and operating effectiveness remains a key priority. 
 
   Further development and embedding of the overarching Group risk 
management framework also remains a key priority, including: 
 
 
   -- Continued integration of the Risk and Compliance functions in accordance 
      with the target end state, reflecting industry best practice and 
      regulatory expectations. 
 
   -- Development and embedding of Group-level recovery and resolution plans. 
      The Risk function is also committed to ensuring effective and timely 
      compliance with the requirements of the Resolution Assessment Framework 
      over the coming two years, whilst providing oversight and advisory 
      support with respect to the Group's minimum requirement for own funds and 
      eligible liabilities (MREL) strategy and planning. 
 
   -- Delivering further enhancements to the Group and individual entity ILAAPs 
      and related liquidity risk management arrangements. 
 
   -- Further embedding of the Group's IRB risk measurement capabilities 
      including the monitoring and management of the credit risk profile 
      utilising enhanced analytics, to ensure improved credit decisioning, 
      pricing and risk management. Continued progression of the Group's IRB 
      programme in accordance with defined timelines also remains a key area of 
      focus. 
 
   -- Alignment of operational risk management systems and operational risk 
      frameworks across the Group. 
 
   -- Implementation of recommendations from the independent review of controls 
      and processes in the funding lines business. 
 
   -- Continued close monitoring, scenario analysis and stress testing of the 
      Group's capital and liquidity projections. 
 
   -- Delivery of a climate change risk management framework covering both 
      physical and transitional risks. 
 
 
   The Board and senior management are fully committed to achieving the 
objectives above through continued investment in people, systems, data 
and processes. 
 
   Risk management 
 
   Approach to risk management 
 
   The Group views its capabilities to effectively identify, assess and 
manage its risk profile as critical to its growth strategy. The Group 
has developed a transitional overarching Risk Management Framework (RMF) 
to drive a consistent approach to risk identification and assessment 
across both licensed bank entities. This framework will continue to 
evolve and be updated as integration activity continues prior to the 
Group reaching its target end state. 
 
   The RMF is the overarching framework which enables the Board and senior 
management to actively manage and optimise the risk profile within the 
constraints of the risk appetite. The RMF also enables informed 
risk-based decisions to be taken in a timely manner, ensuring the 
interests and expectations of key stakeholders can be met. 
 
   The RMF also provides a structured mechanism to align critical 
components of an effective approach to risk management. The RMF links 
overarching risk principles to day-to-day risk monitoring and management 
activities. 
 
   The modular construct of the RMF provides an agile approach to keeping 
pace with the evolving nature of the risk profile and underlying 
drivers. The RMF and its core modular components are subject to periodic 
review and approval by the Board and its relevant Committees. The key 
modules of the RMF structure are as follows: 
 
   1. Risk principles and culture - the Group has established a set of risk 
principles which inform and guide all risk management activities and it 
has a strong, proactive and transparent 'risk culture' where all 
employees across the Group are aware of their responsibilities in 
relation to risk management. 
 
   2. Risk strategy and appetite -- the Group has a clear business purpose, 
vision and values strategy which is supported by an articulated risk 
vision and underlying principles. The Group calibrates its risk appetite 
to reflect the Group's strategic objectives and business operating plans, 
as well as external economic, business and regulatory constraints. 
 
   3. Risk assessment and control -- the Group's business model and 
strategy exposes it to a defined risk profile and the risk governance 
structure is informed by this risk profile such that the Group can 
identify and manage its risks in an effective and efficient manner. 
 
   4. Risk definitions and categorisation -- the Group sets out its 
principal risks which represent the primary risks to which the Group is 
exposed. 
 
   5. Risk analytics (including stress testing and scenario analysis) -- 
the Group uses quantitative analysis and statistical modelling to help 
improve its business decisions. 
 
   6. Risk data and Information Technology -- the maintenance of high 
quality risk information, along with the Group's data enrichment and 
aggregation capabilities, are central to the Risk function's objectives 
being achieved. 
 
   7. Risk frameworks, policies and procedures -- risk frameworks, policies 
and supporting documentation outline the process by which risk is 
effectively managed and governed within the Group. 
 
   8. Risk management information (MI) and reporting -- the Group has 
established a comprehensive suite of risk MI and reports covering all 
principal risk types. 
 
   9. Risk governance and function organisation -- risk governance refers 
to the processes and structures established by the Board to ensure that 
risks are assumed and managed within the Board-approved risk appetite, 
with clear delineation between risk taking, oversight and assurance 
responsibilities. The Group's risk governance framework is structured to 
adhere to the 'three lines of defence' model. 
 
   Further detail on these modules is set out in the Group's Pillar 3 
disclosures. 
 
   Risk appetite 
 
   The Group aligns its strategic and business objectives with its risk 
appetite, enabling the Board and senior management to monitor the risk 
profile relative to its strategic and business performance objectives. 
Risk appetite is a critical mechanism through which the Board and senior 
management are able to identify adverse trends and respond to unexpected 
developments in a timely and considered manner. 
 
   The Group risk appetite is articulated by means of a series of 
statements which outline the level and nature of risks that the Group is 
able and willing to assume in pursuit of its strategic and business 
objectives. These statements are further supported by a suite of risk 
thresholds which ensure that the Group's risk profile is monitored and 
controlled within defined parameters and that appetite breaches are 
subject to appropriate management and Board oversight. The Risk Appetite 
Framework also helps to outline roles and responsibilities relating to 
all aspects of the risk appetite, based on a defined structure, 
processes, procedures and governance. 
 
   Risk appetite is calibrated to reflect the Group's strategic objectives, 
business operating plans, as well as external economic, business and 
regulatory constraints. In particular, risk appetite is calibrated to 
ensure that the Group continues to deliver against its strategic and 
business objectives and maintains sufficient financial resource buffers 
to withstand plausible but extreme stresses. The primary objective of 
the risk appetite is to ensure that the Group's strategy and business 
operating model is sufficiently resilient. 
 
   The Group's risk appetite is calibrated using statistical analysis and 
stress testing to inform the process for setting management triggers and 
limits against key risk indicators. The calibration process is designed 
to ensure that timely and appropriate actions are taken to maintain the 
risk profile within approved thresholds. The Board and senior management 
actively monitor actual performance against approved management triggers 
and limits. Currently, whilst there are two regulated banking entities 
within the Group, risk appetite metrics and thresholds are set at both 
individual entity and Group levels. 
 
   The Group's risk appetite is subject to a full refresh annually across 
all principal risk types and an additional mid-year review where any 
metrics can be assessed and updated as appropriate. The assessment of 
the Group's risk profile against its strategy and risk appetite has been 
enhanced to ensure early detection and response to adverse trends. 
 
   Approach to managing climate change risk 
 
   Climate change and society's response to it, may result in a number of 
financial risks materialising. Supervisory statement 3/19 was published 
in April 2019 and it sets out the PRA's expectations concerning 
financial services firms developing their approaches to identifying, 
monitoring and controlling climate change risk relevant to their 
specific business. 
 
   The PRA published a 'Dear CEO' letter in July 2020 emphasising its 
expectations for firms to have fully embedded their approaches to 
managing climate-related financial risk by the end of 2021. 
 
   The Group is exposed to physical, transitional and reputational risks 
relating to climate change: 
 
 
   -- Physical risks and the risks associated with a transition to a low carbon 
      economy, arise from a number of factors, and relate to specific weather 
      events (such as heatwaves, floods, wildfires and storms) and longer-term 
      shifts in the climate (such as changes in precipitation, extreme weather 
      variability, rising sea level risk and rising mean temperatures). These 
      risks could include adverse movements in the value of certain properties 
      that are in coastal or low lying areas, or located in areas prone to 
      increased levels of subsidence and heave. 
 
   -- Transitional risks may arise from the process of adjustment towards a 
      low-carbon economy which may lead to changes in policy, regulation, the 
      emergence of disruptive technology or business models shifting sentiment, 
      and societal preferences, or evolving evidence, frameworks and legal 
      interpretations. These risks include a potential adverse impact in the 
      value of properties that require substantial updates to meet future 
      energy performance requirements. 
 
   -- Reputational risk arising from a failure to meet changing societal, 
      investor or regulatory demands. 
 
 
   How the Group identifies and assesses climate change risk 
 
   Within the Group's 2020 ICAAP, a number of financial and transitional 
climate change risks were identified, and a series of detailed financial 
risk assessments (IFRS 9 impairment and capital) were conducted over a 
range of scenarios to quantify the potential impact on the Group, should 
any of the scenarios materialise. This process was supported by the 
acquisition of data from an external third party. 
 
   The key conclusion from this analysis was that the Group is currently 
exposed to a low level of climate change risk, when assessing the 
potential impairment and capital impacts over a range of physical perils 
such as flooding, subsidence and coastal erosion across the Group's loan 
book. The Risk function also analysed the energy performance certificate 
(EPC) profile of the Buy-to-Let loan book and the risks relating to 
landlords having extensive remediation activity to ensure an appropriate 
EPC rating is in place. Again, this analysis indicated that the Group's 
EPC profile is strong and the modelled impact of remediation remains 
low. 
 
   The ongoing provision of this data will allow the Group to monitor how 
its climate change risk profile evolves over time, and consequently take 
action if required to ensure that the risk of climate change remains at 
an acceptable level. 
 
   Processes in place to manage climate change risk 
 
   Climate change risk impacts a number of the Group's other principal risk 
types, therefore work is ongoing to assess the wider consequences across 
the Group. This will involve the management of climate change risk being 
overseen by a number of the Group's Risk Committees. 
 
   How the management of climate change risk is integrated within the 
Group's wider risk management approaches 
 
   The Board has overseen the Group's plans to comply with the PRA's 
expectations and emerging industry best practice around climate change 
risk management, with progress made across the following areas during 
2020: 
 
 
   -- The overarching Risk Management Framework was updated to articulate the 
      Group's approach to climate change risk management. 
 
   -- A dedicated working group was established to oversee and manage the 
      Group's response to climate change risk. 
 
   -- A detailed financial risk assessment of the Group's exposure to climate 
      change risk was conducted as part of the 2020 ICAAP. 
 
   -- The Chief Risk Officers of the two banks have designated senior 
      management function (SMF) responsibility for the management of climate 
      change risk. 
 
 
   During 2021 the Group plans to further enhance and embed its approaches 
to identifying, monitoring and managing climate change risk, including 
the development of a dedicated Climate Change Risk Management Framework, 
coupled with further enhancements to climate change risk profile 
monitoring, whilst conducting further sensitivity analysis. The 
development of formal climate change risk appetite statements and limits, 
together with a full suite of key risk and performance indicators, is 
also planned. Plans will be developed in the first half of 2021 to 
ensure that the Group complies with the recommendations set out by the 
Task Force on Climate-related Financial Disclosures, which have been 
introduced into UK listing requirements on or after 1 January 2021. 
These will be overseen by a specified Board member and the member of the 
senior management team responsible for ESG. 
 
   Risk appetite statements 
 
   Strategic and business risk appetite statement 
 
   The Group's strategic and business risk appetite states that the Group 
does not intend to undertake any medium to long-term strategic actions 
that would put at risk its vision of being a leading specialist lender, 
backed by a strong and dependable saving franchise. 
 
   The Group adopts a long-term sustainable business model which, while 
focused on niche sub-sectors, is capable of adapting to growth 
objectives and external developments. 
 
   Reputational risk appetite statement 
 
   The Group does not knowingly conduct business or organise its operations 
to put its reputation and franchise value at risk. 
 
   Credit 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. 
 
   Market 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. 
 
   Liquidity and funding risk appetite statement 
 
   The Group will maintain sufficient liquidity to meet its liabilities as 
they fall due under normal and stressed business conditions; this will 
be achieved by maintaining a strong retail savings franchise, supported 
by a high quality liquid asset portfolio comprised of cash and 
readily-monetisable assets, and through access to pre-arranged secured 
funding facilities. The Board requirement to maintain balance sheet 
resources sufficient to survive a range of severe but plausible stress 
scenarios is interpreted in terms of the liquidity coverage ratio and 
the ILAAP stress scenarios. 
 
   Solvency 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. 
 
   Operational 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 continual 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. 
 
   Conduct risk appetite statement 
 
   The Group aims to operate and conduct its business to the highest 
standards which ensure integrity and trust with respect to how the Group 
operates and manages its relationships with key stakeholders. In this 
regard, the Group has no appetite to knowingly assume risks which may 
result in an unfair outcome for customers and/or cause disruptions in 
the market segments in which it operates. However, where the Group 
identifies potential conduct risks it will proactively intervene by 
managing, escalating and mitigating them promptly to ensure a fair 
outcome is achieved. 
 
   Compliance / regulatory risk appetite statement 
 
   The Group views ongoing conformity with regulatory rules and standards 
across all the jurisdictions in which it operates as a critical 
component of its risk culture. The Group does not knowingly accept 
compliance risk which could result in regulatory sanctions, financial 
loss or damage to its reputation. The Group will not tolerate any 
systemic failure to comply with applicable laws, regulations or codes of 
conduct relevant given its business operating model. 
 
   Integration risk appetite statement 
 
   The Combination of OSB and CCFS is intended to enhance scale, bringing 
together resources and capabilities, and to explore further growth 
opportunities which deliver attractive long-term returns. The delivery 
against the integration strategy is framed within the Group's purpose, 
vision and values and the broader risk appetite. The integration is 
deemed to be inherently low risk owing to the retention of core 
operating brands, similarities of business models, no large-scale IT 
integration or substantial migration of customer accounts. Accordingly, 
the Board has a low risk appetite for adverse integration activity 
outcomes, which put the strategic rationale of the merger, the Group's 
purpose, vision and values or broader risk appetite at risk. In the 
event that integration work streams are subject to delay or 
reprioritisation, the Board expects the rationale to be clearly 
understood and justified, with defined mitigation actions implemented, 
overseen by robust levels of governance. 
 
   Risk profile performance overview 
 
   Credit risk 
 
   The Group's fully secured loan portfolios performed robustly throughout 
2020, with the credit profile remaining broadly stable, post careful 
monitoring and management of both the OSB and CCFS lending portfolios. 
 
   The Group's credit risk appetite approach ensured that the loan 
portfolios were positioned to perform well in both benign and stressed 
macroeconomic environments. Prudent management actions taken shortly 
after the onset of the COVID-19 pandemic, such as tightening loan to 
values (LTVs) and other credit policy criteria across all loan types, 
ensured that new lending performed well and was positioned to withstand 
future stress. 
 
   Cautious underlying net loan book growth of 5%, or 9% excluding the 
impact of structured asset sales in the year, was delivered via 
controlled new lending in the Group's core Buy-to-Let and residential 
owner-occupier segments, which more than offset reductions in bridging 
and second charge outstanding balances. The Group also tightened 
criteria in its more cyclical product lines. Mortgage lending balances 
against semi-commercial and commercial lending also reduced, as did the 
Group's development finance and funding lines sub-segments due to 
tighter lending criteria and strong repayment inflows. 
 
   Sensible new lending LTV criteria and favourable property price indexing 
resulted in the average weighted stock LTV for OSB(1) and CCFS reducing 
during 2020 to 64% and 67% respectively as at 31 December 2020 (31 
December 2019: restated(2) OSB 65% and CCFS 69%), which resulted in a 
prudent average weighted LTV profile of 65% at the Group level. 
 
   A low level of arrears continued to be observed during 2020, with just 
0.9% of net loan balances greater than three months in arrears, which 
was in line with the position as at 31 December 2019. These stable 
metrics are in part supported by accounts being offered COVID-19 payment 
deferrals, which will have stopped accounts missing payments during the 
eligible period. 
 
   Group and solo banks interest coverage ratios for new lending improved 
during 2020 to 201% for OSB and 193% for CCFS (2019: restated(3) 199% 
OSB and 187% CCFS). 
 
   During 2020 forward-looking external credit bureau probability of 
default and customer indebtedness scores improved across the Group's 
core lending segments. 
 
   To support our customers during the COVID-19 pandemic the Group granted 
payment deferrals to c. 26k accounts representing 28% of the loan book 
by value during the peak at the end of June 2020. As at 31 December 2020 
active COVID-19 payment deferrals represented only 1.3% of the Group's 
loan book by value. Low levels of arrears have been observed from the 
payment holiday cohort to date. 
 
   1. Average weighted LTV for OSB includes KR and Interbay Buy-to-Let, 
semi-commercial and commercial, first and second charge residential 
lending. 
 
   2. The Group restated the comparative LTVs due to a change in 
calculation methodology. 
 
   3. Interest coverage ratios for 2019 were restated due to an improvement 
in calculation methodology. 
 
   Expected Credit Losses (ECL) 
 
   Full year statutory impairment losses totalled GBP71.0m versus GBP15.6m 
for 2019, with the increase being driven by the potential impact of the 
COVID-19 pandemic on the UK economy and resulting changes in customer 
behaviour and property valuations. The Group also recorded an impairment 
provision of GBP20m in relation to potential fraudulent activity by a 
third party on a secured funding line provided by the Group. 
 
   Detailed below are a number of the COVID-19 related factors and other 
material items which drove the elevated impairment charge for the year: 
 
   a) Macroeconomic scenarios -- during 2020 the Group adopted a suite of 
more adverse economic scenarios, which reflected the potential impact of 
the COVID-19 pandemic across the UK economy. Rising unemployment levels 
may result in increasing levels of customers falling into arrears and 
defaulting on loan payments, whilst falling house prices may result in 
lower levels of equity and therefore potential future losses post sale. 
Downside scenarios also included the impact of economic disruption 
caused from the United Kingdom's exit from the European Union. 
Throughout the year these scenarios were updated as the pandemic 
progressed and government support measures were introduced. The 
introduction and consequent updates made to forward-looking 
macroeconomic scenarios drove GBP21.2m of the total impairment charge 
during 2020 or 11bps of the annualised loan loss ratio. 
 
   b) Staging criteria -- the Group ensured it complied with industry best 
practice and regulatory guidance with respect to payment deferrals and 
their treatment in IFRS 9 staging criteria, which included payment 
deferrals on their own not being treated as a significant increase in 
credit risk. During 2020, the Group made iterative enhancements to 
staging criteria, leveraging both internal and external information to 
identify performing higher risk cohorts across the entire customer base, 
but also including the payment deferral population, moving eligible 
exposures into stage 2 where a lifetime loss allowance was held. In 2020 
the impact from these staging enhancements was GBP4.8m of the annual 
impairment charge or 3bps of the annualised loan loss ratio. 
 
   c) COVID-19 post model adjustments -- the Group implemented a number of 
post model adjustments to ensure that modelled estimates remained 
appropriate, considering the impact that government support measures 
such as the repossession moratorium and payment deferrals had on credit 
bureau files and on loss given default and probability of default 
estimates. The quantum of these post model adjustments was impacted by 
the interaction with the severe forward-looking macroeconomic scenarios, 
during the impairment calculation process. The combined impact of these 
COVID-19 related post model adjustments contributed GBP10.4m of the 
total 2020 impairment charge which equated to c. 5bps of the annualised 
loan loss ratio. 
 
   d) Model enhancements - post Combination, the Group continued to make 
enhancements across the full suite of IFRS 9 impairment models, aligning 
modelling approaches and definitions where appropriate. An example of 
this was the implementation of an aligned definition of default across 
the Group. In line with the normal course of business a number of model 
recalibrations were made during the year, to ensure that modelled 
estimates continued to align to actually observed performance. The 
cumulative impact of these modelling enhancements contributed GBP10.7m 
of the total loan loss charge during 2020, which contributed 6bps to the 
loan loss ratio. The interaction of the severe forward-looking 
macroeconomic scenarios within IFRS 9 impairment calculations elevated 
the impact of these modelling enhancements. 
 
   e) Funding line impairment - the Group recognised an impairment 
provision of GBP20m, which represented 11bps of the annualised loan loss 
ratio, in relation to potential fraudulent activity by a third-party on 
a funding line of GBP28.6m provided by the Group, secured against lease 
receivables and the underlying hard assets. The Group's funding line 
business is primarily secured against property-related mortgages(1) and 
we believe that this is an isolated incident. The outstanding funding 
line exposure was classified as in default (not past due) and therefore 
transferred to stage 3, with a consequent specific provision raised. 
 
   (1 The Group's gross loans to customers include GBP175.7m in relation to 
funding lines of which 66% is secured on property-related mortgages.) 
 
   Macroeconomic scenarios 
 
   The measurement of ECL under the IFRS 9 approach is complex and requires 
a high level of judgement. The approach includes the estimation of 
probability of default (PD), loss given default (LGD) and likely 
exposure at default (EAD). An assessment of the maximum contractual 
period with which the Group is exposed to the credit risk of the asset 
is also undertaken. 
 
   IFRS 9 requires firms to calculate ECL allowances simulating the effect 
of a range of possible economic outcomes, calculated on a probability 
weighted basis. This requires firms to formulate forward-looking 
macroeconomic forecasts and incorporate them in ECL calculations. 
 
   i. How macroeconomic variables and scenarios are selected 
 
   During the IFRS 9 modelling process, the relationship between 
macroeconomic drivers and arrears, default rates and collateral values 
is established. For example, if unemployment levels increase, the Group 
would observe an increasing number of accounts moving into arrears. If 
residential or commercial property prices fall, the risk of losses being 
realised on the sale of a property would increase. 
 
   The Group has adopted an approach which utilises four macroeconomic 
scenarios. These scenarios are provided by an industry leading economics 
advisory firm, that provide management and the Board with advice on 
which scenarios to utilise and the probability weightings to attach to 
each scenario. 
 
   A base case forecast is provided, along with a plausible upside 
scenario. Two downside scenarios are also provided (downside and a 
severe downside). 
 
   ii. How macroeconomic scenarios are utilised within ECL calculations 
 
   Probability of default estimates are either scaled up or down based on 
the macroeconomic scenarios utilised. 
 
   Loss given default estimates are impacted by property price forecasts 
which are utilised within loss estimates should an account be possessed 
and sold. 
 
   Exposure at default estimates are not impacted by the macroeconomic 
scenarios utilised. 
 
   Each of the above components are then directly utilised within the ECL 
calculation process. 
 
   iii. Macroeconomic scenario governance 
 
   The Group has a robust governance process to oversee macroeconomic 
scenarios and probability weightings used within ECL calculations. 
Updated scenarios are provided on a monthly basis where an assessment is 
carried out by the Group's Risk function to determine whether an update 
is required. 
 
   On a periodic basis, the Group's Risk function and economic adviser 
provide the Group Risk and Audit Committees with an overview of recent 
economic performance, along with updated base, upside and two downside 
scenarios. The Risk function conducts a review of the scenarios 
comparing them to other economic forecasts, which results in a proposed 
course of action, which once approved is implemented. 
 
   iv. Changes made during 2020 
 
   a.     Macroeconomic scenario 
 
   Post the onset of the COVID-19 pandemic, the Group implemented a suite 
of adverse economic scenarios, which incorporated the potential impact 
of the lockdown periods on economic activity, resulting in rising 
forecasted unemployment levels and falling property prices. The Group 
continued to utilise four scenarios including base and upside scenarios 
and two downside scenarios. The downside scenarios also include 
potential future economic disruption, resulting from the United Kingdom 
leaving the European Union. 
 
   Throughout 2020, the scenario suite was monitored and updated as 
government measures were updated and the impact of the pandemic evolved. 
 
   b.    Significant increase in credit risk rules 
 
   The Group's Significant Increase in Credit Risk (SICR) rules, prior to 
the COVID-19 pandemic, considered changes in default risk, internal 
impairment measures, changes in customer credit bureau files, or whether 
forbearance measures had been applied. 
 
   The Group took steps to adjust the SICR criteria through the pandemic to 
account for the changes in risk profile and specifically for payment 
deferrals granted, noting that not all of the instances of a payment 
deferral would be a significant increase in credit risk. Payment 
deferrals granted due to COVID-19 alone were not automatically 
considered as a SICR event in line with issued guidance, and adjustments 
to the rules were as follows: 
 
 
   -- Payment deferrals considered as a SICR event where other significant high 
      risk factors are identified on customer's credit files; 
 
   -- Payment deferrals considered as a SICR event where an account also had 
      recent arrears; and 
 
   -- Customers with stress to their income considered as a SICR event. 
 
 
 
   Forecast macroeconomic variables over a five-year period (includes 
average over five years and the peak to trough projections) 
 
 
 
 
                                                               Scenario % 
---------  -----------    -----------------------  ---------------------------------- 
Scenario   Probability    Economic measure         5 year average      Cumulative 
            weighting                               (yearly growth    growth/(fall) 
            (%)                                           %)         to peak/(trough) 
                                                                           (%) 
---------  -----------    -----------------------  ---------------  ----------------- 
Base case      40         GDP                            3.2              (5.8) 
                           House Price Index             2.1              (8.5) 
                           Bank Base Rate                0.5               1.4 
                           Unemployment rate             6.9               3.7 
                           Commercial Real Estate        2.1              (8.5) 
                           Index 
---------  -----------    -----------------------  ---------------  ----------------- 
Upside         30         GDP                            3.6              (5.6) 
                           House Price Index             3.6              (6.3) 
                           Bank Base Rate                0.8               1.7 
                           Unemployment rate             6.1               3.1 
                           Commercial Real Estate        3.6              (6.3) 
                           Index 
---------  -----------    -----------------------  ---------------  ----------------- 
Downside       23         GDP                            2.6              (6.7) 
                           House Price Index            (0.4)             (18.9) 
                           Bank Base Rate                0.1               0.0 
                           Unemployment rate             8.8               5.8 
                           Commercial Real Estate       (0.4)             (18.9) 
                           Index 
---------  -----------    -----------------------  ---------------  ----------------- 
Severe          7         GDP                            2.2              (8.0) 
 downside                  House Price Index            (2.2)             (26.4) 
                           Bank Base Rate                0.1               0.0 
                           Unemployment rate             9.6               6.5 
                           Commercial Real Estate       (5.5)             (40.0) 
                           Index 
---------  -----------    -----------------------  ---------------  ----------------- 
 
   Forbearance 
 
   Where borrowers experience 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 and to 
see them through the period of financial stress. 
 
   The specific tools available to assist customers vary by product and the 
customers' status. The various treatments considered for customers are 
as follows: 
 
 
   -- Temporary switch to interest only: a temporary account change to assist 
      customers through periods of financial difficulty where arrears do not 
      accrue at the original contractual payment. Any arrears existing at the 
      commencement of the arrangement are retained. 
 
   -- Interest rate reduction: the Group may, in certain circumstances, where 
      the borrower meets the required eligibility criteria, transfer the 
      mortgages to a lower contractual rate. Where this is a formal contractual 
      change, the borrower will be requested to obtain independent financial 
      advice as part of the process. 
 
   -- Loan term extension: a permanent account change for customers in 
      financial distress where the overall term of the mortgage is extended, 
      resulting in a lower contractual monthly payment. 
 
   -- Payment holiday: a temporary account change to assist customers through 
      periods of financial difficulty where arrears accrue at the original 
      contractual payment. Any arrears existing at the commencement of the 
      arrangement are retained. 
 
   -- Voluntary-assisted sale: a period of time is given to allow borrowers to 
      sell the property and arrears accrue based on the contractual payment. 
 
   -- Reduced monthly payments: a temporary arrangement for customers in 
      financial distress. For example, a short-term arrangement to pay less 
      than the contractual payment. Arrears continue to accrue based on the 
      contractual payment. 
 
   -- Capitalisation of interest: arrears are added to the loan balance and are 
      repaid over the remaining term of the facility or at maturity for 
      interest only products. A new payment is calculated, which will be higher 
      than the previous payment. 
 
   -- Full or partial debt forgiveness: where considered appropriate, the Group 
      will consider writing off part of the debt. This may occur where the 
      borrower has an agreed sale and there will be a shortfall in the amount 
      required to redeem the Group's charge, in which case repayment of the 
      shortfall may be agreed over a period of time, subject to an 
      affordability assessment or where possession has been taken by the Group; 
      and on the subsequent sale where there has been a shortfall loss. 
 
   -- Arrangement to pay: where an arrangement is made with the borrower to 
      repay an amount above the contractual monthly instalment, which will 
      repay arrears over a period of time. 
 
   -- Promise to pay: where an arrangement is made with the borrower to defer 
      payment or pay a lump sum at a later date. 
 
   -- Bridging loans more than 30 days past due: 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 annual indexing, whereas residential properties are indexed 
against monthly House Price Index data. 
 
   Solvency risk 
 
   The Group maintains an appropriate level and quality of capital to 
support its prudential requirements with sufficient contingency to 
withstand a severe but plausible stress scenario. The solvency risk 
appetite is based on a stacking approach, whereby the various capital 
requirements (Pillar 1, ICG, CRD IV buffers, Board and management 
buffers) are incrementally aggregated as a percentage of available 
capital (CET1 and total capital). 
 
   Solvency risk is a function of balance sheet growth, profitability, 
access to capital markets and regulatory changes. The Group actively 
monitors all key drivers of solvency risk and takes prompt action to 
maintain its solvency ratios at acceptable levels. The Board and 
management also assess solvency when reviewing the Group's business 
plans and inorganic growth opportunities. 
 
   During 2020, the Group proactively managed the balance sheet, whilst the 
PRA introduced capital support measures detailed within the CRR 'Quick 
Fix' package which resulted in capital ratios strengthening. The 
counter-cyclical buffer was also cut from 1% to 0% during the period as 
a regulatory response to COVID-19. 
 
   The Group's fully-loaded CET1 and total capital ratios under CRD IV 
increased to 18.3% as at 31 December 2020 (31 December 2019: 16.0% and 
17.3% respectively) demonstrating the strong organic capital generation 
capability of the business, the impact of the regulatory support 
measures and prudent management of the credit risk profile. The Group's 
leverage ratio was 6.9% as at 31 December 2020 (31 December 2019: 6.5%). 
 
   The total capital ratio is the same as the CET1 ratio following the 
insertion of OSB Group as the ultimate holding company, as 
non-controlling interest securities, subordinated debt and PSBs issued 
by OSB no longer qualify as regulatory capital at the Group level. 
 
   Liquidity and funding risk 
 
   The Group has a prudent approach to liquidity management through 
maintaining sufficient liquidity resources to cover cash flow imbalances 
and fluctuations in funding under both normal and stressed conditions, 
arising from market-wide and Bank-specific events. OSB's and CCFS' 
liquidity risk appetites have been calibrated to ensure that both Banks 
always operate above the minimum prudential requirements with sufficient 
contingency for unexpected stresses, whilst actively minimising the risk 
of holding excessive liquidity which would adversely impact the 
financial efficiency of the business model. 
 
   The Group continues to attract new retail savers and has high retention 
levels with existing customers. In addition, the Combination allowed the 
Group a wider range of wholesale funding options, including 
securitisation issuances and use of retained notes from both Banks. 
 
   In 2020, both Banks actively managed their respective liquidity and 
funding profiles within the confines of their risk appetites as set out 
in each Bank's ILAAP. 
 
   Each Bank's risk appetite is based on internal stress tests that cover a 
range of scenarios and time periods and therefore are a more severe 
measure of resilience to a liquidity event than the standalone liquidity 
coverage ratio (LCR). As at 31 December 2020, OSB had a liquidity 
coverage ratio of 254% (2019: 199%) and CCFS 146% (2019: 145%), and the 
Group LCR was 198%, all significantly above the 2020 regulatory 
requirement of 100%. 
 
   Market risk 
 
   The Group proactively manages its risk profile in respect of adverse 
movements in interest rates, foreign exchange rates and counterparty 
exposures. 
 
   The Group accepts interest rate risk and basis risk as a consequence of 
structural mismatches between fixed rate mortgage lending, sight and 
fixed term savings and the maintenance of a portfolio of high quality 
liquid assets. Interest rate exposure is mitigated on a continuous basis 
through portfolio diversification, reserve allocation and the use of 
financial derivatives within limits set by the Group ALCO and approved 
by the Board. 
 
   The Group's balance sheet is completely GBP denominated. The Group has 
some minor foreign exchange risk from funding the OSBI business. This is 
minimised by pre-funding a number of months in advance and regularly 
monitoring GBP/INR rates. Wholesale counterparty risk is measured on a 
daily basis and constrained by counterparty risk limits. 
 
   Transition away from LIBOR 
 
   The PRA and FCA have continued to encourage banks to transition away 
from using LIBOR as a benchmark in all operations before the end of 
2021. Throughout the UK banking sector LIBOR remains a key benchmark and, 
for each market impacted, solutions to this issue are progressing 
through various industry bodies. 
 
   An internal working group has been established with strong oversight 
from the Compliance and Risk functions. Risk assessments have been 
completed to ensure this process is managed in a measured and controlled 
manner. The Group no longer writes any LIBOR-linked business and is 
transitioning new and back book swaps from a LIBOR to a SONIA basis. 
 
   Interest rate risk 
 
   The Group does not actively assume interest rate risk, does not execute 
client or speculative securities transactions for its own account, and 
does not seek to take a significant directional interest rate position. 
Limits have been set to allow management to run occasional unhedged 
positions in response to balance sheet dynamics and capital has been 
allocated for this. Exposure limits are calibrated in proportion to 
available CET1 capital and estimated annual net interest income to cover 
capital and profit and loss risks. 
 
   The Group sets limits on the tenor and rate reset mismatches between 
fixed rate assets and liabilities, including derivatives hedges, with 
exposure and risk appetite assessed by reference to historical and 
potential stress scenarios at consistent levels of modelled severity. 
 
   Throughout 2020, both Banks managed their interest rate risk exposures 
within risk appetite limits. 
 
   Basis risk 
 
   Basis risk arises from assets and liabilities repricing with reference 
to different interest rate indices, including positions which reference 
variable market and managed rates. As with structural interest rate risk, 
the Group does not seek to take a significant basis risk position, but 
maintains defined limits to allow operational flexibility. 
 
   For both OSB and CCFS, exposure is assessed and monitored regularly 
across a range of 'business as usual' and stressed scenarios. 
 
   Throughout 2020, both Banks managed their basis risk exposure within 
their risk appetite 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 identification, measurement 
and mitigation of operational risks, utilising a combination of both 
qualitative and quantitative evaluations. The Group's operational 
processes, systems and controls are designed to minimise disruption to 
customers, damage to the Group's reputation and any detrimental impact 
on financial performance. The Group actively promotes the continual 
evolution of its operating environment. 
 
   Where risks continue to exist, there are established processes to 
provide the appropriate levels of governance and oversight, together 
with an alignment to the level of risk appetite stated by the Board. 
 
   A strong culture of transparency and escalation has been cultivated 
throughout the organisation, with the Operational Risk function having a 
Group-wide remit, ensuring a risk management model that is well embedded 
and consistently applied. In addition, a community of Risk Champions 
representing each business line and location has been identified. 
Operational Risk Champions ensure that the operational risk 
identification and assessment processes are established across the Group 
in a consistent manner. Risk Champions are provided with appropriate 
support and training by the Operational Risk function. 
 
   Due to the COVID-19 pandemic and the resulting high number of employees 
working and accessing systems from home, the risk of a cyber attack has 
heightened. Whilst IT security risks continue to evolve, the level of 
maturity of the Group's controls and defences has significantly 
increased, supported by dedicated IT security experts. The Group's 
ongoing penetration testing continues to drive enhancements by 
identifying potential areas of risk. 
 
   Regulatory and compliance risk 
 
   The Group is committed to the highest standards of regulatory conduct 
and aims to minimise breaches, financial costs and reputational damage 
associated with non-compliance. 
 
   The Group has an established Compliance function which actively 
identifies, 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 upstream regulation on itself and the wider 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 
segments in which it operates to be a fundamental part of its strategy 
and a key driver to sustainable profitability and growth. The Group does 
not tolerate any systemic failure to deliver fair customer outcomes. 
 
   On an isolated basis, incidents can result in detriment owing to human 
and/or operational failures. Where such incidents occur they are 
thoroughly investigated and the appropriate remedial actions are taken 
to address any customer detriment and to prevent recurrence. 
 
   The Group considers effective conduct risk management to be a product of 
the positive behaviour of all employees, influenced by the culture 
throughout the organisation and therefore continues to promote a strong 
sense of awareness and accountability. 
 
   Strategic and business risk 
 
   The Board has clearly articulated the Group's strategic vision and 
business objectives supported by performance targets. The Group does not 
intend to undertake any medium to long-term strategic actions, which 
would put the Group's strategic or financial objectives at risk. 
 
   To deliver against its strategic objectives and business plan, the Group 
has adopted a sustainable business model based on a focused approach to 
core niche market segments where its experience and capabilities give it 
a clear competitive advantage. 
 
   The Group remains highly focused on delivering against its core 
strategic objectives and strengthening its position further through 
strong and sustainable financial performance. 
 
   Reputational risk 
 
   Reputational risk can arise from a variety of sources and is a second 
order risk -- the crystallisation of a credit risk or operational risk 
can lead to a reputational risk impact. 
 
   The Group monitors reputational risk through tracking media coverage, 
customer satisfaction scores, the share price and Net Promoter Scores 
provided by brokers. 
 
   Integration risk 
 
   At the point of the Combination, integration risk was identified as a 
principal risk for the duration of the integration programme, though the 
integration of the two entities was deemed inherently low risk owing to 
the similarity of the two business models, with the programme involving 
no material system or data migrations. The Board took the view that it 
has limited appetite for integration related risks and deemed it 
appropriate to identify, assess and manage integration risks in full 
compliance with the wider risk management framework and governance 
disciplines of the Group. 
 
   Integration risk relates to any risk which may result in the 
non-delivery of planned integration objectives with respect to desired 
strategic outcomes and costs and synergies performance targets. 
Additionally, integration risk is also assessed with respect to the 
other principal risks which may be adversely impacted as a consequence 
of the integration activities. 
 
   The Board exercises oversight of the integration programme through the 
Board Integration Committee based on defined critical success factors 
and an integration risk appetite. The integration programme is supported 
by an Integration Management Office, with clearly defined plans, 
established roles and responsibilities, necessary financial discipline 
and governance arrangements. The integration programme is subject to 
second line oversight and third line assurance to enable the Board and 
senior management to monitor progress against plan and performance 
against integration risk appetite. 
 
   The integration programme and the underlying risk profile continued to 
perform in line with expectations during 2020, where no material risk 
incidents or trends where identified during the year. The integration 
programme did experience some level of disruption owing to the pandemic, 
but overall the programme has continued to progress as planned. 
 
   Principal risks and uncertainties 
 
   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. 
 
   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 strategic agenda and risk 
appetite. The financial plan is subject to regular reforecasts. The 
balanced business scorecard is the primary mechanism to support the 
Board and assesses management performance against key targets. Use of 
stress testing to flex core business planning assumptions to assess 
potential performance under stressed operating conditions. 
 
   Direction: increased 
 
   The COVID-19 pandemic has adversely impacted the Group meeting its 
strategic and business targets. 
 
   Opportunities remain, including the Group realising integration benefits 
as planned, which will support the Group in any future macroeconomic 
stress, whilst managing challenges posed by increasing levels of 
competition in our key market segments. 
 
   Economic environment 
 
   The economic environment is an important factor impacting the strategic 
and business risk profile. A macroeconomic downturn may impact the 
credit quality of the Group's existing loan portfolio and may influence 
future business strategy as the Group's new business proposition becomes 
less attractive due to lower returns. 
 
   Mitigation 
 
   The Group continued to utilise and enhance its stress testing 
capabilities to assess and minimise potential areas of macroeconomic 
vulnerabilities. 
 
   Direction: increased 
 
   Economic risks remain elevated due to the ongoing COVID-19 pandemic and 
risks surrounding the removal of government support measures. 
 
   The risk relating to a no trade deal Brexit subsided following an 
agreement being reached, however the full implications of the deal 
arrangements being operationalised are yet to be observed. 
 
   Regulatory requirements 
 
   The potential for emerging regulatory requirements to increase the 
demands on the Group's operational capacity and increase the cost of 
compliance. 
 
   Mitigation 
 
   The Group continues to invest in its IT and data management capabilities 
to increase the ability to respond to regulatory change. 
 
   A structured approach to change management and fully leveraging internal 
and external expertise allows the Group to respond effectively to 
regulatory change. 
 
 
 
 
 
   Direction: increased 
 
   Increased levels of regulatory scrutiny and increased regulatory 
expectations are driven by the increased size of the Group 
post-Combination. 
 
   Competition risk 
 
   The risk that new bank entrants and existing peer banks shift focus to 
the Group's market segments, which increases the level of competition. 
 
   Mitigation 
 
   The Group continues to develop products and services which meet the 
requirements of the markets in which it operates. 
 
   Post the Combination, the Group has an enlarged suite of products and 
capabilities to utilise, along with increased scale and financial 
resources to support a response to changes in competition. 
 
   Direction: unchanged 
 
   The Group responded well to all competition and market changes 
throughout 2020 and is well positioned to respond to changes in 
competition in 2021. 
 
   Reputational risk 
 
   The potential risk of adverse effects that can arise from the Group's 
reputation being affected due to factors such as unethical practices, 
adverse regulatory actions, customer dissatisfaction and complaints or 
negative/adverse publicity. 
 
   Reputational risk can arise from a variety of sources and is a second 
order risk -- the crystallisation of a credit risk or operational risk 
can lead to a reputational risk impact. 
 
   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 to proactively identify and manage potential sources of 
reputational risk. 
 
   Direction: unchanged 
 
   Expectations remain high to deliver the integration in a timely and 
effective manner while achieving strategic objectives. Expectations have 
been raised across all stakeholders, including employees, customers, 
regulators and shareholders. 
 
   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. 
 
   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 of cases of default the Group's lending is secured, some 
borrowers may fail to maintain the value of the security. 
 
   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. 
 
   Should there be problems with a loan, the Collections and Recoveries 
team works with customers who are unable to meet their loan service 
obligations to reach a satisfactory conclusion while adhering to the 
principle of treating customers fairly. 
 
   Our strategic focus on lending to professional landlords means that 
properties are likely to be well-managed, with income from a diversified 
portfolio mitigating the impact of rental voids or maintenance costs. 
Lending to owner-occupiers is subject to a detailed affordability 
assessment, including the borrower's ability to continue payments if 
interest rates increase. Lending on commercial property is based more on 
security, and is scrutinised by the Group's independent Real Estate team 
as well as by external valuers. 
 
   Development lending is extended only after a deep investigation of the 
borrower's track record and stress testing the economics of the specific 
project. 
 
   Direction: increased 
 
   The impact of COVID-19 on the UK economy is uncertain and could result 
in a material increase in unemployment levels and decreases in property 
prices, which could drive higher impairment levels. 
 
   The impact of the government support measures ending remains unknown and 
the knock-on impact into borrower defaults thereafter. 
 
   Macroeconomic downturn 
 
   A broad deterioration in the economy would adversely impact both the 
ability of borrowers to repay loans and the value of the Group's 
security. Credit losses would impact across the lending portfolio, so 
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 continue 
to meet its regulatory requirements. 
 
   Direction: increased 
 
   The economic outlook is uncertain, driven by the potential range of 
outcomes resulting from COVID-19 and the end of government support 
measures. 
 
   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 bank and swap 
counterparties. 
 
   Market risk 
 
   Potential loss due to changes in market prices or values. 
 
   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 
 
   The Group continues to assess interest on a regular basis ensuring that 
interest rate risk exposure is limited. 
 
   Basis risk 
 
   The risk of loss from an adverse divergence in interest rates. It arises 
where assets and liabilities reprice from different variable rate 
indices. These indices may be market rates (e.g. Bank Base Rate, 
Sterling Overnight Index Average (SONIA), or the London Interbank 
Offered Rate (LIBOR)) or administered (e.g. the Bank's Standard Variable 
Rate (SVR), other discretionary variable rates, or that received on call 
accounts with other banks). 
 
   Mitigation 
 
   Due to the Group balance sheet structure, no active management of basis 
risk was required by OSB Group during 2020. 
 
   Key mitigants include new swaps being linked to SONIA and existing LIBOR 
linked swaps being transitioned to SONIA. LIBOR linked mortgages will 
also be transitioned to referencing either the Bank of England base rate 
or SONIA. 
 
   Direction: unchanged 
 
   Product design, balance sheet structure and replacing LIBOR swaps with 
SONIA swaps enabled the Group to maintain the overall level of basis 
risk across both Banks through the year. 
 
   The basis risk position will reduce over 2021 as CCFS and OSB fully 
transition from LIBOR. 
 
   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. 
 
   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. 
 
   Mitigation 
 
   The Group's funding strategy is focused on a highly stable retail 
deposit franchise. The large number of depositors provides 
diversification and a high proportion of balances are covered by the 
FSCS and so there is no material risk of a retail run. 
 
   In addition, the Group performs in-depth liquidity stress testing and 
maintains a liquid asset portfolio sufficient to meet obligations under 
stress. The Group holds prudential liquidity buffers to manage funding 
requirements under normal and stressed conditions. 
 
   The Group has further diversified its retail channels by expanding the 
range of pooled deposit providers used. 
 
   The Group proactively manages its savings proposition through both the 
Liquidity Working Group and the Group Assets and Liabilities Committee. 
Finally, the Group has prepositioned mortgage collateral with the Bank 
of England which allows it to consider other alternative funding sources 
to ensure it is not solely reliant on retail savings. The Group also has 
a mature RMBS programme and access to warehouse facilities. 
 
   Direction: unchanged 
 
   The Group's funding levels and mix remained strong throughout the year. 
 
   During the year, OSB and CCFS were both able to attract significant 
flows of new deposits and depositors when required. 
 
   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. 
 
   The Group has issued a number of securitisations during 2020 where both 
CCFS and OSB saw strong market demand for secured wholesale issuance 
 
   Direction: unchanged 
 
   The Group's range of wholesale funding options available, including repo 
or sale of retained notes, collateral upgrade trades and warehouse 
facilities, remains broadly unchanged. 
 
   Refinancing of Term Funding Scheme (TFS) and TFSME 
 
   The Group has drawn a total of GBP2.6bn funding under the TFS and 
GBP1.0bn under the TFSME creating a refinancing concentration around the 
maturity of the schemes. 
 
   Mitigation 
 
   The Group has fully factored in repayment of TFS into the funding plans 
of both Banks, with planned repayment prior to the contractual date to 
minimise timing and concentration risk. The Group has a wider range of 
funding options to manage this process. 
 
   The Group has a TFSME allowance significantly above its wholesale 
funding requirements which allows the TFS scheme to be fully refinanced 
by TFSME. 
 
   Direction: decreased 
 
   The TFSME scheme will allow the Group to significantly extend the 
maturities of its Bank of England based funding. 
 
   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. 
 
   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. 
 
   Mitigation 
 
   Currently the Group operates from a strong capital position and has a 
consistent record of strong profitability. 
 
   The Group actively monitors its capital requirements and resources 
against financial forecasts and plans and undertakes stress testing 
analysis to subject its solvency ratios to extreme but plausible 
scenarios. 
 
   The Group also holds prudent levels of capital buffers based on CRD IV 
requirements and expected balance sheet growth. 
 
   The Group engages actively with regulators, industry bodies and advisers 
to keep abreast of potential changes and provides feedback through the 
consultation process. 
 
   Direction: unchanged 
 
   Proactive management of the Group's balance sheet and support measures 
provided by the PRA via the CRR 'Quick Fix' package which included a 
reset of the IFRS 9 capital transitional relief and the extension of the 
SME support factor, together with ongoing profitability, resulted in the 
Group's capital ratios strengthening. 
 
   Risks remain around adverse credit profile performance, resulting from 
the ongoing COVID-19 pandemic and the removal of government support 
measures. 
 
   Operational risk 
 
   The risk of loss or negative impact to the Group resulting from 
inadequate or failed internal processes, people, or systems or from 
external events. 
 
   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 invested significantly in enhancing its protection against IT 
security threats, deploying a series of tools designed to identify and 
prevent network/system intrusions. This is further supported by 
documented and tested procedures intended to ensure the effective 
response to a security breach. 
 
   Direction: increased 
 
   Due to the COVID-19 pandemic and the resulting high number of employees 
working and accessing systems from home, the risk of a cyber-attack was 
heightened. 
 
   Whilst IT security risks continue to evolve, the level of maturity of 
the Group's controls and defences has significantly increased, supported 
by dedicated IT security experts. 
 
   The Group's ongoing penetration testing continues to drive enhancements 
by identifying potential areas of risk. 
 
   Data quality and completeness 
 
   The risks resulting from data being either inaccurate or incomplete. 
 
   Mitigation 
 
   The Group established a dedicated Data Strategy Programme, designed to 
ensure a consistent approach to the maintenance and use of data. This 
includes both documented procedures and frameworks and also tools 
intended to improve the consistency of data use. 
 
   Direction: unchanged 
 
   Further progress was made during 2020 in embedding Group-wide governance 
frameworks, standards and controls. Further work is planned in 2021, to 
move closer to the Group's target end state. 
 
   Change management 
 
   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 continues to adopt an ambitious change agenda, driven by the 
integration programme. During 2020 this risk was monitored and managed 
well, however further change is planned in 2021, against the backdrop of 
the ongoing COVID-19 pandemic and likely periods of employees working 
from home. 
 
   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. 
 
   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 operating 
environment. Further work is planned during 2021. 
 
   Organisational change and integration 
 
   The risks resulting from the Group's ongoing integration activities, 
including systems, people and infrastructure. 
 
   Mitigation 
 
   There is a low risk integration project plan (e.g. no large-scale 
integration-related IT project change planned). Experienced and capable 
project management office, with close oversight and direction provided 
by the Group Executive and Board Integration Committees. 
 
   Direction: unchanged 
 
   To date, organisational change resulting from the integration project 
has been managed well, with no material risks emerging during 2020. 
Further work is required to reach the target end state and carefully 
considered plans, strong risk identification and monitoring and 
management capabilities remain in place. 
 
   Conduct risk 
 
   The risk that the Group's behaviours or actions result in customer 
detriment or negative impact on the integrity of the markets in which it 
operates. 
 
   Product suitability 
 
   Whilst the Group originates relatively simple products, there remains a 
risk that products (primarily legacy) may be deemed to be unfit for 
their original purpose in line with current regulatory definitions. 
 
   Mitigation 
 
   The Group has a strategic commitment to provide simple, customer-focused 
products. In addition, a Product Governance framework is established to 
oversee both the origination of new products and to revisit the ongoing 
suitability of the existing product suite. 
 
   Direction: unchanged 
 
   Whilst this risk remained low as a result of increased awareness and 
dedicated oversight, the Group remains aware of the changes to the 
regulatory environment and their possible impact on product suitability. 
 
   Data protection 
 
   The risk that customer data is accessed inappropriately, either as a 
consequence of network/ system intrusion or through operational errors 
in the management of the data. 
 
   Mitigation 
 
   In addition to a series of network/system controls the Group performs 
extensive root cause analysis of any data leaks in order to ensure that 
the appropriate mitigating actions are taken. 
 
   Direction: unchanged 
 
   Despite a number of additional controls being introduced in 2020, the 
network/system threats continue to evolve in both volume and 
sophistication. 
 
   Integration risk 
 
   The risk that the integration programme directly or indirectly causes 
poor outcomes for customers and the market. 
 
   Mitigation 
 
   During the integration process, the Group is committed to adopting a 
low-risk approach with a view to taking reasonable steps to avoid 
causing poor outcomes for its customers and the market. The Group will 
conduct detailed analysis of potential customer harm associated with 
particular integration steps. 
 
   Direction: unchanged 
 
   No material issues have been identified to date and controls are in 
place to ensure that the integration programme does not result in poor 
customer outcomes. 
 
   Compliance and regulatory risk 
 
   The risk that a change in legislation or regulation or an interpretation 
that differs from the Group's will adversely impact the Group. 
 
   Prudential regulatory changes 
 
   The Group continues to see a high volume of key compliance regulatory 
changes that impact its business activities. These include: change in 
Standardised Approach capital rules and implementation of an IRB floor, 
implementation of the European Standardised Information Sheet, extending 
the Senior Managers and Certification Regime to all FCA regulated firms 
and introduction of Strong Customer Authentication requirements. 
 
   The focus on external wall cladding for high-rise buildings was extended 
to smaller buildings in February 2021, and the value of properties 
supporting the Group's loan portfolios could be impacted, or customer 
behaviour could change if significant remediation activity is required 
to ensure building safety regulations are met. 
 
   Mitigation 
 
   The Group has an effective horizon scanning process to identify 
regulatory change. 
 
   All significant regulatory initiatives are managed by structured 
programmes overseen by the Project Management team and sponsored at 
Executive level. 
 
   The Group has proactively sought external expert opinions to support 
interpretation of the requirements and validation of its response, where 
required. 
 
   The Group has initiated a study into external wall cladding and is 
reviewing its own property portfolio along with the collateral 
supporting lending portfolios. The Group also notes the recent support 
measures announced by the government to help individuals to ensure 
compliance with building safety standards, including the removal of 
defective cladding. 
 
   Direction: unchanged 
 
   The Group continues to have a high level of interaction with the UK 
regulators and continues to respond effectively to all regulatory 
changes. 
 
   Conduct regulation 
 
   Regulatory changes focused on the conduct of business could force 
changes in the way the Group carries out business and impose substantial 
compliance costs. 
 
   Product design, underwriting, arrears and forbearance policies are 
misaligned to regulatory expectations, which result in customers not 
being treated fairly, particularly those experiencing financial hardship 
or vulnerable customers, with the potential for reputational damage, 
redress and other regulatory actions. 
 
   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, repossession, 
forbearance and vulnerable customer policies which are designed to 
comply with regulatory rules and expectations. These policies articulate 
the Group's commitment to ensuring that all customers, including those 
who are vulnerable or experiencing financial hardship, are treated 
fairly, consistently and in a way that considers their individual needs 
and circumstances. 
 
   The Group does not tolerate any systematic failure to deliver fair 
customer outcomes. On an isolated basis, incidents can result in 
detriment due to human and/ or operational failures. Where such 
incidents occur, they are thoroughly investigated, and the appropriate 
remedial actions are taken to address any customer detriment and prevent 
recurrence. 
 
   Direction: unchanged 
 
   The level of regulatory change continues to be high, but the Group has 
sufficient resources and capabilities to respond to any changes in an 
effective and efficient manner. 
 
   During the year, the Group took part in a number of FCA thematic reviews, 
including reviews on long-term forbearance in the second charge market 
and a Business model drivers and unaffordable lending review. 
 
   Integration risk 
 
   The risks resulting from the Group's ongoing integration activities, 
including business operational and financial performance, systems, 
people and infrastructure. 
 
   Risk 
 
   A reduction in the oversight of business as usual operational 
performance, increased risk to operational resilience via the change 
process, unintended staff attrition or infrastructure failure, which in 
turn adversely impact operating and financial performance. 
 
   Mitigation 
 
   The Board is maintaining oversight of the integration process through 
the Board Integration Committee. A dedicated Integration Management 
Office has been established to drive the integration process forward. 
 
   Independent assessment, monitoring and reporting is being undertaken by 
the Risk and Internal Audit functions. 
 
   Direction: unchanged 
 
   To date the integration project has progressed as planned, and the 
governance, project management and control structures have operated 
effectively, with no material risks crystallising. 
 
   Emerging risks 
 
   The Group proactively scans for emerging risks which may have an impact 
on its ongoing operations and strategy. The Group considers its top 
emerging risks to be: 
 
   Political and macroeconomic uncertainty 
 
   The impact of COVID-19 and the removal of government support measures 
remains uncertain. The Group's lending activity is predominantly focused 
in the United Kingdom (with a legacy back book of mortgages in the 
Channel Islands) and, as such, will be impacted by any risks emerging 
from changes in the macroeconomic environment. Risks also remain around 
the disruption that the UK's exit from the European Union, will have on 
the economy. 
 
   Mitigation 
 
   The Group implemented robust monitoring processes and via various stress 
testing activity (i.e. ad hoc, risk appetite and ICAAP) understands how 
the Group performs over a variety of macroeconomic stress scenarios and 
has developed a suite of early warning indicators, which are closely 
monitored to identify changes in the economic environment. The Board and 
management review detailed portfolio reports to identify any changes in 
the Group's risk profile. 
 
   Climate change 
 
   As the worldwide focus on climate change intensifies, both the physical 
risks and the transitional risks associated with climate change continue 
to grow. Climate change risks include: 
 
   Physical risks can relate to specific weather events, such as storms and 
flooding, or to longer-term shifts in the climate, such as rising sea 
levels. These risks could include adverse movements in the value of 
certain properties that are in coastal and low lying areas, or located 
in areas prone to increased subsidence and heave. 
 
   Transitional risks may arise from the adjustment towards a low-carbon 
economy, such as tightening energy efficiency standards for domestic and 
commercial buildings. These risks could include a potential adverse 
movement in the value of properties requiring substantial updates to 
meet future energy performance requirements. 
 
   Reputational risk arising from a failure to meet changing societal, 
investor or regulatory demands. 
 
   Mitigation 
 
   The Group developed an approach to assessing and managing the risks 
relating to climate change within its Risk Management Framework. This 
includes scenario analysis, development of key risk indicators and 
inclusion of climate risks within operational resilience activities. 
 
   A cross-functional working group is overseeing the Group's response to 
climate change, in line with industry best practice and regulatory 
guidelines. 
 
   As part of the Group's ICAAP a detailed analysis was conducted using 
third party data to conduct an initial assessment of the financial risk 
that climate change could pose to the Group. This analysis will be 
developed further during 2021 and will be aligned with activity to 
develop an integrated ESG plan during the first half of 2021. 
 
   The Group's Chief Risk Officers have designated senior management 
responsibility for the management of climate change risk; during 2021 a 
Board member will be specified to ensure that the Group meets regulatory 
and wider stakeholder expectations. 
 
   Model risk 
 
   The risk of financial loss, adverse regulatory outcomes, reputational 
damage or customer detriment resulting from deficiencies in the 
development, application or ongoing operation of models and ratings 
systems. 
 
   Post the completion of the Combination with CCFS, the Group notes the 
increasing usage of models to conduct financial assessments whilst 
informing business decisions. The Group also notes changes in industry 
best practice with respect to managing model risk. 
 
   Mitigation 
 
   During 2020, Board and Executive level model oversight Committees and a 
suite of Group level policies were introduced. 
 
   Further enhancements are planned during 2021 to ensure that the model 
governance arrangements meet regulatory expectations and model risk is 
managed effectively. 
 
   LIBOR reform 
 
   The LIBOR benchmark may cease to be set after the end of 2021 due to the 
low level of supporting unsecured loans in the wholesale interbank loan 
market. The Group has exposure to the LIBOR benchmark within some of its 
customer lending products and wholesale derivative hedging transactions. 
If the benchmark were to cease or become unreliable, these loans and 
derivatives may reflect rates that do not accurately represent 
short-term funding costs, therefore having an adverse effect on returns. 
 
   Mitigation 
 
   The Group ALCO has set up a dedicated working group to focus on this 
risk and transition away from the LIBOR benchmark. Key mitigating 
actions include new swaps being linked to SONIA and existing LIBOR 
linked swaps being transitioned to SONIA. LIBOR linked mortgages will 
also be transitioned to referencing either the Bank of England base rate 
or SONIA. 
 
   Coronavirus 
 
   The COVID-19 pandemic has had a material impact on individuals and 
businesses where the Group has operations, including the UK and India. 
The lockdown measures introduced to stem the spread of the virus have 
had a profound effect on how businesses operate and individuals work, 
which may have a materially adverse impact on the Group's profitability, 
capital and liquidity positions. 
 
   It is unclear how the COVID-19 pandemic will evolve during 2021 and the 
impact that the roll-out of vaccines will have and whether any new 
strains emerge. A further risk relates to the impact once government 
support measures are withdrawn during 2021 and the resultant impact on 
business failures, unemployment levels and house prices. 
 
   Mitigation 
 
   The Group has taken a considered approach to minimising and managing the 
impact of a coronavirus-related global pandemic. The Group approach 
represents a comprehensive response strategy covering both severity and 
consequences of a global pandemic. The Group's response strategy covers 
key aspects of an effective pandemic response approach, including 
prevention, continuity, impact assessment and stress testing. Supporting 
the Group's response strategy are established underlying capabilities to 
facilitate operational and financial resilience testing and planning, 
active monitoring and reporting procedures, and active communications 
with all employees (UK and India) and supervisory authorities. 
 
   Negative interest rates 
 
   To support economic performance, resulting from the impact of the 
pandemic, the Bank of England may consider reducing the Bank of England 
base rate below 0%. The Group would be impacted across its lending 
portfolios with adverse movements in interest income, offset by 
reductions in interest payable on savings accounts. 
 
   A further risk relates to increased operational and conduct risks 
arising from system and process changes required to accommodate negative 
interest rates. 
 
   Negative interest rates may also impact customer behaviour, with changes 
in the demand for lending and savings products potentially impacting the 
Group's loan book growth plans and liquidity coverage levels. 
 
   Mitigation 
 
   The Group has reviewed readiness for negative interest rates and 
presented findings to the Board. The review covered the terms and 
conditions of the Group's financial contracts and any systems 
limitations. Some key servicing systems have been identified as 
requiring further development to allow negative rates and in particular 
negative pay rates. Given a mixture of floors in terms and conditions 
for certain products and the Group's margins, negative interest rates 
would be unlikely to cause an issue until the Bank of England base rate 
reaches a rate of -75bps or below. A working group is currently 
examining further system development to manage significant negative 
rates. 
 
   Viability statement 
 
   In accordance with Provision 31 of the 2018 UK Corporate Governance Code, 
the Board is required to assess the viability of the Group over a stated 
time horizon with a supporting statement in the Annual Report. 
 
   The viability statement is required to include an explanation of how the 
prospects of the Group have been assessed, the time horizon over which 
the assessment has been performed and why the assessment period is 
deemed appropriate. The viability statement needs to be supported by an 
assessment of the principal risks and uncertainties to which the Group 
is exposed and based on reasonable expectations to conclude that the 
Group will be able to continue to operate and meet its liabilities as 
they fall due over that period. 
 
   The Group uses a five-year time frame in its business and financial 
planning and for internal stress test scenarios. The long-term direction 
is informed by business and strategic plans which are reviewed on, at 
least, an annual basis and which include multi-year financial 
statements. The operating and financial plans consider, among other 
matters, the Board's risk appetite, macroeconomic outlook, market 
opportunity, the competitive landscape, and sensitivity of the financial 
plans to volumes, margin pressures and capital requirements. 
 
   While a five-year time frame is used internally, levels of uncertainty 
increase as the planning horizon extends and the Group's operating and 
financial plans focus more closely on the next three years. The Board 
therefore considers a period of three years to be an appropriate period 
for the assessment to be made. 
 
   The Banks within the Group are authorised by the PRA, and regulated by 
the FCA and the PRA, and the Group undertakes regular analysis of its 
risk profile and assumptions. It has a robust set of policies, 
procedures and systems to undertake a comprehensive assessment of all 
the principal risks and uncertainties to which it is exposed on a 
current and forward-looking basis (as described in Principal risks and 
uncertainties). 
 
   The Group identifies, assesses, manages and monitors its risk profile 
based on the disciplines outlined within the Risk Management Framework, 
in particular through leveraging its risk appetite framework (as 
described in the Risk review). Potential changes in the aggregated risk 
profile are assessed across the business planning horizon by subjecting 
the operating and financial plans to severe but plausible macroeconomic 
and idiosyncratic stress scenarios. 
 
   The viability of the Group is assessed at both the Group and the 
underlying regulated Bank levels, through leveraging the risk management 
frameworks and stress testing capabilities of both regulated banks. Post 
Combination, the risk assessment and stress testing capabilities of OSB 
and CCFS have been progressively aligned; however, the strength of the 
capital and funding profiles of both Banks provides an appropriate level 
of assurance that the Group and its entities can withstand a severe but 
plausible stress scenario. 
 
   Stress testing is an integral risk management discipline, used to assess 
the financial and operational resilience of the Group. The Group 
developed bespoke stress testing capabilities to assess the impact of 
extreme but plausible scenarios in the context of its principal risks 
impacting the primary strategic, financial and regulatory objectives. 
Stress test scenarios are identified in the context of the Group's 
operating model, identified risks, business and economic outlook. The 
Group actively engages external experts to inform the process by which 
it develops business and economic stress scenarios. 
 
   A broad range of stress scenarios are analysed, including the economic 
impact of COVID-19 forecasting the potential impacts to HPI, 
unemployment and interest rates. Stress testing has played a critical 
role in framing the Group's response to the pandemic in relation to risk 
appetite, capital, liquidity levels and credit provisioning. 
 
   Stresses are applied to lending volumes, capital requirements, liquidity 
and funding mix, interest margins and credit and operational losses. 
Stress testing also supports key regulatory submissions such as the 
ICAAP, ILAAP and the Recovery Plan. ICAAP stress testing assesses 
capital resources and requirements over a five-year period. 
 
   The Group has identified a broad suite of credible management actions 
which can be implemented to manage and mitigate the impact of stress 
scenarios. These management actions are assessed under a range of 
scenarios varying in severity and duration. Management actions are 
evaluated based on speed of implementation, second order consequences 
and dependency on market conditions and counterparties. Management 
actions are used to inform capital, liquidity and recovery planning 
under stress conditions. 
 
   In addition, the Group identifies a range of catastrophic scenarios, 
which could result in the failure of its current business model. 
Business model failure scenarios (Reverse Stress Tests or RSTs) are 
primarily used to inform the Board of the outer limits of the Group's 
risk profile. RSTs play an important role in helping the Board and 
Executives to assess the available recovery options to revive a failing 
business model. The RST exercise is based on analysing a range of 
scenarios, including an extreme macroeconomic downturn, a cyberattack 
leading to a loss of customer data which is used for fraudulent 
activities, extreme regulatory and taxation changes impacting Buy-to-Let 
lending volumes and a liquidity crisis caused by severe market 
conditions combined with idiosyncratic consequences. 
 
   The Group has established a comprehensive operational resilience 
framework to actively assess the vulnerabilities and recoverability of 
its critical services. The Group also conducts regular business 
continuity and disaster recovery exercises. 
 
   The ongoing monitoring of all principal risks and uncertainties that 
could impact the operating and financial plan, together with the use of 
stress testing to ensure that the Group could survive a severe but 
plausible stress, enables the Board to reasonably assess the viability 
of the business model over a three-year period. 
 
   The pandemic has had a disruptive impact on the Group's business growth 
objectives and the changing characteristics of the underlying risk 
profiles, particularly in relation to credit and operational risks. The 
Group has enhanced its risk assessment, monitoring and reporting 
procedures to ensure that these risks are effectively managed and has 
accordingly adjusted its risk appetite. 
 
   The Group has also maintained strong capital and funding profiles with a 
view to ensuring continued financial resilience. However, the Group 
remains fully cognisant of the evolving nature of the pandemic crisis, 
particularly the potential risks which may be realised as government 
support schemes start to wind down. 
 
   The Board has also considered the potential implications of the pandemic 
in its assessment of the financial and operational viability of the 
Group and has a reasonable belief that the Group retains adequate levels 
of financial resources (capital and liquidity) and operational 
contingency. In assessing the viability of the Group, the Board has 
considered the potential impact and risks facing the Group with respect 
to the pandemic as set out in the Risk review and the Principal risks 
and uncertainties. 
 
   The Group has recently undertaken a comparative review of the 
macroeconomic stress scenarios used to assess the Group's ongoing 
viability relative to the pandemic scenarios, as obtained from the 
Group's third-party economic advisers. Given the evolving nature of the 
pandemic crisis, the Group will continue to refine and update the 
scenarios in consultation with its economic advisers. 
 
   This exercise was undertaken to ensure that the shape and severity of 
the scenarios used to assess the Group's financial viability are 
sufficiently severe to accommodate for the latest assessment of the 
potential economic impact of the pandemic. 
 
   The pandemic scenarios take into consideration the following drivers and 
implications relevant to a pandemic crisis: 
 
 
   -- Government guidance and policy response to the crisis 
 
   -- Impact of customers subject to payment deferrals and thereafter requiring 
      forbearance 
 
   -- Impact on employment levels, regional house price and commercial property 
      price changes and interest rates. These macroeconomic drivers are 
      subsequently reflected in stressed credit risk parameters in probability 
      of default and loss given default estimates 
 
   -- Implication for consumer spending and business investment 
 
 
   The pandemic scenarios are designed to be severe, but plausible, based 
on the assumption that the impact on the UK economy is immediate and 
quickly feeds through into rising unemployment rates, declining 
residential and commercial property prices and a rapid slowdown in 
lending volumes. The Treasury and Bank of England take proactive fiscal 
and monetary stimulatory actions, but given the invasive nature of the 
pandemic, the UK economy does not show signs of recovery until 2022. 
 
   The potential impact of the pandemic on the economy and the Group's 
operations is subject to continuous monitoring through the Group's 
Management Committees, capital and liquidity, operational resilience and 
business continuity planning working groups, with appropriate escalation 
to the Board and supervisory authorities. 
 
   The Group has progressively enhanced its approach to assessing the 
viability of its strategy and business operating model, in particular 
the Group has enhanced its capabilities by 
 
 
   -- Enhancing stress testing capabilities through more focused assessment of 
      more vulnerable cohorts of its lending portfolio supported by increased 
      granularity of monitoring and risk reporting 
 
   -- Increasing the diversification of its funding profile, supported by 
      enhanced assessment of funding and liquidity risk profiles 
 
   -- Continued improvements to the risk and control self-assessment procedures 
      across key areas of operational risk, including operations and technology 
 
   -- Enhancing the assessment of operational resilience through the ongoing 
      review of priority business functions, including supporting 
      infrastructure and dependencies through a simulated business continuity 
      exercise 
 
 
   The current financial forecasts, risk profile characteristics and stress 
test analysis, the Group's capital, funding and operational capabilities 
support the Directors' assessment that they have a reasonable 
expectation that the Group will remain viable over the three-year 
horizon. 
 
   Statement of Directors' responsibilities 
 
   The Directors are responsible for preparing the Annual Report and the 
Group and parent Company financial statements in accordance with 
applicable law and regulations. 
 
   Company law requires the Directors to prepare Group and parent Company 
financial statements for each financial year. Under that law they are 
required to prepare the Group financial statements in accordance with 
International Financial Reporting Standards as adopted by the European 
Union (IFRSs as adopted by the EU) and applicable law and have elected 
to prepare the parent Company financial statements on the same basis. 
 
   Under company law the Directors must not approve the financial 
statements unless they are satisfied that they give a true and fair view 
of the state of affairs of the Group and parent Company and of their 
profit or loss for the year. In preparing each of the Group and parent 
Company financial statements, the Directors are required to: 
 
 
   -- select suitable accounting policies and then apply them consistently; 
 
   -- make judgements and estimates that are reasonable, relevant and reliable; 
 
   -- state whether they have been prepared in accordance with IFRSs as adopted 
      by the EU; 
 
   -- 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. 
 
 
   Approved by the Board and signed on its behalf by: 
 
   Jason Elphick 
 
   Group General Counsel and Company Secretary 
 
   8 April 2021 
 
 
 
 
 
 
                                                             2020     2019 
                                                      Note   GBPm     GBPm 
Interest receivable and similar income                   4    711.9    539.9 
Interest payable and similar charges                     5  (239.7)  (195.2) 
Net interest income                                           472.2    344.7 
Fair value gains/(losses) on financial 
 instruments                                             6      7.4    (3.3) 
Gain/(loss) on sale of financial instruments             7     20.0    (0.1) 
Other operating income                                   8      9.0      2.1 
Total income                                                  508.6    343.4 
Administrative expenses                                  9  (157.0)  (108.7) 
Provisions                                              39    (0.1)        - 
Impairment of financial assets                          25   (71.0)   (15.6) 
Impairment of intangible assets                         10    (7.0)        - 
Gain on Combination with CCFS                                     -     10.8 
Integration costs                                       13    (9.8)    (5.2) 
Exceptional items                                       14    (3.3)   (15.6) 
Profit before taxation                                        260.4    209.1 
Taxation                                                15   (64.1)   (50.3) 
Profit for the year                                           196.3    158.8 
                                                            ------- 
Other comprehensive income 
Items which may be reclassified to profit 
 or loss: 
Fair value changes on financial instruments 
 measured as Fair Value through Other Comprehensive 
 Income: 
    Arising in the year                                         1.0      0.8 
Revaluation of foreign operations                                 -    (0.6) 
Tax on items in other comprehensive income                    (0.5)    (0.2) 
Other comprehensive income                                      0.5        - 
----------------------------------------------------  ----           ------- 
Total comprehensive income for the year                       196.8    158.8 
                                                            ------- 
Attributable to: 
Equity shareholders of the company                            191.3    153.3 
Non-controlling interest                                        5.5      5.5 
                                                              196.8    158.8 
Dividend, pence per share                               17        -     16.1 
Earnings per share, pence per share 
Basic                                                   16     42.8     52.6 
Diluted                                                 16     42.4     52.2 
 
 
 
   The above results are derived wholly from continuing operations. 
 
   The notes below form part of these accounts. 
 
   The financial statements were approved by the Board of Directors on 8 
April 2021. 
 
 
 
 
 
 
                                                       2020       2019 
                                               Note    GBPm       GBPm 
Assets 
Cash in hand                                               0.5       0.4 
Loans and advances to credit institutions        19    2,676.2   2,204.6 
Investment securities                            20      471.2     635.3 
Loans and advances to customers                  21   19,230.7  18,446.8 
Fair value adjustments on hedged assets          27      181.6      16.8 
Derivative assets                                26       12.3      21.1 
Other assets                                     28        9.1      14.3 
Current taxation asset                                     8.4         - 
Deferred taxation asset                          29        4.7       4.8 
Property, plant and equipment                    31       39.2      41.6 
Intangible assets                                32       20.6      31.4 
Total assets                                          22,654.5  21,417.1 
---------------------------------------------  ----  ---------  -------- 
Liabilities 
Amounts owed to credit institutions              33    3,570.2   3,068.8 
Amounts owed to retail depositors                34   16,603.1  16,255.0 
Fair value adjustments on hedged liabilities     27        8.2     (5.1) 
Amounts owed to other customers                  35       72.9      29.7 
Debt securities in issue                         36      421.9     296.3 
Derivative liabilities                           26      163.6      92.8 
Lease liabilities                                37       11.7      13.3 
Other liabilities                                38       27.8      34.9 
Provisions                                       39        1.8       1.6 
Current taxation liability                                   -      41.5 
Deferred taxation liability                      30       48.3      63.1 
Subordinated liabilities                         40       10.5      10.6 
Perpetual subordinated bonds                     41       37.6      37.6 
                                                      20,977.6  19,940.1 
Equity 
Share capital                                    43    1,359.8       4.5 
Share premium                                    43          -     864.2 
Retained earnings                                      1,608.6     553.2 
Other reserves                                   44  (1,351.5)     (4.9) 
Shareholders' funds                                    1,616.9   1,417.0 
Non-controlling interest                                  60.0      60.0 
Total equity and liabilities                          22,654.5  21,417.1 
---------------------------------------------  ----  ---------  -------- 
 
 
   The notes below form part of these accounts. The financial statements 
were approved by the Board of Directors on 8 April 2021 and signed on 
its behalf by 
 
   Andy Golding                                                               April Talintyre 
 
 
   Chief Executive Officer                                                  Chief Financial Officer 
 
 
   Company number: 11976839 
 
 
 
 
 
 
                                                                                           Foreign                   Share-based             Non-controlling 
                                  Share     Share       Capital     Transfer      Own      exchange      FVOCI         payment    Retained       interest 
                                  capital   premium   contribution   reserve   shares(1)   reserve       reserve       reserve     earnings     securities     Total 
                                   GBPm      GBPm        GBPm         GBPm       GBPm       GBPm          GBPm          GBPm        GBPm          GBPm         GBPm 
At 31 December 2018                   2.4     158.8            6.5     (12.8)          -      (0.4)           (0.1)          4.7      439.3             60.0    658.4 
Profit for the year                     -         -              -          -          -          -               -            -      158.8                -    158.8 
Shares issued as consideration 
 for CCFS Combination                 2.0     705.1              -          -          -          -               -            -      (6.4)                -    700.7 
Own shares(1)                           -         -              -          -      (3.7)          -               -            -          -                -    (3.7) 
Coupon paid on non-controlling 
 interest securities                    -         -              -          -          -          -               -            -      (5.5)                -    (5.5) 
Dividends paid                          -         -              -          -          -          -               -            -     (37.3)                -   (37.3) 
Other comprehensive 
 income                                 -         -              -          -          -      (0.6)             0.8            -          -                -      0.2 
Share-based payments                  0.1       0.3              -          -          -          -               -        (0.2)        4.3                -      4.5 
Tax recognised in 
 equity                                 -         -              -          -          -          -           (0.2)          1.1          -                -      0.9 
At 31 December 2019                   4.5     864.2            6.5     (12.8)      (3.7)      (1.0)             0.5          5.6      553.2             60.0  1,477.0 
Profit for the year                     -         -              -          -          -          -               -            -      196.3                -    196.3 
Coupon paid on non-controlling 
 interest securities                    -         -              -          -          -          -               -            -      (5.5)                -    (5.5) 
Other comprehensive 
 income                                 -         -              -          -          -          -             1.0            -          -                -      1.0 
Share-based payments                    -       2.6              -          -          -          -               -          2.4        3.2                -      8.2 
Tax recognised in 
 equity                                 -         -              -          -          -          -           (0.5)        (0.2)        0.5                -    (0.2) 
Transfer between reserves               -         -          (6.5)       12.8          -          -               -            -      (6.3)                -        - 
Own shares(1)                           -         -              -          -      (0.3)          -               -            -        0.4                -      0.1 
Cancellation of OneSavings 
 Bank plc share capital 
 and share premium                  (4.5)   (866.8)              -          -          -          -               -            -      866.8                -    (4.5) 
Issuance of OSB GROUP 
 PLC share capital                1,359.8         -              -  (1,355.3)          -          -               -            -          -                -      4.5 
At 31 December 2020               1,359.8         -              -  (1,355.3)      (4.0)      (1.0)             1.0          7.8    1,608.6             60.0  1,676.9 
-------------------------------  --------  --------  -------------  ---------  ---------  ---------  --------------  -----------  ---------  ---------------  ------- 
 
 
   (1) The Group has adopted look-through accounting (see note 2) and 
recognised the Employee Benefit Trusts within OSB GROUP PLC (2019: 
OneSavings Bank plc). 
 
   The reserves are further disclosed in note 44. 
 
 
 
 
 
 
                                                          2020      2019 
                                                 Note     GBPm      GBPm 
Cash flows from operating activities 
Profit before taxation                                      260.4    209.1 
Expenses recognised in equity                                   -    (6.4) 
Adjustments for non-cash items                      51       79.2     26.2 
Changes in operating assets and liabilities         51  (1,537.2)  (711.8) 
Cash used in operating activities                       (1,197.6)  (482.9) 
Provisions refunded/(paid)                          39        0.1    (0.2) 
Net tax paid                                              (128.8)   (53.0) 
Net cash used in operating activities                   (1,326.3)  (536.1) 
Cash flows from investing activities 
Unencumbered cash acquired on CCFS Combination                  -    870.4 
Maturity and sales of investment securities         20      407.3    357.7 
Purchases of investment securities                  20    (190.9)  (389.9) 
Interest received on investment securities                    7.0        - 
Sales of financial instruments                       7      539.9        - 
Purchases of equipment and intangible 
 assets                                          32,31      (7.5)   (11.6) 
Cash generated from investing activities                    755.8    826.6 
Cash flows from financing activities 
Financing received(1)                               42    1,991.2    872.7 
Financing repaid(1)                                 42  (1,103.6)  (338.5) 
Cash held in deconsolidated special purpose 
 vehicles                                                  (23.0)        - 
Interest paid on financing                                 (21.4)    (2.6) 
Coupon paid on non-controlling interest 
 securities                                                 (5.5)    (5.5) 
Dividends paid                                      17          -   (37.3) 
Proceeds from issuance of shares under 
 employee SAYE schemes                              43        2.6      0.4 
Cash payments on lease liabilities                  37      (2.0)    (1.1) 
Cash generated from financing activities                    838.3    488.1 
Net increase in cash and cash 
 equivalents                                                267.8    778.6 
Cash and cash equivalents at the beginning 
 of the year                                        18    2,102.8  1,324.2 
Cash and cash equivalents at the end of 
 the year                                           18    2,370.6  2,102.8 
Movement in cash and cash equivalents                       267.8    778.6 
                                                        ---------  ------- 
 
 
 
 
   1.      Insertion of OSB GROUP PLC 
 
   As part of the Group's integration strategy, following the Combination 
with CCFS, a new holding company, OSB GROUP PLC (OSBG), was inserted as 
the new ultimate holding company and listed entity of the Group. 
OneSavings Bank plc (OSB) was both a banking entity and the ultimate 
parent company of the Group until 27 November 2020, at which point it 
became a 100% subsidiary of the new ultimate parent company, OSBG. 
 
   As part of the insertion of OSBG, the existing listed share capital and 
share premium of OSB was cancelled on 27 November 2020 and the share 
capital and share premium amounts of OSB transferred to retained 
earnings. OSB subsequently issued the same number of new unlisted 
GBP0.01 ordinary shares from retained earnings to OSBG. Each cancelled 
GBP0.01 OSB share was replaced with one OSBG share with a nominal value 
of GBP3.04 each. The difference in the value of share capital in issue 
of the OSBG shares compared to the cancelled OSB shares is recognised in 
the transfer reserve within equity. 
 
   The insertion of OSBG has been treated as a business combination under 
common control, with the Group controlled by the same parties both 
before and after the insertion. Combinations under common control are 
outside the scope of IFRS 3 Business Combinations and accordingly, the 
insertion has not been recognised at fair value and no goodwill or fair 
value acquisition adjustments have been recognised. The Group's 
consolidated financial statements have been presented to include OSB's 
consolidated assets, liabilities, income and expenses prospectively from 
the date of the insertion without restating pre-combination information, 
as if OSBG had been the parent company throughout the current and prior 
years. 
 
   2.      Accounting policies 
 
   a)      Basis of preparation 
 
   The financial statements have been prepared in accordance with 
International Financial Reporting Standards (IFRSs) as adopted by the 
European Union (EU) and interpretations issued by the International 
Financial Reporting Interpretations Committee (IFRIC). 
 
   The financial statements have been prepared on a historical cost basis, 
as modified by the revaluation of investment securities held at fair 
value through other comprehensive income (FVOCI) and derivative 
contracts and other financial assets held at fair value through profit 
or loss (FVTPL) (see note p(vi)). 
 
   As permitted by section 408 of the Companies Act 2006, no Statement of 
Comprehensive Income is presented for the Company. 
 
   b)      Going concern 
 
   The Board undertakes regular rigorous assessments of whether the Group 
is a going concern in light of current economic conditions and all 
available information about future risks and uncertainties. 
 
   In assessing whether the going concern basis is appropriate, projections 
for the Group have been prepared, covering its future performance, 
capital and liquidity for a period in excess of 12 months from the date 
of approval of these Financial Statements. These forecasts have been 
subject to sensitivity tests, including stress scenarios, which have 
been compared to the latest Brexit and COVID-19 pandemic economic 
scenarios provided by the Group's external economic advisors, as well as 
reverse stress tests. 
 
 
 
   2.     Accounting policies (continued) 
 
   The assessments were significantly influenced by COVID-19 implications, 
covering the Group's capital, liquidity and operational resilience, 
including the following: 
 
 
   -- Financial and capital forecasts were prepared under stress scenarios 
      which were assessed against the latest COVID-19 related economic 
      forecasts provided by the Group's external economic advisors. Reverse 
      stress tests were also run, to assess what combinations of House Price 
      Index and unemployment variables would result in the Group utilising its 
      regulatory capital buffers in full and breaching the Group's minimum 
      prudential requirements along with analysis and insight from the 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 ILAAP stress scenarios, which were reviewed for 
      suitability in the context of COVID-19 related stresses. 
 
   -- The Group continues to assess the resilience of its business operating 
      model and supporting infrastructure in the context of the emerging 
      economic, business and regulatory environment. The key areas of focus 
      continue to be on the provision of critical services to customers, 
      employee health and safety and the evolving governmental policies and 
      guidelines. The Group has assessed and enhanced its information 
      technology platforms to support its employees with flexible working and 
      homeworking across all locations, ensuring stable access to core systems, 
      data and communication devices. The response to the pandemic demonstrates 
      the inherent resilience of the Group's critical processes and 
      infrastructure. It also reflects the necessary agility in responding to 
      future operational demands. The operational dependencies on third-party 
      vendors and outsourcing arrangements continue to be an important area of 
      focus. 
 
 
   The Group's financial projections, supported by the COVID-19 assessments, 
demonstrate that the Group has sufficient capital and liquidity to 
continue to meet its regulatory capital requirements as set out by the 
PRA. 
 
   The Board has therefore concluded that the Group has sufficient 
resources to continue in operational existence for a period in excess of 
12 months and as a result, it is appropriate to prepare these Financial 
Statements on a going concern basis. 
 
   c)      Basis of consolidation 
 
   The Group's consolidated financial statements have been presented to 
include OSB's consolidated assets, liabilities, income and expenses 
prospectively from the date of the insertion of OSBG without restating 
pre-insertion information, as if OSBG had been the parent company 
throughout the current and prior years. 
 
   The Group accounts include the results of the Company and its subsidiary 
undertakings. Subsidiaries are fully consolidated from the date on which 
control is transferred to the Group and are deconsolidated from the date 
that control ceases. Upon consolidation, intercompany transactions, 
balances and unrealised gains on transactions are eliminated. Unrealised 
losses are also eliminated unless the transaction provides evidence of 
impairment of the asset transferred. Accounting policies of subsidiaries 
have been changed where necessary to ensure consistency, so far as is 
possible, with the policies adopted by the Group. 
 
   2.     Accounting policies (continued) 
 
   Subsidiaries are those entities, including structured entities, over 
which the Group has control. The Group controls an entity when it is 
exposed, or has rights, to variable returns from its involvement with 
the entity and has the ability to affect those returns through its power 
over the investee. The Group has power over an entity when it has 
existing rights that give it the current ability to direct the 
activities that most significantly affect the entity's returns. Power 
may be determined on the basis of voting rights or, in the case of 
structured entities, other contractual arrangements. 
 
   Where the Group does not retain a direct ownership interest in a 
securitisation entity, but the Directors have determined that the Group 
controls those entities, they are treated as subsidiaries and are 
consolidated. Control is determined to exist if the Group has the power 
to direct the activities of each entity (for example, managing the 
performance of the underlying mortgage assets and raising debt on those 
mortgage assets which is used to fund the Group) and, in addition to 
this, control is exposed to a variable return (for example, retaining 
the residual risk on the mortgage assets). Securitisation structures 
that do not meet these criteria are not treated as subsidiaries and are 
excluded from the consolidated accounts. The Company applies the net 
approach in accounting for securitisation structures where it retains an 
interest in the securitisation, netting the loan notes held against the 
deemed loan balance. 
 
   The Group's Employee Benefit Trust (EBT) is controlled and recognised by 
the Company using the look-through approach, i.e. as if the EBT is 
included within the accounts of the Company. 
 
   The Group is not deemed to control an entity when it exercises power 
over an entity in an agency capacity. In determining whether the Group 
is acting as an agent, the Directors consider the overall relationship 
between the Group, the investee and other parties to the arrangement 
with respect to the following factors: (i) the scope of the Group's 
decision-making power; (ii) the rights held by other parties; (iii) the 
remuneration to which the Group is entitled; and (iv) the Group's 
exposure to variability of returns. The determination of control is 
based on the current facts and circumstances and is continuously 
assessed. In some circumstances, different factors and conditions may 
indicate that different parties control an entity depending on whether 
those factors and conditions are assessed in isolation or in totality. 
Judgement is applied in assessing the relevant factors and conditions in 
totality when determining whether the Group controls an entity. 
Specifically, judgement is applied in assessing whether the Group has 
substantive decision-making rights over the relevant activities and 
whether it is exercising power as a principal or an agent. 
 
   d)    Business combinations 
 
   The Group uses the acquisition method to account for business 
combinations, other than business combinations under common control (see 
note 1). The Group recognises the identifiable assets acquired and 
liabilities assumed at their acquisition date fair values. The Group 
recognises deferred tax on the difference between fair value and the 
acquisition date carrying value in accordance with International 
Accounting Standard (IAS) 12. The consideration transferred for each 
business combination is measured at fair value and, comprises the sum of 
equity interest issued by the Group. Acquisition-related costs are 
recognised as exceptional items within profit or loss. 
 
   The Group recognises goodwill on business combinations when the fair 
value of consideration transferred exceeds the fair value of 
identifiable assets acquired less the fair value of liabilities assumed. 
The Group recognises a gain within profit or loss when the fair value of 
consideration transferred is less than the fair value of identifiable 
assets acquired less the fair value of liabilities assumed. 
 
   2.     Accounting policies (continued) 
 
   The Group reports provisional amounts for business combinations when the 
accounting is incomplete at the reporting date following the 
combination. During the measurement period, the Group adjusts 
provisional amounts recognised at the acquisition date to reflect new 
information obtained that existed as of the acquisition date and would 
have affected the measurement of the amounts recognised as at that date. 
The Group also recognises additional assets or liabilities during the 
reporting period if new information is obtained that existed as of the 
acquisition date and would have resulted in the recognition of those 
assets or liabilities as at that date. The Group adjusts the gain taken 
to profit or loss where there is negative goodwill, or adjusts goodwill 
recognised on the balance sheet, when provisional amounts are finalised 
or additional assets and liabilities are recognised during the 
measurement period. The measurement period shall not exceed one year 
from the acquisition date. 
 
   The Group finalised the acquisition date fair values of assets acquired 
and liabilities assumed in the Combination with CCFS prior to 3 October 
2020. There were no changes to the provisional fair values recognised on 
the assets or liabilities. 
 
   e)      Foreign currency translation 
 
   The consolidated financial statements are presented in Pounds Sterling 
which is the presentation currency of the Group. The financial 
statements of each of the Company's subsidiaries are measured using the 
currency of the primary economic environment in which the subsidiary 
operates (the functional currency). Foreign currency transactions are 
translated into the functional currencies using the exchange rates 
prevailing at the date of the transactions. Monetary items denominated 
in foreign currencies are retranslated at the rate prevailing at the 
period end. 
 
   Foreign exchange (FX) gains and losses resulting from the retranslation 
and settlement of these items are recognised in profit or loss. 
Non-monetary items measured at cost in the foreign currency are 
translated using the spot FX rate at the date of the transaction. 
 
   The assets and liabilities of foreign operations with functional 
currencies other than Pounds Sterling are translated into the 
presentation currency at the exchange rate on the reporting date. The 
income and expenses of foreign operations are translated at the rates on 
the dates of transactions. Exchange differences on foreign operations 
are recognised in other comprehensive income and accumulated in the 
foreign exchange reserve within equity. 
 
   f)       Segmental reporting 
 
   IFRS 8 requires operating segments to be identified on the basis of 
internal reports and components of the Group which are regularly 
reviewed by the chief operating decision maker to allocate resources to 
segments and to assess their performance. For this purpose, the chief 
operating decision maker of the Group is the Board of Directors. 
 
   The Group provides loans and asset finance within the UK and the Channel 
Islands only. 
 
   The Group segments its lending business and operates under two segments: 
 
 
   -- OneSavings Bank (OSB) 
 
   -- Charter Court Financial Services (CCFS) 
 
 
   The Group has disclosed the risk management tables in note 46 at a 
sub-segment level to provide detailed analysis of the Group's core 
lending business. 
 
 
   1. Accounting policies (continued) 
 
   2. Interest income and expense 
 
 
   Interest income and interest expense for all interest-bearing financial 
instruments measured at amortised cost are recognised in profit or loss 
using the effective interest rate (EIR) method. The EIR is the rate 
which discounts the expected future cash flows, over the expected life 
of the financial instrument, to the net carrying value of the financial 
asset or liability. 
 
   When calculating the EIR, the Group estimates cash flows considering all 
contractual terms of the instrument and behavioural aspects (for example, 
prepayment options) but not considering future credit losses. The 
calculation of the EIR includes transaction costs and fees paid or 
received that are an integral part of the interest rate, together with 
the discounts or premiums arising on the acquisition of loan portfolios. 
Transaction costs include incremental costs that are directly 
attributable to the acquisition or issue of a financial instrument. 
 
   The Group monitors the actual cash flows for each acquired book and 
where they diverge significantly from expectation, the future cash flows 
are reset. In assessing whether to adjust future cash flows on an 
acquired portfolio, the Group considers the cash variance on an absolute 
and percentage basis. The Group also considers the total variance across 
all acquired portfolios. Where cash flows for an acquired portfolio are 
reset, they are discounted at the EIR to derive a new carrying value, 
with changes taken to profit or loss as interest income. 
 
   The EIR is adjusted where there is a change to the reference interest 
rate (LIBOR or base rate) affecting portfolios with a variable interest 
rate which will impact future cash flows. The revised EIR is the rate 
which exactly discounts the revised cash flows to the net carrying value 
of the loan portfolio. 
 
   Interest income on investment securities is included in interest 
receivable and similar income. Interest on derivatives is included in 
interest receivable and similar income or interest expense and similar 
charges following the underlying instrument it is hedging. 
 
   Coupons paid on non-controlling interest securities are recognised 
directly in equity in the period in which they are paid. 
 
   h)      Fees and commissions 
 
   Fees and commissions which are an integral part of the EIR of a 
financial instrument are recognised as an adjustment to the EIR and 
recorded in interest income. The Group includes early redemption charges 
within the EIR. 
 
   Fees received on mortgage administration services and mortgage 
origination activities which are not an integral part of the EIR are 
accounted for in accordance with IFRS 15 Revenue from Contracts with 
Customers, with income recognised when the services are delivered and 
the benefits are transferred to clients and customers. 
 
   Other fees and commissions are recognised on the accruals basis as 
services are provided or on the performance of a significant act, net of 
VAT and similar taxes. 
 
   i)      Integration costs and exceptional items 
 
   Integration costs and exceptional items are those items of income or 
expenses that do not relate to the Group's core operating activities, 
are not expected to recur and are material in the context of the Group's 
performance. These items are disclosed separately within the Statement 
of Comprehensive Income and the Notes to the Financial Statements. 
 
 
   1. Accounting policies (continued) 
 
   2. Taxation 
 
 
   Income tax comprises current and deferred tax. It is recognised in 
profit or loss, other comprehensive income or directly in equity, 
consistent with the recognition of items it relates to. The Group 
recognises tax on the non-controlling interest securities directly in 
profit or loss. 
 
   Current tax is the expected tax charge on the taxable income for the 
year and any adjustments in respect of previous years. 
 
   Deferred tax is the tax expected to be payable or recoverable in respect 
of temporary differences between the carrying amounts of assets or 
liabilities for accounting purposes and carrying amounts for tax 
purposes. 
 
   Deferred tax assets are recognised only to the extent that it is 
probable that future taxable profits will be available to utilise the 
asset. The recognition of deferred tax is mainly dependent on the 
projections of future taxable profits and future reversals of temporary 
differences. The current projections of future taxable income indicate 
that the Group will be able to utilise its deferred tax asset within the 
foreseeable future. 
 
   The Company's subsidiaries are in a group payment arrangement for 
corporation tax and show a net corporation tax liability and deferred 
tax asset accordingly. In 2019, the Group's CCFS subsidiaries were not 
part of the group payment arrangement and the corporation tax liability 
and deferred tax asset were not netted. 
 
   k)      Dividends 
 
   Dividends are recognised in equity in the period in which they are paid 
or, if earlier, approved by shareholders. 
 
   l)       Cash and cash equivalents 
 
   For the purposes of the Consolidated Statement of Cash Flows, cash and 
cash equivalents comprise cash, non-restricted balances with central 
banks and highly liquid financial assets with original maturities of 
less than three months subject to an insignificant risk of changes in 
their fair value. 
 
   m)    Intangible assets 
 
   Purchased software and costs directly associated with the development of 
computer software are capitalised as intangible assets where the 
software is a unique and identifiable asset controlled by the Group and 
will generate future economic benefits. Costs to establish technological 
feasibility or to maintain existing levels of performance are recognised 
as an expense. The Group only recognises internally-generated intangible 
assets if all of the following conditions are met: 
 
 
   -- an asset is being created that can be identified after establishing the 
      technical and commercial feasibility of the resulting product; 
 
   -- it is probable that the asset created will generate future economic 
      benefits; and 
 
   -- the development cost of the asset can be measured reliably. 
 
 
   Subsequent expenditure on an internally generated intangible asset, 
after its purchase or completion, is recognised as an expense in the 
period in which it is incurred. Where no internally generated intangible 
asset can be recognised, development expenditure is recognised as an 
expense in the period in which it is incurred. 
 
   2.     Accounting policies (continued) 
 
   Intangible assets are reviewed for impairment annually, and if they are 
considered to be impaired, are written down immediately to their 
recoverable amounts. 
 
   Intangible assets are amortised in profit or loss over their estimated 
useful lives as follows: 
 
   Software and internally generated assets            5 year straight line 
 
   Development costs, brand and technology         4 year straight line 
 
   Broker relationships                                           5 year profile 
 
 
   Bank licence                                                     3 year straight line 
 
 
   The Group reviews the amortisation period on an annual basis. If the 
expected useful life of assets is different from previous assessments, 
the amortisation period is changed accordingly. 
 
   n)      Property, plant and equipment 
 
   Property, plant and equipment comprise freehold land and buildings, 
major alterations to office premises, computer equipment and fixtures 
measured at cost less accumulated depreciation. These assets are 
reviewed for impairment annually, and if they are considered to be 
impaired, are written down immediately to their recoverable amounts. 
 
   Items of property, plant and equipment are depreciated on a 
straight-line basis over their estimated useful economic lives as 
follows: 
 
   Buildings                                                      50 years 
 
   Leasehold improvements                               10 years 
 
   Equipment and fixtures                                  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. 
 
   The Company performs an annual impairment assessment of its investment 
in subsidiary undertakings, assessing the carrying value of the 
investment in each subsidiary against the subsidiaries' net asset values 
at the reporting date for indication of impairment. Where there is 
indication of impairment, the Company estimates the subsidiaries value 
in use by estimating future profitability and the impact on the net 
assets of the subsidiary. The Company recognises an impairment directly 
in profit or loss when the recoverable amount, which is the greater of 
the value in use or the fair value less costs to sell, is less than the 
carrying value of the investment. Impairments are subsequently reversed 
if the recoverable amount exceeds the carrying value. 
 
 
   1. Accounting policies (continued) 
 
   2. Financial instruments 
 
   3. Classification 
 
 
   The Group classifies financial instruments based on the business model 
and the contractual cash flow characteristics of the financial 
instruments. Under IFRS 9, the Group classifies financial assets into 
one of three measurement categories: 
 
 
   -- Amortised cost -- assets in a business model to hold financial assets in 
      order to collect contractual cash flows, where the contractual terms of 
      the financial asset give rise on specified dates to cash flows that are 
      solely payments of principal and interest (SPPI) on the principal amount 
      outstanding. 
 
   -- Fair value through other comprehensive income (FVOCI) -- assets held in a 
      business model which collects contractual cash flows and sells financial 
      assets where the contractual terms of the financial assets give rise on 
      specified dates to cash flows that are SPPI on the principal amount 
      outstanding. 
 
   -- Fair value through profit or loss (FVTPL) -- assets not measured at 
      amortised cost or FVOCI. The Group measures derivatives and an acquired 
      mortgage portfolio under this category. 
 
 
   The Group classifies non-derivative financial liabilities as measured at 
amortised cost. 
 
   The Group has no financial assets and liabilities classified as held for 
trading. 
 
   The Group reassesses its business models each reporting period. 
 
   The Group classifies certain financial instruments as equity where they 
meet the following conditions: 
 
 
   -- the financial instrument includes no contractual obligation to deliver 
      cash or another financial asset on potentially unfavourable conditions; 
 
   -- the financial instrument is a non-derivative that includes no contractual 
      obligation for the issuer to deliver a variable number of its own equity 
      instruments; or 
 
   -- the financial instrument is a derivative that will be settled only by the 
      issuer exchanging a fixed amount of cash or another financial asset for a 
      fixed number of its own equity instruments. 
 
 
   Equity financial instruments comprise own shares and non-controlling 
interest securities. Accordingly, the coupon paid on the non-controlling 
interest securities is recognised directly in retained earnings when 
paid. 
 
   ii.       Recognition 
 
   The Group initially recognises loans and advances, deposits, debt 
securities issued and subordinated liabilities on the date on which they 
are originated or acquired. All other financial instruments are 
accounted for on the trade date which is when the Group becomes a party 
to the contractual provisions of the instrument. 
 
   For financial instruments classified as amortised cost, the Group 
initially recognises financial assets and financial liabilities at fair 
value plus transaction income or costs that are directly attributable to 
its origination, acquisition or issue. These financial instruments are 
subsequently measured at amortised cost using the effective interest 
rate. 
 
   Transaction costs relating to the acquisition or issue of a financial 
instrument at FVOCI and FVTPL are recognised in the profit or loss as 
incurred. 
 
 
   1. Accounting policies (continued) 
 
   2. Derecognition 
 
 
   The Group derecognises financial assets when the contractual rights to 
the cash flows expire or the Group transfers substantially all risks and 
rewards of ownership of the financial asset. In assessing the Group's 
retention programmes the principles of IFRS 9 and relevant guidance in 
IAS 8 in respect of debt issuance, results in the original mortgage 
asset being derecognised with a new financial asset recognised. 
 
   The forbearance measures offered by the Group are considered a 
modification event as the contractual cash flows are renegotiated or 
otherwise modified. The Group considers the renegotiated or modified 
cash flows are not wholly different from the contractual cash flows and 
does not consider that forbearance measures give rise to a derecognition 
event. 
 
   Financial liabilities are derecognised only when the obligation is 
discharged, cancelled or has expired. 
 
   iv.       Offsetting 
 
   Financial assets and financial liabilities are offset and the net amount 
presented in the Consolidated Statement of Financial Position when, and 
only when, the Group currently has a legally enforceable right to offset 
the amounts and it intends either to settle them on a net basis or to 
realise the asset and settle the liability simultaneously. 
 
   The Group's derivatives are covered by industry standard master netting 
agreements. Master netting agreements create a right of set-off that 
becomes enforceable only following a specified event of default or in 
other circumstances not expected to arise in the normal course of 
business. These arrangements do not qualify for offsetting and as such 
the Group reports derivatives on a gross basis. 
 
   Collateral in respect of derivatives is subject to the standard industry 
terms of International Swaps and Derivatives Association (ISDA) Credit 
Support Annex. This means that the cash received or given as collateral 
can be pledged or used during the term of the transaction but must be 
returned on maturity of the transaction. The terms also give each 
counterparty the right to terminate the related transactions upon the 
counterparty's failure to post collateral. Collateral paid or received 
does not qualify for offsetting and is recognised in loans and advances 
to credit institutions and amounts owed to credit institutions 
respectively. 
 
   v.       Amortised cost measurement 
 
   The amortised cost of a financial asset or financial liability is the 
amount at which the financial asset or financial liability is measured 
at initial recognition, plus or minus the cumulative amortisation using 
the EIR method of any difference between the initial amount recognised 
and the maturity amount, minus any reduction for impairment. 
 
   vi.       Fair value measurement 
 
   Fair value is the price that would be received to sell an asset or paid 
to transfer a liability in an orderly transaction between market 
participants at the measurement date in the principal or, in its absence, 
the most advantageous market to which the Group has access at that date. 
 
   When available, the Group measures the fair value of an instrument using 
the quoted price in an active market for that instrument. A market is 
regarded as active if transactions for the asset or liability take place 
with sufficient frequency and volume to provide pricing information on 
an ongoing basis. The Group measures the fair value of its investment 
securities and Perpetual Subordinated Bonds (PSBs) using quoted market 
prices. 
 
   2.     Accounting policies (continued) 
 
   If there is no quoted price in an active market, then the Group uses 
valuation techniques that maximise the use of relevant observable inputs 
and minimise the use of unobservable inputs. 
 
   The Group uses a combination of LIBOR and SONIA curves to value its 
derivatives however, using overnight index swap (OIS) curves would not 
materially change their value. The fair value of the Group's derivative 
financial instruments incorporates credit valuation adjustments (CVA) 
and debit valuation adjustments (DVA). The DVA and CVA take into account 
the respective credit ratings of the Bank and counterparty and whether 
the derivative is collateralised or not. Derivatives are valued using 
discounted cash flow models and observable market data and are sensitive 
to benchmark interest and basis rate curves. 
 
   vii.   Identification and measurement of impairment of financial assets 
 
   The Group assesses all financial assets for impairment. 
 
   Loans and advances to customers 
 
   The Group uses the IFRS 9 three-stage expected credit loss (ECL) 
approach for measuring impairment. The three impairment stages are as 
follows: 
 
 
   -- Stage 1 -- a 12-month ECL allowance is recognised where there is no 
      significant increase in credit risk (SICR) since initial recognition. 
 
   -- Stage 2 -- a lifetime loss allowance is held for assets where a SICR is 
      identified since initial recognition. The assessment of whether credit 
      risk has increased significantly since initial recognition is performed 
      for each reporting period for the life of the loan. 
 
   -- Stage 3 -- requires objective evidence that an asset is credit impaired, 
      at which point a lifetime ECL allowance is recognised. 
 
 
   The Group measures impairment through the use of individual and modelled 
assessments. 
 
   Individual assessment 
 
   The Group's provisioning process requires individual assessment for high 
exposure or higher risk loans, where Law of Property Act (LPA) receivers 
have been appointed, the property is taken into possession or there are 
other events that suggest a high probability of credit loss. Loans are 
considered at a connection level, i.e. including all loans connected to 
the customer. 
 
   The Group estimates cash flows from these loans, including expected 
interest and principal payments, rental or sale proceeds, selling and 
other costs. The Group obtains up-to-date independent valuations for 
properties put up for sale. 
 
   If the present value of estimated future cash flows discounted at the 
original EIR is less than the carrying value of the loan, a provision is 
recognised for the difference. Such loans are classified as impaired. If 
the present value of the estimated future cash flows exceeds the 
carrying value, no provision is recognised. 
 
   The Group applies a modelled assessment to all loans with no 
individually-assessed provision. 
 
   2.     Accounting policies (continued) 
 
   IFRS 9 modelled impairment 
 
   Measurement of ECL 
 
   The assessment of credit risk and the estimation of ECL are unbiased and 
probability weighted. ECL is measured on either a 12 month (stage 1) or 
lifetime basis depending on whether a SICR has occurred since initial 
recognition (stage 2) or where an account meets the Group's definition 
of default (stage 3). 
 
   The ECL calculation is a product of an individual loan's probability of 
default (PD), exposure at default (EAD) and loss given default (LGD) 
discounted at the EIR. The ECL drivers of PD, EAD and LGD are modelled 
at an account level. The assessment of whether a significant increase in 
credit risk has occurred is based on quantitative relative PD thresholds 
and a suite of qualitative triggers. 
 
   In accordance with PRA COVID-19 guidance, the Group does not 
automatically consider the take up of customer payment deferrals during 
the pandemic to be an indication of a SICR and, in the absence of other 
indicators such as previous arrears, low credit score or high other 
indebtedness, the staging of these loans remains unchanged in its ECL 
calculations. 
 
   Significant increase in credit risk (movement to stage 2) 
 
   The Group's transfer criteria determine what constitutes a SICR, which 
results in an exposure being moved from stage 1 to stage 2. 
 
   At the point of initial recognition, a loan is assigned a PD estimate. 
For each monthly reporting date thereafter, an updated PD estimate is 
computed. The Group's transfer criteria analyses relative changes in PD 
versus the PD assigned at the point of origination, together with 
qualitative triggers using both internal indicators and external credit 
bureau information to assess for SICR. In the event that given early 
warning triggers have not already identified SICR, an account more than 
30 days past due has experienced a SICR. 
 
   A borrower will move back into stage 1 only if the SICR definition is no 
longer triggered. 
 
   Definition of default (movement to stage 3) 
 
   The Group uses a number of quantitative and qualitative criteria to 
determine whether an account meets the definition of default and 
therefore moves to stage 3. The criteria currently include: 
 
 
   -- If an account is more than 90 days past due. 
 
   -- Accounts that have moved into an unlikely to pay position, which includes 
      forbearance, bankruptcy, repossession and interest-only term expiry. 
 
 
   A borrower will move out of stage 3 when its credit risk improves such 
that it no longer meets the 90 days past due and unlikeliness to pay 
criteria and following this has completed an internally-approved 
probation period. The borrower will move to stage 1 or stage 2 dependent 
on whether the SICR applies. 
 
   Forward-looking macroeconomic scenarios 
 
   The risk of default and expected credit loss assessments take into 
consideration expectations of economic changes that are deemed to be 
reasonably possible. 
 
   The Group conducts analysis to determine the most significant factors 
which may influence the likelihood of an exposure defaulting in the 
future. The macroeconomic factors relate to the House Price Index (HPI), 
unemployment rate (UR), Gross domestic product (GDP), Commercial Real 
Estate Index (CRE) and the 
 
   2.     Accounting policies (continued) 
 
   BoE Base Rate (BBR). 
 
   The Group has derived an approach for factoring probability-weighted 
macroeconomic forecasts into ECL calculations, adjusting PD and LGD 
estimates. The macroeconomic scenarios feed directly into the ECL 
calculation, as the adjusted PD, lifetime PD and LGD estimates are used 
within the individual account ECL allowance calculations. 
 
   The Group currently does not have an in-house economics function and 
therefore sources economic forecasts from an appropriately qualified 
third party. The Group considers four probability-weighted scenarios, 
base, upside, downside and severe downside scenarios. 
 
   The base case is also utilised within the Group's impairment forecasting 
process which in turn feeds the wider business planning processes. The 
ECL models are also used to set the Group's credit risk appetite 
thresholds and limits. 
 
   Period over which ECL is measured 
 
   Expected credit loss is measured from the initial recognition of the 
asset which is the date at which the loan is originated or the date a 
loan is purchased and at each balance sheet date thereafter. The maximum 
period considered when measuring ECL (either 12 months or lifetime ECL) 
is the maximum contractual period over which the Group is exposed to the 
credit risk of the asset. For modelling purposes, the Group considers 
the contractual maturity of the loan product and then considers the 
behavioural trends of the asset. 
 
   Purchased or originated credit impaired (POCI) 
 
   Acquired loans that meet the Group's definition of default (90 days past 
due or an unlikeliness to pay position) at acquisition are treated as a 
POCI asset. These assets attract a lifetime ECL allowance over the full 
term of the loan, even when the loan no longer meets the definition of 
default post acquisition. The Group does not originate credit-impaired 
loans. 
 
   Intercompany loans 
 
   Intercompany receivables in the Company financial statements are 
assessed for ECL based on an assessment of the PD and LGD, discounted to 
a net present value. 
 
   Other financial assets 
 
   Other financial assets comprise cash balances with the BoE and other 
credit institutions and high grade investment securities. The Group 
deems the likelihood of default across these counterparties as low and, 
hence does not recognise a provision against the carrying balances. 
 
   q)    Loans and receivables 
 
 
 
   Loans and receivables are predominantly mortgage loans and advances to 
customers with fixed or determinable payments that are not quoted in an 
active market and that the Group does not intend to sell in the near 
term. They are initially recorded at fair value plus any directly 
attributable transaction costs and are subsequently measured at 
amortised cost using the EIR method, less impairment losses. Where 
exposures are hedged by derivatives, designated and qualifying as fair 
value hedges, the fair value adjustment for the hedged risk to the 
carrying value of the hedged loans and advances is reported in fair 
value adjustments for hedged assets. 
 
   Loans and the related provision are written off when the underlying 
security is sold. Subsequent recoveries of amounts previously written 
off are taken through profit or loss. 
 
   2.     Accounting policies (continued) 
 
   Loans and advances over which the Group transfers its rights to the 
collateral thereon to the BoE under the TFS, TFSME and Indexed Long-Term 
Repo (ILTR) schemes are not derecognised from the Statement of Financial 
Position, as the Group retains substantially all the risks and rewards 
of ownership, including all cash flows arising from the loans and 
advances and exposure to credit risk. The Group classifies TFS, TFSME 
and ILTR as amortised cost under IFRS 9 Financial Instruments. 
 
   Loans and advances include a small acquired mortgage portfolio where the 
contractual cash flows include payments that are not solely payments of 
principal and interest and as such are measured at fair value through 
profit or loss. The Group initially recognises these loans at fair value, 
with direct and incremental costs of acquisition recognised directly in 
profit or loss and, subsequently measures them at fair value. 
 
   Loans and receivables contain the Group's asset finance lease lending. 
Finance leases are initially measured at an amount equal to the net 
investment in the lease, using the interest rate implicit in the finance 
lease. Direct costs are included in the initial measurement of the net 
investment in the lease and reduce the amount of income recognised over 
the lease term. Finance income is recognised over the lease term, based 
on a pattern reflecting a constant periodic rate of return on the net 
investment in the lease. 
 
   r)     Investment securities 
 
   Investment securities comprise securities held for liquidity purposes 
(UK treasury bills and Residential Mortgage-Backed Securities (RMBS)). 
These assets are non-derivatives that are designated as FVOCI or 
classified as amortised cost. 
 
   Assets classified as amortised cost are originally recognised at fair 
value and subsequently measured at amortised cost using the EIR method, 
less impairment losses. 
 
   Assets held at FVOCI are measured at fair value with movements taken to 
other comprehensive income and accumulated in the FVOCI reserve within 
equity, except for impairment losses which are taken to profit or loss. 
When the instrument is sold, the gain or loss accumulated in equity is 
reclassified to profit or loss. 
 
   s)     Deposits, debt securities in issue and subordinated liabilities 
 
   Deposits, debt securities in issue and subordinated liabilities are the 
Group's sources of debt funding. They comprise deposits from retail 
customers and credit institutions, including collateralised loan 
advances from the BoE under the TFS, TFSME and ILTR, asset-backed loan 
notes issued through the Group's securitisation programmes and 
subordinated liabilities. Subordinated liabilities include the Sterling 
PSBs where the terms allow no absolute discretion over the payment of 
interest. These financial liabilities are initially measured at fair 
value less direct transaction costs, and subsequently held at amortised 
cost using the EIR method. 
 
   Cash received under the TFS, TFSME and ILTR is recorded in amounts owed 
to credit institutions. Interest is accrued over the life of the 
agreements on an EIR basis. 
 
   t)      Sale and repurchase agreements 
 
   Financial assets sold subject to repurchase agreements (repo) are 
retained in the financial statements if they fail derecognition criteria 
of IFRS 9 described in paragraph p (iii) above. The financial assets 
that are retained in the financial statements are reflected as loans and 
advances to customers or investment securities and the counterparty 
liability is included in amounts owed to credit institutions or other 
 
 
 
   2.     Accounting policies (continued) 
 
   customers. Financial assets purchased under agreements to resell at a 
predetermined price where the transaction is financing in nature 
(reverse repo) are accounted for as loans and advances to credit 
institutions. The difference between the sale and repurchase price is 
treated as interest and accrued over the life of the agreement using the 
EIR method. 
 
   u)    Derivative financial instruments 
 
   The Group uses derivative financial instruments (interest rate swaps and 
basis swaps) to manage its exposure to interest rate risk. In accordance 
with its Treasury Policy, the Group does not hold or issue derivative 
financial instruments for proprietary trading. 
 
   Derivative financial instruments are recognised at their fair value with 
changes in their fair value taken to profit or loss. Fair values are 
calculated by discounting cash flows at the prevailing interest rates. 
All derivatives are classified as assets when their fair value is 
positive and as liabilities when their fair value is negative. If a 
derivative is cancelled, it is derecognised from the Statement of 
Financial Position. 
 
   The Group also uses derivatives to hedge the interest rate risk inherent 
in irrevocable offers to lend. This exposes the Group to movements in 
the fair value of derivatives until the loan is drawn. The changes to 
fair value are recognised in profit or loss in the period. 
 
   The Group is party to a limited number of options and warrants. These 
are recognised as a derivative financial instruments as applicable where 
a trigger event takes place and the fair value of the option or warrant 
can be reliably measured. 
 
   v)     Hedge accounting 
 
   The Group has chosen to continue to apply the hedge accounting 
requirements of IAS 39 instead of the requirements in Chapter 6 of IFRS 
9. The Group uses fair value hedge accounting for a portfolio hedge of 
interest rate risk. 
 
   Portfolio hedge accounting allows for hedge effectiveness testing and 
accounting over an entire portfolio of financial assets or liabilities. 
To qualify for hedge accounting at inception, the hedge relationship is 
clearly documented and the derivative must be expected to be highly 
effective in offsetting the hedged risk. In addition, effectiveness must 
be tested throughout the life of the hedge relationship. 
 
   The Group applies fair value portfolio hedge accounting to its fixed 
rate portfolio of mortgages and saving accounts. The hedged portfolio is 
analysed into repricing time periods based on expected repricing dates, 
utilising the Group Assets and Liabilities Committee (ALCO) approved 
prepayment curve. Interest rate swaps are designated against the 
repricing time periods to establish the hedge relationship. Hedge 
effectiveness is calculated as a percentage of the fair value movement 
of the interest rate swap against the fair value movement of the hedged 
item over the period tested. 
 
   The Group considers the following as key sources of hedge 
ineffectiveness: 
 
 
   1. 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; 
 
   2. the actual behaviour of the hedged item differing from expectations, such 
      as early repayments or withdrawals and arrears; 
 
   3. minimal movements in the yield curve leading to ineffectiveness where 
      hedge relationships are sensitive to small value changes; and 
 
   4. the transition relating to LIBOR reforms whereby some hedged instruments 
      and hedged items are based on different benchmark rates. 
 
   5. Accounting policies (continued) 
 
 
   Where there is an effective hedge relationship for fair value hedges, 
the Group recognises the change in fair value of each hedged item in 
profit or loss with the cumulative movement in their value being shown 
separately in the Statement of Financial Position as fair value 
adjustments on hedged assets and liabilities. The fair value changes of 
both the derivative and the hedge substantially offset each other to 
reduce profit volatility. 
 
   The Group discontinues hedge accounting when the derivative ceases 
through expiry, when the derivative is cancelled or the underlying 
hedged item matures, is sold or is repaid. 
 
   If a derivative no longer meets the criteria for hedge accounting or is 
cancelled whilst still effective, the fair value adjustment relating to 
the hedged assets or liabilities within the hedge relationship prior to 
the derivative becoming ineffective or being cancelled remains on the 
Statement of Financial Position and is amortised over the remaining life 
of the hedged assets or liabilities. The rate of amortisation over the 
remaining life is in line with expected income or cost generated from 
the hedged assets or liabilities. Each reporting period, the expectation 
is compared to actual with an accelerated run-off applied where the two 
diverge by more than set parameters. 
 
   w)    Debit and credit valuation adjustments 
 
   The DVA and CVA are included in the fair value of derivative financial 
instruments. The DVA is based on the expected loss a counterparty faces 
due to the risk of the Group's default. The CVA reflects the Group's 
risk of the counterparty's default. 
 
   The methodology is based on a standard calculation, taking into account: 
 
 
   1. the one-year PD, updated on a regular basis; 
 
   2. the expected exposure at default; 
 
   3. the expected LGD; and 
 
   4. the average maturity of the swaps. 
 
   5. 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. 
 
 
   1. Accounting policies (continued) 
 
   2. Share-based payments 
 
 
   Equity-settled share-based payments to employees providing services are 
measured at the fair value of the equity instruments at the grant date 
in accordance with IFRS 2. The fair value excludes the effect of 
non-market-based vesting conditions. 
 
   The cost of the awards are charged on a straight-line basis to profit or 
loss (with a corresponding increase in the share-based payment reserve 
within equity) over the vesting period in which the employees become 
unconditionally entitled to the awards. The cumulative expense within 
the share-based payment reserve is reclassified to retained earnings 
upon exercise. 
 
   The amount recognised as an expense for non-market conditions and 
related service conditions is adjusted each reporting period to reflect 
the actual number of awards expected to be met. The amount recognised as 
an expense for awards subject to market conditions is based on the 
proportion that is expected to meet the condition as assessed at the 
grant date. No adjustment is made to the fair value of each award 
calculated at grant date. 
 
   Share-based payments that are not subject to further vesting conditions 
(i.e. the Deferred Share Bonus Plan (DSBP) for senior managers) are 
expensed in the year services are received with a corresponding increase 
in equity. Awards granted to Executive Directors in March 2020 are 
subject to service conditions through to vesting and are expensed over 
the vesting period. Awards granted to Executive Directors in March 2021 
are not subject to future service conditions and are expensed in 2020 
where the service is deemed to have been provided. 
 
   Where the allowable cost of share-based options or awards for tax 
purposes is greater than the cost determined in accordance with IFRS 2, 
the tax effect of the excess is taken to the share-based payment reserve 
within equity. The tax effect is reclassified to retained earnings upon 
vesting. 
 
   Employer's national insurance is charged to profit or loss at the share 
price at the reporting date on the same service or vesting schedules as 
the underlying options and awards. 
 
   Own shares are recorded at cost and deducted from equity and represent 
shares of OSBG that are held by the Employee Benefit Trust. 
 
   aa)  Leases 
 
   The Group recognises right-of-use assets and lease liabilities for 
leases over 12 months long. Right-of-use assets and lease liabilities 
are initially recognised at the net present value of future lease 
payments, discounted at the rate implicit in the lease or, where not 
available, the Group's incremental borrowing cost. Subsequent to initial 
recognition, the right-of-use asset is depreciated on a straight-line 
basis over the term of the lease. Future rental payments are deducted 
from the lease liability, with interest charged on the lease liability 
using the incremental borrowing cost at the time of initial recognition. 
The Group recognises lease liability payments within financing 
activities in the Consolidated Statement of Cash Flows. 
 
   The Group assesses the likely impact of early terminations in 
recognising the right-of-use asset and lease liability where an option 
to terminate early exists. 
 
   Leases with low future payments or terms less than 12 months are 
recognised on an accruals basis directly in profit or loss. 
 
 
   1. Accounting policies (continued) 
 
   2. Adoption of new standards 
 
 
   International financial reporting standards issued and adopted for the 
first time in the year ended 31 December 2020 
 
   The following financial reporting standard amendments and 
interpretations were in issue and have been applied in the financial 
statements from 1 January 2020. 
 
 
   -- Amendments to the Conceptual Framework for Financial reporting, including 
      amendments to references to the Conceptual Framework in IFRS Standards. 
 
   -- Amendments to IFRS 3 -- Definition of a business. 
 
   -- Amendments to IAS 1 and IAS 8 -- Definition of material. 
 
 
   There has been no material impact on the financial statements of the 
Group from the adoption of these financial reporting standard amendments 
and interpretations. 
 
   International financial reporting standards issued but not yet adopted 
which are applicable to the Group 
 
   The following financial reporting standards were in issue but have not 
been applied in the financial statements, as they were yet effective on 
31 December 2020. 
 
   Effective for accounting periods beginning on or after 1 June 2020: 
 
   --Amendments to IFRS 16 -- COVID-19 related rent concessions 
 
   Effective for accounting periods beginning on or after 1 January 2021: 
 
 
   -- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate 
      Benchmark Reform -- Phase 2 
 
   -- Amendments to IAS 1 -- Classification of liabilities as current or 
      non-current. 
 
   -- Annual improvements to IFRS Standards 2018-2020 -- Minor amendments to 
      IFRS 1, IFRS 9 and IFRS 16. 
 
 
   The Group does not expect that the adoption of the financial reporting 
standards listed above will have a material impact on the financial 
statements of the Group in future periods. 
 
   3.     Judgements in applying accounting policies and critical 
accounting estimates 
 
   In preparing these financial statements, the Group has made judgements, 
estimates and assumptions which affect the reported amounts within the 
current and next financial year. Actual results may differ from these 
estimates. 
 
   Estimates and judgements are regularly reviewed based on past experience, 
expectations of future events and other factors. 
 
   Judgements 
 
   The Group has made the following key judgements in applying the 
accounting policies: 
 
 
   1. Judgements in applying accounting policies and critical accounting 
      estimates (continued) 
 
   2. Loan book impairments 
 
   Significant increase in credit risk for classification in stage 2 
 
   The Group's Significant Increase in Credit Risk (SICR) rules, prior to 
the COVID-19 pandemic, considered changes in default risk, internal 
impairment measures, changes in customer credit bureau files, or whether 
forbearance measures had been applied. The Group took steps to adjust 
the SICR criteria through the pandemic to account for the changes in 
risk profile and specifically for payment deferrals granted, noting that 
not all of the instances of a payment deferral would be a significant 
increase in credit risk. Payment deferrals granted due to COVID-19 alone 
were not automatically considered as a SICR event in line with issued 
guidance, and adjustments to the rules were as follows: 
 
 
   1. Payment deferrals considered as a SICR event where other significant high 
      risk factors are identified on customer's credit files; 
 
   2. Payment deferrals considered as a SICR event where an account also had 
      recent arrears; and 
 
   3. Customers with stress to their income considered as a SICR event. 
 
   4. IFRS 9 classification 
 
 
   The Group has applied judgement in determining whether the contractual 
terms of a financial asset give rise on specified dates to cash flows 
that are solely payments of principal or interest (SPPI) on the 
principal amount outstanding when applying the classification criteria 
of IFRS 9. The main area of judgement is over the Group's loans and 
advances to customers which have been accounted for under amortised cost 
with the exception of one acquired mortgage book of GBP19.1m (2019: 
GBP22.1m) 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 GBP111.0m (2019: GBP42.9m) at the 
reporting date as disclosed in note 24. 
 
   Modelled impairment 
 
   Modelled provision assessments are also subject to estimation 
uncertainty, underpinned by a number of estimates being made by 
management which are utilised within impairment calculations. Key areas 
of estimation within modelled provisioning calculations include those 
regarding the PD, the LGD and forward-looking macroeconomic scenarios. 
 
   Loss given default model 
 
   The Group has a number of LGD models, which include a number of 
estimated inputs including propensity to go to possession given default 
(PPD), forced sale discount (FSD), time to sale (TTS) and sale cost 
estimates. The LGD is sensitive to the application of the HPI. For the 
OSB segment at 31 December 2020 a 10% fall in house prices would result 
in an incremental GBP25.6m (2019: GBP13.6m) of provision being required. 
For the CCFS segment at 31 December 2020 a 10% fall in house prices 
would result in an incremental GBP13.9m (2019: GBP3.8m) of provision 
being required. The combined impact across both OSB and CCFS businesses 
of a 10% fall in house prices would result in an increase in total 
provisions of GBP39.5m (2019: GBP17.4m) as at 31 December 2020. 
 
   3.     Judgements in applying accounting policies and critical 
accounting estimates (continued) 
 
   Forward-looking macroeconomic scenarios 
 
   The forward-looking macroeconomic scenarios affect both the PD and LGD 
estimates. Therefore the expected credit losses calculations are 
sensitive to both the scenarios utilised and their associated 
probability weightings. 
 
   The Group sources economic forecasts from an appropriately qualified, 
independent third party. The Group considers four probability-weighted 
scenarios: base, upside, downside and severe downside scenarios. Due to 
the current uncertainty in relation to the ongoing COVID-19 global 
pandemic and the recently agreed Brexit trade agreement the choice of 
scenarios and weightings are subject to a significant degree of 
estimation. The Group's macroeconomic scenarios can be found in the 
Credit risk section of the Risk profile performance overview. 
 
   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: 
 
 
 
 
                                                                                       100% Severe 
As at                                        100% Base     100% Upside  100% Downside    downside 
 31-Dec-20                       Weighted   case scenario    scenario      scenario      scenario 
Total loans before provisions, 
 GBPm                            19,322.6        19,322.6     19,322.6       19,322.6     19,322.6 
Modelled ECL, GBPm                   71.6            54.6         40.1          113.5        166.7 
Non-modelled ECL, GBPm               39.4            39.4         39.4           39.4         39.4 
Total ECL, GBPm                     111.0            94.0         79.5          152.9        206.1 
ECL Coverage, %                      0.57            0.49         0.41           0.79         1.07 
 
 
 
 
 
 
As at 
 31-Dec-19 
Total loans before provisions, 
 GBPm                            18,467.6  18,467.6  18,467.6  18,467.6  18,467.6 
Modelled ECL, GBPm                   37.4      24.4      14.6      48.1      62.5 
Non-modelled ECL, GBPm                5.5       5.5       5.5       5.5       5.5 
Total ECL, GBPm                      42.9      29.9      20.1      53.6      68.0 
                                 --------  --------  --------  --------  -------- 
ECL Coverage, %                      0.23      0.16      0.11      0.29      0.37 
 
   (ii) Loan book acquisition accounting and income recognition 
 
   Acquired loan books are initially recognised at fair value. Significant 
estimation is required in calculating their EIR using cash flow models 
which include assumptions on the likely macroeconomic environment, 
including HPI, unemployment levels and interest rates, as well as loan 
level and portfolio attributes and history used to derive prepayment 
rates and the amount of incurred losses. 
 
   Through the Combination in 2019, the Precise Mortgages book is treated 
as an acquired book with a fair value uplift to book value, at the point 
of initial recognition, of GBP301.0m, reflecting a premium applied to 
the book. Fair value sensitivities have been completed on the Precise 
Mortgages book, including the market rate applied to the discounted cash 
flows, being one month LIBOR plus a margin (margin blended average used 
2.91%). Where the margin applied is increased/decreased by 25bps the 
initial premium recognised on the book increases/decreases by 
GBP66.0m/GBP67.0m. 
 
   The EIR on loan books purchased at significant discounts or premiums is 
particularly sensitive to the weighted average life of the loan book 
through the constant prepayment rate (CPR) and the constant default rate 
(CDR) estimates assumed, as the purchase discount or premium is 
recognised over the expected life of the loan book through the EIR. New 
defaults are modelled at zero loss (as losses will be 
 
   Judgements in applying accounting policies and critical accounting 
estimates (continued) 
 
   recognised in profit or loss as impairment losses) and therefore have 
the same impact on the EIR as prepayments. 
 
   Incurred losses at acquisition are calculated using the Group's modelled 
provision assessment (see (i) Loan book impairments above for further 
details). 
 
   The EIR calculated at acquisition is not changed for subsequent 
variances in actual to expected cash flows, unless the variance is due 
to changes in expectations of market rates of interest. The Group 
monitors the actual cash flows for each acquired book, and where they 
diverge significantly from expectation, the revised future cash flows 
are discounted at the original EIR, with any resulting change in carry 
value creating a corresponding gain or loss in the Statement of 
Comprehensive Income as Interest Income. In assessing whether to adjust 
future cash flows on an acquired portfolio, the Group considers the cash 
variance on an absolute and percentage basis. The Group also considers 
the total variance across all acquired portfolios and the economic 
outlook. The Group recognised a GBP3.5m loss in 2020 as a result of 
resetting cash flows on acquired books (2019: gain of GBP0.5m). The 
largest acquired book is Precise with sensitivities completed on 
increasing/reducing the life of the book by six months which results in 
a reset gain/loss of c. GBP33m/GBP37m (2019: c.GBP48m/GBP50m). 
 
   (iii)  Effective interest rate on organic lending 
 
   Estimates are made when calculating the EIR for newly-originated loan 
assets. These include the likely customer redemption profiles. 
 
   Mortgage products offered by the Group include directly attributable net 
fee income and a period on reversion rates after the fixed/discount 
period. Products revert to the standard variable rate (SVR) or Base plus 
a margin for the Kent Reliance brand or a LIBOR/Base plus a margin for 
the Precise brand. The Group uses historical customer behaviours, 
expected take-up rate of retention products and macroeconomic forecasts 
in its assessment of prepayment rates. Customer prepayments in a fixed 
rate or incentive period can give rise to Early Repayment Charge (ERC) 
income. 
 
   Estimation is used in assessing whether and for how long mortgages that 
reach the end of the initial product term stay on reversion rates, and 
to the quantum and timing of prepayments that incur ERCs. The estimate 
of customer weighted average life will determine the period over which 
net fee income and expected reversionary income is recognised. 
 
   Sensitivities have been applied to the Precise and Kent Reliance loan 
books, to illustrate the impact on interest income of a change in the 
expected weighted average lives of the loan books. An extension of the 
expected life will typically result in increased expectations of post 
reversionary income, less ERCs and a recognition of net fee income over 
a longer period. A shortening of the expected life will lead to reduced 
post reversionary income, more ERCs and a recognition of net fees over a 
shorter period. 
 
   The potential duration of a change in customer behaviour as a result of 
COVID-19 remains uncertain. However, a period of six months' variance in 
the weighted average lives of the loan books was selected for this 
sensitivity, given the initial quick recovery in the property and 
mortgage markets post national lockdown experienced in 2020. This 
recovery was due, in part, to government stimulus in the form of a 
temporary reduction in stamp duty and the provision of cheaper funding 
to banks, in the form of the Bank of England's Term Funding Scheme for 
SMEs. 
 
   Applying a six month extension in the expected weighted average life of 
the organic loan books, would result in a gain of c. GBP22.6m (2019: 
GBP23.6m) recognised in Net Interest Income. It includes a c. GBP13.8m 
(2019: GBP19.5m) gain in relation to the Kent Reliance loan book, where 
the impact of the proactive Choices programme, which offers borrowers a 
new product as an alternative to paying the Bank's higher Standard 
Variable Rate (SVR), may significantly reduce the likelihood of 
borrowers extending the period of time paying SVR and reduce the amount 
of the potential reset gain. 
 
   Applying a six month reduction in the expected weighted average life of 
the loan books, would result in a reset loss of c. GBP6.9m (2019: 
GBP4.6m) recognised in Net Interest Income. This includes c. GBP2.0m 
(2019: GBP0.4m) gain in relation to the Kent Reliance loan book. 
 
   4.     Interest receivable and similar income 
 
 
 
 
                                                   2020    2019 
                                                   GBPm    GBPm 
At amortised cost: 
On OSB mortgages                                   500.6   480.5 
On CCFS mortgages                                  331.9    80.2 
On investment securities                             2.5     0.6 
On other liquid assets                               5.3    12.2 
Amortisation of fair value adjustments on 
 CCFS Combination(1)                              (67.8)  (22.6) 
Amortisation of fair value adjustments on 
 hedged assets(2)                                 (17.9)       - 
At fair value through profit or loss: 
Net expense on derivative financial instruments 
 - lending activities                             (47.7)  (14.0) 
On CCFS mortgages                                      -     0.3 
At FVOCI: 
On investment securities                             5.0     2.7 
                                                   711.9   539.9 
------------------------------------------------  ------  ------ 
 
   (1) Amortisation of fair value adjustments on CCFS loan book at 
Combination. 
 
   (2) The amortisation relates to hedged assets where the hedges were 
terminated before maturity and were effective at the point of 
termination. 
 
   5.     Interest payable and similar charges 
 
 
 
 
                                                  2020   2019 
                                                  GBPm   GBPm 
On retail deposits                                245.5  177.3 
On BoE borrowings                                   8.4   13.3 
On perpetual subordinated bonds                     1.7    1.8 
On subordinated liabilities                         0.8    0.7 
On wholesale borrowings                             1.3    1.9 
On debt securities in issue                         3.4    3.7 
On lease liabilities                                0.3    0.1 
Amortisation of fair value adjustments on 
 CCFS Combination(1)                              (3.3)  (1.0) 
Net income on derivative financial instruments 
 - savings activities                            (18.4)  (2.6) 
                                                  239.7  195.2 
-----------------------------------------------  ------  ----- 
 
 
   (1) Amortisation of fair value adjustments on CCFS customer deposits at 
Combination. 
 
   6.     Fair value gains/(losses) on financial instruments 
 
 
 
 
                                                     2020     2019 
                                                     GBPm     GBPm 
Fair value changes in hedged assets                   107.3    70.1 
Hedging of assets                                   (116.8)  (75.1) 
Fair value changes in hedged liabilities              (4.1)   (4.6) 
Hedging of liabilities                                  6.8     4.8 
Ineffective portion of hedges                         (6.8)   (4.8) 
Net (losses)/gains on unmatched swaps                (18.0)     3.5 
Amortisation of inception adjustments                  13.0       - 
Amortisation of acquisition related inception 
 adjustments                                           17.0     3.3 
Amortisation of de-designated hedge relationships       2.4       - 
Fair value movements on mortgages at FVTPL            (0.2)       - 
Amortisation of fair value adjustments on 
 hedged assets                                            -   (5.5) 
Debit and credit valuation adjustment                     -     0.2 
                                                        7.4   (3.3) 
 
 
   Amortisation of inception adjustments relates in part to hedged assets 
and liabilities recognised on the Combination where pre-existing hedge 
relationships ceased on the date of Combination. The inception 
adjustment is being amortised over the life of the derivative 
instruments acquired on Combination and recognises an offsetting asset 
or liability to the fair value of the derivative instruments on the date 
of Combination. The remainder of the amortisation of inception 
adjustment relates to the amortisation of the hedging adjustments 
arising when hedge accounting commences, primarily on derivative 
instruments previously taken out against the mortgage pipeline and also 
on derivative instruments previously taken out against new retail 
deposits. 
 
   7.     Gain/loss on sales of financial instruments 
 
   On 17 January 2020, the Group sold the Canterbury A2 note for proceeds 
of GBP225.4m. After incurring costs of GBP0.2m, a gain on sale of 
GBP1.9m was recognised. 
 
   On 23 January 2020, the Group sold the F note and residual certificates 
of the Canterbury securitisation for proceeds of GBP23.6m. Following the 
sale the Group had no remaining interest in the Canterbury 
securitisation. As a result, consolidation of Canterbury into the Group 
ceased on disposal. The Group recognised a gain on sale of GBP16.0m upon 
deconsolidation. 
 
   On 23 January 2020, the Group securitised GBP375.5m of mortgage loans 
through Precise Mortgage Funding 2020-1B plc (PMF 2020-1B), issuing 
GBP388.9m of Sterling floating rate notes. The Group retained the class 
A2 notes, with all other note classes and the residual certificates 
being sold to the external market. As such, the Group has not 
consolidated PMF 2020-1B as substantially all of the risks and rewards 
have been transferred. The Group recognised a gain on sale of GBP2.0m on 
disposal. Excluding the impact of the fair value adjustment on the 
mortgages on Combination with OSB of GBP13.1m, the underlying gain on 
sale was GBP15.1m. 
 
   On 14 September 2020, the Group sold GBP150.0m of Canterbury 3 A2 notes 
for GBP150.1m, resulting in a gain on sale of GBP0.1m. 
 
   In 2019, the Group identified an additional GBP0.1m of customer receipts 
due to the purchaser of the personal loan portfolio in the prior year, 
recognising an additional loss on sale of GBP0.1m. 
 
   8.     Other income 
 
 
 
 
                                                  2020  2019 
                                                  GBPm  GBPm 
Interest received on mortgages held at FVTPL(1)   0.6     - 
Fees and commissions receivable                    8.4    3.4 
Other operating costs(2)                             -  (1.3) 
                                                   9.0    2.1 
------------------------------------------------  ----  ----- 
 
   (1) In 2019, GBP0.3m interest received on mortgages held at FVTPL was 
included in interest receivable and similar income (see note 4.). 
 
   (2) Other operating costs includes commission expense incurred on retail 
savings generated from the branch network which is included in 
administration expenses from 2020. 
 
   9.     Administrative expenses 
 
 
 
 
                             2020   2019 
                             GBPm   GBPm 
Staff costs                   86.0   60.5 
Facilities costs               5.7    3.6 
Marketing costs                5.1    4.0 
Support costs                 18.4   12.7 
Professional fees             22.3   10.4 
Other costs(1)                 5.7    9.3 
Depreciation (see note 31)     5.6    3.9 
Amortisation (see note 32)     8.2    4.3 
                             157.0  108.7 
---------------------------  -----  ----- 
 
   (1) In 2019, other costs mainly comprised irrecoverable VAT. In 2020, 
the Group included irrecoverable VAT within the underlying expense. 
 
   9.     Administrative expenses (continued) 
 
   Included in professional fees are amounts paid to the Company's auditor 
as follows: 
 
 
 
 
                                               2020     2019 
                                              GBP'000  GBP'000 
Fees payable to the Company's auditor for 
 the audit of the Company's annual accounts        65    1,269 
Fees payable to the Company's auditor for 
 the audit of the accounts of subsidiaries      2,198      846 
Total audit fees                                2,263    2,115 
Audit-related assurance services(1)               217      187 
Other assurance services(2)                        45      142 
Other non-audit services(3)                       101        - 
Total non-audit fees                              363      329 
--------------------------------------------  -------  ------- 
Total fees payable to the Company's auditor     2,626    2,444 
 
   (1) Includes review of interim financial information and profit 
verifications 
 
   (2) 2020 costs comprise an assurance review of APMs, 2019 costs related 
to the Combination and agreed upon procedures in respect of 
securitisations 
 
   (3) Primarily comprises work related to the insertion of a new holding 
company. 
 
   Staff costs comprise the following: 
 
 
 
 
                                             2020  2019 
                                             GBPm  GBPm 
Salaries, incentive pay and other benefits   68.5  49.1 
Share-based payments                          5.1   4.0 
Social security costs                         8.1   4.4 
Other pension costs                           4.3   3.0 
                                             86.0  60.5 
                                             ----  ---- 
 
 
   The average number of people employed by the Group (including Executive 
Directors) during the year is analysed below. For 2019, the average for 
CCFS is based on the post Combination period. 
 
 
 
 
                    2020   2019 
 
OSB 
Operations            835    812 
Support functions     297    286 
CCFS 
Operations            579    530 
Support functions     105    161 
                    1,816  1,789 
------------------  -----  ----- 
 
 
 
 
   10.  Impairment of intangible assets 
 
   Assets arising on the Combination with CCFS in 2019 included a broker 
relationships intangible asset with a fair value of GBP17.1m on 
Combination. A key input to the calculation of the fair value was CCFS 
anticipated lending volumes over three years post combination which have 
been revised due to COVID-19 impacts, with an impairment of GBP7.0m 
recognised. The remaining carrying value of the broker relationships 
intangible asset at 31 December 2020 is GBP5.8m (2019: GBP16.1m). 
 
   11.  Directors' emoluments and transactions 
 
 
 
 
 
 
                                   2020     2019 
                                  GBP'000  GBP'000 
Short-term employee benefits(1)     2,675    2,334 
Post-employment benefits               99      112 
Share-based payments(2)               425      632 
                                    3,199    3,078 
--------------------------------  -------  ------- 
 
 
 
 
   (1) Short-term employee benefits comprise Directors' salary costs, 
Non-Executive Directors' fees and other short-term incentive benefits, 
which are disclosed in the Annual Report on Remuneration. 
 
   (2) Share-based payments represent the amounts received by Directors for 
schemes that vested during the year. 
 
   In addition to the total Directors' emoluments above, the Executive 
Directors were granted deferred bonuses of GBP495k (2019: GBP511k) in 
the form of shares. The DSBP awards that will be granted in March 2021 
will have a holding period of three years with no further conditions 
attached other than standard clawback situations. In March 2020 and 
prior, the DSBP awards were subject to either a three or five year 
vesting period with conditions attached, notably if the Director leaves 
prior to vesting, the award is forfeited unless a good leaver reason 
applies such as redundancy, retirement or ill health. 
 
   The Executive Directors received a further share award under the PSP 
with a grant date fair value of GBP1,359k (2019: GBP1,305k) using a 
share price of GBP2.58 (2019: GBP3.90) (the average mid-market quotation 
for the preceding five days before grant). These shares vest annually 
from year three in tranches of 20 per cent, subject to performance 
conditions discussed in note 12 and the Annual Report on Remuneration. 
 
   The Directors of the Company are employed and compensated by OneSavings 
Bank plc. 
 
   Some Non-Executive Directors who left office during the year, received a 
payment equal to three months' fee in lieu of the unexpired period of 
notice, totalling GBP59k. There was no compensation for loss of office 
during 2019. 
 
   There were no outstanding loans granted in the ordinary course of 
business to Directors and their connected persons as at 31 December 2020 
and 2019. 
 
   The Annual Report on Remuneration and note 12 Share-based payments 
provide further details on Directors' emoluments. 
 
   12.  Share-based payments 
 
   Following the insertion of OSB GROUP PLC as the holding company on 27 
November 2020, the share awards and options over OneSavings Bank plc 
shares were automatically transferred to OSB GROUP PLC shares. 
 
   The Group operates the following share-based schemes: 
 
   Sharesave Scheme 
 
   The Save As You Earn (SAYE) or Sharesave Scheme is a share option scheme 
which is available to all UK-based employees. The Sharesave Scheme 
allows employees to purchase options by saving a fixed amount of between 
GBP5 and GBP500 per month over a period of either three or five years at 
the end of which the options, subject to leaver provisions, are usually 
exercisable. If not exercised, the amount saved is returned to the 
employee. The Sharesave Scheme has been in operation since 2014 and an 
invitation to join the scheme is usually extended annually, with the 
option price calculated using the mid-market price of an OSB GROUP PLC 
ordinary share over the three dealing days prior to the Invitation Date 
and applying a discount of 20%. 
 
   Deferred Share Bonus Plan (DSBP) 
 
   The DSBP applies to Executive Directors and certain senior managers with 
50% of their performance bonuses to be deferred in shares for three 
years for Executive Directors and one or five years for senior managers. 
There are no further performance or vesting conditions attached to 
deferred awards for senior managers, which also applies to Executive 
Directors for awards granted from March 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 March 2021 to Executive Directors are entitled to dividend 
equivalents; awards granted in prior years were not entitled to dividend 
equivalents. 
 
   Performance Share Plan (PSP) 
 
   Executive Directors and certain senior managers are also eligible for a 
PSP award based on performance conditions and vest in tranches over 
three to seven years. 
 
   The performance conditions that apply to PSP awards from 2020 are based 
on a combination of earnings per share (EPS) weighting of 35%, total 
shareholder return (TSR) 35%, risk-based 15% and return on equity (ROE) 
15%. Prior to 2020, PSP awards were based on a combination of EPS 
weighting of 40%, TSR 40% and ROE 20%. The PSP conditions are assessed 
independently. For the EPS element, growth targets are linked to the 
Company's three-year growth plan, measuring growth from the base figure 
for the prior year. For the TSR element, the Company's ordinary shares 
relative performance is measured against the FTSE 250 (excluding 
investment trusts). The risk-based measure is assessed against the risk 
management performance with regard to all relevant risks including, but 
not limited to, an assessment of regulatory risk, operational risk, 
conduct risk, liquidity risk, funding risk, marketing risk and credit 
risk. For the ROE element, growth rates are assessed against OSB GROUP 
PLC's underlying profit after taxation as a percentage of average 
shareholders' equity. 
 
   As part of the Combination, the Group granted mirror PSP awards for the 
2018 and 2019 CCFS schemes that terminated upon the Combination. The 
mirror PSP schemes follow the same performance conditions as the Group's 
2018 and 2019 PSP awards. 
 
   The share-based expense for the year includes a charge in respect of the 
Sharesave Scheme, DSBP and PSP. All charges are included in employee 
expenses within note 9 Administrative expenses. 
 
   12.  Share-based payments (continued) 
 
   The share-based payment expense during the year comprised the following: 
 
 
 
 
                            2020  2019 
                            GBPm  GBPm 
Sharesave Scheme             0.5   0.2 
Deferred Share Bonus Plan    3.9   1.3 
Performance Share Plan       0.7   2.5 
                             5.1   4.0 
--------------------------  ----  ---- 
 
 
   Movements in the number of share awards and their weighted average 
exercise prices are set out below: 
 
 
 
 
                                                 Deferred 
                                                Share Bonus  Performance 
                         Sharesave Scheme          Plan       Share Plan 
                                   Weighted 
                                    average 
                                    exercise 
                       Number      price, GBP     Number       Number 
At 1 January 2020      2,869,146         2.63       738,473    3,096,371 
Granted                1,483,202         2.29       839,735    2,756,176 
Exercised/Vested     (1,080,430)         2.32     (449,608)    (383,205) 
Forfeited              (526,586)         2.79       (8,843)    (482,815) 
At 31 December 2020    2,745,332         2.53     1,119,757    4,986,527 
-------------------  -----------  -----------  ------------  ----------- 
Exercisable at: 
31 December 2020         118,402         2.89             -            - 
                     -----------  -----------  ------------ 
 
 
 
 
 
 
 
At 1 January 2019                  841,629  2.93  1,258,712  1,737,997 
Granted                          1,261,307  2.65    476,933  1,079,392 
CCFS mirror/roll over schemes    1,183,475  2.42          -    931,853 
Exercised/Vested                 (154,963)  1.96  (920,891)  (235,241) 
Forfeited                        (262,302)  3.23   (76,281)  (417,630) 
At 31 December 2019              2,869,146  2.63    738,473  3,096,371 
-------------------------------             ----  ---------  --------- 
Exercisable at: 
31 December 2019                         -     -          -          - 
                                 ---------  ----  --------- 
 
 
   For the share-based awards granted during the year, the weighted average 
grant date fair value was 188 pence (2019: 208 pence). 
 
   12.  Share-based payments (continued) 
 
   The range of exercise prices and weighted average remaining contractual 
life of outstanding awards are as follows: 
 
 
 
 
                                           2020                      2019 
                                              Weighted                  Weighted 
                                               average                   average 
                                              remaining                 remaining 
                                             contractual               contractual 
Exercise price                    Number     life (years)   Number     life (years) 
Sharesave Scheme 
227-335 pence (2019: 134 - 335 
 pence)                          2,745,332            2.5  2,869,146            2.0 
Deferred Share Bonus Plan 
Nil                              1,119,757            0.7    738,473            0.6 
Performance Share Plan 
Nil                              4,986,527            2.5  3,096,371            1.7 
                                 8,851,616            2.3  6,703,990            1.7 
-------------------------------  ---------  -------------  ---------  ------------- 
 
 
   Sharesave Scheme 
 
 
 
 
                           2020        2019        2018        2017        2016 
Contractual life, 
 years                     3     5     3     5     3     5     3     5     3     5 
Share price at issue, 
 GBP                    2.86  2.86  3.32  3.32  4.19  4.19  3.93  3.93  3.00  3.00 
Exercise price, 
 GBP                    2.29  2.29  2.65  2.65  3.35  3.35  3.15  3.15  2.40  2.40 
Expected volatility, 
 %                      57.6  57.6  31.9  31.9  16.1  16.5  18.0  17.3  18.4  20.1 
Dividend yield, 
 %                       3.3   3.3   4.8   4.8   4.4   4.4   4.1   4.1   4.6   4.6 
Grant date fair 
 value, GBP             1.22  1.34  0.90  0.91  0.40  0.43  0.75  0.70  0.10  0.15 
----------------------  ----  ----  ----  ----  ----  ----  ----  ----  ----  ---- 
 
 
   The share save schemes are not entitled to dividends between the option 
and exercise date. A Black Scholes model is used to determine the grant 
date fair value with two inputs: 
 
 
   --        Expected volatility - from 2019, the expected volatility is based 
      on the Company's share price. Prior to this the Group used the FTSE 350 
      diversified financials volatility as insufficient history was available 
      for the Company's share price. 
 
   --        Dividend -- based on the average dividend yield across external 
      analyst reports for the quarter prior to scheme grant date. 
 
 
   Deferred Share Bonus Plan 
 
 
 
 
                    2020  2019  2018     2017 
Contractual life, 
 years                 3     3     3     3     5 
Mid-market share 
 price, GBP         2.58  3.96  3.80  4.04  4.04 
Attrition rate, 
 %                     -   8.4   9.7  11.8  11.8 
Dividend yield, 
 %                   5.6   4.7   4.6   4.0   4.0 
Grant date fair 
 value, GBP         2.21  3.47  3.34  3.61  3.37 
------------------  ----  ----  ----  ----  ---- 
 
 
 
 
   12.  Share-based payments (continued) 
 
   For DSBP awards where conditions exist, an attrition rate is applied as 
an estimate of the actual number of awards that will meet the related 
conditions at the vesting date. These schemes carry no rights to 
dividend equivalents and a Black Scholes model is used to determine the 
grant date fair value with a dividend yield input applied -- based on 
the average dividend yield across external analyst reports for the 
quarter prior to scheme grant date. 
 
   Performance Share Plan 
 
   Performance awards are typically made annually at the discretion of the 
Remuneration Committee. Awards are based on a mixture of internal 
financial performance targets, risk-based measures and relative TSR. 
 
   Performance conditions exist for the scheme notably that you are 
employed by the Company at the vesting date, with good leaver exceptions, 
and an attrition rate is applied as an estimate of the actual number of 
awards that will meet the related conditions at the vesting date. 
 
   The awards are not entitled to a dividend equivalent between grant date 
and vesting and a Black Scholes model is used to determine the grant 
date fair value with a dividend yield input applied -- based on the 
average dividend yield across external analyst reports for the quarter 
prior to scheme grant date. 
 
   The fair value of an option that is subject to market conditions (the 
relative share price element of the Performance Share Plan) is 
determined at grant date using a Monte Carlo model at the time of grant. 
 
   The inputs into the models are as follows: 
 
 
 
 
                       2020  2019  2018  2017 
Contractual life, 
 years                  3-7     3     3     3 
Mid-market share 
 price, GBP            2.58  3.96  4.11  4.04 
Attrition rate, 
 %                      7.3   8.4   9.7  11.8 
Expected volatility, 
 %                     43.9  26.8  29.1  63.7 
Dividend yield, 
 %                      5.6   4.7   4.6   4.0 
Vesting rate - TSR 
 %                     27.8  44.9  54.0  60.0 
Grant date fair 
 value, GBP            2.06  3.47  3.61  3.61 
---------------------  ----  ----  ----  ---- 
 
 
   CCFS PSP Mirror Schemes 
 
 
 
 
                       2019  2018 
Contractual life, 
 years                    3     2 
Mid-market share 
 price, GBP            3.54  3.54 
Expected volatility, 
 %                     28.6  28.6 
Attrition rate, 
 %                        -     - 
Dividend yield, 
 %                      4.8   4.8 
Vesting rate - TSR, 
 %                     37.4  37.4 
Grant date fair 
 value, GBP            3.29  3.17 
---------------------  ----  ---- 
 
 
 
 
   13.  Integration costs 
 
 
 
 
                  2020       2019 
                  GBPm       GBPm 
Consultant fees    1.7              3.0 
Staff costs        8.1              2.2 
                   9.8              5.2 
----------------  ---- 
 
 
   Consultant fees relate to advice on the Group's future operating 
structure. 
 
   Staff costs relate to key personnel who will leave the Group under the 
new operating model, but have been retained to assist in the integration 
for a fixed period. 
 
   14.   Exceptional items 
 
 
 
 
                              2020       2019 
                              GBPm       GBPm 
Consultant fees                2.0              4.0 
Legal and professional fees    1.3              4.6 
Success fees                     -              7.0 
                               3.3             15.6 
----------------------------  ----  --------------- 
 
 
   Exceptional items for 2020 relate to the insertion of OSB GROUP PLC as 
the new holding company and listed entity of the Group. 2019 expenses 
relate to the all-share Combination with CCFS. 
 
   15.  Taxation 
 
   The Group publishes its tax strategy on its corporate website. The table 
below shows the components of the Group's tax charge for the year: 
 
 
 
 
                                                       2020         2019 
                                                       GBPm         GBPm 
Corporation taxation                                  (79.7)            (57.1) 
Deferred taxation                                        0.8             (0.2) 
Release of deferred taxation on CCFS Combination(1)     14.8               7.0 
Total taxation                                        (64.1)            (50.3) 
----------------------------------------------------  ------  ---------------- 
 
 
   (1) Release of deferred taxation on CCFS Combination relates to the fair 
value unwind of the CCFS assets and liabilities at the acquisition date. 
 
   15.  Taxation (continued) 
 
   The charge for taxation on the Group's profit before taxation differs 
from the charge based on the standard rate of UK Corporation Tax of 19% 
(2019: 19%) as follows: 
 
 
 
 
                                                   2020         2019 
                                                   GBPm         GBPm 
Profit before taxation                             260.4             209.1 
Profit multiplied by the standard rate of 
 UK Corporation Tax (19%)                         (49.5)            (39.7) 
Bank surcharge(1)                                 (11.0)             (8.5) 
Taxation effects of: 
Expenses not deductible for taxation purposes      (1.6)             (3.0) 
Impact of deferred tax rate change                 (4.4)                 - 
Negative goodwill on acquisition not taxable           -               2.0 
Adjustments in respect of earlier years              0.4             (2.7) 
Tax adjustments in respect of share-based 
 payments                                          (0.8)             (0.7) 
Impact of tax losses carried forward                   -               0.5 
Tax on coupons paid on non-controlling interest 
 securities                                          1.5               1.0 
Timing differences on capital items                  1.3               0.2 
Other                                                  -               0.6 
Total taxation charge                             (64.1)            (50.3) 
------------------------------------------------  ------  ---------------- 
 
 
   (1) Tax charge for the two banking entities of GBP18.4m offset by the 
tax impact of unwinding CCFS Combination items of GBP5.8m (2019: Tax 
charge for the two banking entities of GBP10.4m offset by the tax impact 
of unwinding CCFS Combination items of GBP1.9m). 
 
   Factors affecting tax charge for the year 
 
   The effective tax rate for the year ended 31 December 2020, excluding 
the impact of the deferred tax rate change and adjustments in respect of 
earlier years, was 23.1% (2019: 22.8%). 
 
   The GBP(4.4)m impact of the deferred tax rate change relates 
predominantly to the deferred tax liability from the CCFS combination 
(see note 30). 
 
   During the year a tax charge of GBP0.3m (2019: tax charge of GBP1.1m) of 
tax has been recognised directly within equity relating to the Group's 
share-based payment schemes. 
 
   During the year a tax credit of GBP0.5m (2019: tax credit of GBP0.2m) 
has been recognised within other comprehensive income relating to 
investment securities classified as FVOCI. 
 
   15.  Taxation (continued) 
 
   Factors that may affect future tax charges 
 
   In the March 2020 Budget, it was announced that the cuts in corporation 
tax rate to 18% and then to 17% previously enacted would not occur with 
the corporation tax rate held at 19%. As a result, closing deferred tax 
balances are calculated at 19% with the impact of the increase from 
17%/18% to 19% reflected in the period. 
 
   On 3 March 2021, the government announced that the corporation tax rate 
will increase from 19% to 25% from 1 April 2023. This rate change was 
not substantively enacted at the balance sheet date and so has not been 
reflected in these financial statements. The government has also 
acknowledged that this increase in the main rate will result in an 
uncompetitive position for UK banks which also currently pay the 8% Bank 
Surcharge, and so has also announced a review of the Bank Surcharge will 
take place in Autumn 2021. Given that the majority of the Group's 
deferred tax is recognised at the combined corporation tax and Bank 
Surcharge rate, we are not yet able to estimate the impact of the 
combined rate changes on our deferred tax balances. We have assessed the 
impact of the increase of the corporation tax rate in isolation and 
concluded that it will not have a material impact on the Group's 
deferred tax balances. 
 
   16.  Earnings per share 
 
   Earnings per share (EPS) are based on the profit for the year and the 
weighted average number of ordinary shares in issue. Basic EPS are 
calculated by dividing profit attributable to ordinary shareholders by 
the weighted average number of ordinary shares in issue during the year. 
Diluted EPS take into account share options and awards which can be 
converted to ordinary shares. 
 
   For the purpose of calculating EPS, profit attributable to ordinary 
shareholders is arrived at by adjusting profit for the year for the 
coupons on non-controlling interest securities classified as equity: 
 
 
 
 
                                                      2020   2019 
                                                      GBPm   GBPm 
Statutory profit after tax                            196.3  158.8 
Less: Coupon on non-controlling interest securities 
 classified as equity                                 (5.5)  (5.5) 
Statutory profit attributable to ordinary 
 shareholders                                         190.8  153.3 
----------------------------------------------------  -----  ----- 
 
 
 
 
 
 
                                                 2020   2019 
Weighted average number of shares, millions 
Basic                                            446.2  291.6 
Dilutive impact of share-based payment schemes     4.0    1.8 
Diluted                                          450.2  293.4 
Earnings per share, pence per share 
Basic                                             42.8   52.6 
Diluted                                           42.4   52.2 
 
 
 
 
   17.  Dividends 
 
   On 27 November 2020, OSB GROUP PLC became the ultimate parent company, 
and soon after the listed entity of Group, replacing OneSavings Bank plc 
which is now a 100% subsidiary of OSB GROUP PLC. There were no dividends 
paid in the period since the ultimate parent company was inserted. 
 
 
 
 
                                      OSB GROUP PLC & 
                                      OneSavings Bank     OneSavings Bank 
                                            plc            plc 
                                            2020           2019 
                                   GBPm  Pence per share  GBPm  Pence per share 
Final dividend for the prior 
 year                                 -                -  25.3             10.3 
Interim dividend for the current 
 year                                 -                -  12.0              4.9 
                                      -                   37.3 
--------------------------------- 
 
 
   The Directors recommend a final dividend of GBP64.9m, 14.5 pence per 
share (2019: nil, nil) payable on 2 June 2021 with an ex-dividend date 
of 15 April 2021 and a record date of 16 April 2021. This dividend is 
not reflected in these financial statements as it is subject to approval 
by shareholders at the AGM on 27 May 2021. This will make up the total 
dividend for 2020 of GBP64.9m, 14.5 pence per share (2019: GBP12.0m, 4.9 
pence per share). 
 
   As at 31 December 2020 OSB GROUP PLC had no distributable reserves 
(2019: nil). The Company reduced the nominal value of OSB GROUP PLC 
shares from 304 pence each to 1 penny each on 26 February 2021 (see note 
52). The recommended dividend of GBP64.9m will be made out of the 
distributable reserve position following this capital reduction 
exercise. 
 
   18.  Cash and cash equivalents 
 
   The following table analyses the cash and cash equivalents disclosed in 
the Consolidated Statement of Cash Flows: 
 
 
 
 
                                                2020     2019 
                                                GBPm     GBPm 
Cash in hand                                       0.5      0.4 
Unencumbered loans and advances to credit 
 institutions                                  2,370.1  2,052.5 
Investment securities with original maturity 
 less than 3 months                                  -     49.9 
                                               2,370.6  2,102.8 
---------------------------------------------  -------  ------- 
 
 
 
 
   19.  Loans and advances to credit institutions 
 
 
 
 
                                            2020     2019 
                                            GBPm     GBPm 
Unencumbered: 
BoE call account                           2,256.5  1,916.2 
Call accounts                                 55.6     81.7 
Cash held in special purpose vehicles(1)      51.0     44.0 
Term deposits                                  7.0     10.6 
Encumbered: 
BoE cash ratio deposit                        52.3     41.7 
Cash held in special purpose vehicles(1)      42.7        - 
Cash margin given                            211.1    110.4 
                                           2,676.2  2,204.6 
-----------------------------------------  -------  ------- 
 
 
   (1) Cash held in special purpose vehicles is ring-fenced for the use in 
managing the Group's securitised debt facilities under the terms of 
securitisation agreements. 
 
   20. Investment securities 
 
 
 
 
                               2020   2019 
                               GBPm   GBPm 
Held at FVOCI: 
UK and EU Sovereign debt           -  149.8 
RMBS loan notes                285.0  358.9 
                               285.0  508.7 
Held at amortised cost: 
RMBS loan notes                186.2  126.6 
                               186.2  126.6 
Less: Expected credit losses       -      - 
                               186.2  126.6 
                               471.2  635.3 
 
 
   At 31 December 2020 the Group had GBP147.1m (2019: GBP173.0m) of FVOCI 
RMBS and GBP13.7m (2019: nil) of amortised cost RMBS loan notes sold 
under repos. 
 
   The Directors consider that the primary purpose of holding investment 
securities is prudential. These securities are held as liquid assets 
with the intention of use on a continuing basis in the Group's 
activities and are classified as FVOCI and amortised cost in accordance 
with the Group's business model for each security. 
 
   20.  Investment securities (continued) 
 
   Movements during the year of investment securities held by the Group are 
analysed as follows: 
 
 
 
 
                                 2020     2019 
                                 GBPm     GBPm 
At 1 January                      635.3     58.9 
 Additions(1)                     291.6    439.8 
 CCFS Combination                     -    493.5 
 Disposals and maturities(2)    (457.2)  (357.7) 
 Movement in accrued interest       0.5        - 
 Changes in fair value              1.0      0.8 
At 31 December                    471.2    635.3 
                                -------  ------- 
 
   (1) Additions include GBP100.7m of retained RMBS loan notes following 
the deconsolidation of PMF 2020-1B. 
 
   (2) Disposals and maturities include GBP49.9m of UK Sovereign debt which 
had an original maturity of less than three months. 
 
   At 31 December 2020, investment securities included investments in 
unconsolidated structured entities (note 46) of GBP100.7m (2019: nil) 
notes in PMF 2020-1B and GBP285.0m (2019: GBP358.9m) notes in PMF 
2019-1B. The investments represent the maximum exposure to loss from 
unconsolidated structured entities. 
 
   21.   Loans and advances to customers 
 
 
 
 
                                               2020      2019 
                                               GBPm      GBPm 
Held at amortised cost: 
Loans and advances (see note 22)             19,257.1  18,419.9 
Finance leases (see note 23)                     65.5      47.7 
                                             19,322.6  18,467.6 
Less: Expected credit losses (see note 24)    (111.0)    (42.9) 
                                             19,211.6  18,424.7 
Residential mortgages held at fair value         19.1      22.1 
                                             19,230.7  18,446.8 
-------------------------------------------  -------- 
 
 
   22.  Loans and advances 
 
 
 
 
                            2020                         2019 
                   OSB      CCFS     Total      OSB      CCFS     Total 
                   GBPm     GBPm      GBPm      GBPm     GBPm      GBPm 
Gross carrying 
 amount 
Stage 1           9,310.8  6,749.5  16,060.3   9,999.2  7,240.0  17,239.2 
Stage 2           1,362.0  1,327.6   2,689.6     442.4    307.1     749.5 
Stage 3             344.5     48.1     392.6     277.7     16.7     294.4 
Stage 3 (POCI)       48.6     66.0     114.6      53.6     83.2     136.8 
                 11,065.9  8,191.2  19,257.1  10,772.9  7,647.0  18,419.9 
---------------  --------  -------  --------  --------  -------  -------- 
 
 
 
 
   22.  Loans and advances (continued) 
 
   The mortgage loan balances pledged as collateral for liabilities are: 
 
 
 
 
                                              2020     2019 
                                              GBPm     GBPm 
BoE under TFS, TFSME and ILTR                5,203.2  4,458.3 
Securitisation                                 435.4    366.7 
Warehouse funding                                  -     97.4 
Master servicer for securitisation vehicle         -     40.4 
                                             5,638.6  4,962.8 
-------------------------------------------  -------  ------- 
 
 
   The Group's securitisation programmes, use of TFS, TFSME and ILTR and 
Warehouse funding arrangements result in certain assets being encumbered 
as collateral against such funding. As at 31 December 2020, the 
percentage of the Group's gross customer loans and receivables that are 
encumbered was 29% (2019: 27%). 
 
   At 31 December 2019, GBP40.4m of retention loans (i.e. loans in 
securitisation portfolios that are retained by the originator) were 
treated as encumbered. For 2020, the Group has treated these as 
unencumbered as they are available to use to raise collateral as long as 
the risk and rewards of the loans remain with the Group. 
 
   The tables below show the movement in loans and advances to customers by 
IFRS 9 stage during the year, based on the following assumptions: 
 
 
 
 
                                                            Stage 3 
                                Stage 1   Stage 2  Stage 3   (POCI)    Total 
                                 GBPm      GBPm     GBPm     GBPm      GBPm 
At 31 December 2018              8,279.6    436.8    225.4     56.2    8,998.0 
Originations(1)                  4,098.6        -        -        -    4,098.6 
CCFS Combination(3)              7,091.1     43.5        -     94.4    7,229.0 
Repayments and write-offs(2)   (1,825.2)   (21.6)   (47.5)   (17.3)  (1,911.6) 
Transfers: 
 - To Stage 1                      176.9  (162.7)   (14.2)        -          - 
 - To Stage 2                    (495.9)    517.7   (21.8)        -          - 
 - To Stage 3                     (86.1)   (64.5)    150.6        -          - 
Incurred loss protection             0.2      0.3      1.9      3.5        5.9 
At 31 December 2019             17,239.2    749.5    294.4    136.8   18,419.9 
Originations(1)                  3,767.0        -        -        -    3,767.0 
Acquisitions                        60.8        -        -      1.5       62.3 
Disposals                        (787.3)   (16.1)    (1.0)        -    (804.4) 
Repayments and write-offs(2)   (2,119.1)    (3.9)   (41.0)   (23.7)  (2,187.7) 
Transfers: 
 - To Stage 1                      324.8  (293.5)   (31.3)        -          - 
 - To Stage 2(4)               (2,300.3)  2,344.5   (44.2)        -          - 
 - To Stage 3                    (124.8)   (90.9)    215.7        -          - 
At 31 December 2020             16,060.3  2,689.6    392.6    114.6   19,257.1 
                               ---------  -------  -------  -------  --------- 
 
   (1) Originations include further advances and drawdowns on existing 
commitments. 
 
   (2) Repayments and write-offs include customer redemptions. 
 
   (3) The mortgages acquired in the all-share Combination with CCFS are 
shown at the acquisition date fair value. 
 
 
 
   22.  Loans and advances (continued) 
 
   (4) Increase from previous year due to the additional qualitative and 
quantitative tests applied in 2020 for loans with payment deferrals. 
Payment deferrals increased in 2020 notably through COVID-19 initiatives 
and impacts. 
 
   During the year the Group purchased one external mortgage book at par. 
The Group did not purchase any external mortgage books during 2019 other 
than those acquired in the Combination. 
 
   23.  Finance leases 
 
   The Group provides asset finance lending through InterBay Asset Finance 
Limited. 
 
 
 
 
                                                 2020   2019 
                                                 GBPm   GBPm 
Gross investment in finance leases, receivable 
Less than one year                                21.9   14.1 
Between one and five years                        50.4   38.5 
More than 5 years                                  1.3    1.2 
                                                  73.6   53.8 
Unearned finance income                          (8.1)  (6.1) 
Net investment in finance leases                  65.5   47.7 
-----------------------------------------------  -----  ----- 
 
Net investment in finance leases, receivable 
Less than one year                                18.6   11.5 
Between one and five years                        45.7   35.0 
More than five years                               1.2    1.2 
                                                  65.5   47.7 
                                                 ----- 
 
 
   The Group has recognised GBP2.6m of ECLs on finance leases as at 31 
December 2020 (2019: GBP0.3m). 
 
   24.  Expected credit loss 
 
   The ECL has been calculated based on various scenarios as set out below: 
 
 
 
 
                           ECL                   Weighted        ECL                   Weighted 
                        provision  Weighting   ECL provision  provision  Weighting   ECL provision 
                          2020       2020          2020         2019       2019          2019 
At 31 December 2020       GBPm         %           GBPm         GBPm         %           GBPm 
Scenarios 
Upside                       40.1         30            12.0       14.6         10             1.5 
Base case                    54.6         40            21.8       24.4         40             9.7 
Downside scenario           113.5         23            26.1       48.1         35            16.8 
Severe downside 
 scenario                   166.7          7            11.7       62.5         15             9.4 
Total weighted 
 provisions                                             71.6                                  37.4 
Non-modelled 
provisions: 
Individually-assessed 
 provisions                     -          -            29.0          -          -             4.2 
Post model 
 adjustments(1)                 -          -            10.4          -          -             1.3 
Total provision                                        111.0                                  42.9 
----------------------  ---------  ---------  --------------  ---------  ---------  -------------- 
 
 
   1. COVID-19 post model adjustments -- the Group implemented a number of 
post model adjustments to ensure that modelled estimates remained 
appropriate, in light of the impact that COVID-19 support measures, such 
as the repossession moratorium and the impact of payment deferrals on 
the credit bureau files, had on probability of default and loss given 
default estimates. In addition updated model estimates were also aligned 
to recently observed actual performance. Additional information can be 
found in the Credit risk section of the Risk profile performance 
overview. 
 
   The Group's ECL by segment and IFRS 9 stage is shown below: 
 
 
 
 
                       2020               2019 
                 OSB   CCFS  Total  OSB   CCFS  Total 
                 GBPm  GBPm  GBPm   GBPm  GBPm  GBPm 
Stage 1          12.3   8.9   21.2   3.5   2.1    5.6 
Stage 2          17.9  13.1   31.0   3.6   2.0    5.6 
Stage 3          49.4   2.3   51.7  23.4   0.4   23.8 
Stage 3 (POCI)    4.0   3.1    7.1   5.1   2.8    7.9 
                 83.6  27.4  111.0  35.6   7.3   42.9 
---------------  ----  ----  -----  ----  ----  ----- 
 
 
 
 
   24.  Expected credit loss (continued) 
 
   The tables below show the movement in the ECL by IFRS 9 stage during the 
year. ECLs on originations reflect the IFRS 9 stage of loans originated 
during the year as at 31 December and not the date of origination. 
Remeasurement of loss allowance relates to existing loans which did not 
redeem during the year and includes the impact of loans moving between 
IFRS 9 stages. 
 
 
 
 
                                                               Stage 
                                  Stage 1  Stage 2  Stage 3   3 (POCI)  Total 
                                   GBPm     GBPm     GBPm      GBPm     GBPm 
At 31 December 2018                   4.5      5.6     10.2        1.6   21.9 
Originations                          1.9        -        -          -    1.9 
CCFS Combination                        -        -        -        3.6    3.6 
Repayments and write-offs           (0.6)    (0.4)    (4.3)      (0.2)  (5.5) 
Remeasurement of loss allowance     (3.4)    (0.5)     18.8      (0.6)   14.3 
Transfers: 
 - To Stage 1                         1.9    (1.6)    (0.3)          -      - 
 - To Stage 2                       (0.2)      0.6    (0.4)          -      - 
 - To Stage 3                       (0.1)    (1.0)      1.1          -      - 
Changes in assumptions 
 and model parameters                 1.4      2.6    (3.2)          -    0.8 
Incurred loss protection              0.2      0.3      1.9        3.5    5.9 
At 31 December 2019                   5.6      5.6     23.8        7.9   42.9 
Originations                          6.3        -        -          -    6.3 
Acquisitions                            -        -      0.1          -    0.1 
Disposals                           (0.1)    (0.2)    (0.1)          -  (0.4) 
Repayments and write-offs           (0.7)    (0.3)    (4.1)      (1.1)  (6.2) 
Remeasurement of loss allowance       6.3      7.7     29.0      (0.2)   42.8 
Transfers: 
 - To Stage 1                         2.0    (1.4)    (0.6)          -      - 
 - To Stage 2                       (1.0)      2.8    (1.8)          -      - 
 - To Stage 3                       (0.1)    (1.2)      1.3          -      - 
Changes in assumptions 
 and model parameters                 2.9     18.0      4.1        0.5   25.5 
At 31 December 2020                  21.2     31.0     51.7        7.1  111.0 
 
 
 
 
 
 
   24.  Expected credit loss (continued) 
 
   The table below shows the stage 2 ECL balances by transfer criteria: 
 
 
 
 
                       Carrying                  Carrying 
                         value   ECL   Coverage    value   ECL   Coverage 
                         2020    2020    2020      2019    2019    2019 
                         GBPm    GBPm     %        GBPm    GBPm     % 
Criteria: 
Relative PD movement      946.9  17.0      1.80     588.2   4.8      0.82 
Qualitative measures    1,680.7  12.7      0.76      79.8   0.4      0.44 
30 days past due 
 backstop                  63.4   1.3      2.05      81.5   0.4      0.54 
Total                   2,691.0  31.0      1.15     749.5   5.6      0.75 
---------------------  --------  ----  --------  --------  ----  -------- 
 
 
   The Group has a number of qualitative measures to determine whether a 
SICR has taken place. These triggers utilise both internal performance 
information, to analyse whether an account is in distress but not yet in 
arrears, and external credit bureau information, to determine whether 
the customer is experiencing financial difficulty with an external 
credit obligation. 
 
   25.  Impairment of financial assets 
 
   The charge for impairment of financial assets in the Consolidated 
Statement of Comprehensive Income comprises: 
 
 
 
 
                            2020  2019 
                            GBPm  GBPm 
Write-offs in year           1.9   4.1 
Disposals                    0.4     - 
CCFS Combination               -   3.6 
Increase in ECL provision   68.7   7.9 
                            71.0  15.6 
--------------------------  ----  ---- 
 
 
   The CCFS Combination losses relate to the initial ECL recognised on the 
CCFS loan book following the Combination in October 2019. 
 
   26.  Derivatives 
 
   The table below reconciles the gross amount of derivative contracts to 
the carrying balance shown in the Consolidated Statement of Financial 
Position: 
 
 
 
 
                                                     Contracts 
                                    Net amount        subject 
                                   of financial      to master    Cash collateral 
                                      assets          netting          paid / 
                                  / (liabilities)    agreements      (received) 
                                     presented       not offset      not offset 
                 Gross amount         in the           in the          in the 
                 of recognised     Consolidated     Consolidated    Consolidated 
                   financial         Statement       Statement       Statement 
                    assets         of Financial     of Financial    of Financial    Net 
                / (liabilities)      Position         Position        Position     amount 
                     GBPm              GBPm            GBPm            GBPm         GBPm 
At 31 
December 
2020 
Derivative 
assets: 
 Interest 
  rate risk 
  hedging                  12.3              12.3         (11.8)                -     0.5 
                           12.3              12.3         (11.8)                -     0.5 
Derivative 
liabilities: 
 Interest 
  rate risk 
  hedging               (163.6)           (163.6)           11.8            210.5    58.7 
                        (163.6)           (163.6)           11.8            210.5    58.7 
               ----------------  ----------------  -------------  ---------------  ------ 
 
At 31 
December 
2019 
Derivative 
assets: 
 Interest 
  rate risk 
  hedging                  21.1              21.1          (9.8)            (8.0)     3.3 
                           21.1              21.1          (9.8)            (8.0)     3.3 
-------------  ----------------  ----------------  -------------  ---------------  ------ 
Derivative 
liabilities: 
 Interest 
  rate risk 
  hedging                (92.8)            (92.8)            9.8            110.4    27.4 
                         (92.8)            (92.8)            9.8            110.4    27.4 
-------------  ----------------  ----------------  -------------  ---------------  ------ 
 
 
   Included within the Group's derivative liabilities is GBP0.1m (2019: 
GBP3.4m) relating to derivative contracts not covered by master netting 
agreements and therefore no cash collateral has been paid. 
 
   26.  Derivatives (continued) 
 
   The table below profiles the timing of nominal amounts for interest rate 
risk hedging derivatives based on contractual maturity: 
 
 
 
 
                                  Less than   3 - 12                 More than 
                   Total nominal   3 months    months   1 - 5 years   5 years 
                       GBPm         GBPm       GBPm        GBPm        GBPm 
At 31 December 
2020 
Derivative assets        8,687.8    1,450.7   3,407.8       3,808.3       21.0 
Derivative 
 liabilities            10,392.4      148.0   1,868.0       8,065.9      310.5 
                        19,080.2    1,598.7   5,275.8      11,874.2      331.5 
-----------------  -------------  ---------  --------  ------------  --------- 
 
At 31 December 
2019 
Derivative assets        7,795.4    1,110.8   2,608.2       3,760.9      315.5 
Derivative 
 liabilities             9,982.4      144.3   2,528.6       7,155.5      154.0 
                        17,777.8    1,255.1   5,136.8      10,916.4      469.5 
-----------------  -------------  ---------  --------  ------------  --------- 
 
 
 
   The Group has 925 (2019: 1,175) derivative contracts with an average 
fixed rate of 0.47% (2019: 0.91%). 
 
   27.  Hedge accounting 
 
 
 
 
                                                2020     2019 
                                                GBPm     GBPm 
Hedged assets 
Current hedge relationships                      197.5    64.2 
Swap inception adjustment                      (100.5)  (67.8) 
Cancelled hedge relationships                     84.6    20.4 
Fair value adjustments on hedged assets          181.6    16.8 
                                               -------  ------ 
Hedged liabilities 
Current hedge relationships                     (11.8)   (2.9) 
Swap inception adjustment                          6.2     8.0 
De-designated hedge relationships                (2.6)       - 
Fair value adjustments on hedged liabilities     (8.2)     5.1 
---------------------------------------------  -------  ------ 
 
 
   The swap inception adjustment relates in part to hedged assets and 
liabilities recognised on the Combination where pre-existing hedge 
relationships ceased on the date of Combination. The swap inception 
adjustment is being amortised over the life of the derivative 
instruments acquired on Combination and recognises an offsetting asset 
or liability to the fair value of the derivative instruments on the date 
of Combination. The remainder of the swap inception adjustment relates 
to the hedging adjustments arising when hedge accounting commences, 
primarily on derivative instruments previously taken out against the 
mortgage pipeline and also on derivative instruments previously taken 
out against new retail deposits. 
 
   Cancelled hedge relationships predominantly represent the unamortised 
fair value adjustment for interest rate risk hedges that have been 
cancelled and replaced due to IBOR transition, securitisation activities 
and legacy long-term fixed rate mortgages (c. 25 years at origination). 
 
   27.  Hedge accounting (continued) 
 
   The tables below analyse the Group's portfolio hedge accounting for 
fixed rate loans and advances to customers: 
 
 
 
 
                                                 2020                   2019 
                                          Hedged     Hedging     Hedged     Hedging 
                                           item     instrument    item     instrument 
Loans and advances to customers            GBPm       GBPm        GBPm       GBPm 
Carrying amount of hedged item/nominal 
 value of hedging instrument             11,282.4     11,159.7  10,312.5     10,248.3 
Cumulative fair value adjustments           197.5      (156.9)      64.2       (75.6) 
Fair value adjustments for the 
 period                                     107.3      (117.4)      70.1       (75.1) 
Cumulative fair value on cancelled 
 hedge relationships                         84.6            -      20.4            - 
 
 
   The cumulative fair value adjustments of the hedging instrument comprise 
GBP0.7m (2019: GBP13.2m) recognised within derivative assets and 
GBP157.6m (2019: GBP88.8m) recognised within derivative liabilities. 
 
   The movement in cancelled hedge relationships is as follows: 
 
 
 
 
                                2020   2019 
                                GBPm   GBPm 
At 1 January                     20.4   17.3 
New cancellations(1)             86.1    8.6 
Amortisation                   (17.9)  (5.5) 
Derecognition of hedged item    (4.0)      - 
At 31 December                   84.6   20.4 
-----------------------------  ------  ----- 
 
 
   (1) Following the securitisation of mortgages during the year and LIBOR 
swaps transferred to SONIA swaps through the IBOR transition, the Group 
cancelled swaps which were effective prior to the event, with the 
designated hedge moved to cancelled hedge relationships to be amortised 
over the original life of the swap. 
 
   The tables below analyse the Group's portfolio hedge accounting for 
fixed rate amounts owed to retail depositors: 
 
 
 
 
                                                 2020                  2019 
                                         Hedged     Hedging    Hedged     Hedging 
                                           item    instrument    item    instrument 
Customer deposits                         GBPm       GBPm       GBPm       GBPm 
Carrying amount of hedged item/nominal 
 value of hedging instrument             6,849.9      6,858.0  6,684.6      6,687.5 
Cumulative fair value adjustments         (11.8)          9.2    (2.9)          3.5 
Fair value adjustments for the 
 period                                    (4.1)          6.8    (4.6)          4.8 
 
 
   The cumulative fair value adjustments of the hedging instrument comprise 
GBP9.4m (2019: GBP5.9m) recognised within derivative assets and GBP0.2m 
(2019: GBP2.4m) recognised within derivative liabilities. 
 
   28.  Other assets 
 
 
 
 
               2020  2019 
               GBPm  GBPm 
Prepayments     7.3   9.3 
Other assets    1.8   5.0 
                9.1  14.3 
-------------  ----  ---- 
 
 
   29.  Deferred taxation asset 
 
 
 
 
                              Losses 
                              carried   Accelerated   Share-based  IFRS 9 transitional 
                              forward   depreciation    payments       adjustments      Others(1)  Total 
                               GBPm        GBPm          GBPm             GBPm            GBPm     GBPm 
At 31 December 2018               1.4          (0.1)          1.5                  0.7          -    3.5 
Profit or loss 
 (charge)/credit                (0.5)            0.3          0.8                (0.1)      (0.7)  (0.2) 
CCFS Combination                    -          (0.1)          0.5                  0.1        1.4    1.9 
Transferred to corporation 
 tax liability                      -              -        (1.3)                    -          -  (1.3) 
Tax taken directly 
 to OCI                             -              -            -                    -      (0.2)  (0.2) 
Tax taken directly 
 to equity                          -              -          1.1                    -          -    1.1 
At 31 December 2019               0.9            0.1          2.6                  0.7        0.5    4.8 
Profit or loss 
 credit/(charge)                    -            0.3          0.9                    -      (0.4)    0.8 
Transferred to corporation 
 tax liability                      -              -        (0.6)                    -          -  (0.6) 
Tax taken directly 
 to OCI                             -              -            -                    -      (0.5)  (0.5) 
Tax taken directly 
 to equity                          -              -          0.2                    -          -    0.2 
At 31 December 2020               0.9            0.4          3.1                  0.7      (0.4)    4.7 
---------------------------  --------  -------------  -----------  -------------------  ---------  ----- 
 
 
   (1) Others include deferred taxation assets recognised on financial 
assets classified as FVOCI, derivatives and short-term timing 
differences. 
 
   In 2020, the profit or loss credit/(charge) includes GBP(0.3)m impact of 
the deferred tax rate change (2019: nil). 
 
   As at 31 December 2020, the Group had GBP3.5m (2019: GBP3.5m) of losses 
for which a deferred tax asset has not been recognised as the Group does 
not expect sufficient future profits to be available to utilise the 
losses. 
 
   30.     Deferred taxation liability 
 
   The deferred tax liability recognised on the Combination relates to the 
timing differences of the recognition of assets and liabilities at fair 
value, where the fair values will unwind in future periods in line with 
the underlying asset or liability. The deferred tax liability has been 
measured using the relevant rates for the expected periods of 
utilisation. 
 
 
 
 
                            CCFS Combination 
                                        GBPm 
At 31 December 2018                - 
CCFS Combination                        70.1 
Profit or loss credit                  (7.0) 
At 31 December 2019                     63.1 
Profit or loss credit                 (14.8) 
At 31 December 2020                     48.3 
-------------------------- 
 
 
   In 2020, the profit or loss credit includes GBP4.7m impact of the 
deferred tax rate change (2019: nil). 
 
   31.  Property, plant and equipment 
 
 
 
 
                                                               Right of use 
                                                                   assets 
                    Freehold 
                    land and     Leasehold      Equipment    Property   Other 
                    buildings   improvements   and fixtures   leases    leases  Total 
                      GBPm         GBPm           GBPm         GBPm     GBPm    GBPm 
Cost 
At 1 January 2019        16.0            0.9           11.0       3.8        -   31.7 
Additions                 3.1            1.5            2.4       2.5      0.1    9.6 
CCFS Combination            -            0.3            2.1       6.4      1.2   10.0 
Disposals and 
 write-offs(1)              -              -          (1.2)         -        -  (1.2) 
Foreign exchange 
 difference               0.2              -            0.1         -        -    0.3 
At 31 December 
 2019                    19.3            2.7           14.4      12.7      1.3   50.4 
Additions                   -            0.3            2.5       0.6        -    3.4 
Disposals and 
 write-offs(1)              -              -          (3.0)     (0.2)        -  (3.2) 
Foreign exchange 
 difference             (0.1)              -          (0.1)         -        -  (0.2) 
At 31 December 
 2020                    19.2            3.0           13.8      13.1      1.3   50.4 
-----------------  ----------  -------------  -------------  --------  -------  ----- 
Depreciation 
At 1 January 2019         0.8            0.3            5.0         -        -    6.1 
Charged in year           0.3            0.2            2.3       1.0      0.1    3.9 
CCFS Combination            -              -              -         -        -      - 
Disposals and 
 write-offs                 -              -          (1.2)         -        -  (1.2) 
At 31 December 
 2019                     1.1            0.5            6.1       1.0      0.1    8.8 
Charged in year           0.3            0.4            2.9       1.8      0.2    5.6 
Disposals and 
 write-offs(1)              -              -          (3.0)     (0.2)        -  (3.2) 
At 31 December 
 2020                     1.4            0.9            6.0       2.6      0.3   11.2 
-----------------  ----------  -------------  -------------  --------  -------  ----- 
Net book value 
At 31 December 
 2020                    17.8            2.1            7.8      10.5      1.0   39.2 
-----------------  ----------  -------------  -------------  --------  -------  ----- 
At 31 December 
 2019                    18.2            2.2            8.3      11.7      1.2   41.6 
 
 
   (1) During the year the Group wrote off fully depreciated assets. 
 
   32.  Intangible assets 
 
 
 
 
                                        Computer 
                                         software 
                           Development     and        Assets arising 
                              costs      licences   on consolidation(2)  Total 
                              GBPm        GBPm             GBPm          GBPm 
Cost 
At 1 January 2019                    -       13.6                     -   13.6 
Additions                          0.5        3.8                     -    4.3 
CCFS Combination                     -          -                  23.6   23.6 
Disposals and 
 write-offs(1)                       -      (2.0)                     -  (2.0) 
At 31 December 2019                0.5       15.4                  23.6   39.5 
Additions                          1.8        2.6                     -    4.4 
Disposals and 
 write-offs(1)                       -      (1.3)                     -  (1.3) 
At 31 December 2020                2.3       16.7                  23.6   42.6 
-------------------------  -----------  ---------  --------------------  ----- 
 
Amortisation 
At 1 January 2019                    -        5.8                     -    5.8 
CCFS Combination                     -          -                     -      - 
Charged in year                      -        3.0                   1.3    4.3 
Disposals and 
 write-offs(1)                       -      (2.0)                     -  (2.0) 
At 31 December 2019                  -        6.8                   1.3    8.1 
Charged in year                    0.1        3.6                   4.5    8.2 
Impairment in the year               -          -                   7.0    7.0 
Disposals and 
 write-offs(1)                       -      (1.3)                     -  (1.3) 
At 31 December 2020                0.1        9.1                  12.8   22.0 
-------------------------  -----------  ---------  --------------------  ----- 
 
Net book value 
At 31 December 2020                2.2        7.6                  10.8   20.6 
At 31 December 2019                0.5        8.6                  22.3   31.4 
 
 
   (1) During the year the Group wrote off fully amortised assets. 
 
   (2) Assets arising on consolidation comprise broker relationships of 
GBP5.8m (2019: GBP16.1m), technology of GBP2.9m (2019: GBP3.2m), brand 
name of GBP1.2m (2019: GBP1.6m) and banking licence of GBP0.9m (2019: 
GBP1.4m). The carrying value of the intangible assets are reviewed each 
reporting period with a GBP7.0m impairment recognised in relation to 
broker relationships due to impacts of the COVID-19 pandemic. 
 
   33.  Amounts owed to credit institutions 
 
 
 
 
                                  2020     2019 
                                  GBPm     GBPm 
BoE TFS                          2,568.6  2,632.8 
BoE TFSME                        1,000.1        - 
BoE ILTR                               -    290.6 
Warehouse funding                      -     93.6 
Commercial repo                      0.1     41.4 
Cash margin received                   -      8.0 
Loans from credit institutions       1.4      2.4 
                                 3,570.2  3,068.8 
-------------------------------  -------  ------- 
 
 
   34.  Amounts owed to retail depositors 
 
 
 
 
                          OSB     CCFS     Total      OSB     CCFS     Total 
                         2020     2020      2020     2019     2019      2019 
                         GBPm     GBPm      GBPm     GBPm     GBPm      GBPm 
Fixed rate deposits     6,275.6  4,781.4  11,057.0  5,617.9  4,907.6  10,525.5 
Variable rate deposits  3,429.7  2,116.4   5,546.1  3,817.9  1,911.6   5,729.5 
                        9,705.3  6,897.8  16,603.1  9,435.8  6,819.2  16,255.0 
----------------------  -------  -------  --------  -------  -------  -------- 
 
 
   35.  Amounts owed to other customers 
 
 
 
 
                         2020  2019 
                         GBPm  GBPm 
Fixed rate deposits      46.0  26.0 
Variable rate deposits   26.9   3.7 
                         72.9  29.7 
                         ---- 
 
 
   36.  Debt securities in issue 
 
 
 
 
                                             2020        2019 
                                             GBPm        GBPm 
Asset backed loan notes at 
 amortised cost                                   421.9  296.3 
 
 
Amount due for settlement within 12 
 months                                               -   40.1 
Amount due for settlement after 12 
 months                                           421.9  256.2 
                                                  421.9  296.3 
  ------------------------------------  ---------------  ----- 
 
 
   The asset-backed loan notes are secured on fixed and variable rate 
mortgages and are redeemable in part from time to time, but such 
redemptions are limited to the net principal received from borrowers in 
respect of underlying mortgage assets. The maturity date of the funds 
matches the contractual maturity date of the underlying mortgage assets. 
It is likely that a large proportion of the underlying mortgage assets 
and, therefore these notes, will be repaid within five years. 
 
   Asset-backed loan notes may all be repurchased by the Group at any 
interest payment date on or after the call dates, or at any interest 
payment date when the current balance of the mortgages outstanding is 
less than or equal to 10% of the principal amount outstanding on the 
loan notes on the date they were issued. 
 
   Interest is payable at fixed margins above LIBOR or SONIA. 
 
   As at 31 December 2020, notes were issued through the following funding 
vehicles: 
 
 
 
 
                                         2020             2019 
                                         GBPm             GBPm 
CMF 2020-1 plc                           288.6                     - 
Canterbury Finance No.3 plc              133.3                     - 
Canterbury Finance No.1 plc                       -            256.2 
Precise Mortgage Funding 2015-1 
 plc                                              -             40.1 
                                              421.9            296.3 
  --------------------------------  ---------------  --------------- 
 
 
 
 
   37.  Lease liabilities 
 
 
 
 
                    2020   2019 
                    GBPm   GBPm 
At 1 January         13.3    3.8 
CCFS Combination        -    7.7 
New leases            0.1    3.6 
Lease terminated        -  (0.8) 
Lease repayments    (2.0)  (1.1) 
Interest accruals     0.3    0.1 
At 31 December       11.7   13.3 
------------------  ----- 
 
 
   During the year, the Group incurred expenses of GBP0.7m (2019: GBP0.7m) 
in relation to short-term leases and nil (2019: GBP0.1m) in relation to 
low-value assets. 
 
   38.  Other liabilities 
 
 
 
 
                               2020  2019 
                               GBPm  GBPm 
Falling due within one year: 
Accruals                       19.7  23.1 
Deferred income                 0.6   1.1 
Other creditors                 7.5  10.7 
                               27.8  34.9 
-----------------------------  ----  ---- 
 
 
   39.  Provisions and contingent liabilities 
 
   The Financial Services Compensation Scheme (FSCS) provides protection of 
deposits for the customers of authorised financial services firms, 
should a firm collapse. FSCS protects retail deposits of up to GBP85k 
for single account holders and GBP170k for joint holders. As OSB and 
CCFS both hold banking licences, the full FSCS protection is available 
to customers of each bank. 
 
   The compensation paid out to consumers is initially funded through loans 
from the BoE and HM Treasury. In order to repay the loans and cover its 
costs, the FSCS charges levies on firms regulated by the PRA and the 
FCA. The Group is among those firms and pays the FSCS a levy based on 
its share of total UK deposits. 
 
   The Group has reviewed its current exposure to Payment Protection 
Insurance (PPI) claims, following the FCA deadline for PPI claims on 29 
August 2019 and has recognised a provision of GBP0.3m as at 31 December 
2020 (2019: GBP0.3m). The Group has maintained its provision for FCA 
conduct rules exposures of GBP1.2m (2019: GBP1.3m) to cover potential 
future claims. 
 
   39.  Provisions and contingent liabilities (continued) 
 
   An analysis of the Group's FSCS and other provisions is presented below: 
 
 
 
 
                                         2020                                              2019 
                                                 ECL on                                            ECL on 
                          Other regulatory       undrawn                    Other regulatory       undrawn 
                   FSCS      provisions      loan facilities  Total  FSCS      provisions      loan facilities  Total 
                   GBPm         GBPm              GBPm        GBPm   GBPm         GBPm              GBPm        GBPm 
At 1 January       (0.2)               1.6               0.2    1.6    0.1               1.7                 -    1.8 
Refund/(paid) 
 during the year     0.3             (0.2)                 -    0.1  (0.1)             (0.1)                 -  (0.2) 
Charge/(credit)        -               0.1                 -    0.1  (0.2)                 -               0.2      - 
At 31 December       0.1               1.5               0.2    1.8  (0.2)               1.6               0.2    1.6 
-----------------  -----  ----------------  ----------------  -----  -----  ----------------  ----------------  ----- 
 
 
   In January 2020, the Group was contacted by the FCA in connection with a 
multi-firm thematic review into forbearance measures adopted by lenders 
in respect of a portion of the mortgage market. The Group is responding 
to information requests from the FCA. It is not possible to reliably 
predict or estimate the outcome of the review, if any, on the Group and 
is a contingent liability. 
 
   40.  Subordinated liabilities 
 
 
 
 
                                  2020   2019 
                                  GBPm   GBPm 
At 1 January                       10.6   10.8 
Repayment of debt at maturity     (0.1)  (0.2) 
At 31 December                     10.5   10.6 
--------------------------------  -----  ----- 
 
 
   The Group's outstanding subordinated liabilities are summarised below: 
 
 
 
 
                                           2020  2019 
                                           GBPm  GBPm 
Linked to LIBOR: 
 Floating rate subordinated loans 2022 
  (LIBOR +5%)                               0.1   0.2 
 Floating rate subordinated loans 2022 
  (LIBOR +2%)                               0.2   0.2 
Fixed rate: 
 Subordinated liabilities 2024 
  (7.45%)                                  10.2  10.2 
                                           10.5  10.6 
  ---------------------------------------  ----  ---- 
 
 
   The fixed rate subordinated liabilities are repayable at the dates 
stated or earlier, in full, at the option of the Group with the prior 
consent of the PRA. All subordinated liabilities are denominated in 
Pounds Sterling and are unlisted. 
 
   The rights of repayment of the holders of these subordinated liabilities 
are subordinated to the claims of all depositors and all other 
creditors. 
 
   41.  Perpetual Subordinated Bonds 
 
 
 
 
                                          2020  2019 
                                          GBPm  GBPm 
Sterling Perpetual Subordinated Bonds 
(4.5991%)                                 22.3  22.3 
Sterling Perpetual Subordinated Bonds 
(4.6007%)                                 15.3  15.3 
                                          37.6  37.6 
                                                ---- 
 
 
   The bonds are listed on the London Stock Exchange. 
 
   The 4.5991% bonds were issued with discretion over the payment of 
interest which is conditional, they are therefore classified as 
financial liabilities. The coupon rate is 4.5991% until the next reset 
date on 7 March 2021. 
 
   The 4.6007% bonds were issued with no discretion over the payment of 
interest and may not be settled in the Group's own equity. They are 
therefore classified as financial liabilities. The coupon rate is 
4.6007% until the next reset date on 27 August 2024. 
 
   42.  Reconciliation of cash flows for financing activities 
 
   The tables below show a reconciliation of the Group's liabilities 
classified as financing activities within the Consolidated Statement of 
Cash Flows: 
 
 
 
 
                            Amounts owed 
                              to credit    Debt securities  Subordinated 
                             institutions      in issue      liabilities 
                              (see note       (see note       (see note   PSBs (see 
                                 33)             36)             40)       note 41)    Total 
                                GBPm            GBPm            GBPm        GBPm       GBPm 
At 31 December 2018               1,584.0                -          10.8       37.6    1,632.4 
Cash movements: 
Principal drawdowns                 587.7            285.0             -          -      872.7 
Principal repayments              (273.7)           (64.6)         (0.2)          -    (338.5) 
Non-cash movements: 
CCFS Combination                  1,168.4             75.1             -          -    1,243.5 
Accrued interest movement             2.4              0.8             -          -        3.2 
At 31 December 2019               3,068.8            296.3          10.6       37.6    3,413.3 
Cash movements: 
Principal drawdowns               1,505.0            486.2             -          -    1,991.2 
Principal repayments              (998.9)          (104.6)         (0.1)          -  (1,103.6) 
Deconsolidation of 
 special purpose vehicles               -          (256.2)             -          -    (256.2) 
Non-cash movements: 
Accrued interest movement           (4.7)              0.2             -          -      (4.5) 
At 31 December 2020               3,570.2            421.9          10.5       37.6    4,040.2 
--------------------------  -------------  ---------------  ------------  ---------  --------- 
 
 
 
 
   43.  Share capital 
 
 
 
 
                                           Number of shares  Nominal 
                                              authorised      value   Premium 
Ordinary shares                             and fully paid     GBPm     GBPm 
At 1 January 2019                               244,487,537      2.4    158.8 
Shares issued under OSB employee share 
 plans                                            1,312,862      0.1      0.3 
CCFS Combination                                199,643,055      2.0    705.1 
At 31 December 2019                             445,443,454      4.5    864.2 
Shares issued under OSB employee share 
 plans                                            1,860,744        -      2.6 
Cancellation of OneSavings Bank plc 
 GBP0.01 share capital and share premium      (447,304,198)    (4.5)  (866.8) 
Issuance of OSB GROUP PLC GBP3.04 
 share capital                                  447,304,198  1,359.8        - 
Shares issued under OSBG employee 
 share plans                                          8,582        -        - 
At 31 December 2020                             447,312,780  1,359.8        - 
-----------------------------------------  ----------------  -------  ------- 
 
 
   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. 
 
   44.  Other reserves 
 
   The Group's other reserves are as follows: 
 
 
 
 
                                        2020      2019 
                                        GBPm      GBPm 
Share-based payment                         7.8     5.6 
Capital contribution                          -     6.5 
Transfer                              (1,355.3)  (12.8) 
Own shares                                (4.0)   (3.7) 
FVOCI                                       1.0     0.5 
Foreign exchange                          (1.0)   (1.0) 
Non-controlling interest securities        60.0    60.0 
                                      (1,291.5)    55.1 
------------------------------------  ---------  ------ 
 
   Capital contribution 
 
   The capital contribution reserve relates to one-off nil price share 
awards of shares in OSB granted to certain senior managers on OSB's 
admission to the London Stock Exchange in June 2014. The awards were 
granted by OSB's major shareholder at the time of the IPO. The reserve 
was transferred to retained earnings during the year following 
distribution of all the awards. 
 
   Transfer reserve 
 
   The transfer reserve in 2019 represented the difference between the 
value of net assets transferred to the Group from Kent Reliance Building 
Society in 2011 and the value of shares issued to the A ordinary 
shareholders. The net assets transferred were predominantly savings and 
mortgages that have now either been replaced by new products, which is a 
derecognition event of the initial net asset, or are no longer with the 
Group. The balance was therefore transferred to retained earnings in 
2020. 
 
   44.  Other reserves (continued) 
 
   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 GBP3.04 per share, replacing the nominal shares of 
GBP0.01 in OSB previously recognised in share capital at the 
consolidation level, created a transfer reserve of GBP1,355.3m. 
 
   Own shares 
 
   The Company has adopted the look-through approach for the EBT, including 
the EBT within the Company. As at 31 December 2020, the EBT held 
1,001,238 OSBG shares (2019: 1,045,155 OSB shares). The Group and 
Company show these shares as a deduction from equity, being the cost at 
which the shares were acquired of GBP4.0m (2019: GBP3.7m). 
 
   FVOCI reserve 
 
   The FVOCI reserve represents the cumulative net change in the fair value 
of investment securities measured at FVOCI. 
 
   Foreign exchange 
 
   The foreign exchange reserve relates to the revaluation of the Group's 
Indian subsidiary, OSB India Private Limited. 
 
   Non-controlling interest securities 
 
   Non-controlling interest securities comprise GBP60.0m of Fixed Rate 
Resetting Perpetual Subordinated Contingent Convertible Securities 
issued by OSB. The securities previously qualified as Additional Tier 1 
capital under the Capital Requirements Directive and Regulation (CRD IV) 
for OSB; however, they do not qualify for OSBG under the CRD IV with the 
application of article 85 -- 87 requirements where there is an article 9 
permission. The securities will be subject to full conversion into 
ordinary shares of OSB in the event that its CET1 capital ratio falls 
below 7%. The securities will pay interest at a rate of 9.125% per annum 
until the first reset date of 25 May 2022, with the reset interest rate 
equal to 835.9 basis points over the five-year semi-annual mid-swap rate 
for such a period. Interest is paid semi-annually on 25 May and 25 
November. OSB may, at any time, cancel any interest payment at its full 
discretion and must cancel interest payments in certain circumstances 
specified in the terms and conditions of the securities. The securities 
are perpetual with no fixed redemption date. OSB may, in its discretion 
and subject to satisfying certain conditions, redeem all (but not some) 
of the securities at the principal amount outstanding plus any accrued 
but unpaid interest from the first reset date and on any interest 
payment date thereafter. 
 
 
   1. Financial commitments and guarantees 
 
          1. The Group did not have any contracted or anticipated capital 
             expenditure commitments not provided for as at 31 December 
             2020(2019: nil). 
 
          2. The Group's minimum lease commitments under operating leases not 
             subject to IFRS 16 are summarised in the table below: 
 
 
 
 
                                  2020  2019 
                                  GBPm  GBPm 
Land and buildings: due within: 
One year                           0.1   0.6 
                                   0.1   0.6 
--------------------------------  ----  ---- 
 
 
 
 
 
   1. Financial commitments and guarantees (continued) 
 
          1. Undrawn loan facilities: 
 
 
 
 
                 2020    2019 
                 GBPm    GBPm 
OSB mortgages    547.2    639.2 
CCFS mortgages   420.8    568.1 
Asset Finance     11.5      3.6 
                 979.5  1,210.9 
---------------  -----  ------- 
 
 
   Undrawn loan facilities are approved loan applications which have not 
yet been exercised. They are payable on demand and are usually drawn 
down or expire within three months. 
 
 
   1. The Group did not have any issued financial guarantees as at 31 December 
      2020 (2019: nil). 
 
   2. Risk management 
 
 
 
 
   Overview 
 
   Financial instruments form the vast majority of the Group's assets and 
liabilities. The Group manages risk on a consolidated basis and risk 
disclosures that follow are provided on this basis. 
 
   Types of financial instrument 
 
   Financial instruments are a broad definition which includes financial 
assets, financial liabilities and equity instruments. The main financial 
assets of the Group are loans to customers and liquid assets, which in 
turn consist of cash in the BoE call accounts, call accounts with other 
credit institutions and UK and EU sovereign debt. These are funded by a 
combination of financial liabilities and equity instruments. Financial 
liability funding comes predominantly from retail deposits and drawdowns 
under the BoE TFS, TFSME and ILTR, supported by debt securities, 
subordinated debt, wholesale and other funding. Equity instruments 
include own shares and non-controlling interest securities meeting the 
equity classification criteria. The Group's main activity is mortgage 
lending; it raises funds or invests in particular types of financial 
assets to meet customer demand and manage the risks arising from its 
operations. The Group does not trade in financial instruments for 
speculative purposes. 
 
   The Group uses derivative instruments to manage its financial risks. 
Derivative financial instruments (derivatives) are financial instruments 
whose value changes in response to changes in underlying variables such 
as interest rates. The most common derivatives are futures, forwards and 
swaps. Of these, the Group only uses swaps. 
 
   Derivatives are used by the Group solely to reduce (hedge) the risk of 
loss arising from changes in market rates. Derivatives are not used for 
speculative purposes. 
 
   Types of derivatives and uses 
 
   The derivative instruments used by the Group in managing its risk 
exposures are interest rate swaps. Interest rate swaps convert fixed 
interest rates to floating or vice versa. As with other derivatives, the 
underlying product is not sold and payments are based on notional 
principal amounts. 
 
   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 
 
 
 
   46.  Risk management (continued) 
 
   each other to a certain extent, this hedge is usually never perfect 
because of maturity mismatches and principal amounts. 
 
   The Group uses swaps to convert its instruments, such as mortgages, 
deposits and liquid assets, from fixed or base rate-linked rates to 
reference linked variable rates. This ensures a guaranteed margin 
between the interest income and interest expense, regardless of changes 
in the market rates. 
 
   Transition away from LIBOR 
 
   The PRA and FCA have continued to encourage banks to transition away 
from using LIBOR as a benchmark in all operations before the end of 
2021. Throughout the UK banking sector, LIBOR remains a key benchmark 
and, for each market impacted, solutions to this issue are progressing 
through various industry bodies. The Group has closely monitored the 
market and the output from the various industry working groups managing 
the transition to new benchmark interest rates. This includes 
announcements made by LIBOR regulators (including the FCA) regarding the 
transition from GBP LIBOR to SONIA. The FCA has made clear that, at the 
end of 2021, it will no longer seek to persuade, or compel, banks to 
submit to LIBOR. 
 
   In 2018, the Group set up an internal working group, comprising all of 
the key business lines that are involved with this change, including 
work streams covering risk management, contracts, systems and conduct 
risk considerations, with strong oversight from the Compliance and Risk 
functions. The programme is overseen by the LIBOR Transition Working 
Group which reports into ALCO. Risk assessments have been completed to 
ensure this process is managed in a measured and controlled manner. 
 
   The Group no longer offers any LIBOR-linked loans and is transitioning 
new and back book swaps from a GBP LIBOR to a SONIA basis. The Group has 
no exposure to existing IBORs, other than to GBP LIBOR. 
 
   The Group adopted the Phase 1 amendments 'Interest Rate Benchmark 
reform: Amendments to IFRS 9/IAS 39 and IFRS 7'. These amendments 
modified specific hedge accounting requirements to allow hedge 
accounting to continue for affected hedges during the period of 
uncertainty before the hedged items or hedging instruments are amended 
as a result of the interest rate benchmark reform. The Group has not 
early adopted 'Interest Rate Benchmark Reform -- Phase 2: Amendments to 
IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition 
and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 
Insurance Contracts and IFRS 16 Leases' which was issued in August 2020. 
These amendments will become mandatory for annual reporting periods 
beginning on or after 1 January 2021. Adopting these amendments will 
enable the Group to reflect the effects of transitioning from IBOR to 
alternative benchmark interest rates (also referred to as 'risk free 
rates' or RFRs) without giving rise to accounting impacts that would not 
provide useful information to users of financial statements. 
 
   The application of the Phase 1 amendments impacts the Group's accounting 
in the following ways. Hedge accounting relationships will continue even 
when, for IBOR fair value hedges, the benchmark interest rate component 
may not be separately identifiable. 
 
   The Group will not discontinue portfolio hedge accounting should the 
retrospective assessment of hedge effectiveness for a hedging 
relationship, that is subject to the interest rate benchmark reform, 
fall outside the 80-125 per cent range. For portfolio hedging 
relationships that are not subject to the interest rate benchmark reform 
the entity continues to cease hedge accounting if retrospective 
effectiveness is outside the 80-125 per cent range. 
 
   The Group will continue to apply the Phase 1 amendments to IFRS 9/IAS 39 
until the uncertainty arising from the interest rate benchmark reform, 
with respect to the timing and the amount of the underlying cash flows 
to which the Group is exposed, ends. The Group expects this uncertainty 
will continue until the Group's contracts that reference IBORs are 
amended to specify the date on which the interest rate 
 
   46.  Risk management (continued) 
 
   benchmark will be replaced and the basis for the cash flows of the 
alternative benchmark rate are determined, including any fixed spread. 
 
   The phase 1 relief does not extend to the requirement that the 
designated interest rate risk component continues to be reliably 
measurable and if the risk component is no longer reliably measurable, 
the hedging relationship is discontinued. The Group has determined that 
GBP LIBOR interest rate risk components continue to be reliably 
measurable. 
 
   Mortgages 
 
   New loan product transition was completed for CCFS in 2019 and OSB 
launched new BBR-linked products during 2020 to replace loans with a 
LIBOR component. 
 
   At 31 December 2020, the Group had GBP8,001.7m of GBP LIBOR-linked 
lending, including funding lines and mortgages that will revert to LIBOR 
in the future, out of a total mortgage balance of GBP19,257.1m. The 
Group continues to work through the back book transition for existing 
loans which is planned to be completed before the end of 2021. 
 
   Investment securities 
 
   At 31 December 2020, the Group had GBP118.7m of GBP LIBOR-linked 
investment securities, comprising RMBS loan notes and the Group is 
monitoring the issuers' intentions in respect of IBOR transition with 
GBP40.0m transferred to SONIA coupons after the year end. 
 
   Retail savings 
 
   None of the OSB or CCFS current or back book retail savings products 
have a GBP LIBOR component within the product. 
 
   Non-controlling interest securities 
 
   The GBP60.0m non-controlling interest securities pay interest at a rate 
of 9.125% per annum until the first reset date on 25 May 2022. In 
advance of the reset date, the Group will agree the benchmark rate to be 
adopted. 
 
   Derivatives 
 
   As at 31 December 2020, the derivatives in the CCFS segment have all 
transitioned across to a SONIA basis with the OSB segment yet to 
complete. The total nominal amount of the Group's derivatives was 
GBP19,080.2m, of which the Group had GBP LIBOR-linked swaps with a 
nominal value of GBP8,020.0m and a fair value liability of GBP89.1m 
hedging assets and liabilities. It is planned that existing derivatives 
will be actively transitioned onto alternative benchmarks before the end 
of 2021. 
 
   Types of risk 
 
   The principal financial risks to which the Group is exposed are credit, 
liquidity and market risks, the latter comprising interest and exchange 
rate risk. In addition to financial risks, the Group is exposed to 
various other risks, most notably operational, conduct and regulatory, 
which are covered in the Risk review. 
 
   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. 
 
   46. Risk management (continued) 
 
   The classes of financial instruments to which the Group is most exposed 
are loans and advances to customers, loans and advances to credit 
institutions, cash in the BoE call account, call and current accounts 
with other credit institutions and investment securities. The maximum 
credit risk exposure equals the total carrying amount of the above 
categories plus off-balance sheet undrawn committed mortgage facilities. 
 
   Credit risk - loans and advances to customers 
 
   Credit risk associated with mortgage lending is largely driven by the 
housing market and level of unemployment. A recession and/or high 
interest rates could cause pressure within the market, resulting in 
rising levels of arrears and repossessions. 
 
   All loan applications are assessed with reference to the Group's Lending 
Policy. Changes to the policy are approved by the Group Risk Committee, 
with mandates set for the approval of loan applications. 
 
   The Group Credit Committee and the ALCO regularly monitor lending 
activity, taking appropriate actions to reprice products and adjust 
lending criteria in order to control risk and manage exposure. Where 
necessary and appropriate, changes to the Lending Policy are recommended 
to the Group Risk Committee. 
 
   The following tables show the Group's maximum exposure to credit risk 
and the impact of collateral held as security, capped at the gross 
exposure amount, by impairment stage. Capped collateral excludes the 
impact of forced sale discounts and costs to sell. 
 
 
 
 
                                                 2020 
                     OSB                         CCFS                         Total 
                           Capped                       Capped                       Capped 
         Gross carrying   collateral  Gross carrying   collateral  Gross carrying   collateral 
             amount          held         amount          held         amount          held 
              GBPm          GBPm           GBPm          GBPm           GBPm          GBPm 
Stage 1         9,366.8      9,303.4         6,749.5      6,747.9        16,116.3     16,051.3 
Stage 2         1,363.4      1,359.8         1,327.6      1,327.6         2,691.0      2,687.4 
Stage 3           352.6        323.3            48.1         48.1           400.7        371.4 
Stage 3 
 (POCI)            48.6         48.4            66.0         66.0           114.6        114.4 
               11,131.4     11,034.9         8,191.2      8,189.6        19,322.6     19,224.5 
-------  --------------  -----------  --------------  -----------  --------------  ----------- 
 
 
 
 
 
 
                                                 2019 
                     OSB                         CCFS                         Total 
                           Capped                       Capped                       Capped 
         Gross carrying   collateral  Gross carrying   collateral  Gross carrying   collateral 
             amount          held         amount          held         amount          held 
              GBPm          GBPm           GBPm          GBPm           GBPm          GBPm 
Stage 1        10,046.9      9,987.1         7,240.0      7,239.5        17,286.9     17,226.6 
Stage 2           442.4        441.8           307.1        307.0           749.5        748.8 
Stage 3           277.7        275.2            16.7         16.7           294.4        291.9 
Stage 3 
 (POCI)            53.6         50.1            83.2         83.1           136.8        133.2 
               10,820.6     10,754.2         7,647.0      7,646.3        18,467.6     18,400.5 
-------  --------------  -----------  --------------  -----------  --------------  ----------- 
 
 
   The Group's main form of collateral held is property, based in the UK 
and the Channel Islands. 
 
   46.  Risk management (continued) 
 
   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: 
 
 
 
 
                    2020                              2019 
                    OSB       CCFS     Total          OSB       CCFS     Total 
                        GBPm     GBPm      GBPm    %      GBPm     GBPm      GBPm    % 
Band 
0% - 50%            1,740.3   419.3    2,159.6   11   1,732.6   567.8    2,300.4   12 
50% - 60%           1,462.0   483.3    1,945.3   10   1,301.8   612.3    1,914.1   10 
60% - 70%           2,813.4   1,109.3  3,922.7   20   2,435.7   1,588.5  4,024.2   22 
70% - 80%           3,942.9   5,144.3  9,087.2   47   4,182.1   4,236.3  8,418.4   46 
80% - 90%           879.1     1,033.7  1,912.8   10   946.0     641.5    1,587.5   9 
90% - 100%          105.8     1.3      107.1     1    91.1      0.6      91.7      - 
>100%               187.9     -        187.9     1    131.3     -        131.3     1 
Total loans 
 before provisions  11,131.4  8,191.2  19,322.6  100  10,820.6  7,647.0  18,467.6  100 
------------------  --------  -------  --------  ---  --------  -------  --------  --- 
 
 
   The table below shows the LTV banding for the OSB segments' two major 
lending streams: 
 
 
 
 
                                   2020                                 2019 
                    BTL/SME  Residential     Total    %  BTL/SME  Residential  Total     % 
OSB                    GBPm         GBPm      GBPm          GBPm         GBPm      GBPm 
Band 
0% - 50%            795.7    944.6        1,740.3   16   905.9    826.7        1,732.6   16 
50% - 60%           1,228.1  233.9        1,462.0   13   1,062.8  239.0        1,301.8   12 
60% - 70%           2,602.1  211.3        2,813.4   25   2,240.2  195.5        2,435.7   23 
70% - 80%           3,693.4  249.5        3,942.9   35   3,993.5  188.6        4,182.1   38 
80% - 90%           584.5    294.6        879.1     8    621.4    324.6        946.0     9 
90% - 100%          89.4     16.4         105.8     1    45.1     46.0         91.1      1 
>100%               171.4    16.5         187.9     2    114.3    17.0         131.3     1 
Total loans 
 before provisions  9,164.6      1,966.8  11,131.4  100  8,983.2      1,837.4  10,820.6  100 
------------------  -------  -----------  --------  ---  -------  -----------  --------  --- 
 
 
 
 
 
 
   46.  Risk management (continued) 
 
   The tables below show the sub-segment LTV analysis of the OSB BTL/SME 
lending stream: 
 
 
 
 
                                                 2020 
                                                Residential   Funding 
                        Buy-to-Let  Commercial   development   lines   Total 
OSB                           GBPm        GBPm          GBPm     GBPm     GBPm 
Band 
0% - 50%                643.3       80.6        12.5          59.3     795.7 
50% - 60%               1,040.1     84.3        64.2          39.5     1,228.1 
60% - 70%               2,407.4     132.0       56.4          6.3      2,602.1 
70% - 80%               3,411.7     251.3       -             30.4     3,693.4 
80% - 90%               370.1       214.4       -             -        584.5 
90% - 100%              54.1        35.3        -             -        89.4 
>100%                   117.9       24.0        -             29.5     171.4 
Total loans before 
provisions                 8,044.6       821.9         133.1    165.0  9,164.6 
----------------------  ----------  ----------  ------------  -------  ------- 
 
 
 
 
 
 
                                                 2019 
                                                Residential   Funding 
                        Buy-to-Let  Commercial   development   lines   Total 
OSB                           GBPm        GBPm          GBPm     GBPm     GBPm 
Band 
0% - 50%                579.9       96.5        125.7         103.8    905.9 
50% - 60%               894.3       119.8       5.0           43.7     1,062.8 
60% - 70%               1,994.1     210.2       5.0           30.9     2,240.2 
70% - 80%               3,514.5     445.7       -             33.3     3,993.5 
80% - 90%               603.3       7.7         10.4          -        621.4 
90% - 100%              38.9        1.4         -             4.8      45.1 
>100%                   102.0       6.7         -             5.6      114.3 
Total loans before 
provisions                 7,727.0       888.0         146.1    222.1  8,983.2 
----------------------  ----------  ----------  ------------  -------  ------- 
 
 
   The tables below show the sub-segment LTV analysis of the OSB 
Residential lending stream: 
 
 
 
 
                                   2020                                2019 
                    First    Second   Funding           First    Second   Funding 
                     charge   charge   lines   Total     charge   charge   lines   Total 
OSB                    GBPm     GBPm     GBPm     GBPm     GBPm     GBPm     GBPm     GBPm 
Band 
0% - 50%            835.8    105.1    3.7      944.6    708.0    115.4    3.3      826.7 
50% - 60%           167.2    64.5     2.2      233.9    158.1    77.5     3.4      239.0 
60% - 70%           151.7    58.1     1.5      211.3    122.3    70.9     2.3      195.5 
70% - 80%           208.1    39.9     1.5      249.5    137.0    49.5     2.1      188.6 
80% - 90%           274.8    19.3     0.5      294.6    291.7    32.3     0.6      324.6 
90% - 100%          12.4     3.6      0.4      16.4     40.0     5.7      0.3      46.0 
>100%               10.7     4.9      0.9      16.5     9.5      7.3      0.2      17.0 
Total loans 
 before provisions  1,660.7    295.4     10.7  1,966.8  1,466.6    358.6     12.2  1,837.4 
------------------  -------  -------  -------  -------  -------  -------  -------  ------- 
 
 
   46.  Risk management (continued) 
 
   The table below shows the LTV banding for the CCFS segments' four major 
lending streams: 
 
 
 
 
                                               2020 
                                                        Second 
                                                         charge 
                     Buy-to-Let  Residential  Bridging   lending  Total 
CCFS                       GBPm         GBPm      GBPm      GBPm     GBPm    % 
Band 
0% - 50%             92.7        242.1        50.4      34.1      419.3    5 
50% - 60%            196.0       233.9        17.9      35.5      483.3    6 
60% - 70%            632.9       400.2        16.8      59.4      1,109.3  14 
70% - 80%            3,916.2     1,155.7      21.1      51.3      5,144.3  62 
80% - 90%            600.7       410.8        -         22.2      1,033.7  13 
90% - 100%           0.5         0.8          -         -         1.3      - 
Total loans before 
provisions              5,439.0      2,443.5     106.2     202.5  8,191.2  100 
-------------------  ----------  -----------  --------  --------  -------  --- 
 
 
 
 
 
 
                                               2019 
                                                        Second 
                                                         charge 
                     Buy-to-Let  Residential  Bridging   lending  Total 
CCFS                       GBPm         GBPm      GBPm      GBPm     GBPm    % 
Band 
0% - 50%             144.7       261.8        121.1     40.2      567.8    7 
50% - 60%            283.9       253.1        29.4      45.9      612.3    8 
60% - 70%            957.0       538.6        26.6      66.3      1,588.5  21 
70% - 80%            3,246.6     897.7        37.5      54.5      4,236.3  56 
80% - 90%            321.5       301.4        1.2       17.4      641.5    8 
90% - 100%           0.2         0.4          -         -         0.6      - 
Total loans before 
provisions              4,953.9      2,253.0     215.8     224.3  7,647.0  100 
-------------------  ----------  -----------  --------  --------  -------  --- 
 
 
 
 
   46.  Risk management (continued) 
 
   Analysis of mortgage portfolio by arrears and collateral held 
 
   The tables below provide further information on collateral, capped at 
the value of each individual mortgage, over the mortgage portfolio by 
payment due status and IFRS 9 stage. 
 
 
 
 
                                                    2020 
                              OSB                   CCFS                  Total 
                       Loan      Capped      Loan      Capped       Loan      Capped 
                     balance    collateral  balance   collateral  balance    collateral 
                       GBPm       GBPm       GBPm       GBPm        GBPm       GBPm 
Stage 1 
Not past due          9,322.8      9,259.7  6,744.8      6,743.2  16,067.6     16,002.9 
Past due <1 month        44.0         43.7      4.7          4.7      48.7         48.4 
                      9,366.8      9,303.4  6,749.5      6,747.9  16,116.3     16,051.3 
-------------------  --------  -----------  -------  -----------  --------  ----------- 
Stage 2 
Not past due          1,126.4      1,123.0  1,249.6      1,249.6   2,376.0      2,372.6 
Past due <1 month       177.6        177.5     55.9         55.9     233.5        233.4 
Past due 1 to 3 
 months                  59.4         59.3     22.1         22.1      81.5         81.4 
                      1,363.4      1,359.8  1,327.6      1,327.6   2,691.0      2,687.4 
-------------------  --------  -----------  -------  -----------  --------  ----------- 
Stage 3 
Not past due            130.1        100.9     15.3         15.3     145.4        116.2 
Past due <1 month        16.9         16.9      4.0          4.0      20.9         20.9 
Past due 1 to 3 
 months                  56.9         56.8      9.1          9.1      66.0         65.9 
Past due 3 to 6 
 months                  51.0         51.0      9.0          9.0      60.0         60.0 
Past due 6 to 12 
 months                  33.9         33.9      3.9          3.9      37.8         37.8 
Past due over 12 
 months                  23.5         23.5      1.4          1.4      24.9         24.9 
Possessions              40.3         40.3      5.4          5.4      45.7         45.7 
                        352.6        323.3     48.1         48.1     400.7        371.4 
-------------------  --------  -----------  -------  -----------  --------  ----------- 
Stage 3 (POCI) 
Not past due             22.5         22.3     31.9         31.9      54.4         54.2 
Past due <1 month         4.0          4.0      6.0          6.0      10.0         10.0 
Past due 1 to 3 
 months                   5.7          5.7      9.4          9.4      15.1         15.1 
Past due 3 to 6 
 months                   3.4          3.4      5.6          5.6       9.0          9.0 
Past due 6 to 12 
 months                   6.0          6.0      4.2          4.2      10.2         10.2 
Past due over 12 
 months                   7.0          7.0      2.4          2.4       9.4          9.4 
Possessions                 -            -      6.5          6.5       6.5          6.5 
                         48.6         48.4     66.0         66.0     114.6        114.4 
-------------------  --------  -----------  -------  -----------  --------  ----------- 
Total loans before 
 provisions          11,131.4     11,034.9  8,191.2      8,189.6  19,322.6     19,224.5 
 
 
 
 
   46.  Risk management (continued) 
 
 
 
 
                                                    2019 
                              OSB                   CCFS                  Total 
                       Loan      Capped      Loan      Capped       Loan      Capped 
                     balance    collateral  balance   collateral  balance    collateral 
                       GBPm       GBPm       GBPm       GBPm        GBPm       GBPm 
Stage 1 
Not past due          9,964.3      9,904.5  7,236.2      7,235.7  17,200.5     17,140.2 
Past due <1 month        82.6         82.6      3.8          3.8      86.4         86.4 
                     10,046.9      9,987.1  7,240.0      7,239.5  17,286.9     17,226.6 
-------------------  --------  -----------  -------  -----------  --------  ----------- 
Stage 2 
Not past due            261.0        260.7    239.1        239.0     500.1        499.7 
Past due <1 month       118.9        118.9     38.1         38.1     157.0        157.0 
Past due 1 to 3 
 months                  62.5         62.2     29.9         29.9      92.4         92.1 
                        442.4        441.8    307.1        307.0     749.5        748.8 
-------------------  --------  -----------  -------  -----------  --------  ----------- 
Stage 3 
Not past due             71.3         71.0      4.8          4.8      76.1         75.8 
Past due <1 month        36.3         36.1      1.4          1.4      37.7         37.5 
Past due 1 to 3 
 months                  28.8         28.5      6.0          6.0      34.8         34.5 
Past due 3 to 6 
 months                  45.9         45.3      4.5          4.5      50.4         49.8 
Past due 6 to 12 
 months                  27.4         27.2        -            -      27.4         27.2 
Past due over 12 
 months                  25.3         24.7        -            -      25.3         24.7 
Possessions              42.7         42.4        -            -      42.7         42.4 
                        277.7        275.2     16.7         16.7     294.4        291.9 
-------------------  --------  -----------  -------  -----------  --------  ----------- 
Stage 3 (POCI) 
Not past due             20.8         20.2     30.6         30.5      51.4         50.7 
Past due <1 month         6.1          5.9      8.5          8.5      14.6         14.4 
Past due 1 to 3 
 months                   4.9          4.6     21.9         21.9      26.8         26.5 
Past due 3 to 6 
 months                   6.5          6.1     10.5         10.5      17.0         16.6 
Past due 6 to 12 
 months                   5.7          5.3      5.5          5.5      11.2         10.8 
Past due over 12 
 months                   8.3          7.2      1.2          1.2       9.5          8.4 
Possessions               1.3          0.8      5.0          5.0       6.3          5.8 
                         53.6         50.1     83.2         83.1     136.8        133.2 
-------------------  --------  -----------  -------  -----------  --------  ----------- 
Total loans before 
 provisions          10,820.6     10,754.2  7,647.0      7,646.3  18,467.6     18,400.5 
 
 
 
 
   46.  Risk management (continued) 
 
   The table below shows the analysis of mortgage portfolio by arrears for 
the OSB segments' two major lending streams: 
 
 
 
 
                                  2020                            2019 
                     BTL/SME  Residential   Total    BTL/SME  Residential   Total 
OSB                   GBPm       GBPm        GBPm     GBPm       GBPm        GBPm 
Stage 1 
Not past due         7,873.4      1,449.4   9,322.8  8,514.9      1,449.4   9,964.3 
Past due <1 month       20.8         23.2      44.0     48.7         33.9      82.6 
                     7,894.2      1,472.6   9,366.8  8,563.6      1,483.3  10,046.9 
-------------------  -------  -----------  --------  -------  -----------  -------- 
Stage 2 
Not past due           893.0        233.4   1,126.4    156.9        104.1     261.0 
Past due <1 month      116.0         61.6     177.6     80.0         38.9     118.9 
Past due 1 to 3 
 months                 29.7         29.7      59.4     32.3         30.2      62.5 
                     1,038.7        324.7   1,363.4    269.2        173.2     442.4 
-------------------  -------  -----------  --------  -------  -----------  -------- 
Stage 3 
Not past due            98.9         31.2     130.1     39.6         31.7      71.3 
Past due <1 month        9.0          7.9      16.9     22.5         13.8      36.3 
Past due 1 to 3 
 months                 36.7         20.2      56.9      9.8         19.0      28.8 
Past due 3 to 6 
 months                 26.5         24.5      51.0     17.0         28.9      45.9 
Past due 6 to 12 
 months                 15.8         18.1      33.9      9.1         18.3      27.4 
Past due over 12 
 months                  6.9         16.6      23.5     13.5         11.8      25.3 
Possessions             37.7          2.6      40.3     38.7          4.0      42.7 
                       231.5        121.1     352.6    150.2        127.5     277.7 
-------------------  -------  -----------  --------  -------  -----------  -------- 
Stage 3 (POCI) 
Not past due             0.2         22.3      22.5      0.2         20.6      20.8 
Past due <1 month          -          4.0       4.0        -          6.1       6.1 
Past due 1 to 3 
 months                    -          5.7       5.7        -          4.9       4.9 
Past due 3 to 6 
 months                    -          3.4       3.4        -          6.5       6.5 
Past due 6 to 12 
 months                    -          6.0       6.0        -          5.7       5.7 
Past due over 12 
 months                    -          7.0       7.0        -          8.3       8.3 
Possessions                -            -         -        -          1.3       1.3 
                         0.2         48.4      48.6      0.2         53.4      53.6 
Total loans before 
 provisions          9,164.6      1,966.8  11,131.4  8,983.2      1,837.4  10,820.6 
-------------------  -------  -----------  --------  -------  -----------  -------- 
 
 
 
 
   46.  Risk management (continued) 
 
   The tables below show the sub-segment analysis of mortgage portfolio by 
arrears of the OSB BTL/SME lending stream: 
 
 
 
 
                                                 2020 
                                                 Residential  Funding 
                        Buy-to-Let  Commercial   development    lines    Total 
OSB                           GBPm        GBPm          GBPm     GBPm     GBPm 
Stage 1 
Not past due               6,847.1       756.8         133.1    136.4  7,873.4 
Past due <1 month             13.4         7.4             -        -     20.8 
                           6,860.5       764.2         133.1    136.4  7,894.2 
----------------------  ----------  ----------  ------------  -------  ------- 
Stage 2 
Not past due                 864.7        28.3             -        -    893.0 
Past due <1 month            114.5         1.5             -        -    116.0 
Past due 1 to 3 months        26.8         2.9             -        -     29.7 
                           1,006.0        32.7             -        -  1,038.7 
----------------------  ----------  ----------  ------------  -------  ------- 
Stage 3 
Not past due                  54.3        16.0             -     28.6     98.9 
Past due <1 month              8.5         0.5             -        -      9.0 
Past due 1 to 3 months        34.7         2.0             -        -     36.7 
Past due 3 to 6 months        25.4         1.1             -        -     26.5 
Past due 6 to 12 
 months                       13.8         2.0             -        -     15.8 
Past due over 12 
 months                        6.4         0.5             -        -      6.9 
Possessions                   35.0         2.7             -        -     37.7 
                             178.1        24.8             -     28.6    231.5 
----------------------  ----------  ----------  ------------  -------  ------- 
Stage 3 (POCI) 
Not past due                     -         0.2             -        -      0.2 
                                 -         0.2             -        -      0.2 
----------------------  ----------  ----------  ------------  -------  ------- 
Total loans before 
 provisions                8,044.6       821.9         133.1    165.0  9,164.6 
 
 
 
 
   46.  Risk management (continued) 
 
 
 
 
                                                 2019 
                                                Residential   Funding 
                        Buy-to-Let  Commercial   development   lines    Total 
OSB                        GBPm        GBPm         GBPm       GBPm     GBPm 
Stage 1 
Not past due               7,317.3       829.4         146.1    222.1  8,514.9 
Past due <1 month             32.8        15.9             -        -     48.7 
                           7,350.1       845.3         146.1    222.1  8,563.6 
----------------------  ----------  ----------  ------------  -------  ------- 
Stage 2 
Not past due                 128.6        28.3             -        -    156.9 
Past due <1 month             78.5         1.5             -        -     80.0 
Past due 1 to 3 months        29.2         3.1             -        -     32.3 
                             236.3        32.9             -        -    269.2 
----------------------  ----------  ----------  ------------  -------  ------- 
Stage 3 
Not past due                  37.1         2.5             -        -     39.6 
Past due <1 month             21.0         1.5             -        -     22.5 
Past due 1 to 3 months         9.8           -             -        -      9.8 
Past due 3 to 6 months        16.1         0.9             -        -     17.0 
Past due 6 to 12 
 months                        8.0         1.1             -        -      9.1 
Past due over 12 
 months                       13.1         0.4             -        -     13.5 
Possessions                   35.5         3.2             -        -     38.7 
                             140.6         9.6             -        -    150.2 
----------------------  ----------  ----------  ------------  -------  ------- 
Stage 3 (POCI) 
Not past due                     -         0.2             -        -      0.2 
                                 -         0.2             -        -      0.2 
----------------------  ----------  ----------  ------------  -------  ------- 
Total loans before 
 provisions                7,727.0       888.0         146.1    222.1  8,983.2 
 
 
 
 
   46.  Risk management (continued) 
 
   The tables below show the sub-segment analysis of mortgage portfolio by 
arrears of the OSB Residential mortgages lending stream: 
 
 
 
 
                                                     2020 
                                                             Funding 
                                First charge  Second charge    lines    Total 
OSB                                     GBPm           GBPm     GBPm     GBPm 
Stage 1 
Not past due                         1,226.5          212.2     10.7  1,449.4 
Past due <1 month                       19.4            3.8        -     23.2 
                                     1,245.9          216.0     10.7  1,472.6 
------------------------------  ------------  -------------  -------  ------- 
Stage 2 
Not past due                           207.2           26.2        -    233.4 
Past due <1 month                       56.0            5.6        -     61.6 
Past due 1 to 3 months                  24.6            5.1        -     29.7 
                                       287.8           36.9        -    324.7 
------------------------------  ------------  -------------  -------  ------- 
Stage 3 
Not past due                            26.4            4.8        -     31.2 
Past due <1 month                        6.8            1.1        -      7.9 
Past due 1 to 3 months                  15.8            4.4        -     20.2 
Past due 3 to 6 months                  19.1            5.4        -     24.5 
Past due 6 to 12 months                 13.1            5.0        -     18.1 
Past due over 12 months                 13.8            2.8        -     16.6 
Possessions                              2.6              -        -      2.6 
                                        97.6           23.5        -    121.1 
------------------------------  ------------  -------------  -------  ------- 
Stage 3 (POCI) 
Not past due                            15.5            6.8        -     22.3 
Past due <1 month                        2.8            1.2        -      4.0 
Past due 1 to 3 months                   3.3            2.4        -      5.7 
Past due 3 to 6 months                   2.0            1.4        -      3.4 
Past due 6 to 12 months                  3.4            2.6        -      6.0 
Past due over 12 months                  2.4            4.6        -      7.0 
                                        29.4           19.0        -     48.4 
                                ------------  -------------  -------  ------- 
Total loans before provisions        1,660.7          295.4     10.7  1,966.8 
------------------------------ 
 
 
 
 
   46.  Risk management (continued) 
 
 
 
 
                                                    2019 
                                                             Funding 
                                First charge  Second charge   lines    Total 
OSB                                 GBPm          GBPm        GBPm     GBPm 
Stage 1 
Not past due                         1,164.8          272.4     12.2  1,449.4 
Past due <1 month                       27.7            6.2        -     33.9 
                                     1,192.5          278.6     12.2  1,483.3 
------------------------------  ------------  -------------  -------  ------- 
Stage 2 
Not past due                            86.1           18.0        -    104.1 
Past due <1 month                       34.4            4.5        -     38.9 
Past due 1 to 3 months                  24.4            5.8        -     30.2 
                                       144.9           28.3        -    173.2 
------------------------------  ------------  -------------  -------  ------- 
Stage 3 
Not past due                            28.1            3.6        -     31.7 
Past due <1 month                       11.2            2.6        -     13.8 
Past due 1 to 3 months                  13.8            5.2        -     19.0 
Past due 3 to 6 months                  20.7            8.2        -     28.9 
Past due 6 to 12 months                 14.5            3.8        -     18.3 
Past due over 12 months                  9.8            2.0        -     11.8 
Possessions                              3.3            0.7        -      4.0 
                                       101.4           26.1        -    127.5 
------------------------------  ------------  -------------  -------  ------- 
Stage 3 (POCI) 
Not past due                            13.4            7.2        -     20.6 
Past due <1 month                        4.2            1.9        -      6.1 
Past due 1 to 3 months                   2.0            2.9        -      4.9 
Past due 3 to 6 months                   3.2            3.3        -      6.5 
Past due 6 to 12 months                  2.6            3.1        -      5.7 
Past due over 12 months                  2.3            6.0        -      8.3 
Possessions                              0.1            1.2        -      1.3 
                                        27.8           25.6        -     53.4 
                                ------------  -------------  -------  ------- 
Total loans before provisions        1,466.6          358.6     12.2  1,837.4 
------------------------------ 
 
 
 
 
   46.  Risk management (continued) 
 
   The table below shows the analysis of mortgage portfolio by arrears for 
the CCFS segments' four major lending streams: 
 
 
 
 
                                                  2020 
                                                               Second 
                                                               charge 
                          Buy-to-Let  Residential  Bridging   lending    Total 
CCFS                            GBPm         GBPm      GBPm      GBPm     GBPm 
Stage 1 
Not past due                 4,652.5      1,846.4      72.6     173.3  6,744.8 
Past due <1 month                2.1          1.9         -       0.7      4.7 
                             4,654.6      1,848.3      72.6     174.0  6,749.5 
------------------------  ----------  -----------  --------  --------  ------- 
Stage 2 
Not past due                   727.6        469.6      30.0      22.4  1,249.6 
Past due <1 month               13.3         39.6       1.7       1.3     55.9 
Past due 1 to 3 months           7.9         12.8       0.2       1.2     22.1 
                               748.8        522.0      31.9      24.9  1,327.6 
------------------------  ----------  -----------  --------  --------  ------- 
Stage 3 
Not past due                     6.7          7.9       0.2       0.5     15.3 
Past due <1 month                1.3          2.7         -         -      4.0 
Past due 1 to 3 months           1.0          7.9         -       0.2      9.1 
Past due 3 to 6 months           2.3          6.3       0.3       0.1      9.0 
Past due 6 to 12 months          1.0          2.7         -       0.2      3.9 
Past due over 12 months          0.8          0.5         -       0.1      1.4 
Possessions                      4.3          1.1         -         -      5.4 
                                17.4         29.1       0.5       1.1     48.1 
------------------------  ----------  -----------  --------  --------  ------- 
Stage 3 (POCI) 
Not past due                     8.8         21.0       0.3       1.8     31.9 
Past due <1 month                1.2          4.7         -       0.1      6.0 
Past due 1 to 3 months           2.0          7.1         -       0.3      9.4 
Past due 3 to 6 months           0.1          5.3         -       0.2      5.6 
Past due 6 to 12 months          0.1          3.7       0.4         -      4.2 
Past due over 12 months          0.6          1.4       0.4         -      2.4 
Possessions                      5.4          0.9       0.1       0.1      6.5 
                                18.2         44.1       1.2       2.5     66.0 
------------------------  ----------  -----------  --------  --------  ------- 
Total loans before 
 provisions                  5,439.0      2,443.5     106.2     202.5  8,191.2 
 
 
 
 
   46.  Risk management (continued) 
 
 
 
 
                                                  2019 
                                                              Second 
                                                              charge 
                          Buy-to-Let  Residential  Bridging   lending   Total 
CCFS                         GBPm        GBPm        GBPm      GBPm     GBPm 
Stage 1 
Not past due                 4,767.9      2,056.4     195.5     216.4  7,236.2 
Past due <1 month                0.5          1.1         -       2.2      3.8 
                             4,768.4      2,057.5     195.5     218.6  7,240.0 
------------------------  ----------  -----------  --------  --------  ------- 
Stage 2 
Not past due                   139.6         83.6      14.6       1.3    239.1 
Past due <1 month               10.1         27.1       0.8       0.1     38.1 
Past due 1 to 3 months           6.3         22.4       0.3       0.9     29.9 
                               156.0        133.1      15.7       2.3    307.1 
------------------------  ----------  -----------  --------  --------  ------- 
Stage 3 
Not past due                     1.1          3.2       0.2       0.3      4.8 
Past due <1 month                0.5          0.9         -         -      1.4 
Past due 1 to 3 months           1.6          4.4         -         -      6.0 
Past due 3 to 6 months           3.2          1.2       0.1         -      4.5 
                                 6.4          9.7       0.3       0.3     16.7 
------------------------  ----------  -----------  --------  --------  ------- 
Stage 3 (POCI) 
Not past due                    10.9         16.6       1.7       1.4     30.6 
Past due <1 month                2.5          5.4       0.4       0.2      8.5 
Past due 1 to 3 months           2.6         16.8       1.8       0.7     21.9 
Past due 3 to 6 months           1.3          8.8         -       0.4     10.5 
Past due 6 to 12 months          1.0          3.9       0.2       0.4      5.5 
Past due over 12 months          0.9          0.3         -         -      1.2 
Possessions                      3.9          0.9       0.2         -      5.0 
                                23.1         52.7       4.3       3.1     83.2 
------------------------  ----------  -----------  --------  --------  ------- 
Total loans before 
 provisions                  4,953.9      2,253.0     215.8     224.3  7,647.0 
 
 
 
 
   46.  Risk management (continued) 
 
   Forbearance measures undertaken 
 
   The Group has a range of options available where borrowers experience 
financial difficulties which impact their ability to service their 
financial commitments under the loan agreement. These are explained in 
the Principal risks and uncertainties. 
 
   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. 
 
 
 
 
                                          Number     At 31 December      Number       At 31 December 
                                        of accounts       2020        of accounts(1)      2019(1) 
Forbearance type                          2020            GBPm            2019             GBPm 
Interest-only switch                            108            14.1               59             8.4 
Interest rate reduction                          22             2.2               35             1.6 
Term extension                                  430            27.0               30             6.6 
Payment deferral                                447            38.7               87             4.1 
Voluntary-assisted sale                           2             0.1               26             1.0 
Payment concession (reduced monthly 
 payments)                                       34             1.7               73             3.6 
Capitalisation of interest                        2             0.1                -               - 
Full or partial debt forgiveness                 11             0.2                6               - 
Total                                         1,056            84.1              316            25.3 
------------------------------------  -------------  --------------  ---------------  -------------- 
 
Loan type 
First charge owner-occupier                     570            54.0               85            10.5 
Second charge owner-occupier                    372            15.0              198             7.4 
Buy-to-Let                                      113            14.9               32             7.4 
Commercial                                        1             0.2                1               - 
Total                                         1,056            84.1              316            25.3 
------------------------------------  -------------  --------------  ---------------  -------------- 
 
 
   1. CCFS forbearance is included post Combination. 
 
   As at 31 December 2020, active COVID-19 payment deferrals represented 
only 1.3% of the Group's loan book by value. 
 
   46.  Risk management (continued) 
 
   Geographical analysis by region 
 
   An analysis of loans by region is provided below: 
 
 
 
 
                                    Group                  Group 
                                     2020                  2019 
                       OSB       CCFS     Total               OSB       CCFS       Total 
Region                 GBPm      GBPm      GBPm       %      GBPm       GBPm       GBPm        % 
                     --------  --------  --------  ------  ---------  ---------  ---------  ------ 
East Anglia             407.6     866.2   1,273.8       7      391.9      810.9    1,202.8       7 
East Midlands           455.5     463.4     918.9       5      415.2      410.3      825.5       4 
Greater London        4,851.9   2,837.4   7,689.3      40    4,738.7    2,713.7    7,452.4      41 
Guernsey                 35.8         -      35.8       -       45.3          -       45.3       - 
Jersey                  122.9         -     122.9       1      141.4          -      141.4       1 
North East              140.1     208.4     348.5       2      136.7      179.5      316.2       2 
North West              635.4     674.8   1,310.2       7      587.3      605.4    1,192.7       6 
Northern Ireland         12.9         -      12.9       -       14.2          -       14.2       - 
Scotland                 47.0     214.2     261.2       1       48.5      190.9      239.4       1 
South East            2,419.8   1,316.7   3,736.5      19    2,375.2    1,209.6    3,584.8      20 
South West              757.0     478.5   1,235.5       6      747.5      466.0    1,213.5       7 
Wales                   249.2     209.9     459.1       2      239.3      202.6      441.9       2 
West Midlands           744.5     529.2   1,273.7       7      702.2      496.0    1,198.2       6 
Yorks and 
 Humberside             251.8     392.5     644.3       3      237.2      362.1      599.3       3 
Total loans before 
 provisions          11,131.4   8,191.2  19,322.6     100   10,820.6    7,647.0   18,467.6     100 
-------------------  --------  --------  --------  ------  ---------  ---------  ---------  ------ 
 
 
 
 
   46.  Risk management (continued) 
 
   Approach to measurement of credit quality 
 
   The Group categorises the credit quality of loans and advances to 
customers into internal risk grades based on the 12 month PD calculated 
at the reporting date. The PDs include a combination of internal 
behavioural and credit bureau characteristics. The risk grades are 
further grouped into the following credit quality segments: 
 
 
   -- Excellent quality - where there is a very high likelihood the asset will 
      be recovered in full with a negligible or very low risk of default. 
 
   -- Good quality - where there is a high likelihood the asset will be 
      recovered in full with a low risk of default. 
 
   -- Satisfactory quality -- where the assets demonstrate a moderate default 
      risk. 
 
   -- Lower quality - where the assets require closer monitoring and the risk 
      of default is of greater concern. 
 
 
   The credit grade for the Group's investment securities and loans and 
advances to credit institutions is based on the external credit rating 
of the counterparty. 
 
   The following tables disclose the credit risk quality ratings of loans 
and advances to customers by IFRS 9 stage: 
 
 
 
 
                                           Stage 3 
               Stage 1   Stage 2  Stage 3   (POCI)   Total 
2020             GBPm     GBPm     GBPm     GBPm      GBPm 
OSB 
Excellent       4,689.6    295.4        -        -   4,985.0 
Good            4,564.9    756.4        -        -   5,321.3 
Satisfactory      106.7    242.8        -        -     349.5 
Lower               5.6     68.8        -        -      74.4 
Impaired              -        -    352.6        -     352.6 
POCI                  -        -        -     48.6      48.6 
CCFS 
Excellent       4,352.8    398.8        -        -   4,751.6 
Good            2,338.8    667.2        -        -   3,006.0 
Satisfactory       55.3    140.2        -        -     195.5 
Lower               2.6    121.4        -        -     124.0 
Impaired              -        -     48.1        -      48.1 
POCI                  -        -        -     66.0      66.0 
               16,116.3  2,691.0    400.7    114.6  19,322.6 
-------------  --------  -------  -------  -------  -------- 
 
 
 
 
   46.  Risk management (continued) 
 
 
 
 
                                           Stage 3 
               Stage 1   Stage 2  Stage 3   (POCI)   Total 
2019             GBPm     GBPm     GBPm     GBPm      GBPm 
OSB(1) 
Excellent       5,033.6     11.0        -        -   5,044.6 
Good            4,859.3    200.5        -        -   5,059.8 
Satisfactory      147.3    154.8        -        -     302.1 
Lower               6.7     76.1        -        -      82.8 
Impaired              -        -    277.7        -     277.7 
POCI                  -        -        -     53.6      53.6 
CCFS 
Excellent       3,632.7     20.5        -        -   3,653.2 
Good            3,359.7     93.7        -        -   3,453.4 
Satisfactory      222.8     39.1        -        -     261.9 
Lower              24.8    153.8        -        -     178.6 
Impaired              -        -     16.7        -      16.7 
POCI                  -        -        -     83.2      83.2 
               17,286.9    749.5    294.4    136.8  18,467.6 
-------------  --------  -------  -------  -------  -------- 
 
 
   (1) The Group has restated the prior year comparatives for OSB to 
include finance lease assets. 
 
   The tables below show the Group's other financial assets by credit risk 
rating grade: 
 
 
 
 
                               Excellent  Good   Satisfactory   Total 
Group 2020                       GBPm     GBPm       GBPm       GBPm 
Investment securities              471.2      -             -    471.2 
Loans and advances to credit 
 institutions                    2,432.9  233.4           9.9  2,676.2 
Derivative assets                    6.5    5.8             -     12.3 
                                 2,910.6  239.2           9.9  3,159.7 
-----------------------------  ---------  -----  ------------  ------- 
 
 
 
 
 
 
 
Group 2019 
Investment securities            635.3      -     -    635.3 
Loans and advances to credit 
 institutions                  2,047.8  146.1  10.7  2,204.6 
Derivative assets                 11.6    9.5     -     21.1 
                               2,694.7  155.6  10.7  2,861.0 
-----------------------------  -------  -----  ----  ------- 
 
 
   Credit risk - loans and advances to credit institutions and investment 
securities 
 
   The Group holds treasury instruments in order to meet liquidity 
requirements and for general business purposes. The credit risk arising 
from these investments is closely monitored and managed by the Group's 
Treasury function. In managing these assets, Group Treasury operates 
within guidelines laid down in the Treasury Policy approved by ALCO and 
performance is monitored and reported to ALCO monthly, including through 
the use of an internally developed rating model based on counterparty 
credit default swap spreads. 
 
   The Group has limited exposure to emerging markets (Indian operations) 
and non-investment grade debt. ALCO is responsible for approving 
treasury counterparties. 
 
   46.  Risk management (continued) 
 
   During the year, the average balance of cash in hand, loans and advances 
to credit institutions and investment securities on a monthly basis was 
GBP3,196.0m (2019: GBP2,016.2m). 
 
   The tables below show the industry sector of the Group's loans and 
advances to credit institutions and investment securities: 
 
 
 
 
                            2020               2019 
                         GBPm     %      GBPm          % 
BoE(1)                  2,308.8   73     1,957.9           69 
Other banks               367.4   12       246.7            9 
Central government            -    -       149.8            5 
Securitisation            471.2   15           -            - 
Supranationals                -    -       485.5           17 
Total                   3,147.4  100     2,839.9          100 
----------------------  -------  ---  ----------  ----------- 
 
 
   (1) Balances with the BoE include GBP52.3m (2019: GBP41.7m) held in the 
cash ratio deposit. 
 
   The tables below show the geographical exposure of the Group's loans and 
advances to credit institutions and investment securities: 
 
 
 
 
                        2020      2019 
                     GBPm     %      GBPm      % 
United Kingdom      3,137.5  100     2,829.2  100 
India                   9.9    -        10.7    - 
Total               3,147.4  100     2,839.9  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. 
 
   Liquidity risk 
 
   Liquidity risk is the risk of having insufficient liquid assets to 
fulfil obligations as they become due or the cost of raising liquid 
funds becoming too expensive. 
 
   The Group's approach to managing liquidity risk is to maintain 
sufficient liquid resources to cover cash flow imbalances and 
fluctuations in funding in order to retain full public confidence in the 
solvency of the Group and to enable the Group to meet its financial 
obligations as they fall due. This is achieved through maintaining a 
prudent level of liquid assets and control of the growth of the 
business. The Group has established a call account with the BoE and has 
access to its contingent liquidity facilities. 
 
   Liquidity management is the responsibility of ALCO, with day-to-day 
management delegated to Treasury as detailed in the Treasury Policy. 
ALCO is responsible for setting limits over the level and maturity 
profile of wholesale funding and for monitoring the composition of the 
Group financial position. For each material class of financial liability 
a contractual maturity analysis is provided below. 
 
   The Group also monitors a range of triggers, defined in the contingency 
funding plan and recovery and resolution plan, which are designed to 
capture liquidity stresses in advance in order to allow sufficient time 
for management action to take effect. These are monitored daily by the 
Risk team, with breaches immediately reported to the CRO, CEO, CFO and 
the Group Treasurer. 
 
   46.  Risk management (continued) 
 
   The tables below provide a contractual maturity analysis of the Group's 
financial assets and liabilities: 
 
 
 
 
                          Carrying             Less than    3 - 12       1 - 5    More than 
                           amount   On demand   3 months    months       years     5 years 
2020                        GBPm      GBPm       GBPm        GBPm        GBPm       GBPm 
Financial liability 
 by type 
Amounts owed to retail 
 depositors               16,603.1    3,810.7    2,733.5     6,517.5     3,541.4          - 
Amounts owed to credit 
 institutions              3,570.2        0.4       85.0     1,035.3     2,449.5          - 
Amounts owed to other 
 customers                    72.9       26.9        7.5        38.5           -          - 
Derivative liabilities       163.6          -        0.2         4.5       153.9        5.0 
Debt securities in 
 issue                       421.9          -          -           -       421.9          - 
Lease liabilities             11.7          -        0.2         0.7         3.6        7.2 
Subordinated liabilities      10.5          -        0.2         0.1        10.2          - 
Perpetual Subordinated 
 Bonds                        37.6          -        0.6           -           -       37.0 
Total liabilities         20,891.5    3,838.0    2,827.2     7,596.6     6,580.5       49.2 
------------------------  --------  ---------  ---------  ----------  ----------  --------- 
Financial asset by 
 type 
Cash in hand                   0.5        0.5          -           -           -          - 
Loans and advances 
 to credit institutions    2,676.2    2,512.8      111.1        18.3           -       34.0 
Investment securities        471.2          -        0.3           -       470.9          - 
Loans and advances 
 to customers             19,230.7        4.1      316.7       266.4     1,239.7   17,403.8 
Derivative assets             12.3          -        1.3         3.7         7.1        0.2 
Total assets              22,390.9    2,517.4      429.4       288.4     1,717.7   17,438.0 
------------------------  --------  ---------  ---------  ----------  ----------  --------- 
Cumulative liquidity 
 gap                                (1,320.6)  (3,718.4)  (11,026.6)  (15,889.4)    1,499.4 
 
 
 
 
   46.  Risk management (continued) 
 
 
 
 
                          Carrying             Less than    3 - 12       1 - 5    More than 
                           amount   On demand   3 months    months       years     5 years 
2019                        GBPm      GBPm       GBPm        GBPm        GBPm       GBPm 
Financial liability 
 by type 
Amounts owed to retail 
 depositors               16,255.0    4,050.7    2,411.9     6,579.3     3,213.1          - 
Amounts owed to credit 
 institutions              3,068.8       10.2      232.0       193.5     2,633.1          - 
Amounts owed to other 
 customers                    29.7        3.7        2.8        23.1         0.1          - 
Derivative liabilities        92.8          -          -         2.3        83.4        7.1 
Debt securities in 
 issue                       296.3          -          -        40.1       256.2          - 
Lease liabilities             13.3          -        0.3         1.0         3.8        8.2 
Subordinated liabilities      10.6          -        0.2         0.1        10.3          - 
Perpetual Subordinated 
 Bonds                        37.6          -        0.6           -           -       37.0 
Total liabilities         19,804.1    4,064.6    2,647.8     6,839.4     6,200.0       52.3 
------------------------  --------  ---------  ---------  ----------  ----------  --------- 
Financial asset by 
 type 
Cash in hand                   0.4        0.4          -           -           -          - 
Loans and advances 
 to credit institutions    2,204.6    2,077.1       85.8           -           -       41.7 
Investment securities        635.3          -       49.9       116.4       469.0          - 
Loans and advances 
 to customers             18,446.8        4.5      290.7       524.1     1,174.8   16,452.7 
Derivative assets             21.1          -        0.3         3.0        16.0        1.8 
Total assets              21,308.2    2,082.0      426.7       643.5     1,659.8   16,496.2 
------------------------  --------  ---------  ---------  ----------  ----------  --------- 
Cumulative liquidity 
 gap                                (1,982.6)  (4,203.7)  (10,399.6)  (14,939.8)    1,504.1 
 
 
 
 
   46.  Risk management (continued) 
 
   Liquidity risk -- contractual cash flows 
 
   The following tables provide an analysis of the Group's gross 
contractual cash flows, derived using interest rates and contractual 
maturities at the reporting date and excluding impacts of early payments 
or non-payments: 
 
 
 
 
                          Carrying  Gross inflow/    Up to     3 - 12    1 - 5   More than 
                           amount      outflow      3 months    months    years   5 years 
2020                        GBPm        GBPm         GBPm       GBPm     GBPm      GBPm 
Financial liability 
 by type 
Amounts owed to retail 
 depositors               16,603.1       16,644.9    7,302.6   3,610.5  4,121.0    1,610.8 
Amounts owed to credit 
 institutions and other 
 customers                 3,643.1        3,658.8      113.4   1,048.9    826.6    1,669.9 
Derivative liabilities       163.6          157.7       11.0      41.4    103.8        1.5 
Debt securities in 
 issue                       421.9          426.4       17.3      52.0     67.3      289.8 
Lease liabilities             11.7           13.2        0.5       1.2      6.4        5.1 
Subordinated liabilities      10.5           13.1        0.4       0.5     12.2          - 
Perpetual Subordinated 
 Bonds                        37.6           39.8        0.7       0.3      1.8       37.0 
Total liabilities         20,891.5       20,953.9    7,445.9   4,754.8  5,139.1    3,614.1 
------------------------  --------  -------------  ---------  --------  -------  --------- 
Off-balance sheet loan 
 commitments                 979.5          979.5      979.5         -        -          - 
Financial asset by 
 type 
Cash in hand                   0.5            0.5        0.5         -        -          - 
Loans and advances 
 to credit institutions    2,676.2        2,676.2    2,623.9      18.3        -       34.0 
Investment securities        471.2          494.9        1.2       4.0    483.8        5.9 
Loans and advances 
 to customers             19,230.7       36,156.7      373.4   1,132.4  4,960.5   29,690.4 
Derivative assets             12.3           12.1        3.2       4.6      4.3          - 
Total assets              22,390.9       39,340.4    3,002.2   1,159.3  5,448.6   29,730.3 
------------------------  --------  -------------  ---------  --------  -------  --------- 
 
 
 
 
   46.  Risk management (continued) 
 
 
 
 
                          Carrying  Gross inflow/    Up to     3 - 12    1 - 5   More than 
                           amount      outflow      3 months    months    years   5 years 
2019                        GBPm        GBPm         GBPm       GBPm     GBPm      GBPm 
Financial liability 
 by type 
Amounts owed to retail 
 depositors               16,255.0       16,407.3    5,532.0   4,309.7  4,911.8    1,653.8 
Amounts owed to credit 
 institutions and other 
 customers                 3,098.5        3,133.3      255.1     229.5  2,648.7          - 
Derivative liabilities        92.8           91.4        5.6      20.7     61.4        3.7 
Debt securities in 
 issue                       296.3          315.3       14.4      82.9    218.0          - 
Lease liabilities             13.3           22.4        0.7       1.4     17.1        3.2 
Subordinated liabilities      10.6           14.2        0.4       0.5     13.3          - 
Perpetual Subordinated 
 Bonds                        37.6           45.5        0.4       1.3      6.8       37.0 
Total liabilities         19,804.1       20,029.4    5,808.6   4,646.0  7,877.1    1,697.7 
------------------------  --------  -------------  ---------  --------  -------  --------- 
Off-balance sheet loan 
 commitments               1,210.9        1,210.9    1,210.9         -        -          - 
Financial asset by 
 type 
Cash in hand                   0.4            0.4        0.4         -        -          - 
Loans and advances 
 to credit institutions    2,204.6        2,204.6    2,162.9         -        -       41.7 
Investment securities        635.3          672.4       52.1     123.2    497.1          - 
Loans and advances 
 to customers             18,446.8       37,024.4      371.6   1,423.6  5,032.4   30,196.8 
Derivative assets             21.1           23.4        2.4       5.7     15.1        0.2 
Total assets              21,308.2       39,925.2    2,589.4   1,552.5  5,544.6   30,238.7 
------------------------  --------  -------------  ---------  --------  -------  --------- 
 
 
   The actual repayment profile of retail deposits may differ from the 
analysis above due to the option of early withdrawal with a penalty. 
 
   Perpetual Subordinated Bonds have been shown to the next interest rate 
reset date. 
 
   The actual repayment profile of loans and advances to customers may 
differ from the analysis above since many mortgage loans are repaid 
prior to the contractual end date. 
 
   46.  Risk management (continued) 
 
   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: 
 
 
 
 
                                                      2020 
                                      Encumbered               Unencumbered 
                                                         ------------------------ 
                                  Pledged                  Available 
                                as collateral  Other(1)   as collateral  Other(2)   Total 
                                    GBPm         GBPm         GBPm         GBPm      GBPm 
Cash in hand                                -         -             0.5         -       0.5 
Loans and advances to credit 
 institutions                           211.1      95.0         2,256.5     113.6   2,676.2 
Investment securities                   161.0         -           310.2         -     471.2 
Loans and advances to 
 customers                            5,638.6         -         2,752.0  10,840.1  19,230.7 
Derivative assets                           -         -               -      12.3      12.3 
Non-financial assets                        -         -               -     263.6     263.6 
                                      6,010.7      95.0         5,319.2  11,229.6  22,654.5 
-----------------------------  --------------  --------  --------------  --------  -------- 
 
 
 
 
 
 
                                                       2019 
                                      Encumbered                Unencumbered 
                                                          ------------------------- 
                                  Pledged                   Available 
                                as collateral  Other(1)    as collateral  Other(2)     Total 
                                    GBPm         GBPm          GBPm         GBPm       GBPm 
Cash in hand                                -          -             0.4          -        0.4 
Loans and advances to credit 
 institutions                           110.4       41.7         1,916.2      136.3    2,204.6 
Investment securities                   173.0          -           462.3          -      635.3 
Loans and advances to 
 customers                            4,922.4       40.4         1,939.6   11,544.4   18,446.8 
Derivative assets                           -          -               -       21.1       21.1 
Non-financial assets                        -          -               -      108.9      108.9 
                                      5,205.8       82.1         4,318.5   11,810.7   21,417.1 
-----------------------------  --------------  ---------  --------------  ---------  --------- 
 
   (1) Represents assets that are not pledged but that the Group believes 
it is restricted from using to secure funding for legal or other 
reasons. 
 
   (2) Represents assets that are not restricted for use as collateral, but 
the Group treats as available as collateral once they are readily 
available to secure funding in the normal course of business. 
 
   46.  Risk management (continued) 
 
   Liquidity risk -- liquidity reserves 
 
   The tables below analyse the Group's liquidity reserves, where carrying 
value is considered to be equal to fair value: 
 
 
 
 
                                             2020     2019 
                                             GBPm     GBPm 
Unencumbered balances with central banks    2,256.5  1,916.2 
Unencumbered cash and balances with other 
 banks                                        113.6    136.3 
Other cash and cash equivalents                 0.5      0.4 
Unencumbered investment securities            310.2    462.3 
                                            2,680.8  2,515.2 
------------------------------------------  -------  ------- 
 
 
   Market risk 
 
   Market risk is the risk of an adverse change in the Group's income or 
the Group's net worth arising from movement in interest rates, exchange 
rates or other market prices. Market risk exists, to some extent, in all 
the Group's businesses. The Group recognises that the effective 
management of market risk is essential to the maintenance of stable 
earnings and preservation of shareholder value. 
 
   Interest rate risk 
 
   The primary market risk faced by the Group is interest rate risk. 
Interest rate risk is the risk of loss from adverse movement in the 
overall level of interest rates. It arises from mismatches in the timing 
of repricing of assets and liabilities, both on and off-balance sheet. 
The Group does not run a trading book or take speculative interest rate 
positions and therefore all interest rate risk resides in the banking 
book (interest rate risk in the banking book (IRRBB)). IRRBB is most 
prevalent in mortgage lending where fixed rate mortgages are not funded 
by fixed rate deposits of the same duration, or where the fixed rate 
risk is not hedged by a fully matching interest rate derivative. 
Exposure is mitigated on a continuous basis through the use of 
derivatives and reserve allocations. 
 
   Currently interest rate risk is managed separately for OSB and CCFS due 
to the use of different treasury management and asset and liability 
management (ALM) systems. However, the methodology applied to the 
setting of risk appetites was aligned across the Group in 2020. Both 
Banks apply an economic value at risk approach as well as an earnings at 
risk approach for interest rate risk and basis risk. The interest rate 
sensitivity is impacted by behavioural assumptions used by the Group; 
the most significant of which are prepayments and reserve allocations. 
Expected prepayments are modelled based on historical analysis and 
current market rates. The reserve allocation strategy is approved by 
ALCO and set to reflect the current balance sheet and future plans. 
 
   46.  Risk management (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: 
 
 
 
 
        2020  2019 
        GBPm  GBPm 
OSB      5.6   4.3 
CCFS     0.7   3.7 
Group    6.3   8.0 
 
 
   Exposure for earnings at risk is measured by the impact of a +/-50bps 
parallel shift in interest rates on the expected profitability of the 
Group in the next 12 months. The risk appetite limit is 2% of full year 
net interest income (NII). The table below shows the maximum decreases 
after taking into account the derivatives: 
 
 
 
 
         2020   2019 
         GBPm   GBPm 
OSB(1)   (0.1)   2.5 
CCFS       2.2   0.6 
Group      2.1   3.1 
 
 
   (1) Due to product floors earnings increases in both the +50bps and 
-50bps scenarios. 
 
   The Group is also exposed to basis risk. Basis risk is the risk of loss 
from an adverse divergence in interest rates. It arises where assets and 
liabilities reprice from different variable rate indices. These indices 
may be market rates (e.g. bank base rate, LIBOR or SONIA) or 
administered (e.g. the Group's SVR, other discretionary variable rates, 
or that received on call accounts with other banks). 
 
   The Group measures basis risk using the impact of five scenarios on net 
interest income over a one-year period including movements such as 
diverging base, LIBOR and SONIA rates. Historical data is used to 
calibrate the severity of the scenarios to the Group's risk appetite. 
The Board has set a limit on basis risk exposure of 4% of full year net 
interest income. The table below shows the maximum decreases to net 
interest income at 31 December 2020 and 2019: 
 
 
 
 
        2020  2019 
        GBPm  GBPm 
OSB      5.4   9.3 
CCFS     8.0   9.7 
Group   13.4  19.0 
 
 
   Foreign exchange rate risk 
 
   The Group has limited exposure to foreign exchange risk in respect of 
its Indian operations. A 5% increase in exchange rates would result in a 
GBP0.4m (2019: GBP0.4m) effect in profit or loss and GBP0.5m (2019: 
GBP0.4m) in equity. 
 
   46.  Risk management (continued) 
 
   Structured entities 
 
   The structured entities consolidated within the Group at 31 December 
2020 were Canterbury Finance No.2 plc, Canterbury Finance No.3 plc and 
CMF 2020-1 plc. These entities hold legal title to a pool of mortgages 
which are used as a security for issued debt. The transfer of mortgages 
fails derecognition criteria because the Group retained the subordinated 
notes and residual certificates issued and as such did not transfer 
substantially the risks and rewards of ownership of the securitised 
mortgages. Therefore, the Group is exposed to credit, interest rate and 
other risks on the securitised mortgages. 
 
   Cash flows generated from the structured entities are ring-fenced and 
are used to pay interest and principal of the issued debt securities in 
a waterfall order according to the seniority of the bonds. The 
structured entities are self-funded and the Group is not contractually 
or constructively obliged to provide further liquidity or financial 
support. 
 
   The structured entities consolidated within the Group at 31 December 
2019 were Canterbury Finance No.1 plc and Precise Mortgage Funding 
2015-1 plc. 
 
   Unconsolidated structured entities 
 
   Structured entities, which were sponsored by the Group include Precise 
Mortgage Funding 2015-2B plc, Precise Mortgage Funding 2017-1B plc, 
Charter Mortgage Funding 2017-1 plc, Precise Mortgage Funding 2018-1B 
plc, Charter Mortgage Funding 2018-1 plc, Precise Mortgage Funding 
2019-1B plc, Canterbury Finance No.1 plc and Precise Mortgage Funding 
2020-1B plc. 
 
   These structured entities are not consolidated by the Group, as the 
Group does not control the entities and is not exposed to the risks and 
rewards of ownership from the securitised mortgages. The Group has no 
contractual arrangements with the unconsolidated structured entities 
other than the investments disclosed in note 20 and servicing the 
structured entities' mortgage portfolios. 
 
   The Group has not provided any support to the unconsolidated structured 
entities listed and has no obligation or intention to do so. 
 
   During 2020 the Group received GBP5.0m interest income (2019: GBP2.7m) 
and GBP4.6m servicing income (2019: GBP1.1m) from unconsolidated 
structured entities. 
 
 
   1. Financial instruments and fair values 
 
   2. Financial assets and financial liabilities 
 
 
   The following tables summarise the classification and carrying value of 
the Group's financial assets and financial liabilities: 
 
 
 
 
                                                         2020 
                                     Fair value 
                                       through 
                                      profit or         Amortised  Total carrying 
                                        loss     FVOCI     cost        amount 
                               Note     GBPm     GBPm     GBPm          GBPm 
Assets 
Cash in hand                                  -      -        0.5             0.5 
Loans and advances to credit 
 institutions                    19           -      -    2,676.2         2,676.2 
Investment securities            20           -  285.0      186.2           471.2 
Loans and advances to 
 customers                       21        19.1      -   19,211.6        19,230.7 
Derivative assets                26        12.3      -          -            12.3 
                                           31.4  285.0   22,074.5        22,390.9 
-----------------------------  ----  ----------  -----  ---------  -------------- 
Liabilities 
Amounts owed to retail 
 depositors                      34           -      -   16,603.1        16,603.1 
Amounts owed to credit 
 institutions                    33           -      -    3,570.2         3,570.2 
Amounts owed to other 
 customers                       35           -      -       72.9            72.9 
Debt securities in issue         36           -      -      421.9           421.9 
Derivative liabilities           26       163.6      -          -           163.6 
Subordinated liabilities         40           -      -       10.5            10.5 
Perpetual Subordinated Bonds     41           -      -       37.6            37.6 
                                          163.6      -   20,716.2        20,879.8 
-----------------------------  ----  ----------  -----  ---------  -------------- 
 
 
 
 
   47.  Financial instruments and fair values (continued) 
 
 
 
 
                                                         2019 
                                     Fair value 
                                       through 
                                      profit or         Amortised  Total carrying 
                                        loss     FVOCI     cost        amount 
                               Note     GBPm     GBPm     GBPm          GBPm 
Assets 
Cash in hand                                  -      -        0.4             0.4 
Loans and advances to credit 
 institutions                    19           -      -    2,204.6         2,204.6 
Investment securities            20           -  508.7      126.6           635.3 
Loans and advances to 
 customers                       21        22.1      -   18,424.7        18,446.8 
Derivative assets                26        21.1      -          -            21.1 
                                           43.2  508.7   20,756.3        21,308.2 
-----------------------------  ----  ----------  -----  ---------  -------------- 
Liabilities 
Amounts owed to retail 
 depositors                      34           -      -   16,255.0        16,255.0 
Amounts owed to credit 
 institutions                    33           -      -    3,068.8         3,068.8 
Amounts owed to other 
 customers                       35           -      -       29.7            29.7 
Debt securities in issue         36           -      -      296.3           296.3 
Derivative liabilities           26        92.8      -          -            92.8 
Subordinated liabilities         40           -      -       10.6            10.6 
Perpetual Subordinated Bonds     41           -      -       37.6            37.6 
                                           92.8      -   19,698.0        19,790.8 
-----------------------------  ----  ----------  -----  ---------  -------------- 
 
 
 
 
   47.  Financial instruments and fair values (continued) 
 
 
 
   The Group has no financial assets nor 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 
Statement of Financial Position: 
 
 
 
 
                                       2020                      2019 
                               Carrying   Estimated     Carrying     Estimated 
                                 value    fair value      value      fair value 
                                 GBPm       GBPm          GBPm          GBPm 
Assets 
Cash in hand                        0.5          0.5           0.4           0.4 
Loans and advances to credit 
 institutions                   2,676.2      2,676.2       2,204.6       2,204.6 
Investment securities             186.2        186.6         126.6         126.6 
Loans and advances to 
 customers                     19,211.6     19,352.0      18,424.7      18,654.2 
                               22,074.5     22,215.3      20,756.3      20,985.8 
-----------------------------  --------  -----------  ------------  ------------ 
Liabilities 
Amounts owed to retail 
 depositors                    16,603.1     16,666.1      16,255.0      16,259.7 
Amounts owed to credit 
 institutions                   3,570.2      3,570.2       3,068.8       3,068.8 
Amounts owed to other 
 customers                         72.9         72.9          29.7          29.7 
Debt securities in issue          421.9        421.9         296.3         296.3 
Subordinated liabilities           10.5         10.7          10.6          10.7 
Perpetual Subordinated Bonds       37.6         32.3          37.6          33.2 
                               20,716.2     20,774.1      19,698.0      19,698.4 
-----------------------------  --------  -----------  ------------  ------------ 
 
 
   The fair values in these tables are estimated using the valuation 
techniques below. The estimated fair value is stated as at 31 December 
and may be significantly different from the amounts which will actually 
be paid on the maturity or settlement dates of each financial 
instrument. 
 
   Cash in hand 
 
   This represents physical cash across the Group's branch network where 
fair value is considered to be equal to carrying value. 
 
   Loans and advances to credit institutions 
 
   This mainly represents the Group's working capital current accounts and 
call accounts with central governments and other banks with an original 
maturity of less than three months. Fair value is not considered to be 
materially different to carrying value. 
 
   Loans and advances to customers 
 
   This mainly represents secured mortgage lending to customers. The fair 
value of fixed rate mortgages has been estimated by discounting future 
cash flows at current market rates of interest. Future cash flows 
include the impact of expected credit losses. The interest rate on 
variable rate mortgages is considered to be equal to current market 
product rates and as such fair value is estimated to be equal to 
carrying value. 
 
   Amounts owed to retail depositors 
 
   The fair value of fixed rate retail deposits has been estimated by 
discounting future cash flows at current market rates of interest. 
Retail deposits at variable rates and deposits payable on demand are 
considered to be at current market rates and as such fair value is 
estimated to be equal to carrying value. 
 
   47.  Financial instruments and fair values (continued) 
 
 
 
   Amounts owed to credit institutions 
 
   This mainly represents amounts drawn down under the BoE TFS, TFSME and 
ILTR, warehouse funding and commercial repos. Fair value is considered 
to be equal to carrying value. 
 
   Amounts owed to other customers 
 
   This represents fixed rate saving products to corporations and local 
authorities with original maturities greater than three months. The fair 
value is estimated by discounting future cash flows at current market 
rates of interest. 
 
   Debt securities in issue 
 
   While the Group's debt securities in issue are listed, the quoted prices 
for an individual note may not be indicative of the fair value of the 
issue as a whole, due to the specialised nature of the market in such 
instruments and the limited number of investors participating in it. 
Fair value is not considered to be materially different to carrying 
value. 
 
   Subordinated liabilities and Perpetual Subordinated Bonds 
 
   The fair value of subordinated liabilities is estimated by using quoted 
market prices of similar instruments at the reporting date. The PSBs are 
listed on the London Stock Exchange with fair value being the quoted 
market price at the reporting date. 
 
   iii.        Fair value classification 
 
   The following tables provide an analysis of financial assets and 
financial liabilities measured at fair value in the Statement of 
Financial Position grouped into Levels 1 to 3 based on the degree to 
which the fair value is observable: 
 
 
 
 
                         Carrying  Principal  Level  Level  Level 
                          amount     amount     1      2      3    Total 
2020                       GBPm      GBPm     GBPm   GBPm   GBPm   GBPm 
Financial assets 
Investment securities       285.0      284.7      -  285.0      -  285.0 
Loans and advances to 
 customers                   19.1       21.8      -      -   19.1   19.1 
Derivative assets            12.3    8,687.8      -   12.3      -   12.3 
                            316.4    8,994.3      -  297.3   19.1  316.4 
Financial liabilities 
Derivative liabilities      163.6   10,392.4      -  163.6      -  163.6 
 
 
 
 
 
 
                         Carrying  Principal  Level  Level  Level 
                          amount     amount     1      2      3    Total 
2019                       GBPm      GBPm     GBPm   GBPm   GBPm   GBPm 
Financial assets 
Investment securities       508.7      509.5  149.8  358.9      -  508.7 
Loans and advances to 
 customers                   22.1       24.8      -      -   22.1   22.1 
Derivative assets            21.1    7,795.4      -   21.0    0.1   21.1 
                            551.9    8,329.7  149.8  379.9   22.2  551.9 
----------------------- 
Financial liabilities 
Derivative liabilities       92.8    9,982.4      -   92.8      -   92.8 
 
 
 
 
   47.  Financial instruments and fair values (continued) 
 
 
 
   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. 
 
   The following table provides an analysis of financial assets and 
financial liabilities not measured at fair value in the Statement of 
Financial Position grouped into Levels 1 to 3 based on the degree to 
which the fair value is observable: 
 
 
 
 
                                                     Estimated fair value 
                         Carrying  Principal  Level   Level    Level 
                          amount     amount     1       2         3      Total 
2020                       GBPm      GBPm     GBPm    GBPm      GBPm      GBPm 
Financial assets 
Cash in hand                  0.5        0.5      -      0.5         -       0.5 
Loans and advances to 
 credit institutions      2,676.2    2,676.1      -  2,676.2         -   2,676.2 
Investment securities       186.2      186.2      -    186.6         -     186.6 
Loans and advances to 
 customers               19,211.6   19,200.1      -  3,314.5  16,037.5  19,352.0 
                         22,074.5   22,062.9      -  6,177.8  16,037.5  22,215.3 
-----------------------  --------  ---------  -----  -------  --------  -------- 
Financial liabilities 
Amounts owed to retail 
 depositors              16,603.1   16,507.3      -  5,546.1  11,120.0  16,666.1 
Amounts owed to credit 
 institutions             3,570.2    3,569.3      -  3,570.2         -   3,570.2 
Amounts owed to other 
 customers                   72.9       72.7      -        -      72.9      72.9 
Debt securities in 
 issue                      421.9      421.8      -    421.9         -     421.9 
Subordinated 
 liabilities                 10.5       10.3      -        -      10.7      10.7 
Perpetual Subordinated 
 Bonds                       37.6       37.0   32.3        -         -      32.3 
                         20,716.2   20,618.4   32.3  9,538.2  11,203.6  20,774.1 
-----------------------  --------  ---------  -----  -------  --------  -------- 
 
 
 
 
   47.  Financial instruments and fair values (continued) 
 
 
 
 
                         Carrying  Principal  Level   Level 
                          amount     amount     1       2     Level 3    Total 
2019                       GBPm      GBPm     GBPm    GBPm      GBPm      GBPm 
Financial assets 
Cash in hand                  0.4        0.4      -      0.4         -       0.4 
Loans and advances to 
 credit institutions      2,204.6    2,204.3      -  2,204.6         -   2,204.6 
Investment securities       126.6      126.4  126.6        -         -     126.6 
Loans and advances to 
 customers               18,424.7   18,281.3      -  3,409.1  15,245.1  18,654.2 
                         20,756.3   20,612.4  126.6  5,614.1  15,245.1  20,985.8 
-----------------------  --------  ---------  -----  -------  --------  -------- 
Financial liabilities 
Amounts owed to retail 
 depositors              16,255.0   16,133.5      -  3,817.8  12,441.9  16,259.7 
Amounts owed to credit 
 institutions             3,068.8    3,063.3      -  3,068.8         -   3,068.8 
Amounts owed to other 
 customers                   29.7       29.5      -        -      29.7      29.7 
Debt securities in 
 issue                      296.3      295.5      -    296.3         -     296.3 
Subordinated 
 liabilities                 10.6       10.4      -        -      10.7      10.7 
Perpetual Subordinated 
 Bonds                       37.6       37.0   33.2        -         -      33.2 
                         19,698.0   19,569.2   33.2  7,182.9  12,482.3  19,698.4 
-----------------------  --------  ---------  -----  -------  --------  -------- 
 
 
   48.  Pension scheme 
 
   Defined contribution scheme 
 
   The amount charged to profit or loss in respect of contributions to the 
Group's defined contribution and stakeholder pension arrangements is the 
contribution payable in the period. The total pension cost in the year 
amounted to GBP4.3m (2019: GBP3.0m). 
 
   49.  Operating segments 
 
   The Group segments its lending business and operates under two segments 
in line with internal reporting to the Board: 
 
 
   -- OSB 
 
   -- CCFS 
 
 
   The Group separately discloses the impact of Combination accounting but 
does not consider this a business segment. 
 
   The financial position and results of operations of the above segments 
are summarised below: 
 
 
 
 
                                    OSB      CCFS    Combination   Total 
2020                                GBPm     GBPm       GBPm        GBPm 
Balances at the reporting date 
Gross loans and advances to 
 customers                        11,131.4  8,001.2        209.1  19,341.7 
Expected credit losses              (83.6)   (28.2)          0.8   (111.0) 
Loans and advances to customers   11,047.8  7,973.0        209.9  19,230.7 
Capital expenditure                    5.3      2.4            -       7.7 
Depreciation and amortisation          7.1      2.4          4.3      13.8 
Profit or loss for the year 
Net interest income/(expense)        332.8    201.2       (61.8)     472.2 
Other income                          18.8     17.4          0.2      36.4 
Total income/(expense)               351.6    218.6       (61.6)     508.6 
Administrative expenses             (95.2)   (57.5)        (4.3)   (157.0) 
Provisions                               -    (0.1)            -     (0.1) 
Impairment of financial assets      (50.7)   (20.5)          0.2    (71.0) 
Impairment of intangible assets          -        -        (7.0)     (7.0) 
Integration costs                    (7.5)    (2.3)            -     (9.8) 
Exceptional items                    (3.3)        -            -     (3.3) 
Profit/(loss) before taxation        194.9    138.2       (72.7)     260.4 
Taxation                            (46.9)   (32.0)         14.8    (64.1) 
Profit/(loss) for the year           148.0    106.2       (57.9)     196.3 
                                                                  -------- 
 
 
 
 
   49.  Operating segments (continued) 
 
 
 
 
                                    OSB      CCFS    Combination   Total 
2019                                GBPm     GBPm       GBPm        GBPm 
Balances at the reporting date 
Gross loans and advances to 
 customers                        10,820.6  7,374.4        294.7  18,489.7 
Expected credit losses              (35.6)    (8.0)          0.7    (42.9) 
Loans and advances to customers   10,785.0  7,366.4        295.4  18,446.8 
Capital expenditure                   10.2      1.1            -      11.3 
Depreciation and amortisation          6.3      1.3          0.6       8.2 
Profit or loss for the year 
Net interest income/(expense)        316.2     50.1       (21.6)     344.7 
Other (expense)/income              (12.9)      8.3          3.3     (1.3) 
Total income/(expense)               303.3     58.4       (18.3)     343.4 
Administrative expenses             (92.3)   (15.1)        (1.3)   (108.7) 
Provisions                             0.1    (0.1)            -         - 
Impairment of financial assets      (11.9)    (0.1)        (3.6)    (15.6) 
Gain on Combination with CCFS            -        -         10.8      10.8 
Integration costs                    (2.5)    (2.7)            -     (5.2) 
Exceptional items                   (15.6)        -            -    (15.6) 
Profit/(loss) before taxation        181.1     40.4       (12.4)     209.1 
Taxation                            (47.1)   (10.2)          7.0    (50.3) 
Profit/(loss) for the year           134.0     30.2        (5.4)     158.8 
--------------------------------  --------  -------  -----------  -------- 
 
 
 
 
   50.  Country by country reporting 
 
   Country by Country Reporting (CBCR) was introduced through Article 89 of 
CRD IV, aimed at the banking and capital markets industry. 
 
   The name, nature of activities and geographic location of the Group's 
companies are presented below: 
 
 
 
 
Jurisdiction  Country   Name                                   Activities 
UK(1)         England   OSB GROUP PLC                          Commercial 
                                                                banking 
                        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  Guernsey Home Loans Limited 
              Jersey    Jersey Home Loans Limited 
 
 
   (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. 
 
   50.  Country by country reporting (continued) 
 
 
 
 
Jurisdiction  Country  Name                              Activities 
UK            England  Canterbury Finance No. 2 plc         Special purpose 
                                                                vehicle 
                       Canterbury Finance No. 3 plc 
                       CMF 2020-1 plc 
                       CML Warehouse Number 1 Limited 
                       CML Warehouse Number 2 Limited 
                       Precise Mortgage Funding 2014-1 
                        plc 
                       Precise Mortgage Funding 2014-2 
                        plc 
                       Precise Mortgage Funding 2015-1 
                        plc 
                       Precise Mortgage Funding 2015-3R 
                        plc 
India         India    OSB India Private Limited         Back office 
                                                         processing 
------------  -------  -------------------------------- 
 
 
   Other disclosures required by the CBCR directive are provided below: 
 
 
 
 
2020                      UK    India  Consolidation(2)  Total 
Average number of 
 employees               1,330    486                 -  1,816 
Turnover(1) , GBPm       508.3    9.4             (9.1)  508.6 
Profit/(loss) before 
 tax, GBPm               260.1    1.3             (1.0)  260.4 
Corporation tax paid, 
 GBPm                    128.6    0.2                 -  128.8 
 
 
 
 
 
 
2019                      UK    India  Consolidation(2)  Total 
Average number of 
 employees               1,335    454                 -  1,789 
Turnover(1) , GBPm       343.1    8.9             (8.6)  343.4 
Profit/(loss) before 
 tax, GBPm               208.8    1.6             (1.3)  209.1 
Corporation tax paid, 
 GBPm                     52.6    0.4                 -   53.0 
 
   (1) Turnover represents total income before impairment losses, 
regulatory provisions and operating costs, but after net interest, net 
commissions and fees, gains and losses on financial instruments and 
external servicing fees. 
 
   (2) Relates to a management fee from Indian subsidiaries to OneSavings 
Bank plc for providing back office processing. 
 
   50.  Country by country reporting (continued) 
 
   The tables below reconcile tax charged and tax paid during the year. 
 
 
 
 
                                       UK    India  Total 
2020                                  GBPm   GBPm   GBPm 
Tax charge                             63.8    0.3   64.1 
Effects of: 
Other timing differences               15.7  (0.1)   15.6 
Tax outside of profit 
 or loss                                0.2      -    0.2 
Prior year tax paid during 
 the year                              41.8      -   41.8 
Tax in relation to future periods 
 prepaid                                7.1      -    7.1 
Tax paid                              128.6    0.2  128.8 
------------------------------------  -----  -----  ----- 
 
 
 
 
 
 
                                        UK    India  Total 
2019                                   GBPm   GBPm    GBPm 
Tax charge                              49.8    0.5    50.3 
Effects of: 
Other timing differences                 4.3  (0.1)     4.2 
Tax outside of profit 
 or loss                               (0.9)      -   (0.9) 
Prior year tax paid during 
 the year                               22.1      -    22.1 
Current year tax to be paid after 
 the reporting date                   (22.7)      -  (22.7) 
Tax paid                                52.6    0.4    53.0 
------------------------------------  ------  -----  ------ 
 
 
 
 
   51.  Adjustments for non-cash items and changes in operating assets and 
liabilities 
 
 
 
 
                                                            2020       2019 
                                                            GBPm       GBPm 
Adjustments for non-cash items: 
Depreciation and amortisation                                  13.8        8.2 
Interest on investment securities                             (7.5)          - 
Interest on subordinated liabilities                            0.8        0.7 
Interest on Perpetual Subordinated Bonds                        1.7        1.8 
Interest on securitised debt                                    3.4        0.8 
Interest on financing debt                                     10.9        2.4 
Impairment charge on loans                                     71.0       15.6 
Impairment on intangible assets acquired on Combination         7.0          - 
(Gains)/losses on sale of financial instruments              (20.0)        0.1 
Provisions                                                      0.1          - 
Interest on lease liabilities                                   0.3        0.1 
Fair value (gains)/losses on financial instruments            (7.4)        3.3 
Share-based payments                                            5.1        4.0 
Gain on Combination with CCFS                                     -     (10.8) 
Total adjustments for non-cash items                           79.2       26.2 
--------------------------------------------------------  ---------  --------- 
 
Increase in loans and advances to credit institutions       (154.0)     (36.8) 
Increase in loans to customers                            (1,705.0)  (2,230.8) 
Increase in retail deposits                                   348.1    1,637.8 
Net decrease/(increase) in other assets                         1.3      (4.8) 
Net decrease in derivatives and hedged items                 (64.3)     (20.1) 
Net increase/(decrease) in other customers deposits            43.2     (19.2) 
Net decrease in other liabilities                             (6.5)     (37.3) 
Exchange differences on working capital                           -      (0.6) 
Total changes in operating assets and liabilities         (1,537.2)    (711.8) 
--------------------------------------------------------  ---------  --------- 
 
 
   52.  Events after the reporting date 
 
   On 11 January 2021, OSB GROUP PLC published a Circular in relation to 
the Capital Reduction, which subject to shareholder approval as well as 
certain other conditions set out in the Circular, was undertaken to 
create the required distributable reserves to enable the Company to pay 
dividends and other distributions to shareholders in the future. The 
Circular stated that there would be no change to the total number of 
shares or the total capital in the Company or the Group's capital ratios 
as a result of the Capital Reduction. On 26 February 2021, the Capital 
reduction became effective with OSB GROUP PLC reducing the nominal value 
of 447,312,780 shares from three hundred and four (304) pence each to 
one (1) penny each. Interim accounts as at 28 February 2021 have been 
prepared and delivered to Companies House as a requirement to support 
the recommended distribution of a dividend of GBP64.9m on 2 June 2021 by 
OSB GROUP PLC. 
 
   On 26 February 2021, the Group completed the purchase of a c. GBP55m 
portfolio of UK residential mortgages from a third party. The portfolio 
was acquired at a discount to current balances and will continue to be 
serviced by Exact, the Group's in-house servicer. 
 
   On 17 March 2021, the Group issued a trading update stating that it had 
become aware of potential fraudulent activity by a third party in 
relation to one of the funding lines provided by the Group, secured 
against lease receivables and the underlying hard assets. The Group had 
an outstanding receivable 
 
   against this funding line of GBP28.6m as at 31 December 2020. Following 
an initial report from the Administrator to the third-party company, 
appointed by the Group, the Group concluded that conditions existed as 
at the end of the reporting period which make this an adjusting post 
balance sheet event, with an impairment of GBP20m recognised in 2020. 
 
   53.  Controlling party 
 
   As at 31 December 2020 there was no controlling party of OSB GROUP PLC. 
 
   54.  Capital management 
 
   The Group's capital management approach is to provide a sufficient 
capital base to cover business risks and support future business 
development. The Group remained, throughout the year, compliant with its 
capital requirements as set out by the PRA, the Group's primary 
prudential supervisor. 
 
   The Group manages and reports its capital at a number of levels 
including Group level and for the two regulated banking entities within 
the Group, on an individual consolidation and on an individual basis. 
The capital position of the two regulated banking entities are not 
separately disclosed. 
 
   The Group's capital management is based on the three 'pillars' of Basel 
II. 
 
   Under Pillar 1, the Group calculates its minimum capital requirements 
based on 8% of risk-weighted assets. 
 
   Under Pillar 2, the Group, and its regulated entities, complete an 
annual self-assessment of risks known as the Internal Capital Adequacy 
Assessment Process (ICAAP). The PRA applies additional requirements to 
this assessment amount to cover risks under Pillar 2 to generate a Total 
Capital Requirement. Further, the PRA sets capital buffers and the Group 
applies for imposition of the requirements and modification of rules 
incorporating the capital buffers and Pillar 2 pursuant to the Financial 
Services and Markets Act 2000. 
 
   Pillar 3 requires firms to publish a set of disclosures which allow 
market participants to assess information on the Group's capital, risk 
exposures and risk assessment process. The Group's Pillar 3 disclosures 
can be found on the Group's website. 
 
   Basel III came into force through CRD IV. Basel III complements and 
enhances Basel I and II with additional safety measures. Basel III 
changed definitions of regulatory capital, introduced new capital 
buffers, a non-risk adjusted leverage ratio, liquidity ratios and 
modified the way regulatory capital is calculated. 
 
   The ultimate responsibility for capital adequacy rests with the Board of 
Directors. The Group's ALCO is responsible for the management of the 
capital process within the risk appetite defined by the Board, including 
approving policy, overseeing internal controls and setting internal 
limits over capital ratios. 
 
   The Group actively manages its capital position and reports this on a 
regular basis to the Board and senior management via the ALCO and other 
governance committees. Capital requirements are included within budgets, 
forecasts and strategic plans with initiatives being executed against 
this plan. 
 
   54.  Capital management (continued) 
 
   The Group's Pillar 1 capital information is presented below: 
 
 
 
 
                                                      (Unaudited)  (Unaudited) 
                                                          2020         2019 
                                                         GBPm         GBPm 
Common Equity Tier 1 capital 
Called up share capital                                   1,359.8          4.5 
Share premium, capital contribution and share-based 
 payment reserve                                              7.8        876.3 
Retained earnings                                         1,608.6        553.2 
Transfer reserve                                        (1,355.3)       (12.8) 
Other reserves                                              (4.0)        (4.2) 
Total equity attributable to ordinary shareholders        1,616.9      1,417.0 
Foreseeable dividends                                      (64.9)       (49.9) 
IFRS 9 transitional adjustment(1)                             4.9          5.3 
COVID-19 ECL transitional adjustment(2)                      31.0            - 
Deductions from Common Equity Tier 1 capital 
Prudent valuation adjustment(3)                             (0.4)        (0.5) 
Intangible assets(4)                                       (20.6)       (31.4) 
Deferred tax asset                                          (0.9)        (0.9) 
Common Equity Tier 1 capital                              1,566.0      1,339.6 
                                                      -----------  ----------- 
Additional Tier 1 capital 
Non-controlling interest securities(5)                          -         60.0 
Total Tier 1 capital                                      1,566.0      1,399.6 
                                                      -----------  ----------- 
Tier 2 capital 
Subordinated debt and PSBs(5)                                   -         47.4 
Deductions from Tier 2 capital(5)                               -        (0.7) 
Total Tier 2 capital                                            -         46.7 
Total regulatory capital                                  1,566.0      1,446.3 
Risk-weighted assets (unaudited)                          8,565.7      8,383.0 
 
   (1) The regulatory capital includes a GBP4.9m add-back under IFRS 9 
transitional arrangements. This represents 75% of the IFRS 9 
transitional adjustment booked directly to retained earnings of GBP6.5m. 
The full impact of IFRS 9, if applied, would reduce total regulatory 
capital to GBP1,561.1m. 
 
   (2) The COVID-19 ECL transitional adjustment relates to the Group's 
increase in Stage 1 and Stage 2 ECL following the impacts of COVID-19 
and for which transitional rules are being adopted for regulatory 
capital purposes. 
 
   (3) The Group has adopted the simplified approach under the Prudent 
Valuation rules, recognising a deduction equal to 0.1% of fair value 
assets and liabilities after adjusting for hedge accounting. 
 
   (4) All software assets continue to be fully deducted from capital in 
light of the pending intention of the PRA to consult on the CRR 'Quick 
Fix' package in this area. 
 
   (5) Non-controlling interest securities, subordinated debt and PSBs that 
qualified as regulatory capital in prior years no longer do so at the 
Group level since the insertion of the holding company, OSB GROUP PLC. 
 
   54.  Capital management (continued) 
 
   The movement in CET1 during the year was as follows: 
 
 
 
 
                                               (Unaudited)  (Unaudited) 
                                                   2020         2019 
                                                  GBPm         GBPm 
At 1 January                                       1,339.6        561.6 
Movement in retained earnings                      1,055.4        113.6 
Share premium from Sharesave Scheme vesting            2.6          0.3 
Shares issued on Combination with CCFS                   -        707.1 
Movement in other reserves                         (858.1)        (2.7) 
Movement in foreseeable dividends                   (15.0)       (24.7) 
Movement in solo consolidation adjustment                -          5.4 
IFRS 9 transitional adjustment                       (0.4)          2.6 
COVID-19 ECL transitional adjustment                  31.0            - 
Movement in prudent valuation adjustment               0.1        (0.4) 
Net decrease/(increase) in intangible assets          10.8       (23.7) 
Movement in deferred tax asset for carried 
 forward losses                                          -          0.5 
At 31 December                                     1,566.0      1,339.6 
---------------------------------------------  -----------  ----------- 
 
 
 
 
 
 
 
 
 
                                                      2020    2019 
                                               Note   GBPm    GBPm 
Assets 
Investments in subsidiaries and intercompany 
 loans                                            2  1,425.9     - 
Total assets                                         1,425.9     - 
---------------------------------------------  ----  -------  ---- 
 
Equity 
Share capital                                     3  1,359.8     - 
Retained earnings                                    4.0       - 
Other reserves                                       62.1      - 
                                                     1,425.9     - 
Total equity                                         1,425.9     - 
---------------------------------------------  ----  -------  ---- 
 
 
   The profit after tax for the year ended 31 December 2020 of OSB GROUP 
PLC was GBP0.1m (2019: GBPnil). As permitted by section 408 of the 
Companies Act 2006, no separate Statement of Comprehensive Income is 
presented in respect of the Company. 
 
   The Company statement of financial position as at 31 December 2019 
comprised Debtors GBP12,501, Called-up share capital not paid GBP37,499, 
2 Ordinary shares of GBP1.00 each and Redeemable preference shares of 
GBP1.00 each GBP49,998. 
 
   The notes below form an integral part of the Company financial 
statements. 
 
   The financial statements were approved by the Board of Directors on 8 
April 2021 and were signed on its behalf by: 
 
   Andy Golding                                                   April Talintyre 
 
 
   Chief Executive Officer                                      Chief Financial Officer 
 
 
   Company number: 11976839 
 
 
 
 
 
 
                                                    Share-based 
                         Share    Transfer   Own      payment    Retained 
                         capital   reserve  shares    reserve     earnings   Total 
                          GBPm      GBPm     GBPm      GBPm        GBPm      GBPm 
Company incorporation 
 on 22nd May 2019           -         -        -         -           -         - 
Result for the period       -         -        -         -           -         - 
At 31 December 2019         -         -        -         -           -         - 
Profit for the year            -         -       -            -        0.1      0.1 
Share-based payments           -         -       -          0.4          -      0.4 
Own shares(1)                  -         -   (4.0)            -        3.9    (0.1) 
Shares issued on 27 
 November 2020           1,359.8      65.7       -            -          -  1,425.5 
At 31 December 2020      1,359.8      65.7   (4.0)          0.4        4.0  1,425.9 
----------------------  --------  --------  ------  -----------  ---------  ------- 
 
 
   (1) The Company has adopted look-through accounting and consolidated the 
Employee Benefit Trust effective from 27 November 2020. The Company 
initially recognised GBP6.1m of own shares, with GBP3.9m recognised in 
retained earnings relating to gifts made to the EBT, and GBP2.2m in 
intercompany loans, relating to a loan from OSB to the EBT which funded 
the acquisition of shares prior to 27 November 2020. As at 31 December 
2020, the EBT had GBP0.1m of outstanding intercompany borrowing. 
 
 
 
 
 
 
                                                   2020   2019 
                                             Note   GBPm  GBPm 
Cash flows from operating activities 
Profit before taxation                             0.1     - 
Change in intercompany loans                       (2.2)     - 
Cash used in operating activities                  (2.1)   - 
Cash flows from financing activities 
Proceeds from issuance of shares under employee      2.1     - 
 SAYE scheme 
Cash generated from financing activities             2.1     - 
-------------------------------------------  ---- 
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.     Basis of preparation 
 
   The separate financial statements of the Company are presented as 
required by the Companies Act 2006. As permitted by that Act, the 
separate financial statements have been prepared in accordance with 
International Financial Reporting Standards as adopted by the European 
Union (EU), and are presented in pounds sterling. 
 
   The financial statements have been prepared on the historical cost 
basis. The principal accounting policies adopted are the same as those 
set out in note 2 to the Consolidated financial statements. 
 
   The Company has adopted the predecessor value method with an investment 
in subsidiary of OSBG being the book value of the balance sheet in OSB 
at the date of insertion. 
 
   There are no critical judgements and estimates that apply to the 
Company. 
 
   2.     Investment in subsidiary 
 
   The Company has one direct subsidiary, OneSavings Bank plc (OSB), which 
is carried at the net book value on the date the Company was inserted as 
the holding company of the Group. 
 
 
 
 
                                       Shares in subsidiary   Intercompany 
                                           undertakings       loans payable 
                                               GBPm               GBPm 
At 1 January 2020                               -                  - 
Net book value of OSB on 27 November 
 2020                                               1,425.5               - 
Additions                                               0.4           (2.2) 
Repayments                                                -             2.2 
At 31 December 2020                                 1,425.9               - 
-------------------------------------  --------------------  -------------- 
 
 
   The Company holds ordinary shares in its direct subsidiary. 
 
   2.     Investment in subsidiary (continued) 
 
   A list of the Company's direct and indirect subsidiaries as at 31 
December 2020 is shown below: 
 
 
 
 
                                                        Registered 
Direct investments            Activity                  office        Ownership 
                              Mortgage lending          Reliance 
OneSavings Bank plc            and deposit taking        House             100% 
 
                                                        Registered 
Indirect investments          Activity                  office        Ownership 
                                                        Reliance 
5D Finance Limited            Mortgage servicer          House             100% 
                              Mortgage administration   Charter 
Broadlands Finance Limited     services                  Court             100% 
Canterbury Finance No.2       Special purpose           Churchill 
 plc                           vehicle                  Place                 - 
Canterbury Finance No.3       Special purpose           Churchill 
 plc                           vehicle                  Place                 - 
Charter Court Financial                                 Charter 
 Services Group Plc           Holding company            Court             100% 
Charter Court Financial       Mortgage lending          Charter 
 Services Limited              and deposit taking        Court             100% 
                              Mortgage administration 
                               and analytical           Charter 
Charter Mortgages Limited      services                  Court             100% 
                              Special purpose           Churchill 
CMF 2020-1 plc                 vehicle                  Place                 - 
CML Warehouse Number          Special purpose 
 1 Limited                     vehicle                  Bartholomew           - 
CML Warehouse Number          Special purpose           Churchill 
 2 Limited                     vehicle                  Place                 - 
                                                        Reliance 
Easioption Limited            Holding company            House             100% 
Exact Mortgage Experts        Group service             Charter 
 Limited                       company                   Court             100% 
                                                        Reliance 
Guernsey Home Loans Limited   Mortgage provider          House             100% 
Guernsey Home Loans Limited 
 (Guernsey)                   Mortgage provider         Guernsey           100% 
Heritable Development         Mortgage originator       Reliance 
 Finance Limited               and servicer              House             100% 
Inter Bay Financial I                                   Reliance 
 Limited                      Holding company            House             100% 
Inter Bay Financial II                                  Reliance 
 Limited                      Holding company            House             100% 
InterBay Asset Finance        Asset finance             Reliance 
 Limited                       and mortgage provider     House             100% 
                                                        Reliance 
Interbay Funding, Ltd         Mortgage servicer          House             100% 
Interbay Group Holdings                                 Reliance 
 Limited                      Holding company            House             100% 
                                                        Reliance 
Interbay Holdings Ltd         Holding company            House             100% 
                                                        Reliance 
Interbay ML, Ltd              Mortgage provider          House             100% 
                                                        Reliance 
Jersey Home Loans Limited     Mortgage provider          House             100% 
Jersey Home Loans Limited 
 (Jersey)                     Mortgage provider         Jersey             100% 
OSB India Private Limited     Back office processing    India              100% 
Precise Mortgage Funding      Special purpose           Great St. 
 2014-1 plc                    vehicle                  Helen's               - 
Precise Mortgage Funding      Special purpose           Great St. 
 2014-2 plc                    vehicle                  Helen's               - 
Precise Mortgage Funding      Special purpose           Great St. 
 2015-1 plc                    vehicle                  Helen's               - 
Precise Mortgage Funding      Special purpose           Great St. 
 2015-3R plc                   vehicle                  Helen's               - 
                              Mortgage originator       Reliance 
Prestige Finance Limited       and servicer              House             100% 
Reliance Property Loans                                 Reliance 
 Limited                      Mortgage provider          House             100% 
                                                        Reliance 
Rochester Mortgages Limited   Mortgage provider          House             100% 
 
 
   All investments are in the ordinary share capital of each subsidiary. 
 
   2.     Investment in subsidiary (continued) 
 
   OSB India Private Limited is owned 70.28% by OneSavings Bank plc, 29.72% 
by Easioption Limited and 0.001% by Reliance Property Loans Limited. 
 
   Special purpose vehicles which the Group controls are treated as 
subsidiaries for accounting purposes. 
 
   All of the entities listed above have been consolidated into the Group's 
consolidated financial statements. 
 
   The investment is reviewed annually for indicators of impairment. If 
impairment indicators are identified an impairment review of the 
investment is conducted which will quantify if the carry value is in 
excess of the recoverable amount or an impairment has occurred. In 
determining recoverable amount the fair value less costs to sell and the 
value in use are assessed, with the value in use being an estimate of 
the present value of future cashflows generated by the investment. 
 
   The following are the registered offices of the subsidiaries: 
 
   Bartholomew - 1 Bartholomew Lane, London, England, EC2N 2AX 
 
   Charter Court - 2 Charter Court, Broadlands, Wolverhampton, WV10 6TD 
 
   Churchill Place -- 5 Churchill Place, 10(th) Floor, London, E14 5HU 
 
   Great St. Helen's - 35 Great St. Helen's, London, EC3A 6AP 
 
   Guernsey -- 1(st) Floor, Tudor House, Le Bordage, St Peter Port, 
Guernsey, GY1 1DB 
 
   India - Salarpuria Magnificia No. 78, 9(th) & 10(th) floor, Old Madras 
Road, Bangalore, India, 560016. 
 
   Jersey - 26 New Street, St Helier, Jersey, JE2 3RA 
 
   Reliance House -- Reliance House, Sun Pier, Chatham, Kent, ME4 4ET 
 
   During the year the Company received a gift of GBP0.1m from OSB. 
 
   3.     Share capital 
 
 
 
 
                                                 Ordinary    Nominal 
                                                  shares,     value 
                                                   number      GBPm 
Incorporation on 2 May 2019, GBP1 nominal 
 value shares                                             2        - 
At 31 December 2019                                       2        - 
Conversion of GBP1 ordinary shares to GBP0.01 
 ordinary shares                                        198        - 
Issuance of 408 GBP0.01 ordinary shares                 408        - 
Conversion of GBP0.01 ordinary shares to 
 GBP3.04 ordinary shares                              (606)        - 
Redemption of preference shares                           -        - 
Issuance of new GBP3.04 ordinary share on 
 Insertion                                      447,304,196  1,359.8 
Shares issued under employee share plans              8,582        - 
At 31 December 2020                             447,312,780  1,359.8 
----------------------------------------------  -----------  ------- 
 
 
   All ordinary shares issued in the current and prior year were fully 
paid. 
 
   4.     Directors and employees 
 
   The Company has no employees. OneSavings Bank plc, provides the Company 
with employee services and bears the costs associated with the Directors 
of the Company. These costs are not recharged to the Company. The 
Company will continue to have no employees. 
 
   Alternative performance measures 
 
   The Group used alternative performance measures (APMs) when presenting 
underlying results in 2020 and pro forma underlying results in 2019 as 
Management believe they provide a more consistent basis for comparing 
the Group's performance between financial periods. Underlying results 
exclude exceptional items, integration costs and other 
acquisition-related items. Pro forma underlying results assume that the 
Combination with CCFS occurred on 1 January 2019 and include 12 months 
of results from CCFS. They also exclude exceptional items, integration 
costs and other acquisition-related items. 
 
   APMs reflect an important aspect of the way in which operating targets 
are defined and performance is monitored by the Board. However, APMs are 
not a substitute for IFRS measures and readers should consider the IFRS 
measures as well. 
 
   Below we provide definitions and the calculation methodology of ratios 
used both on a statutory basis for 2020 and 2019 and underlying basis 
for 2020 and pro forma underlying basis for 2019. 
 
   Key performance indicators 
 
   Gross new lending 
 
   Gross new lending is defined as gross new organic lending before 
redemptions. 
 
 
 
 
                                                 2020      2019 
                                                  GBPm      GBPm 
Gross new lending - statutory                   3,767.0    4,141.0 
Gross new lending - CCFS 2019 pre-acquisition         -    2,355.0 
Gross new lending - underlying and pro forma 
 underlying                                     3,767.0    6,496.0 
 
   Net interest margin (NIM) 
 
   NIM is defined as net interest income as a percentage of a 13 point 
average(1) of interest earning assets (cash, investment securities, 
loans and advances to customers and credit institutions). It represents 
the margin earned on loans and advances and liquid assets after swap 
expense/income and cost of funds. 
 
 
 
 
                                                     2020        2019 
                                                     GBPm        GBPm 
Net interest income -- statutory A                     472.2       344.7 
CCFS 2019 pre-acquisition results                          -       152.1 
Add back: acquisition-related items(2)                  61.8        21.6 
Net interest income -- underlying and pro forma 
 underlying B                                          534.0       518.4 
 
13 point average of interest earning assets -- 
 statutory C                                        21,883.4    14,163.5 
13 point average of interest earning assets -- 
 underlying and 
 pro forma underlying D                             21,663.2    19,484.3 
 
NIM statutory equals A/C                               2.16%       2.43% 
NIM underlying and pro forma underlying equals 
 B/D                                                   2.47%       2.66% 
 
 
 
 
   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. 
 
 
 
 
                                                     2020     2019 
                                                      GBPm     GBPm 
Administrative expenses -- statutory A               157.0      108.7 
CCFS 2019 pre-acquisition results                        -       57.7 
Add back: acquisition-related items(2)               (4.3)      (1.3) 
Administrative expenses -- underlying and pro 
 forma underlying B                                  152.7      165.1 
 
Total income -- statutory C                          508.6      343.4 
CCFS 2019 pre-acquisition results                        -      200.8 
Add back: acquisition-related items(2)                61.6       18.3 
Total income - underlying and pro forma underlying 
 D                                                   570.2      562.5 
 
  Cost to income statutory equals A/C                  31%    32% 
 
 
   Cost to income underlying and pro forma underlying equals B/D 
27%             29% 
 
   Management expense ratio 
 
   The management expense ratio is defined as administrative expenses as a 
percentage of a 13 point average(1) of total assets. 
 
 
 
 
                                                          2020        2019 
                                                          GBPm        GBPm 
Administrative expenses -- statutory (as in cost 
 to income                                            157.0          108.7 
 ratio above) A 
Administrative expenses -- underlying and pro 
 forma                                                152.7       165.1 
 underlying (as in cost to income ratio above) 
 B 
 
  13 point average of total assets -- statutory       22,140.1    14,298.0 
  C 
13 point average of total assets -- underlying 
 and                                                  21,931.8    19,752.6 
 pro forma underlying D                               0.71%       0.76% 
 Management expense ratio statutory equals A/C        0.70%       0.84% 
 Management expense ratio underlying and pro forma 
 underlying equals B/D 
 
 
 
 
   Loan loss ratio 
 
   The loan loss ratio is defined as impairment of financial assets as a 
percentage of a 13 point average(1) of gross loans and advances. It is a 
measure of the credit performance of the loan book. 
 
 
 
 
                                                           2020        2019 
                                                           GBPm         GBPm 
Impairment of financial assets -- statutory A                 71.0         15.6 
CCFS 2019 pre-acquisition results                                -          4.3 
Add back: acquisition-related items(2)                         0.2        (3.6) 
Impairment of financial assets -- underlying 
 and pro forma underlying B                                   71.2         16.3 
 
  13 point average of gross loans -- statutory            18,739.0    12,171.5 
  C                                                       18,508.5    16,684.6 
  13 point average of gross loans -- underlying           0.38%       0.13% 
  and pro                                                 0.38%       0.10% 
  forma underlying D 
  Loan loss ratio statutory equals A/C 
  Loan loss ratio underlying and pro forma underlying 
  equals B/D 
 
   Return on equity (RoE) 
 
   RoE is defined as profit attributable to ordinary shareholders, which is 
profit after tax and after deducting coupons on non-controlling interest 
securities, as a percentage of a 13 point average(1) of shareholders' 
equity (excluding GBP60m of non-controlling interest securities). 
 
 
 
 
                                                  2020       2019 
                                                   GBPm      GBPm 
Profit after tax - statutory                       196.3       158.8 
Coupons on non-controlling interest securities     (5.5)       (5.5) 
Profit attributable to ordinary shareholders 
 -- statutory A                                    190.8       153.3 
CCFS 2019 pre-acquisition results                      -        92.5 
Add back: acquisition-related items(2)              68.6        42.9 
Profit attributable to ordinary shareholders 
 -- underlying and                                 259.4       288.7 
 pro forma underlying B 
 
   13 point average of shareholders' equity (excluding non-controlling 
 
   interest securities) -- statutory C                                                                         1,514.2          866.6 
 
 
   13 point average of shareholders' equity (excluding non-controlling 
 
   interest securities) -- underlying and pro forma underlying D 
1,363.8       1,147.1 
 
   Return on equity statutory equals A/C                                                                      13%            18% 
 
 
   Return on equity underlying and pro forma underlying 
 
   equals B/D                                                                                                             19%            25% 
 
 
   Basic earnings per share 
 
   Basic earnings per share is defined as profit attributable to ordinary 
shareholders, which is profit after tax and after deducting coupons on 
non-controlling interest securities, gross of tax, divided by the 
weighted average number of ordinary shares in issue. 
 
 
 
 
                                                    2020         2019 
                                                    GBPm         GBPm 
Profit attributable to ordinary shareholders -- 
 statutory                                         190.8        153.3 
 (as in RoE ratio above) A 
Profit attributable to ordinary shareholders -- 
 underlying and pro                                259.4    288.7 
 forma underlying (as in RoE ratio above) B 
 
  Weighted average number of ordinary shares in    446.2        291.6 
  issue -- statutory C 
 
   Weighted average number of ordinary shares in issue -- underlying 
 
   and pro forma underlying D                                                                                446.2            444.8 
 
 
   Basic earnings per share statutory equals A/C                                                        42.8             52.6 
 
 
   Basic earnings per share underlying and pro forma 
 
   underlying equals B/D                                                                                           58.1             64.9 
 
 
   1. 13 point average is calculated as an average of opening balance and 
closing balances for 12 months of the financial year. 
 
   2. The acquisition-related items are detailed in the reconciliation of 
statutory to underlying and pro forma underlying results in the 
Financial review 
 
   Calculation of 2020 final dividend 
 
   The table below shows the basis of calculation of the Bank's recommended 
final dividend for 2020: 
 
 
 
 
                                                       2020         2019 
                                                        GBPm         GBPm 
Statutory profit after tax                                196.3        158.8 
Less: coupons on non-controlling interest 
 securities classified as equity                          (5.5)        (5.5) 
Statutory profit attributable to ordinary 
 shareholders                                             190.8        153.3 
Add back: Group's integration costs                         9.8            - 
Tax on Group's integration costs                          (2.4)            - 
Add back: Group's exceptional items                         3.3         15.6 
Add back: amortisation of fair value adjustment            64.5         21.6 
Add back: amortisation of inception adjustment           (13.3)        (3.3) 
Add back: amortisation of cancelled swaps                 (2.7)            - 
Add back: amortisation of intangible assets 
 acquired                                                  11.3          1.3 
Release of deferred taxation on the above 
 amortisation adjustments                                (14.8)        (7.0) 
Gain on sale of financial assets                           13.1            - 
Less: gain on Combination                                     -       (10.8) 
Add back: ECL on Combination                              (0.2)          3.6 
Add: CCFS pre-acquisition profits                             -         92.5 
Add back: CCFS pre-acquisition exceptional 
 items                                                        -         15.7 
Add back: CCFS pre-acquisition integration 
 costs                                                        -          5.2 
Tax on CCFS pre-acquisition integration costs                 -        (1.6) 
Add back: Tax on Heritable option                             -          2.6 
Underlying and pro forma underlying profit 
 attributable 
 to ordinary shareholders                                 259.4        288.7 
 
Total dividend: 25% of underlying and pro 
 forma underlying profit attributable to ordinary 
 shareholders                                              64.9         72.2 
Less interim dividends paid: 
   CCFS (pre-acquisition)                                     -       (10.3) 
   OSB                                                        -       (12.0) 
Recommended final dividend                                 64.9         49.9 
Number of ordinary shares in issue                  447,312,780  445,443,454 
Recommended final dividend per share                       14.5         11.2 
 
 
 
 
 
   Company information 
 
   Registered office and head office 
 
   OSB House 
 
   Quayside 
 
   Chatham Maritime 
 
   Chatham 
 
   Kent ME4 4QZ 
 
   United Kingdom 
 
   Registered in England no: 11976839 
https://www.globenewswire.com/Tracker?data=NBw5YfwHbbUlY2lEIrqMDisnxU2rO1HIPM-2Ta7PF9pXYxl6Ew0ljp3CeCKmo-Ay_oPTwxuYU-VIxW1m2WDDSw== 
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: 
https://www.globenewswire.com/Tracker?data=hQyxFnAD4MBnfuOGoHMa5k5iRdrNBcRd5Y_nNzcWuM4WuFV4Eq-L3VHqObMPPuEUQw8qGOplyrm9GTl6JjyIbGE0edbKa_dnShkom3378Xo= 
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. 
 
 
 
 
 
 

(END) Dow Jones Newswires

April 08, 2021 02:00 ET (06:00 GMT)

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