OneSavings Bank shares tank as profit slumps on mortgage customers racing to refinance

OneSavings Bank has posted a slump in annual profit after the bank took a £181.6m hit from changing customer behaviour. However, the bank softened the blow to investors by announcing a new £50m share buyback.

The results sent the bank’s shares down 21 per cent on Thursday morning. RBC Capital Markets lowered its price target on the stock to 650p from 700p, citing 2024 guidance “below market expectations”.

The FTSE 250 bank – which specialises in subsections of the mortgage market like buy-to-let – reported a statutory pretax profit of £374.3m last year, down 30 per cent from £531.5m in 2022. This figure was 28 per cent lower at £426.0m on an underlying basis.

The bank’s basic earnings per share fell to 66.1p on a statutory basis from 90.8p in 2022.

OSB’s results were dominated by a £181.6 adverse interest rate adjustment. The lender outlined last year that customers were choosing to refinance their mortgage earlier than expected, meaning they were spending less time on the higher rate which mortgages revert to at the end of a fixed-term deal.

The firm has unveiled a new £50m share buyback over the next six months and said its board would consider additional shareholder returns later this year.

Its progressive total dividend of 32.0p is up from 30.5p in 2022, including a recommended final dividend of 21.8p.

OneSavings Bank said it delivered nine per cent net loan book growth to £25.8bn as it increased its share of the buy-to-let sector despite a more subdued wider mortgage market.

Mortgage activity slumped last year as borrowers struggled with higher interest rates, forcing lenders to price their home loan deals more competitively.

Chief executive Andy Golding said: “The group’s target professional landlords continue to demonstrate resilience, supported by high levels of demand in the private rented sector, long-term income improvement and a reduction in the cost of borrowing towards the end of the year.”

OSB said its attractive savings rates resulted in a 12 per cent growth in retail deposits to to £22.1bn.

Looking forward, OneSavings Bank said it expected to deliver underlying net loan book growth of around five per cent in 2024, based on current application numbers and the “subdued mortgage market.”

As interest rates are expected to come down this year, OSB expected its underlying net interest margin to stay “broadly flat” at 251 basis points, “reflecting the impact of a higher cost of funds and the full-year impact of some lower margin lending in 2023, due primarily to delays in mortgage pricing reflecting the rate rises and higher swap costs.”

The bank announced last November that its chief financial officer, April Talintyre, would step down after more than 11 years at the bank. It confirmed on Thursday that she would depart on 9 May, with deputy CFO Victoria Hyde to become acting CFO until a permanent replacement is chosen.

Updated with shares