Challenger bank OneSavings Bank plc (LON:OSB) has reported a 55% increase in full year pre-tax profit after cashing in on the sale of its Rochester business.
Statutory pre-tax profit rose to £163.1mln in the year to 31 December 2016 from £105.3mln the previous year, including an exceptional gain on its disposal of the economic interest in the Rochester 1 securitisation vehicle of £34.7mln.
The Rochester vehicle, which builds portfolios of mortgage loans in securitisations, was sold last May.
The gain on the disposal offset an exceptional loss of £9.8mln for adjustments on hedged assets relating to legacy back book long-dated interest rate swap cancellations.
Excluding net exceptional gains and losses, underlying profit before tax increased 29% to £137.0mlm from £105.9mln.
Net interest income (increased 22% to £206.6mln from £169.8mln while the net interest margin (NIM) rose to 314 basis points (bps) from 309bps. The growth in NIM was driven by new lending and a reduced cost of funds, partially offset by the sale of high yielding loans in the Rochester 1 disposal and the roll-off of the personal loan portfolio.
Net loans and advances climbed 16% to £5.9bn from £5.1bn. Excluding the impact of the Rochester 1 disposal, the underlying loan book increased 20%, boosted by Buy-to-Let mortgages.
The company said it was able to bolster its capital buffers despite the impact of an increase to the bank corporation tax surcharge. The common equity tier 1 capital ratio rose to 13.3% from 11.6%, which was supported by the sale of Rochester.
The full year dividend was raised to 10.5p from 8.7p the previous year as chief executive Andy Golding said the group has entered into 2017 with a strong pipeline of new business and “very strong application levels” in the core businesses.
“We expect to deliver net loan book growth in the mid-teens in 2017, whilst keeping NIM and cost to income ratio broadly flat,” Golding said.
“OneSavings Bank is well placed to take advantage of opportunities in our core businesses in 2017 and we remain confident in our ability to generate attractive returns for our shareholders.”
Liberum said the company delivered an "excellent set of results" with underlying pre-tax profit coming in 3% ahead of its estimate and 4% ahead of consensus forecasts. The broker highlighted the group's bullish outlook and the NIM guidance, which Liberium thinks implies a positive impact of about 10% to the earnings per share consensus estimate.
"Our positive long term thesis on OneSavings Bank remains intact and since OSB has now surpassed our 395p price target, we move to 'under review' (from 'buy') ahead of revising our existing forecasts."
Shares fell 0.26% to 418.20p in morning trading.
-- Adds broker comment, updates share price --