Half Year 2026 OSB Group PLC Earnings Call

August 6, 2026

Speaker #2: Hello, and welcome to the OSB half-year results for 2026. If you would like to ask a question, please use the raised-hand function. I will now hand to Andy Golding to start proceedings.

[Company Representative] (OSB Group): Hello, welcome to the OSB H1 results for 2026. If you would like to ask a question, please use the raise hand function. I will now hand to Andy Golding to start proceedings.

Operator: Hello, welcome to the OSB H1 results for 2026. If you would like to ask a question, please use the raise hand function. I will now hand to Andy Golding to start proceedings.

Speaker #3: Good morning.

Andy Golding: Good morning, thank you for joining OSB GROUP PLC 2026 H1 results presentation. This morning I'll take you through the highlights of the H1, provide a view on the outlook for the remainder of 2026 and beyond, before finishing off with insights into the macro drivers supporting our business. I'll hand over to Victoria for the financials in more detail before returning for concluding remarks. Starting with a high-level view of the business. In March 2025, at the investor update, we set out our strategy to remain the number one specialist lender and also our plan to improve ROTE in the medium term. I'm pleased with the resilient financial and operational performance the group has delivered in the H1.

Speaker #4: Good morning.

Speaker #3: Thank you for joining the OSB Group 2026 half-year results presentation.

Speaker #4: This morning, I'll take the key highlights. First off, provide your account for the remainder of 2026 and beyond before finishing off with insights into the macro drivers supporting our business.

Speaker #4: Then I'll hand over to Victoria for the financials in more detail before returning for concluding remarks. Starting with a high-level view of the business, in March 2025, at the investor update, we set out our strategy to remain the number one specialist lender and also our plan to improve ROTE in the medium term.

Speaker #4: I'm pleased with the resilient financial and operational performance the Group has delivered in the first half. We have done what we said we would do, particularly against the backdrop of ongoing macroeconomic and geopolitical uncertainty.

Andy Golding: We have done what we said we would do, particularly against the backdrop of ongoing macroeconomic and geopolitical uncertainty, rising oil prices, the resulting volatility in swap rates and the impact on retail cost of funds. This slide highlights our three familiar themes. Firstly, we continue to deliver against our lending growth plan. Net loan book growth of 1.3% reflects our discipline in maintaining attractive returns from new lending. Due to strong demand, we wrote more than GBP 1 billion of new business in buy-to-let in the H1 at sustainable margins and this sub-segment therefore remained at 68% of the portfolio. Despite that backdrop of macroeconomic uncertainty, originations in our higher yielding sub-segments also grew moderately. As expected, net interest margin reduced compared to the prior period, I'll come back to that shortly.

Speaker #4: Rising oil prices and the resulting volatility in swap rates, and the impact on our resale cost of funds. This slide highlights our three familiar themes.

Speaker #4: Firstly, we continue to deliver against our lending growth plan. Net loan book growth of 1.3% reflects our discipline in maintaining attractive returns from new lending.

Speaker #4: Due to strong demand, we wrote more than $1 billion of new business in VectaNet in the first half at sustainable margins. And this subsegment, therefore, remained at 68% of the portfolio.

Speaker #4: Despite that backdrop of macroeconomic uncertainty, originations in our higher-yielding subsegments also grew moderately. As expected, net interest margin reduced compared to the prior period, and I'll come back to that shortly.

Speaker #4: The strength of our underwriting expertise continues to be demonstrated in our low loan loss ratio and, despite recent volatility, remains in line with our long-term average.

Andy Golding: The strength of our underwriting expertise continues to be demonstrated in our low loan loss ratio, and despite recent volatility remains in line with our long-term average. Secondly, we've maintained our cost discipline and efficiency while also creating capacity for investment. Our culture of challenging cost helped contain core costs, which were down by 0.4%. Cost to income and MANEX ratios reflect our investment in the transformation program and are in line with our expectations. Finally, delivering attractive ROTEs and capital returns to shareholders continues to be our primary objective. The GBP 187 million of profit before tax translates to a H1 ROTE of 13.3% and TNAP per share of GBP 5.84, up from GBP 5.79 at the year end. Our commitment to rewarding shareholders is underlined by the 5% increase in the interim dividend.

Speaker #4: Secondly, we've maintained our cost discipline and efficiency while also creating capacity for investment. Our culture of challenging cost helped contain core costs, which were down by 0.4%.

Speaker #4: Cost-to-income and MANEX ratios reflect our investment in the transformation program and are in line with our expectations. Finally, delivering attractive ROTEs and capital returns to shareholders continues to be our primary objective.

Speaker #4: The £187 million of profit before tax translates to a first half ROTE of 13.3%, and TNAV per share of 584 pence, up from 579 pence at the year-end.

Speaker #4: Our commitment to rewarding shareholders is underlined by the 5% increase in the interim dividend. In addition, the 100 million share buyback program that we announced in March is progressing well, with circa 69 million of shares repurchased so far.

Andy Golding: In addition, the GBP 100 million share buyback program that we announced in March is progressing well, with circa GBP 69 million of shares repurchased so far. This will bring total capital distributions to shareholders over the last 18 months to GBP 360 million, demonstrating the strength of our capital generation and our commitment to shareholder returns. In summary, I'm pleased with our resilient performance in the H1 and the progress we've made on transformation. Turning to our portfolio in greater detail, we remain disciplined in how we grow, balancing volume, capital allocation, and returns. Those of you who've been following OSB will be familiar with our graphic equalizer concept that demonstrates our progress in delivering our lending growth plan. Our buy-to-let franchise performed well, enhanced by the launch of the Rely brand towards the end of last year.

Speaker #4: This will bring total capital distributions to shareholders over the last 18 months to £360 million, demonstrating the strength of our capital generation and our commitment to shareholder returns.

Speaker #4: In summary, I'm pleased with our resilient performance in the first half and the progress we've made on transformation. Returning to our portfolio in greater detail, we remain disciplined in how we grow.

Speaker #4: Balancing volume, capital allocation, and returns. Those of you who have been following OSB will be familiar with our graphic equalizer concept, which demonstrates our progress in delivering our lending growth plan.

Speaker #4: Our vital net franchise performed well, enhanced by the launch of the Relai brand towards the end of last year. Residential originations were broadly flat in the first half, although we expect momentum to build in the second half, following the full rollout of our residential proposition on the new platform.

Andy Golding: Residential originations were broadly flat in the H1, although we expect momentum to build in the H2 following the full rollout of our residential proposition on the new platform. Originations grew moderately in our high-yielding subsegments, despite the uncertain macroeconomic environment and the impact of higher mortgage rates on borrower's purchase decisions. That said, our commitment to optimizing and diversifying the loan book remains unchanged, but this journey won't be linear as we continue to manage the business to optimize risk-adjusted returns. Taken together, I'm pleased with how the group responded to the challenging market conditions while continuing to execute our plan. We've made good progress in the H1 and continue to expect full year growth to be in line with 2025. We're on track with our transformation program. Management actions taken continue to deliver tangible benefits across the group.

Speaker #4: Originations grew moderately in our higher-yielding subsegments, despite the uncertain macroeconomic environment and the impact of higher mortgage rates on borrowers' purchase decisions. That said, our commitment to optimizing and diversifying the loan book remains unchanged, but this journey won't be linear as we continue to manage the business to optimize risk-adjusted returns.

Speaker #4: Taken together, I'm pleased with how Ruth responded to the challenging market conditions while continuing to execute our plan. We've made good progress in the first half and continue to expect full-year growth to be in line with 2025.

Speaker #4: We're on track with our transformation program. Management actions taken continue to deliver tangible benefits across the group, with the investments we've made over the last three and a half years now translating into stronger commercial performance, better customer outcomes, and greater efficiency.

Andy Golding: With the investments we've made over the last three and a half years now translating into stronger commercial performance, better customer outcomes, and greater efficiency. As you can see from the chart, the new platform gives us greater pricing agility, helping us respond more dynamically to market conditions in both savings and lending while maintaining our focus on returns. Combination of the new platform and the Rely brand has significantly enhanced the broker experience. For example, we can now deliver an agreement in principle in under 10 minutes and complete cases in as little as 2 hours. We're also seeing meaningful operational benefits with higher levels of automation and accelerated processing times. For example, automated valuations are now being used for around 10% of our cases originated through the new platform, compared with none previously, improving both efficiency and customer outcomes.

Speaker #4: As you can see from the chart, the new platform gives us greater pricing agility, helping us respond more dynamically to market conditions in both savings and lending, while maintaining our focus on returns.

Speaker #4: The combination of the new platform and the Relai brand has significantly enhanced the broker experience. For example, we can now deliver an agreement in principle in under 10 minutes and complete cases in as little as two hours.

Speaker #4: We're also seeing meaningful operational benefits, with higher levels of automation and accelerated processing times. For example, automated valuations are now being used for around 10% of our cases originated through the new platform, compared with none previously.

Speaker #4: Improving both efficiency and customer outcomes. With these savings, we continue to expand the range of products on the new platform, but technology is enabling much faster execution, with actions that previously took weeks now completed in around an hour.

Andy Golding: In savings, we continue to expand the range of products on the new platform. Technology is enabling much faster execution, with actions that previously took weeks now completed in around an hour. Importantly, these benefits extend well beyond operational efficiency. Over time, the platform will enable us to respond more quickly to changing market conditions, improve customer and broker retention through a better service proposition, and generate greater operational leverage as the business grows. Together, these capabilities strengthen our ability to protect margins, improve productivity, and deliver sustainable returns over the medium term. Looking ahead, momentum continues into the H2. In savings, we will continue to broaden the product offering, complete the migration of Kent Reliance customers onto the new platform, and prepare for the transfer of Charter Savings Bank onto the new platform as well.

Speaker #4: Importantly, these benefits extend well beyond operational efficiency. Over time, the platform will enable us to respond more quickly to changing market conditions, improve customer and broker retention through a better service proposition, and generate greater operational leverage as the business grows.

Speaker #4: Together, these capabilities strengthen our abilities to protect margins, improve productivity, and deliver sustainable returns over the medium term. Looking ahead, momentum continues into the second half.

Speaker #4: In Savings, we'll continue to broaden the product offering, complete the migration of Kent Reliance customers onto the new platform, and prepare for the transfer of Charter Savings Bank onto the new platform as well.

Speaker #4: In lending, our residential mortgage proposition, which is currently in a soft launch phase, will be rolled out more broadly to our broker network under the Precise brand.

Andy Golding: In lending, our residential mortgage proposition, which is currently in soft launch phase, will be rolled out more broadly to our broker network under the Precise brand, bringing the benefits we have already seen through the Rely buy-to-let launch to our residential customers. Overall, I am pleased with the progress we are making. Program remains on track. Key milestones are being delivered successfully, and costs are absolutely in line with the plan. The investment I described are also creating the foundations for our adoption of AI. In our contact centers, AI is reducing note-taking time by around 35% and saving colleagues time on complex calls. AI is also helping us reduce fraud and support document verification, preventing fraudulent applications worth approximately GBP 8 million.

Speaker #4: Bringing the benefits we've already seen through the vital net Relai launch to our residential customers. Overall, I'm pleased with the progress we're making. Program remains on track.

Speaker #4: Key milestones are being delivered successfully, and costs are absolutely in line with the plan. The investments I described are also creating the foundations for our adoption of AI.

Speaker #4: In our contact centers, AI is reducing note-taking time by around 35%, and saving colleagues' time on complex calls. AI is also helping us reduce fraud and support document verification, preventing fraudulent applications worth approximately £8 million.

Speaker #4: We're also using AI to support brokers by helping colleagues navigate complex credit processes more quickly and consistently, while internally we're seeing productivity improvements across software engineering and routine administrative tasks.

Andy Golding: We are also using AI to support brokers by helping colleagues navigate complex credit policies more quickly and consistently, while internally, we are seeing productivity improvements across software engineering and routine administrative tasks. Importantly, this is not about replacing the expertise that differentiates OSB. Specialist lending will always rely on human judgment. We see AI as a tool that supports our people, helping them make better informed decisions and spend more time focused on our customers. Looking ahead, we will continue to build on the data and technology foundation we have created, exploring opportunities in areas including pricing, customer service, and back office efficiency. While still at an early stage, we believe AI can further enhance the strengths that already differentiate OSB and support improved outcomes over time. Looking at what we can control in our business, we have made good progress in the H1.

Speaker #4: Importantly, this is not about replacing the expertise that differentiates OSB. Specialist lending will always rely on human judgment. We see AI as a tool that supports our people, helping them make better-informed decisions and spend more time focused on our customers.

Speaker #4: Looking ahead, we'll continue to build on the data and technology foundation we've created, exploring opportunities in areas including pricing, customer service, and back-office efficiency.

Speaker #4: While still at an early stage, we believe AI can further enhance the strengths that already differentiate OSB and support improved outcomes over time. Looking at what we can control in our business, we've made good progress in the half.

Speaker #4: We set out our plan in March '25. Our guidance was based on stable funding costs and a more favorable set of macroeconomic assumptions. This slide highlights the elevated cost of retail funding, as well as the volatility in the rates that we saw in H1 '26.

Andy Golding: When we set out our plan in March 2025, our guidance was based on stable funding costs and a more favorable set of macroeconomic assumptions. This slide highlights the elevated cost of retail funding, as well as the volatility in the rates that we saw in H1 2026. It also shows how the macro environment has significantly changed since the planned start point in March 2025, and for 2026 and more so at 2027 across GDP growth, HPI, inflation, and interest rates. The top right-hand chart shows the spread between average top quoted pay rates on one-year fixed-rate deposits versus one-year fixed swap rates. The spread was widest in February and then narrowed briefly in March to provide a short window for more attractive funding costs for us.

Speaker #4: It also shows how the macro environment has significantly changed since the plan start point in March '25, and for 2026, and more so in '27, across GDP growth, HPI, inflation, and interest rates.

Speaker #4: The top right-hand chart shows the spread between average top-quoted pay rates on one-year fixed-rate deposits versus one-year fixed swap rates. The spread was widest in February, and then narrowed briefly in March to provide a short window for more attractive funding costs for us.

Speaker #4: Since March, the rate has remained at a similar level to February, resulting in higher-than-anticipated costs of funding in the market. We have highlighted a number of times, most recently at the full year 2025 and Q1 2026, that our ability to deliver the full year 2026 near and circa Q2 2025 basis points would depend on three factors.

Andy Golding: Since March, the rate has widened again. Now it is at similar levels to February, resulting in higher than anticipated costs of funding in the market. We've highlighted a number of times, most recently at the full year 2025 and Q1 2026, that our ability to deliver the full year 2026 NIM of circa 225 basis points will depend on three factors: front book margin, back book dynamics, and the cost of retail funds, with the cost of funds being the most uncertain and hardest to forecast. The cost of funding in H1 2026 did average at circa 70 plus 30 basis points, in line with our full-year expectation.

Speaker #4: Front-book and back-book margin dynamics, and the cost of retail funds — with the cost of funds being the most uncertain and hardest to forecast. The cost of funding in H1 2026 did average at circa plus 30 basis points, in line with our full-year expectation.

Speaker #4: However, the volatility in funding costs in the half and market competition effect on the savings back-book recycling was a headwind on NIM. We had an H1 NIM of 223 basis points versus 226 basis points for the full year '25.

Andy Golding: However, the volatility in funding costs in the half and market competition effect on the savings back book recycling was a headwind on NIM, with an H1 NIM of 223 basis points versus 226 basis points for the full year 2025. As we stand here today, we see no indication that the cost of retail funds will normalize this year. On this basis, we've revisited our NIM guidance and no longer assume normalization of cost of funds. We've updated our 2026 NIM guidance to 215 to 220 basis points from 225, preferring a range rather than a single number to reflect that level of uncertainty in the market. As a consequence of this change, we're now expecting to deliver an ROTE of closer to 12.5% for 2026.

Speaker #4: As we stand here today, we see no indication that the cost of retail funds will normalize this year. On this basis, we've revisited our NIM guidance and no longer assume normalization of cost of funds.

Speaker #4: We've updated our 2026 nib guidance to 215 to 220 basis points from 225, preferring a range rather than a single number to reflect that level of uncertainty in the market.

Speaker #4: As a consequence of this change, we're now expecting to deliver an ROTE of closer to 12.5% for 2026. However, as we look into the medium term, the mechanical nature of factors which enable an ROTE uplift, together with the management actions underway, mean that our guidance for mid-teens ROTE in 2028 rising to the upper end of mid-teens ROTE in '29 still stands.

Andy Golding: However, as we look into the medium term, the mechanical nature of factors which enable an ROTE uplift, together with the management actions underway, mean that our guidance of mid-teens ROTE in 2028 rising to the upper end of mid-teens ROTE in 2029 still stands. Let me spend some time taking you through the return drivers together over the plans 2029 and why we have confidence in this delivery. We see five key drivers. The first driver has a near-term impact and is market-driven. It's the cost of retail funds. As I explained, as a consequence of the funding headwind, we now expect 2026 ROTE to be closer to 12.5%. If the funding cost pressures seen so far this year continue, this could result in a modest impact on our 2027 mid-teens ROTE aspiration.

Speaker #4: Let me spend some time taking you through the return drivers as we gather over the plan to 2029, and why we have confidence in this delivery.

Speaker #4: We see five key drivers. The first driver has a near-term impact and is market-driven: it's the cost of retail funds. As I’ve explained, as a consequence of the funding headwind, we now expect 2026 ROTE to be closer to 12.5%.

Speaker #4: If the funding cost pressures seen so far this year continue, this could result in a modest impact on our 2027 mid-term ROTE aspiration. Beyond '27 and into '28 and '29, there are four positive drivers that we've already discussed with you.

Andy Golding: Beyond 2027 and into 2028 and 2029, there are four positive drivers that we've already discussed with you. The first two in green are mechanical. Back book roll-off. The high margin back book will roll off this year. The low margin back book will roll off into 2028, and this becomes increasingly supportive by 2028. Next, MREL debt, with call dates in September 2027 and January 2029, will reduce our cost of funding. Both of these result in a mechanical uplift in our ROTE outlook as the drag from these factors disappears. The next two in blue are within management's control. Hence, also areas we're confident about. The return-enhancing portfolio diversification into higher margin areas as the buy-to-let effort reduces to 60% of the loans over the period is a driver of ROTE enhancement, as is our transformation program.

Speaker #4: The first two in green are mechanical. Back-book roll-off—the high-margin back-book will roll off this year, and the low-margin back-book will roll off into 2028. This becomes increasingly supportive by 2028.

Speaker #4: Next, the MREL bed, with call dates in September 2027 and January 2029, will reduce our cost of funding. Both of these result in a mechanical uplift in our ROTE outlook, as the drag from these factors disappears.

Speaker #4: The next two in blue are within management's control, and hence also areas we're confident about. The return-enhancing portfolio diversification into higher-margin areas, as the buy-to-let book reduces to 60% of the loans over the period, is a driver of ROTE enhancement.

Speaker #4: As is our transformation program, investment will conclude in '27 with increasing benefits occurring thereafter, bringing the operational leverage benefits we're already seeing from the Kemper Alliance savings and reliable buy-to-let to the rest of the business.

Andy Golding: Investment will conclude in 2027 with increasing benefits accruing thereafter, bringing the operational leverage benefits we are already seeing from the Kent Reliance savings of Rely buy-to-let to the rest of the business. The operating environment has become more volatile than we anticipated when we first laid out our medium-term aspirations. Interest rate expectations, swap rate movements, and customer behavior have all become slightly less predictable. While this can influence the pace at which margins recover quarter to quarter, it does not alter the strategic action we are taking or our confidence in the medium-term earnings power of the franchise. Mechanical and management-controlled positive ROTE drivers give us high confidence in our 2028 mid-teens ROTE and 2029 high end of mid-teens ROTE aspirations. Our objective remains to sustainably deliver mid-teens returns on tangible equity. The question is one of timing rather than destination.

Speaker #4: The operating environment has become more volatile than we anticipated when we first laid out our medium-term aspirations. Interest rate expectations, swap rate movements, and customer behavior have all become slightly less predictable.

Speaker #4: While this can influence the pace at which margins recover quarter to quarter, it does not alter the strategic action we are taking or our confidence in the medium-term earnings power of the franchise.

Speaker #4: The mechanical and management-controlled positive ROTE drivers give us high confidence in our '28 mid-teens ROTE and '29 high-end mid-teens ROTE aspirations. Our objective remains to sustainably deliver mid-teens returns on tangible equity; the question is one of timing rather than destination.

Speaker #4: I'll hand over to Victoria for further insights into the financials.

Andy Golding: With that, I will hand over to Victoria with further insights into the financials.

Speaker #1: Thank you, Andy, and good morning, everyone. The first half delivered resilient financial performance in line with our expectations. I will now walk through the details.

Victoria Hyde: Thank you, Andy, and good morning, everyone. The H1 delivered resilient financial performance in line with our expectations. I will now walk through the detail. Turning first to the P&L, let me call out a few key items. Net interest income was GBP 340 million for the H1, up 1% compared with the prior period, and I will provide more color on the NIM dynamics on the next slide. The fair value loss on hedging activities reduced to GBP 2.5 million, compared to GBP 14.3 million in the prior period. The key driver behind the loss was, again, fair value movements on our mortgage pipeline swaps. Total administrative expenses, of which core costs were GBP 117.4 million, increased by 4% as we continue to invest in our transformation program. However, our core costs were down 0.4% compared to the prior period.

Speaker #1: Turning first to the P&L, let me call out a few key items. Net interest income was £340 million for the first half, up 1% compared with the prior period, and I will provide more color on the NII dynamics on the next slide.

Speaker #1: The fair value loss on hedging activities reduced to £2.5 million, compared to £14.3 million in the prior period. The key driver behind the loss was, again, fair value movements on our mortgage pipeline swaps.

Speaker #1: Total administrative expenses, of which core costs were £117.4 million, increased by 4% as we continue to invest in our transformation program. However, our core costs were down 0.4% compared to the prior period.

Speaker #1: This resulted in a 5% increase in profit before provisions and impairment, to £204 million for the first half. An impairment charge of £16 million was recognized this half-year.

Victoria Hyde: This resulted in a 5% increase in profit before provisions and impairments to GBP 204 million for the H1. An impairment charge of GBP 16 million was recognized this half year. I will cover this charge in more detail later on. Finally, profit before tax for the first six months of the year was GBP 187 million, down 3% on prior period, and basic EPS grew to GBP 0.384 per share, up 3%, primarily due to the lower weighted average number of shares. Looking at the NIM movement from H2 2025, NIM reduced by 3 basis points to 223 basis points this half year. Higher cost of funds caused downward pressure as our retail savings book continued to recycle onto more costly spreads to SONIA compared to those in the H2 2025.

Speaker #1: I will cover this charge in more detail later on. Finally, profit before tax for the first six months of the year was £187 million, down 3% on the prior period, and basic EPS grew to 38.4 pence per share, up 3%, primarily due to the lower weighted average number of shares.

Speaker #1: Looking at the NIM movement from H2 2025, NIM reduced by 3 basis points to 223 basis points this half-year. Higher cost of funds caused downward pressure as our retail savings book continued to recycle onto more costly spreads to SONIA, compared to those in the second half of 2025.

Speaker #1: The higher cost of retail funds was partially offset by lending spreads, as back-book dynamics rolled through in parallel to another six months of new business written at sustainable margins.

Victoria Hyde: The higher cost of retail funds was partially offset by lending spreads as back book dynamics rolled through in parallel to another six months new business written at sustainable margins. We have also shown NIM excluding liquid assets, which was 262 basis points in H1. This presentation of our NIM better reflects the performance of the underlying business. It also allows for a more meaningful comparison with our closest peers. As Andy mentioned, we have updated our 2026 NIM guidance to a range of 215 to 220 basis points. The new guidance is based on the assumption of SONIA plus 40 for retail funding costs in H2 of 2026. This is an increase from our previous assumption as a result of strong competition and volatility we are currently seeing in the market. Our updated NIM guidance is shown on the right-hand side of the chart.

Speaker #1: We have also shown NIB excluding liquid assets, which was 262 basis points in the first half. This presentation of our NIB better reflects the performance of the underlying business.

Speaker #1: It also allows for a more meaningful comparison with our closest peers. As Andy mentioned, we have updated our 2026 NIM guidance to a range of 215 to 220 basis points.

Speaker #1: The new guidance is based on the assumption of SONIA plus 40 for retail funding costs in the second half of 2026. It is an increase from our previous assumption, as a result of strong competition and volatility we are currently seeing in the market.

Speaker #1: Our updated NIB guidance is shown on the right-hand side of the chart. This slide provides an overview of our funding franchise. The overall makeup of the group's funding remains broadly unchanged.

Victoria Hyde: This slide provides an overview of our funding franchise. The overall makeup of the group's funding remained broadly unchanged. As at 30 June, 89% of our total funding came from retail deposits that we raised under our two savings brands, Kent Reliance and Charter Savings Bank. Retail deposits grew by 3% in H1 of the year, reaching nearly GBP 25 billion. The proportion of our fixed rate bonds versus easy access accounts remained broadly unchanged compared to year end, with fixed rate savings accounts representing 55%. The remainder of our funding came from debt and wholesale issuance, providing diversification and adding duration to our funding requirements.

Speaker #1: As at 30 June, 89% of our total funding came from retail deposits that we raised under our two savings brands, Kent Reliance and Charter Savings Bank.

Speaker #1: Retail deposits grew by 3% in the first six months of the year, reaching nearly £25 billion. The proportion of our fixed-rate bonds versus easy-access accounts remains broadly unchanged compared to year-end, with fixed-rate savings accounts representing 55%.

Speaker #1: The remainder of our funding came from debt and wholesale issuance, providing diversification and adding duration to our funding requirements. As at 30th June, central bank funding reduced to £250 million, providing us with significant capacity and flexibility to draw more in line with our funding requirements and improve our overall cost of funds as we manage our way through the final nine months of deposit migration to our new, more flexible platform.

Victoria Hyde: As at 30 June, central bank funding reduced to GBP 250 million, providing us with significant capacity and flexibility to draw more in line with our funding requirements and improve our overall cost of funds as we manage our way through the final nine months of deposit migration to our new, more flexible platform. Moving on to costs. A key part of our plan is that we tightly manage our cost base to allow us to invest in transformation. We demonstrated that we achieved this in H1 of the year. This and the following page highlight our cost discipline and transformation spend. Administrative expenses were in line with expectations at GBP 136.5 million, up 4% compared to H1 of 2025. The main driver of the growth was the cost of the transformation program, with a GBP 5 million increase compared to H1 2025.

Speaker #1: Moving on to costs. A key part of our plan is that we tightly manage our cost base to allow us to invest in transformation.

Speaker #1: We demonstrated that we achieved this in the first half of the year. This, and the following page, highlight our cost discipline and transformation spend.

Speaker #1: Administrative expenses were in line with expectations at £136.5 million, up 4% compared to the first half of 2025. The main driver of the growth was the cost of the transformation program, with a £5 million increase compared to H1 2025.

Speaker #1: On the next slide, we provide more detail on our spend to date. I am pleased that core costs reduced by 0.4% compared to the prior period, as we optimize our UK real estate footprint.

Victoria Hyde: On the next slide, we provide more detail on our spend to date. I am pleased that the core costs reduced by 0.4% compared to the prior period, and we optimized our UK real estate footprint. The cost to income ratio remained broadly flat at 40.1% compared to 40.3% in the prior period, and the management expense ratio was unchanged at 88 basis points. Looking forward, for 2026, we continue to expect administrative expenses of circa GBP 280 million, excluding the costs of our new CEO. We remain disciplined in our core cost management and will continue to invest in our transformation program in line with our plan. Andy outlined earlier the benefits of three and a half years of investment in transformation. On this slide, we summarize our expenditure since the start of the program for your reference.

Speaker #1: The cost-to-income ratio remained broadly flat at 40.1%, compared to 40.3% in the prior period, and the management expense ratio was unchanged at 88 basis points.

Speaker #1: Looking forward to 2026, we continue to expect administrative expenses of circa £280 million, excluding the costs of our new CEO. We remain disciplined in our core cost management and will continue to invest in our transformation program in line with our plan.

Speaker #1: Andy outlined earlier the benefits of three and a half years of investment in transformation. On this slide, we summarize our expenditure since the start of the program for your reference.

Speaker #1: There is no change to the expected spend on the program until it completes at the end of 2027. On a semi-annual basis, you can see that the total transformation spend, including intangible asset movement, has passed its peak in H2 2025.

Victoria Hyde: There is no change to the expected spend on the program until it completes at the end of 2027. On a semi-annual basis, you can see that the total transformation spend, including intangible asset movement, has passed its peak in H2 2025. This slide presents the progress against our lending plan, combined with a disciplined approach to risk that we presented at the investor update in March 2025. Net loan book grew by 1.3% in H1 to GBP 26.3 billion, with buy-to-let sub-segment representing 68% of total gross loans. We remain committed to our medium-term loan book diversification strategy and continue to see opportunities in these sub-segments. The growth in the loan book was supported by originations of GBP 2.3 billion, an increase of 10% compared to H1 2025. We saw strong new business volumes in our core sub-segments of buy-to-let and residential.

Speaker #1: This slide presents the progress against our lending plan, combined with the disciplined approach to risk that we presented at the investor update in March 2025.

Speaker #1: Net loan book grew by 1.3% in the first half to £26.3 billion, with the Buy Select subsegment representing 68% of total gross loans. We remain committed to our medium-term loan book diversification strategy and continue to see opportunities in these subsegments.

Speaker #1: The growth in the loan book was supported by originations of £2.3 billion, an increase of 10% compared to the first half of 2025. We saw strong new business volumes in our core subsegments of Buy-to-Let and Residential.

Speaker #1: Originations grew moderately in our higher-yielding subsegments, despite macroeconomic uncertainty and elevated mortgage rates. For 2026, we continue to expect net loan book growth to be broadly similar to that achieved in 2025.

Victoria Hyde: Originations grew moderately in our higher yielding sub-segments despite macroeconomic uncertainty in elevated mortgage rates. For 2026, we continue to expect net loan book growth to be broadly similar to that achieved in 2025. The next slide provides a waterfall of the movement in the impairment provision in H1, as well as the credit quality metrics of our secured loan book. As you can see from the chart, balance sheet ECL provisions increased in the period due to a net charge of GBP 7 million. The charge was a result of an increase in provision for macroeconomic scenarios, accounts with arrears of 3 months or more, new lending, and individually assessed provisions. These were partially offset by provision releases for model enhancements and PMA updates as well as stage migrations.

Speaker #1: The next slide provides a waterfall of the movement in the impairment provision in the first half, as well as the credit quality metrics of our secured loan book.

Speaker #1: As you can see from the chart, balance sheet ECL provisions increased in the period due to a net charge of £7 million. The charge was the result of an increase in provisions for macroeconomic scenarios, accounts with arrears of three months or more, new lending, and individually assessed provisions.

Speaker #1: These were partially offset by provision releases for model enhancements and PMA updates, as well as stage migrations. Overall, the P&L charge totaled £15.8 million and represented a loan loss ratio of 12 basis points, compared to 2 basis points in the prior period.

Victoria Hyde: Overall, the P&L charge totaled GBP 15.8 million and represented a loan loss ratio of 12 basis points compared to 2 basis points in the prior period. It was broadly in line with a long-term average loan loss ratio of 10 basis points. You can see that our balance sheet total coverage ratio increased to 50 basis points at the end of June, compared with 47 basis points at the end of 2025. Our provision balance continues to be more than 10 times higher than the average yearly write-offs in the last 5 years. Moving on to arrears. For H1 2026, 3 months plus arrears decreased slightly to 1.6% from 1.7% at the end of 2025, as more stage 3 accounts exited our 12-month cure period. We remain comfortable with our risk profile and our impairment provisions.

Speaker #1: It was broadly in line with a long-term average loan loss ratio of 10 basis points. You can see that our balance sheet total coverage ratio increased to 50 basis points at the end of June, compared with 47 at the end of 2025.

Speaker #1: Our provision balance continues to be more than 10 times higher than the average yearly write-offs in the last five years. Moving on to arrears, for the first six months of 2026, three months plus arrears decreased slightly to 1.6% from 1.7% at the end of 2025, as more stage three accounts exited our 12-month cure period.

Speaker #1: We remain comfortable with our risk profile and our impairment provisions, which show here that if we were to move our IFRS 9 weighting 100% to our downside scenario, our ECLs would only increase by £19 million.

Victoria Hyde: We show here that if we were to move our IFRS 9 weighting 100% to our downside scenario, that our ECL would only increase by GBP 19 million. Next, capital. This half demonstrated another period of strong capital generation. Group CET1 ratio remained robust at 15.2% at the end of June. Our profitability net of loan book growth in the period was 90 basis points, up 10 basis points compared to the prior period. Before the effect of the GBP 100 million share repurchase program announced in March, the CET1 would have been 16%, and the share repurchase had a 0.8% impact on the ratio. The group continues to generate enough capital to support loan book growth and a progressive dividend. The board remains committed to returning excess capital to shareholders as we progress towards our new CET1 target, 13% to 13.5% post-Basel 3.1.

Speaker #1: Next, capital. This half demonstrated another period of strong capital generation. Group CET1 ratio remained robust at 15.2% at the end of June. Our profitability, net of loan book growth in the period, was 90 basis points, up 10 basis points compared to the prior period.

Speaker #1: Before the effect of the £100 million share repurchase program announced in March, the CET1 would have been 16%, and the share repurchase had a 0.8% impact on the ratio.

Speaker #1: The Group continues to generate enough capital to support loan book growth and a progressive dividend. The Board remains committed to returning excess capital to shareholders as we progress towards our new CET1 target—13 to 13.5 percent post-Basel 3.1.

Speaker #1: This slide presents movements in net loans and RWAs. In the first half of 2026, the loan book grew by 1.3%, and RWAs increased by 1.1%.

Victoria Hyde: This slide presents movements in net loans and RWAs. In H1 2026, loan book grew by 1.3%, and RWAs increased by 1.1%. The chart on the right shows that loan book growth accounted for a GBP 0.2 billion increase in RWAs, while mix and other items had a neutral impact on RWAs in the period. We continue to expect that the implementation of Basel 3.1 rules as written would reduce the CET1 ratio as at 30 June 2026 by 1.2% as a result of a 9% uplift in RWAs. This is compared to just over 1.3% and 9% respectively as at 31 December 2025. This would mean that after the impact of Basel 3.1 rules, the pro forma CET1 ratio as at 30 June 2026 would be 14%.

Speaker #1: The chart on the right shows that loan book growth accounted for a £0.2 billion increase in RWAs, while mix and other items had a neutral impact on RWAs in the period.

Speaker #1: We continue to expect that the implementation of Basel 3.1 rules as written would reduce the CET1 ratio as of 30 June 2026 by 1.2%, as a result of a 9% uplift in RWAs.

Speaker #1: This is compared to just over 1.3% and 9%, respectively, as of 31 December 2025. This would mean that, after the impact of the Basel 3.1 rules, the pro forma CET1 ratio as of 30 June 2026 would be 14%.

Victoria Hyde: From this pro forma position, the drivers to our 13% to 13.5% post-Basel CET1 range will include RWA growth and shareholder returns underpinned by our profitability. I will now pass back to Andy.

Speaker #1: From this pro forma position, the drivers to our 13 to 13.5 percent post-barrel CT1 range will include RWA growth and shareholder returns, underpinned by our profitability.

Speaker #1: I will now pass back to Andy.

Speaker #2: Thank you, Vic. So, in summary, the group has delivered a resilient performance in the first half. Despite that macroeconomic uncertainty, we've continued to grow and diversify the loan book and sustain margins, leading to attractive ROTEs, and we've prioritized returns to shareholders.

Andy Golding: Thank you, Vic. In summary, the group has delivered a resilient performance in H1, despite that macroeconomic uncertainty. We've continued to grow and diversify the loan book at sustainable margins, leading to attractive ROTEs, and we prioritize returns to shareholders. Looking ahead, as we've explained this morning, we have updated our 2026 full-year NIM guidance to reflect the competitive pressure we've seen in the retail deposit market. As a result, we've updated the 2026 ROTE guidance to circa 12.5%. However, we remain confident in the earnings power of the business. That confidence is underpinned by the mechanical benefits from MREL and back book roll-off, alongside the strategic actions we're taking to diversify the lending book and the benefits the business will realize from the transformation program. These positive ROTE drivers give us confidence in our 2028 mid-teens ROTE and our 2029 high-end mid-teens ROTE aspirations.

Speaker #2: Looking ahead, as we've explained this morning, we have updated our 2026 full-year NIM guidance to reflect the competitive pressure we've seen in the retail deposit market.

Speaker #2: And as a result, we've updated the 2026 ROTE guidance to circa 12.5%. However, we remain confident in the earnings power of the business.

Speaker #2: That confidence is underpinned by the mechanical benefits from MREL and back book roll-off, alongside the strategic actions we're taking to diversify the lending book and the benefits the business will realize from the transformational program.

Speaker #2: These positive ROTE drivers give us confidence in our 2028 mid-teens ROTE and our 2029 high-end mid-teens ROTE aspirations. With that, we'll now turn to Q&A. Operator, please go ahead.

Andy Golding: With that, we'll now turn to Q&A. Operator, could we please have.

Speaker #3: Thank you very much, Andy. As a reminder, if you would like to raise your hand if you'd like to ask a question, you can raise your hand and we will allow you through to unmute, and I'll ask your question.

[Company Representative] (OSB Group): Thank you very much, Andy. As a reminder, if you would like to ask a question, you can raise your hand, and we will allow you through to unmute and ask your question. Our first question comes from Benjamin Toms. Benjamin, if you could please unmute, go ahead and ask your question.

Operator: Thank you very much, Andy. As a reminder, if you would like to ask a question, you can raise your hand, and we will allow you through to unmute and ask your question. Our first question comes from Benjamin Toms. Benjamin, if you could please unmute, go ahead and ask your question.

Speaker #3: Our first question comes from Benjamin Thoms. Benjamin, if you could please unmute, go ahead and ask your question.

Andy Golding: Morning, guys. Can you hear me? Operator, can I just check if we have a technical glitch because we can't hear anything coming through at our end. You can hear me? I think my colleague can hear me, so I'm not sure whether it's just Victoria and Andy that can't hear me. The mic is live.

Benjamin Toms: Morning, guys. Can you hear me? Operator, can I just check if we have a technical glitch because we can't hear anything coming through at our end. You can hear me? I think my colleague can hear me, so I'm not sure whether it's just Victoria and Andy that can't hear me. The mic is live.

Speaker #4: Morning back. Can you hear me? Can you hear me?

Speaker #2: All right, good. Just check if we have a technical glitch, because we can't hear anything coming through at our end.

Speaker #4: Can you hear me? I said I think my colleague can hear me, so I'm not sure whether it's just Victoria and Andy who can't hear me.

Speaker #2: The mic is live.

Speaker #3: Andy, can you hear Benjamin?

[Company Representative] (OSB Group): Andy, can you hear Benjamin?

Operator: Andy, can you hear Benjamin?

Speaker #4: Testing, testing. Hey, can you hear me now?

Andy Golding: Testing, testing. All right, can you hear me now?

Victoria Hyde: Well, I guess we

Speaker #5: I guess you hear me. Thank you.

Speaker #4: Testing.

Andy Golding: Testing.

Speaker #5: Yeah, I think it's written as 70, right? And your—so again, that's something I—no, I mean, some of the rates might be different.

Victoria Hyde: Yeah.

Benjamin Toms: Yeah.

Andy Golding: I think it is possible that participants can hear us here in the boardroom. Unfortunately, we can't hear anything coming back from the operator. We have just been asked by the technical company to stand by.

Speaker #3: Thank you.

Speaker #2: It's possible that participants can hear us here in the boardroom. Unfortunately, we can't hear anything coming back from the operator. We have just been asked by the technical company to stand by.

Speaker #2: By.

Speaker #4: Testing, testing.

Benjamin Toms: Testing.

Speaker #3: Our apologies. One moment, we will get this sorted. Benjamin, if you could go ahead again and see if we can be heard in the room at Whitfield Street.

Operator 2: Our apologies. One moment, we will get this sorted. Benjamin, if you could go ahead again and see if we can be heard in the room at Whitfield Street.

Operator: Our apologies. One moment, we will get this sorted. Benjamin, if you could go ahead again and see if we can be heard in the room at Whitfield Street.

Speaker #4: Can you hear me, guys? Victoria and Andy, can you hear me? Sounds like there's still an audio problem.

Benjamin Toms: Can you hear me, guys? Victoria and Andy, can you hear me? Sounds like there is still an audio problem.

Speaker #5: Yeah. But I mean, yesterday, we still have a bit.

Operator 2: We still have a bit of an audio issue. One moment, we will get this sorted. One moment. Benjamin, if you could please go ahead and ask again.

Operator: We still have a bit of an audio issue. One moment, we will get this sorted. One moment. Benjamin, if you could please go ahead and ask again.

Speaker #3: We're experiencing an audio issue. One moment, and we will get this sorted.

Speaker #5: Great. See you guys tomorrow.

Speaker #3: One moment. Benjamin, if you could, please go ahead and ask again.

Speaker #4: Hey, can you hear me now?

Benjamin Toms: Hello, can you hear me now?

Speaker #3: Our apologies, Benjamin. Currently, they can't hear you. Excuse me.

Operator 2: Our apologies, Benjamin. They can't hear you. Excuse me. Can the room at Whitfield Street hear me? Benjamin, please go ahead again and see if we can be heard in the Whitfield Street room.

Operator: Our apologies, Benjamin. They can't hear you. Excuse me. Can the room at Whitfield Street hear me? Benjamin, please go ahead again and see if we can be heard in the Whitfield Street room.

Speaker #5: So yes, can the room

Speaker #3: at Whitfield Street hear me?

Speaker #5: Yeah, I think—hi, everyone. Yeah, great. I...

Speaker #3: Benjamin, please go ahead again, and let's see if we can be heard in the Whitfield Street.

Speaker #5: We'll talk about it in a couple of weeks.

Speaker #4: Hey, can you hear me?

Benjamin Toms: Hey, can you hear me? Testing, testing.

Speaker #5: Great. Okay. Well, thanks very much for your time.

Speaker #4: Testing, testing.

Speaker #2: Ben, can you now hear me through the line?

Andy Golding: Ben, can you now hear me through-

[Company Representative] (OSB Group): Yeah

Andy Golding: the line?

Speaker #4: I can hear you, Andy. Can you hear me?

Benjamin Toms: I can hear you, Andy. Can you hear me?

Speaker #2: Yeah, I can. Actually, the tech appears to have failed, so I'm now doing it through a laptop that we've managed to log onto the system.

Andy Golding: Yeah, I can, and I'm actually, the tech appears to have failed, so I'm now doing it through a laptop that we've managed to flag onto the system. Apologies, everybody, because I hate being let down by technical issues. Ben, I think you were first with a question, so why don't you dive in and we'll try and get it fixed while we do it this way around.

Speaker #2: But I think, apologies everybody, because I hate being let down by technical issues. But, Ben, I think you were first with a question, so why don't you dive in and we'll try and get it fixed while we do it this way around.

Speaker #4: Morning, both. And I think, if this is the last time we hear from you, Andy, all the best in your future endeavors. And I guess part of the gift is two questions on net interest margin, which maybe Victoria will pick up.

Benjamin Toms: Morning both, I think if this is the last time we hear from you, Andy, all the best in your future endeavors. I guess partly gifted 2 questions on net interest margin, which maybe Victoria will pick up. I appreciate the management were really clear that deposit competition was a key risk to NIM. However, your new 2026 NIM guidance implies an exit NIM of 207 to 217 basis points, investors will need to decide how much of that to flow into 2027.

Speaker #4: But I appreciate the management were really clear that deposit competition was a key risk to NIM. However, your new '26 NIM guidance implies an exit limit of 207 to 217 basis points.

Speaker #4: And investors will need to decide how much of that to flow into 2027. Can you just provide some color on what has to happen to be at the top and bottom end of the guidance range for H2?

Andy Golding: Yeah.

Benjamin Toms: Can you just provide some color on what has to happen to be at the top and bottom end of the guidance range for H2? If pricing went back to SONIA plus 30 basis points today, that was my first question. Should I go with my second?

Speaker #4: If, Sonya, if pricing went back to Sonya plus 30 base points today, does that get you—that was my first question. Should I go with my second?

Speaker #2: Yeah, sorry. So the first one is: what are the factors that get us to the top and the bottom end of the implied exit rate?

Andy Golding: Yeah, sorry. The first one is what are the factors that get us to the top and the bottom end-

Victoria Hyde: Wow.

Andy Golding: -of the implied exit rate. Victoria will cover that one in a minute. What was the second one, Ben?

Speaker #2: So, Victoria will cover that one in a minute. And what was the second one, Ben?

Speaker #4: And just more of a broader question, really: what's driving deposit competition? Do you think it's structural hedge tailwinds for the bigger banks? And if that's the case, could the headwinds persist until 2030, which is the date when structural hedges stop being additive to the big banks' top lines?

Benjamin Toms: Just more of a broader question really, what's driving deposit competition? Do you think it's structural hedge tailwinds for the bigger banks? If that's the case, could the headwinds persist until 2030, which is the date when structural hedges stop being additive to the big banks' top lines? Thank you.

Speaker #2: Yeah, so why don't I tackle the second one first and talk about some of the generic factors, and then we'll come back to Vic on more specifics around the numbers.

Andy Golding: Yeah. Why don't I tackle the second one first and talk about some of the generic factors, and then we'll come back to Vic on more specifics around the numbers. Look, we're in a position at the moment where normally we can duck and dive a bit in terms of deposit competition, but we are doing a number of things as a function of the transformation program right now. You can see from our numbers, we've skinned down the amount that we're borrowing from the Bank of England on long-term repo, and that's because we want to have lots of collateral headroom for the point when we get to doing the migration of the Charter Savings Bank portfolio, which is a significant retail savings portfolio, across onto the new system.

Speaker #2: So, I mean, look, we're in a position at the moment where normally we can duck and dive a bit in terms of deposit competition, but we are doing a number of things as a function of the transformation program right now.

Speaker #2: So you can see from our numbers, we've skimmed down the amount that we're borrowing from the Bank of England on long-term repo. And that's because we want to have lots of collateral headroom for the point when we get to doing the migration of the Charter Savings Bank portfolio, which is a significant retail savings portfolio, across onto the new system.

Speaker #2: So, we’ll not have products on sale under that brand for a period, so we’ll need to have additional sources of liquidity. That’s why we've created that headroom.

Andy Golding: We'll not have products on sale under that brand for a period, so we'll need to have additional sources of liquidity. That's why we've created that headroom. That's a bit of a headwind to us because actually long-term index repo funding is a little bit cheaper than where the retail market is right now. That's having a bit of downward pressure for us. There is a lot of competition. There's quite a few new providers that are piggybacking on the back of other people's banking licenses, et cetera, and with a view to pulling in retail funding with high, shiny rates and then hoping they can convince the savers to become bond customers, et cetera. I think everyone is just making sure that they've got plenty of liquidity.

Speaker #2: That's a bit of a headwind to us because, actually, long-term index repo funding is a little bit cheaper than where the retail market is right now.

Speaker #2: So that's having a bit of downward pressure for us. The market—there is a lot of competition. There are quite a few new providers that are piggybacking on the back of other people's banking licenses, etc.

Speaker #2: And with a view to pulling in retail funding with high, shiny rates and then hoping they can convince the savers to become bond customers, etc., I think everyone is just making sure that they've got plenty of liquidity.

Speaker #2: And we're in a position where we are just about to migrate all of the Kent Reliance ISA customers across onto the new platform migrations, which means for a little while we haven't really had ISA products on sale.

Andy Golding: We're in a position where we are just about to migrate all of the Kent Reliance ISA customers across onto the new platform. That's the last of the Kent Reliance migrations, which means for a little while, we haven't really had ISA products on sale, and ISAs are one of the cheaper forms of retail funding. We've been at a slight disadvantage, or we're at a slight disadvantage as we come into H2 that is having a bit of tailwind impact, sorry, headwind impact in terms of the overall NIM. As we move through 2027 and complete that migration, we'll be in a much more BAU position and can get back to ducking and diving and optimizing as we go through the market.

Speaker #2: And ISAs are one of the cheaper forms of retail funding. So we've been at a slight disadvantage, or we're at a slight disadvantage, as we come into H2. That is having a bit of a headwind impact in terms of the overall NIM.

Speaker #2: But as we move through '27 and complete that migration, we'll be in a much more BAU position and can get back to ducking and diving and optimizing as we go through the market.

Speaker #2: So hopefully that gives you a bit of a steer in terms of the competitive dynamic, and some of our positioning in it right now.

Andy Golding: Hopefully that gives you a bit of a steer in terms of the competitive dynamic and some of our positioning in it right now. Vic, do you want to touch on the other one?

Speaker #2: Vic, do you want to touch on the other ones?

Speaker #1: Yeah, so hi, Ben. In terms of your question about the range, yes, as you say, mathematically that is the sort of NIM range you would come to.

Victoria Hyde: Yeah. Hi, Ben. In terms of your question about the range, yes, as you say, mathematically, that is the sort of NIM range you would come to. The reason we've gone for a range is just due to the amount of uncertainty that there is there around cost of funding NIM guidance. As we've talked about before, there are three main drivers of our NIM. We will continue on writing sustainable front book margins. The back book dynamics, as we've talked about before, we have got some of the high margin rolling off in 2026, and then the low margin starts to roll off in 2027 and beyond. The main reason, as we sit here today and look at what's going to drive where we exit and how that rolls into 2027 is going to be that cost of funding.

Speaker #1: I mean, the reason we've gone for a range is just due to the amount of uncertainty that there is around the cost of funding and NIM guidance.

Speaker #1: As we've talked about before, there are three main drivers of our NIM. We will continue to write sustainable front book margins.

Speaker #1: The back book dynamics, as we've talked about before: we have some of the high-margin rolling off in '26, and then the low-margin starts to roll off in '27 and beyond.

Speaker #1: But the main reason, as we sit here today and look at what's going to drive where we exit and how that rolls into ’27, is going to be that cost of funding.

Speaker #1: And that comprises, we have front book, which we have said is that sort of Sonia plus 40 level. And if we look back at that average in H1, we were up at that level at the start of the year.

Victoria Hyde: That comprises, we have front book, which we have said is that sort of SONIA plus 40 level. If we look back at that average in H1, we were up at that level at the start of the year. It came down for a month to sort of SONIA plus 10. It is very volatile out there, and that's why we've gone with the range. We have got the retention mix, and also you've got back book churn. Part of that in H1 is we saw, probably, for the last year for ISAs, we saw more of the back book people churning from perhaps lower rate, easy access into more fixed rate bonds. It is hard to predict, and I guess that's why we've gone for a range. Top or bottom, predominantly we've been driven by that cost of funds.

Speaker #1: It came down for a month to sort of SONIA plus 10. So, it is very volatile out there, and that's why we've gone with the range.

Speaker #1: We have got the retention mix, and also you’ve got back book churn. So, part of that in H1 is, we saw—probably for the last year for ISAs—we saw more of the back book people churning from, perhaps, lower-rate easy access into more of the fixed-rate bonds.

Speaker #1: So it is hard to predict, and I guess that's why we've gone for a range. But, top or bottom, predominantly we've been driven by that cost of funds.

Speaker #1: We have pointed out, as you say, that if it really is too early to tell for '27, there's a lot that can happen between now and year-end.

Victoria Hyde: We have pointed out, as you say, that it really is too early to tell for 2027. There's a lot that can happen between now and year-end. Hence we sort of just pointed out, look, if that funding persists, it's a slight downward pressure on our 2027 aspiration of that mid-teens ROTE.

Speaker #1: But, as we sort of just pointed out, look, if that funding persists, it puts a slight downward pressure on our 2027 aspiration of that medium-term, mid-teens ROTE.

Speaker #4: Thank you, Ben.

Benjamin Toms: Thank you both.

Speaker #2: Thanks. We have the next question.

Andy Golding: Thanks. We have the next question.

Speaker #3: Our next question comes from Rob Noble. Rob, if you could please go ahead, unmute, and ask your question.

[Company Representative] (OSB Group): Our next question comes from Rob Noble. Rob, if you could please go ahead, unmute and ask your question.

Operator: Our next question comes from Rob Noble. Rob, if you could please go ahead, unmute and ask your question.

Speaker #5: Morning. Can you hear me okay?

Rob Noble: Morning. Can you hear me okay?

Speaker #2: Yes, we can. Thanks, Rob.

Andy Golding: Yes, we can. Thanks, Rob.

Speaker #5: Good stuff. So just a few small questions. I see you paid down central bank facilities substantially in H1. Given the cost of retail funding you've been talking about, what's stopping you from using that more? What's been stopping you from using it more extensively this half?

Rob Noble: Good stuff. Just a few small questions. I see you paid down central bank facilities substantially in H1. Given that cost of retail funding you've just been talking about, what's been stopping you using it more extensively this half, and can you use it more extensively going forward? On the EIR gain, in H1, I think there's a gain at group level, and there's a loss in the CCFS book. What's actually going on there? How long are you now assuming customers spend on the reversion rates in each of the books? Just on costs, I see the cost guidance as a footnote excluding the CEO buyout cost. Give us an idea of how much they are.

Speaker #5: And can you use it more extensively going forward? Then, on the EIR gain—in H1 I think there's a gain at group level, and there's a loss in the CCFS book.

Speaker #5: So, what's actually going on there? And how long are you now assuming customers spend on the reversion rates in each of the books? And then just on costs—as I see, the cost guidance is as a footnote excluding the CEO buyout cost.

Speaker #5: Can you give us an idea of how much they are? I presume it's more than $5 million for it to be explicitly separated from the cost guide.

Rob Noble: I presume it's more than GBP 5 million for it to be literally explicitly separated from the cost guide. Thanks.

Speaker #5: Thanks.

Speaker #2: Yeah, okay. Thanks, Rob. I'll touch on the first one in terms of central bank. I mean, we have got bucket loads of collateral lodged with the Bank of England, ready to draw on, but we are using that for safety and security from a liquidity management perspective when we have to effectively shut acquisition down under the Charter Savings Bank brand and do the migration across to the new platform.

Andy Golding: Yeah. Okay. Thanks, Rob. I'll touch on the first one in terms of central bank. We have got bucket loads of collateral lodged with the Bank of England ready to draw on, but we are using that for safety and security from a liquidity management perspective when we have to effectively shut acquisition down under the Charter Savings Bank brand, and do the migration across to the new platform. We're just basically creating a surety and a safety set of headroom by having paid down the facilities now, at the point that we don't need the liquidity, and then we'll ramp that facility back up at the point that we can't gather liquidity through the Charter Savings Bank brand while we do the migration. That's the logic behind that one.

Speaker #2: So we're just basically creating a surety and a safety set of headroom by having paid down the facilities now, at the point that we don't need the liquidity, and then we'll ramp that facility back up at the point that we can't gather liquidity through the Charter Savings Bank brand while we do the migration.

Speaker #2: So that's the logic behind that one. And I think it is just—it's a good liquidity management decision. And I think, well, I hope shareholders would rather me, as the CEO of this bank, worry about making sure we've got access to plenty of cash than one or two basis points of NIM here and there.

Andy Golding: I think it is just a good liquidity management decision, and I think, well, I hope shareholders would rather me, as the CEO of this bank, worry about making sure we've got access to plenty of cash, than 1 or 2 basis points of NIM here and there. That's the thinking behind that one. I'll ask Victoria to cover the EIR gain, and probably wouldn't be appropriate for me to talk about CEO costs. I'll ask her to cover that one as well.

Speaker #2: So that's the thinking behind that one. I'll ask Victoria to cover the R gain, and it probably wouldn't be appropriate for me to talk about CEO cost.

Speaker #2: So I'll ask her to cover that one as well.

Speaker #1: Okay, thanks. Thanks for those questions. So yes, as you say, there was a £4.6 million gain on EIR. We always look at each half at the latest behaviors.

Victoria Hyde: Thanks. Thanks for those questions. Yes, as you say, there was a GBP 4.6 million gain on EIR. We always look at each H1 at the latest behaviors, some of that, the alignment to current behaviors. As you've noted, yes, there was an up-down between CCFS and Kent Reliance, our two entities. We continue enhancing our modeling. Some of the work we did in this H1 is we were down to the fine lines around at what point people pay in the month around reversion, and really looking to align how we model and build those curves going forwards. I would say, whilst we also did the behaviors, we are looking to sort of really refine and build out our modeling so we've got the best sort of balanced forecasting views of this going forwards.

Speaker #1: And so, some of that—the alignment to current behaviors, as you've noted—yes, there was an up/down between CCFS and Kent Reliance, our two entities.

Speaker #1: We continue to enhance our modeling. Some of the work we did in the first half was drilling down to the finer points around when, during the month, people pay in relation to reversion.

Speaker #1: And really looking to align how we model and build those curves going forward. So I would say, whilst we also did the behaviors, we are looking to really refine and build out our modeling so we've got the best, most balanced forecast and views of this going forward.

Speaker #1: And it was that second sort of modeling piece that gave us more of the up/down and some of the tail assumptions on Kent Reliance versus Precise.

Victoria Hyde: It was that second sort of modeling piece that gave us more of the up-down and some of the tail assumptions on Kent Reliance versus Precise. In terms of where those weighted average lives are now. The most sensitive historically we've had was the 5-year Precise buy-to-let portfolio. That's down to about 3 months now. It's just under. I think previously, last year when we updated, it was 3.6. That's down at just under 3. Kent Reliance has always been, it's about 2.2 months. That hasn't really moved much in the 4 years that I've been here. That's at 2.2. We're still noting a sensitivity to that 2-month move. It's down to about GBP 16 million, and it's really this year's cohort and some of next year's that's most sensitive. It is chipping down.

Speaker #1: In terms of where those weighted average lives are now, the most sensitive we've historically had was the five-year Precise by Select Portfolio.

Speaker #1: So that's down to about three months now—just under. I think previously, last year when we updated, it was 3.6. So that's down to just under three.

Speaker #1: And then Kent Reliance has always been—it's about 2.2 months; that hasn't really moved much in the four years that I've been here, so that's at 2.2.

Speaker #1: We're still noting, as you said, the sensitivity to that two-month move is down to about £16 million. And it's really this year's cohort, and some of next year's, that's the most sensitive.

Speaker #1: So, it is chipping down. But you're seeing now we're down to that sort of three-ish months intensive, too. We expect that variability to keep on reducing.

Victoria Hyde: You're seeing now we're down to that sort of 3-ish months. Kent at 2. We expect that variability to keep on reducing. That was the EIR. Cost of the new CEO, we haven't disclosed that as yet, as he's not arrived. It will be in the DRR report in next year's ARA. You'll notice we have kept cost guidance at the GBP 280 million. There's a lot happening in H2, including new CEO arrival. We've got go live of the residential and ISAs, residential mortgages and ISAs in our transformation. We will always be looking at to absorb what we can into that GBP 280 million, but it's all too early to commit at the minute. That's why we've kept it to GBP 280 million and we'll comment on the CEO transition cost as we get closer and he arrives.

Speaker #1: So that was the EIR. The cost of the new CEO—we haven't disclosed that as yet, as he's not arrived. It will be in the DRR report in next year's ARA.

Speaker #1: You'll notice we have kept cost guidance at the £280 million. There's a lot happening in H2, including the new CEO arrival. We've got go-live of the residential mortgages and ISAs in our transformation.

Speaker #1: So we will always be looking to absorb what we can into that 280, but it's all too early to commit at the minute.

Speaker #1: So that's why we've kept it to 280, and we'll comment on the CEO transition costs as we get closer and as they arrive.

Speaker #5: Great. Thank you very much.

Andy Golding: Great. Thank you very much.

Speaker #2: Thanks, Rob.

Victoria Hyde: You're welcome.

Speaker #3: Thank you very much, Rob. Our next question comes from Grace Dargen. Grace, if you could unmute, go ahead and ask your question.

[Company Representative] (OSB Group): Thank you very much, Rob. Our next question comes from Grace Dargan. Grace, if you could unmute, go ahead and ask your question.

Operator: Thank you very much, Rob. Our next question comes from Grace Dargan. Grace, if you could unmute, go ahead and ask your question.

Speaker #6: Hi, good morning. Thank you for taking my questions, and again, just to reiterate the comments—best of luck, Andy, going forward. So, on my two questions: maybe firstly, just on the transformation, I know you just talked about the Charter Savings change.

Grace Dargan: Hi. Good morning. Thank you for taking my questions. Again, just to reiterate the comments, I guess best of luck, Andy, going forward.

Andy Golding: Thank you.

Grace Dargan: On my two questions, maybe firstly, just on the transformation. I know you just talked about the Charter Savings change. I guess looking forward, should we expect any other disruptions? How long will you be out the market on that savings product, and is there anything else we should be thinking about? Indeed, as a result of those transformations, do we have another lever to help support 2027 ROTE? Then on the second side, just thinking about lending, maybe you could talk about the pipeline into H2 on the specific areas. Thinking about development finance, asset finance, et cetera, what you're seeing there. Thank you.

Speaker #6: I guess looking forward, should we expect any other disruptions? How long will you be out of the market on that savings product? And is there anything else we should be thinking about?

Speaker #6: And indeed, as a result of those transformations, do we have another lever to help support 27R OTA? And then, on the second side, just thinking about lending, maybe you could talk about the pipeline into H2 on the specific areas—so thinking about development finance, asset finance, etc.

Speaker #6: What you're seeing there. Thank you.

Speaker #2: Sure. Yeah. Look, I mean, on transformation, we are trying to—and the board has a very low risk appetite for getting it wrong, right? I think you've heard me say before, Grace, none of us want to do a TSP where you do a system change and everything falls over and your customers get very annoyed with you, which is why we are doing it product by product set, cohort by cohort.

Andy Golding: Sure. Look, on transformation, we are trying to, and the board have a very low risk appetite for getting it wrong, right? I think you heard me say it before, Grace, none of us want to do a TSB where you do a system change and everything falls over and your customers get very annoyed with you, which is why we are doing it product by product set, cohort by cohort, and as I said, ISAs is the one from the Kent brand which is occurring at the moment. Charter will be done in blocks. There'll be relatively large cohort blocks of product type. Therefore, some products will be off sale for a month or so. We won't have ISAs for a month and a bit, then we won't have easy access for a month and a bit.

Speaker #2: And as I said, ISAs is the one from the Kent brand, which is occurring at the moment. Charter will be done in blocks, but there will be relatively large cohort blocks of product type.

Speaker #2: And therefore, some products will be off sale for a month or so. So, we won't have ISAs for a month and a bit. Then we won't have easy access for a month and a bit.

Speaker #2: We won't have bonds for a month and a bit. But once it's done, all bets are back on, basically. And the entire range with app functionality and with a significantly enhanced customer proposition and that ability to broaden the product range and price much more agile in a much more agile style across the entire range, that will be there as soon as it's done.

Andy Golding: We won't have bonds for a month and a bit. Once it's done, all bets are back on basically, the entire range, with app functionality, with a significantly enhanced customer proposition and that ability to broaden the product range and price much more agile style across the entire range, that will be there as soon as it's done. That does give us operational benefit in terms of being a bit more selective about how we fund and where we fund. We think it will also give us a strong customer retention benefit. Once we come out the other side of it, I think that's a tailwind to net interest margin in terms of helping us manage the funding cost going forward. I think that's the first thing I'd say, which is very positive. You asked me about pipeline. Our pipeline's very good.

Speaker #2: And that does give us operational benefit in terms of being a bit more selective about how we fund and where we fund. And we think it will also give us a strong customer retention benefit.

Speaker #2: So, once we come out the other side of it, I think that's a tailwind for net interest margin in terms of helping us manage the funding cost going forward.

Speaker #2: So, I think that's the first thing I'd say, which is very positive. You asked me about pipeline. I mean, our pipeline is very good.

Andy Golding: You specifically mentioned development finance. That's one. The opportunities that are being popped in front of us, if they are from an existing borrower who's got plenty of cash to put in the scheme, we can see the saleability of the scheme. We're still lending. The team in development finance will make good money this year in terms of their contribution to the group's overall profit. We are not out there looking at schemes where there's not a lot of cash around and the resale doesn't look good and all of that sort of stuff. We're just being a little bit risk off on it because the market's pretty soggy right now for trading stock out, and we've seen some of the large house builders having to heavily discount or end up with sort of tail end rumps of schemes that they're just really struggling to sell.

Speaker #2: You specifically mentioned development finance. That's one where the opportunities that are being put in front of us—if they are from an existing borrower who's got plenty of cash to put into the scheme—we can see the saleability of the scheme.

Speaker #2: We're still lending, so the team in Development Finance will make good money this year in terms of their contribution to the Group's overall profit. But we are not out there looking at schemes where there's not a lot of cash around and the resale doesn't look good, and all of that sort of stuff.

Speaker #2: We're just being a little bit risk-off on it because the market's pretty soggy right now for trading stock out. We've seen some of the large housebuilders having to heavily discount or end up with sort of tail-end rumps of schemes that they're just really struggling to sell.

Speaker #2: So we're obviously being a bit careful. The commercial market softened in the first half of the year, but we've picked and chosen our way—sorry—through that.

Andy Golding: We're obviously being a bit careful. The commercial market softened in H1 of the year, but we've picked and chosen our way through that, and have grown the commercial book a little bit. The bridging market is still active because when there is sogginess in residential transaction market, as there has been, sometimes bridging is the solution to that particular problem, and we want to continue to drive that up, particularly, once we switch over all of our residential proposition under the Precise brand to the new platform. That will just give us much quicker product development pricing, ability to drop into the components of the market. Our pipeline looks healthy. We're going into H2, or we're well into H2 now, with a healthy pipeline. The teams are very focused on that diversification play.

Speaker #2: And we have grown the commercial book a little bit. The bridging market is still active because when there is sogginess in the residential transaction market, as there has been sometimes, bridging is the solution to that particular problem.

Speaker #2: And we want to continue to drive that up, particularly once we switch over all of our residential propositions under the Precise brand to the new platform.

Speaker #2: That will just give us much quicker product development, pricing, and ability to drop into the components of the market. So our pipeline looks healthy. We're going into the second half—or we're well into the second half now—with a healthy pipeline.

Speaker #2: The teams are very focused on that diversification play, and by doing so, it has allowed us to continue to be a stalwart where our borrowers have wanted to refinance, and some of that's come to us along the way.

Andy Golding: buy-to-let has continued to be a stalwart where our borrowers have wanted to refinance and some of that's come to us on the way through. It looks in pretty good shape.

Speaker #2: So it looks to be in pretty good shape.

Speaker #6: Perfect. That's super helpful. Thank you.

Grace Dargan: Perfect. That's super helpful. Thank you.

Speaker #2: Thanks, Grace.

Andy Golding: Thanks, Grace.

Speaker #3: Thank you, Grace. Our next question comes from Ed Firth. Ed, if you would like to unmute and go ahead and ask your question.

[Company Representative] (OSB Group): Thank you, Grace. Our next question comes from Edward Firth. Ed, if you would like to unmute and go ahead and ask your question.

Operator: Thank you, Grace. Our next question comes from Edward Firth. Ed, if you would like to unmute and go ahead and ask your question.

Speaker #7: Sorry, hi. Does that work?

Edward Firth: Sorry. Hi. Does that work?

Speaker #2: Hi, Ed. Yes, we can hear you.

Andy Golding: Hi, Ed. Yeah, we can hear you.

Speaker #7: Oh, morning. Hi. Yeah, thanks very much. I suppose just a couple of supplementary questions. So, the first one is in terms of the central bank funding, because that's obviously a marked divergence with some of your peers, or one of your peers in particular.

Edward Firth: Morning. Hi. Thanks very much. I suppose just a couple of supplementary questions. The one, in terms of the central bank funding, because that's obviously a marked divergence with some of your peers or one of your peers in particular.

Speaker #2: The thing about having time, why though, Ed?

Andy Golding: I think I have explained why, though, Ed.

Speaker #7: Yeah, no, no, absolutely. And it makes complete sense. So all I was asking, all I wanted to ask was: have you got a sense as to what that impact was on your margin?

Edward Firth: No, absolutely. It makes it completely clear. All I was asking, all I wanted to ask was, have you got a sense as to what that impact was on your margin? If you had been able to fully utilize that as you would have done in a normal business-as-usual manner, have you got some sort of sense as to, was that a 5, 10 basis point hit to margin or just some quantum would be super helpful for us to sort of try and understand exactly what that difference makes.

Speaker #7: If you had been able to fully utilize that as you would have done in a normal business-as-usual manner, have you got some sort of sense as to whether that would be a 5 or 10 basis point hit to margin, or if it's just some quantum? It would be super helpful for us to try and understand exactly what difference that makes.

Speaker #7: So that's.

Speaker #2: Yeah, it's not a set of numbers we've published, but I mean, if I did the fact pack maths right now, we've got two, two and a half billion quid's worth of drawing capacity that we could utilise under the indexed long-term repo scheme.

Andy Golding: It's not a set of numbers we've published.

Edward Firth: Yeah

Andy Golding: We've got two and a half billion GBP worth of drawing capacity that we could utilize under the Indexed Long-Term Repo scheme. LTR is SONIA plus 15 basis points, at the moment, the planning assumption for retail is SONIA plus 40. That gives you an idea of the delta.

Speaker #2: And ILTR is SONIA plus 15 basis points. And, at the moment, the planning assumption for Retail is SONIA plus 40. So that gives you an idea of the delta.

Speaker #7: Yeah, no, it's very easy. That's absolutely perfect. Thanks very much indeed. Okay, that's very helpful. And then the second one was, in terms of your chart—that very helpful bridge chart you showed, slide nine—to the mid-teens RoTE.

Edward Firth: Yeah, that's very easy. That's absolutely perfect. Thanks very much indeed. Okay, that's very helpful. The second one was, in terms of your chart, that very helpful bridge chart you showed, slide nine, to the mid-teens ROTE.

Andy Golding: Yeah.

Speaker #7: In terms of the cost of funding that you're assuming there, are you assuming the cost of retail funds remains as it is today, or are you assuming some sort of normalization or benefit going forward?

Edward Firth: In terms of the cost of funding that you're assuming there, are you assuming the cost of retail funds remains as it is today, or are you assuming some sort of normalization or benefit going forward? I'm just trying to sense, is that mid-teens ROTE, is that like a business as usual today that you can hit it or we do still need some benefit there?

Speaker #7: So I'm just trying to sense, is that mid-teens RoTE, is that like a business-as-usual today that you can hit it, or do we still need some benefit there?

Speaker #7: Yeah, sorry, far away. Yeah.

Victoria Hyde: Yeah.

Edward Firth: Yeah, sorry, fire away. Yeah.

Speaker #8: Sorry, yes. Sorry, Ed. So yeah, I mean, that mid-teens—there's a range in that, I guess. So I suppose as we look, we're pretty confident in the other four drivers that can drive benefit to get into that range.

Victoria Hyde: Sorry. Yeah, that mid-teens, I guess, there's a range in that. I suppose we are, as we look, we're pretty confident in the other four drivers that can drive benefit to get into that range, and that would include a slightly higher, not as high as SONIA plus 40 all the way through for the next four years, but a more elevated cost. Naturally, we will strive to optimize as we go through in the other four, and it's those other four that give us that sort of confidence to delivery, despite some more elevated cost of funds. That will deliver us within that range of that mid-teens.

Speaker #8: And that would include a slightly higher—not as high as SONIA plus 40 all the way through for the next four years—but a more elevated cost.

Speaker #8: Naturally, we will strive to optimize as we go through, and the other four. And it's those other four that give us that sort of confidence to deliver.

Speaker #8: Despite some more elevated cost of funds, that will deliver us to within that range of the mid-teens.

Speaker #7: But I suppose the question I'm asking is: if the world stays at SONIA plus 40, and we can look around the market and see some very big beasts that are offering amazing savings rates at the moment—and I can't see them going anywhere in the next three or four years—so if we stay at SONIA plus 40, I suppose the question is, is that mid-teens still deliverable, or should we be assuming there's going to be some haircut on that?

Edward Firth: I suppose the question I'm asking is if the world stays at SONIA plus 40, and we can look around the market and see some very big beasts that are offering amazing savings rates at the moment, and I can't see them going anywhere in the next three or four years. If we stay at SONIA plus 40, I guess the question is that mid-teens still deliverable or should we be assuming there's going to be some haircut on that?

Speaker #8: Yeah, I mean, mid-teens, as you say, is a range. So yes, we would say it's still deliverable. I guess we would look at that.

Victoria Hyde: Yeah. Mid-teens, as you say, is a range. Yes, we would say it's still deliverable. I guess we would look at that. It's that position in the range. If it stays at SONIA plus 40, I'm sure Andy would have a view as well of there is that piece of we are looking at the lending book diversification, asset margins. Ultimately, you would pass some of that on. I don't think for years everyone can sustain just having that squeezed margin.

Speaker #8: It's that position in the range. But if it stays at, say, plus 40, I mean, I'm sure Andy would have a view as well. There is that piece of, we are looking at the lending book diversification asset margins.

Speaker #8: Ultimately, you would pass some of that on. I don't think, for years, everyone can sustain just having that squeezed margin. But, I mean, yeah.

Andy Golding: Yeah. I would just also say that once we have done the transformation, a better platform and better customer service experience, it means that you are not always pricing your back book to the maximum within the market because actually your customers are valuing the convenience and the proposition that you are offering. There is something there that is a bit different. Clearly, we would be making use of central bank facilities. OSB, while funding is a massive input cost to us, we make our money out of the lending that we do, and we have a clear diversification plan that means, long-term, the business has a sustainable future, even if we are in a SONIA plus 40 world on retail funding, because we can move our margins as we replatform everything on the lending side and compensate for that.

Speaker #2: I would just also say that once we've done the transformation, a better platform and a better customer service experience means that you're not always pricing your back book to the maximum within the market, because actually your customers are valuing the convenience and the proposition that you're offering.

Speaker #2: So there's something there that is a bit different. Clearly, we would be making use of central bank facilities. And at OSB, while funding is a massive input cost to us, we make our money out of the lending that we do.

Speaker #2: And we have a clear diversification plan that means, long term, the business has a sustainable future even if we are in a SONIA plus 40 world on retail funding, because we can move our margins as we replatform everything.

Speaker #2: On the lending side, and compensate for that.

Speaker #7: Yeah, because I suppose that's one of the concerns—I've always felt that you had pricing power in your core buy-to-let market. Are we saying that that's probably not as evident?

Edward Firth: Yeah, because I suppose that is one of the concerns is I have always felt that you had pricing power in your core buy-to-let market. Are we saying that that is probably not as evident? I mean, because over a three or four-year period, if it stays at SONIA plus 40, you are very strong in the buy-to-let market. Can you not reprice the buy-to-let loans to offset that?

Speaker #7: I mean, because over a three- or four-year period, if it stays at Sonia plus 40, you're very strong in the buy-to-let market, can't you reprice the buy-to-let loans to offset that?

Speaker #2: Yeah, yeah, no, no, absolutely, we can. And that's why in the first half of the year, we actually did a bit more buy-to-let than we’d originally planned to do, because we felt the margins in it were decent. And we have, particularly since we launched the Relai brand—and it's such a fantastic broker proposition, actually—the convenience of doing business with the Relai brand for a broker and the broker's customer is superb.

Andy Golding: Yeah. No, absolutely we can, and that is why, in H1 of the year, we actually did a bit more buy-to-let than we had originally planned to do because we felt the margins in it were decent. We have, particularly since we launched the Rely brand, and it is such a fantastic broker proposition. Actually, the convenience play of doing business with the Rely brand for a broker and the broker's customer, is superb, and that does give you the ability to control your pricing in the upward direction. Once all the resi's on the same platform, once the commercial's on the same platform, and resi includes the bridging, which is highly remunerative, then we have got a bigger pricing control stick to beat on those aspects of the asset side of the equation as well. There is lots of good stuff to come.

Speaker #2: And that does give you the ability to control your pricing in the upward direction. So, once all the res is on the same platform, once the commercial is on the same platform—and res includes the bridging, which is highly remunerative—then we've got a bigger pricing control stick to beat on those aspects of the asset side of the equation as well.

Speaker #2: So, there's lots of good stuff to come. It's just that we're right in the midst of the journey, and I can't give it to you yet.

Andy Golding: It is just we are right in the midst of the journey, and I cannot give it to you yet. It is there, which is why I think I have reiterated this morning, that kind of 2028, 2029 position, where there are some structural things like MREL disappearing and other elements that are super beneficial in terms of NIM. Actually, we will have completely done the job of work on transformation. We will have a more stable retail savings franchise that enables us to focus on the retention of the back book in a slightly different way. We will have much better platforms across the entirety of the lending range, and that stands us in really good stead.

Speaker #2: But it's there, which is why I think I've reiterated this morning that kind of 28, 29 position, where there are some structural things like MREL disappearing and other elements that are super beneficial in terms of NIM, actually will have completely done the job of work on transformation.

Speaker #2: We'll have a more stable retail savings franchise that enables us to focus on the retention of the back book in a slightly different way. And we'll have much better platforms across the entirety of the lending range.

Speaker #2: And that stands us in really good stead, Ed.

Speaker #7: Yeah, okay. That's great. Can I steal one more question? Is that all right? We've got enough time. Yeah, I mean, I guess the final one is, if I look at this as a whole challenge of bank space, I don't know.

Edward Firth: Yeah. Okay. That's great. Can I ask still one more question? Is that all right? Have I got time?

Andy Golding: Yeah.

Edward Firth: Yeah. I guess the final one is, if I look at the whole challenger bank space, I don't know, a McKinsey's consultant looking at it would say, why are you guys all separate? You should all be getting together. Some of you have got cheap funding, some of you have got good asset pricing. Arguably, there are questions about whether some or others have got critical mass. What would be your comments around that or your view about that?

Speaker #7: A McKinsey consultant looking at it would say, "Why are you guys all separate? You should all be getting together." Some of you have got cheap funding.

Speaker #7: Some of you have got good asset pricing. Arguably, the questions are about whether some or others have got critical mass. What would be your comments around that, or your view about that?

Speaker #2: So, I mean, firstly, I think we have got critical mass. I mean, the OSB balance sheet is a pretty big balance sheet, right? And we are probably one of the only organizations in the market that has experience doing some of that get-together trade.

Andy Golding: Firstly, I think we have got critical mass. I mean, the OSB balance sheet is a pretty big balance sheet, right? We are probably one of the only organizations in the market that has experience doing some of that get-together trade. While you undoubtedly inherit a bunch of benefits and some scale for doing those kind of trades, you always inherit a few things that you didn't quite anticipate in the DD process, et cetera. I don't want to mention the EIR adjustment. You know full well about it, but those kind of things you do find as you start to open cupboards in a business that wasn't your original business. I guess regulation is a bit of a hamper to it.

Speaker #2: And while you undoubtedly inherit a bunch of benefits and some scale for doing those kinds of trades, you always inherit a few things that you didn't quite anticipate in the DD process, etc.

Speaker #2: I don't want to mention the EIR adjustment that you know full well about, Ed, but those kinds of things, you do find as you start to open cupboards in a business that wasn't your original business.

Speaker #2: I mean, I guess regulation is a bit of a is a bit of a hamper to it. Any of the banks that you would put into our peer groups as a Shorebrooks, a Paraville, etc., you put any of those two together, and you immediately drop that bank back into the MREL threshold.

Andy Golding: Any of the banks that you would put into our peer groups, so the Shawbrook, the Paragon, et cetera, you put any of those two together, you immediately drop that bank back into the MREL threshold, that is a bit of a pain. We've experienced the pain of the cost of those issuances.

Speaker #2: And that is a bit of a pain. And we've experienced the pain of the cost of those issuances. Therefore, you have to think carefully about whether, as you start to get near those thresholds, it's better to create and trade a few assets out and keep the balance sheet scale managed, or whether it's better to double down and blow through the threshold.

Edward Firth: Yeah.

Andy Golding: Therefore, you have to think carefully about whether, as you start to get near to those thresholds, actually is it better to create and trade a few assets out and keep the balance sheet scale managed, or is it better to double down and blow through the threshold? I think at the moment, most people are in the former camp, not the latter one. My successor will do a strategic review, I'm sure, with the board at some point in the future, that may well change. I don't see everyone clamoring to get together in the market as it currently stands.

Speaker #2: I think at the moment most people are in the former camp, not the latter one. My successor will do a strategic review, I'm sure, with the board at some point in the future.

Speaker #2: And that may well change. But I don't see everyone clamoring to get together in the market as it currently stands.

Speaker #7: Okay, that's great. Thanks so much, and thanks so much for your help over all the years.

Edward Firth: Okay. That's great. Thanks so much.

Andy Golding: Thank you.

Edward Firth: Thanks so much for your help over all the years.

Speaker #2: Thanks, and yours too. Thank you.

Andy Golding: Right. Yours, too. Thank you.

Speaker #1: Thank you very much. Our next question, and last question, comes from Gary Greenwood. Gary, if you could please unmute, go ahead and ask your question.

[Company Representative] (OSB Group): Thank you very much. Our next question and last question comes from Gary Greenwood. Gary, if you could please unmute, go ahead and ask your question.

Operator: Thank you very much. Our next question and last question comes from Gary Greenwood. Gary, if you could please unmute, go ahead and ask your question.

Speaker #3: Oh, hi. Thanks for taking my questions. I've just got two, probably quite short ones, actually. So, first one—it's just on your—you've given a mention with respect to NIM.

Gary Greenwood: Hi. Thanks for taking my questions.

Andy Golding: Hi.

Gary Greenwood: I've just got two probably quite short ones, actually. First one is just on your.

Andy Golding: Sure.

Gary Greenwood: You've given a range in respect of NIM, but you've given a sort of point guidance in respect of the ROTE. Is that because you think there's sort of things that will offset sort of variability in the NIM, sort of levers that you can pull elsewhere to sort of home in on that 12.5%, or am I reading a bit too much into that in terms of the circa? That's the first question, and the second question was just a clarification on the Basel 3.1 CET1 ratio range of the 13% to 13.5%, and whether that takes into account sort of any potential Pillar 2A offset, or whether that could get further reduced in time if that was to come through. Thank you.

Speaker #3: But you've given a sort of point guidance in respect of the Roti. So is that because they think they're sort of things that will offset sort of a variability in the NIM, leavers that you can pull elsewhere to sort of home in on that 12 and a half percent or am I reading a bit too much into that in terms of the circa?

Speaker #3: So that's the first question. And the second question was just a clarification on the Basel 3.1 CET1 ratio range of 13 to 13.5 percent, and whether that could account for any potential Pillar 2 offset, or whether that could get further reduced in time, if that was to come through.

Speaker #3: Thank you.

Andy Golding: I'll let Annette take those ones.

Speaker #2: I'll take those ones.

Speaker #1: Yeah. Yeah. So I guess Gary on the circa 12 and a half, again, I mean, there is the, as we've talked about, the cost of funding element.

Victoria Hyde: Yeah. I guess, Gary, on the circa 12.5, again, there is the, as we've talked about, the cost of funding element. I would say, as we entered this year, we didn't anticipate all the swap market volatility and sort of debates around where the macro is going to land. We have said circa mainly just because, again, as we look forward, we'll get macroeconomic assumptions through ECL in December. Swap rates get extremely volatile and that drives, it can drive gains and losses on our mark-to-market pipeline swaps. The circa really, again, is just back to that. We've still got 5 months to go. A lot has happened in the last 3 months that we didn't anticipate sort of 4 or 5 months ago, so we almost don't want to pin it down too tightly when there's so many moving parts.

Speaker #1: I would say, as we entered this year, we've been anticipating all the spot market volatility and the debates around where the macro is going to land.

Speaker #1: So we have said ‘circa’ mainly just because, again, as we look forward, we'll get macroeconomic assumptions for ECL in December. Swap rates get extremely volatile, and that can drive gains and losses on our mark-to-market of a pipeline swap.

Speaker #1: So the circa really, again, is just back to that. We've still got five months to go. A lot has happened in the last three months that we didn't anticipate four or five months ago.

Speaker #1: So, we almost don't want to pin it down too tightly when there are so many moving parts. So that's—.

Victoria Hyde: So that's sort of-

Speaker #3: It's more the opposite, really, in that the Roti guidance seemed to be a little bit more focused than the NIM guidance.

Gary Greenwood: It's more the opposite, really, in that the ROTE guidance seemed to be a little bit more focused than the NIM guidance.

Speaker #1: Well, I guess we've said 'circa' on both, so I guess it's the range. And I guess we've said a little low teens—what we saw as the 13.

Victoria Hyde: Well, I guess we said circa on both, so I guess it's the range. I guess, we said low teens that we saw as was the 13, so we've bumped down slightly. Whilst NIM will give us some variability, hopefully things like costs, we will be looking hard at to year end, and come back to you. Yeah. That's the reason for why we said the circa 12.5. The 13 to 13.5, I guess when we set it, we knew that the Pillar 2A offset was coming. I suppose we've made an estimation of that. Once we get sort of fully calibrated, revised Pillar 2A under Basel, we go through that for half year, obviously, board, naturally, we're always looking at evaluate where our capital target stands and how that compares to our requirements.

Speaker #1: So, we bumped down slightly. I mean, whilst NIM will give us some variability, hopefully things like costs we will be looking hard at year-end and come back to you.

Speaker #1: But yeah, that's the reasons for why we've said the circa 12 and a half. And then the 13 to 13 and a half, I guess when we set it, we knew that the pillar 2A offset was coming.

Speaker #1: I suppose we'd made an estimation of that. Once we get our sort of fully calibrated revised pillar 2A under Basel and we go through that for half-year, obviously the board, naturally, we will always be looking at evaluating where our capital target stands and how that compares to our requirements.

Speaker #1: So, at the minute, there's no view to change, but we will come and update you if there's any board discussion and that moves.

Victoria Hyde: At the minute, no view to change, we will come and update you if there's any board discussion and that moves.

Speaker #3: But when do you expect to hear from the regulator on that? I think some banks have already heard, haven't they?

Gary Greenwood: When do you expect to hear from the regulator on that? I think some banks have already heard, haven't they?

Speaker #1: Yes, we are going through a full process. I guess the banks that are the most impacted by Basel—and we have flagged to the regulator for a few years that it is a heavier impact.

Victoria Hyde: Yes. We're going through a fuller process. I guess the banks that are the most impacted by Basel, and we have flagged to the regulator for a few years that it is a heavier impact. Instead of having the sort of estimated that most banks are getting, we're having our sort of biannual SREP process. We will, in H2, have a fuller evaluation and get that view more, probably towards right at the end of the year. Whereas what they're doing for all the banks that are less impacted is doing that sort of Pillar 2A estimated calc until they get their full capital review.

Speaker #1: Instead of having the sort of estimates that most banks are getting, we're having our biannual CSREP process. So, we will, in H2, have a fuller evaluation and get that view more probably towards the end of the year.

Speaker #1: Whereas what they're doing for all the banks that are less impacted is doing that sort of Pillar 2A estimated calc until they get their full capital review.

Speaker #3: That's great. Thanks very much.

Gary Greenwood: Great. Thanks very much.

Speaker #2: Gary, I think—I mean, I think I would just add, because I know where you're coming from with the question. I mean, look, I leave at the end of this month, right, as the CEO of this organization.

Andy Golding: Gary, I think I would just add, because I know where you're coming from with the question. Look, I leave at the end of this month, right, as CEO of this organization. If I wasn't doing or if I were the incoming CEO to this organization, we all know there are levers you can pull on equity. One of the levers I'd be pulling post Basel 3.1, I think, is to really reflect and review on where our capital targets are, because ours are somewhat higher than some of our peers. Therefore, if you lower your capital target slightly, once you've gone through that process, then you can buy back more of the stock, and that helps from an ROTE perspective. Two, I think we should continue to evaluate as an organization whether we want to early buy out and clear the decks on the MREL instruments.

Speaker #2: But if I wasn't doing—or if I were the incoming CEO to this organization, we all know there are levers you can pull on equity.

Speaker #2: One of the levers I'd be pulling post-Basel 3.1, I think, is to really reflect and review where our capital targets are, because those are somewhat higher than some of our peers.

Speaker #2: And therefore, if you lower your capital targets slightly, once you've gone through that process, then you can buy back more of the stock, and that helps from an ROTE perspective.

Speaker #2: And two, I think we should continue to evaluate as an organization whether we want to early buy out and clear the decks on the Emerald instruments.

Speaker #2: And I think there is potentially some optionality for the Board to consider that one. But that's one for the new CEO and the Board to make.

Andy Golding: I think there is potentially some optionality for the board to consider that one. That's one for the new CEO and the board to make. There are always levers you can pull on supporting ROTE, and I thought it was just worth making that point.

Speaker #2: But there are always levers you can pull on supporting ROTE, and I thought it was just worth making that point.

Speaker #3: That's great. Thanks, Andy, and best of luck for the future.

Gary Greenwood: That's great. Thanks, Andy, and best of luck for the future.

Speaker #2: Thank you very much, Gary. I think that was our final question. So, I would just like to do two things in closing. One is to apologize for the debacle of the technology that ended up doing all your ears in with that horrible echoing, and the inability for us to hear you, etc.

Andy Golding: Thank you very much, Gary. I think that was our final question. I just would like to do two things in closing. One is to apologize for the debacle of the technology that ended up doing all your ears in with that horrible echoing and inability for us to hear you, et cetera. We managed to scan a way around it with a laptop, and now I'm looking at its battery. It's just about going to last, I think, till the end. Finally, I wanted to say thank you all for the support and the interest you've shown in the group over the years. I've been the CEO of this organization for 14 years. I'm immensely proud of it. I have worked with a very talented bunch of colleagues. Those colleagues are staying on to keep this organization moving forward.

Speaker #2: We managed to scan around it with a laptop, and I'm looking at its battery. It's just about going to last, I think, till the end.

Speaker #2: But finally, I wanted to say thank you all for the support and the interest you've shown in the group over the years. I've been the CEO of this organization for fourteen years.

Speaker #2: I'm immensely proud of it. I have worked with a very talented group of colleagues. Those colleagues are staying on to keep this organization moving forward.

Speaker #2: And I leave here confident the Group has a strong strategy, clarity of thinking, and a leadership team that is capable of taking it on to an even better future.

Andy Golding: I leave here confident the group has a strong strategy, clarity of thinking, and a leadership team that are capable of taking it on to an even better future. Thank you for your support. Of course, I wish this group every success in the future because my interest for quite some time will be aligned with our shareholders. Thank you very much.

Speaker #2: So, thank you for your support. And, of course, I wish this group every success in the future, because my interests for quite some time will be aligned with our shareholders.

Speaker #2: Thank you very much.

Operator 1: Goodbye

Andy Golding: Goodbye

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