Charter Court Financial Services Group plc
Charter Court Financial Services — Investor Presentation (November 2017)
64 slides from Charter Court Financial Services's investor presentation, Nov 10, 2017
Slide 1: A Leading Specialist Mortgage Lender
Charter Court Financial Services Group plc A Leading Specialist Mortgage Lender 10 November 2017
Slide 2: Disclaimer
Disclaimer THIS DOCUMENT IS BEING PROVIDED TO YOU SOLELY FOR YOUR INFORMATION AND FOR USE AT A PRESENTATION TO NON-SYNDICATE ANALYSTS. THIS DOCUMENT MAY NOT BE REPRODUCED IN ANY FORM OR FURTHER DISTRIBUTED TO ANY OTHER PERSON OR PUBLISHED, IN WHOLE OR IN PART, FOR ANY PURPOSE. FAILURE TO COMPLY WITH
Slide 3: Schedule of the Day
Schedule of the Day Time Slot Session Presenters › Ian Lonergan › Seb Maloney 12.00pm – 12.20pm I. Introduction to Charter Court Financial Services › Alan Cleary › Colin Barrett 12.20pm – 1.00pm II. Distribution & Products › Peter Elcock › Chris Preston › Rob Williams 1.00pm – 1.40pm III. Underwriti
Slide 4: I. Introduction to Charter Court Financial Services
I. Introduction to Charter Court Financial Services 4
Slide 5: Today's Presenters
Today’s Presenters Ian Lonergan Sebastien Maloney Peter Elcock Chief Executive Officer Chief Financial Officer Chief Risk Officer › As co-founder and Chief Executive Officer, Ian leads › Sebastien has executive responsibility for all › Peter leads the risk management function the senior team and is
Slide 6: Today's Presenters
Today’s Presenters Christopher Preston Rob Williams Colin Barrett Director of Credit Risk Director of Processing Director of Mortgage Proposition › Over 28 years of experience in the financial services › Over 29 years of experience predominantly within the › 25 years of experience in the financial s
Slide 7: Introducing Charter Court
Introducing Charter Court The Three Complementary Pillars Credit Expertise and Data Origination Funding Mortgage Analytics & Servicing Specialist Mortgage Lender Digital Retail Savings Bank since 2008 since 2010 since 2015 › Mortgage administration, credit › Four attractive, niche markets with › Dir
Slide 8: The Charter Court Investment Case
The Charter Court Investment Case A High Quality Business Underpinned by Data Analytics with Proven Results Our Strengths…. … Evidenced by Our Delivery Mortgages analysed by Exact since 20081 Leveraging Deep Credit Know-how and Proprietary Data Analytics… >£21bn Provides deep insight into the behavi
Slide 9: Charter Court Financial Services at a Glance
Charter Court Financial Services at a Glance Financial Delivery Strong Loan Growth Improving Efficiency Gross Loans to Customers 731 1,609 2,497 1,169 1,308 100 86 4,440 80 3,823 68 4,000 60 £m 2,797 40 3,000 40 £m 21 27 1,952 20 24 2,000 20 7 863 12 19 1,000 0 8 0 H1 14 H1 15 H1 16 H1 17 2014 2015
Slide 10: Financial Objectives and Guidance
Financial Objectives and Guidance High Growth and Returns Supported by a Strong Capital Base Metric Target / Objective Net Loan Growth › Targeting growth of at least 20% in the medium term Cost Income Ratio › Targeting a Cost Income Ratio percentage in the low 30s in the short to medium term CET1 Ra
Slide 11: II. Distribution & Products
II. Distribution & Products 11
Slide 12: Section Presenters
Charter Court Financial Services Section Presenters Alan Cleary Colin Barrett MD – Precise Mortgages Director of Mortgage Proposition 12
Slide 13: The UK's No1 Specialist Mortgage Lender by Volumes
The UK’s No1 Specialist Mortgage Lender by Volumes1 Recipe for Success Products Sales and Marketing Service › Deep Product and market Knowledge › A diversified distribution panel › Automated decisions to get first look at credit › Expert Product Team identifying niche › A clearly defined and accepte
Slide 14: Charter Court's Core Addressable Markets
Charter Court’s Core Addressable Markets Large, Specialist and Growing 1 Buy-to-let Market 2 Specialist Residential Market › Strong historical growth: CAGR of c.30% › Continued strong growth in CCFS’s target between 2010 and 2016 to reach c.£40bn specialist market › Strong through the cycle performa
Slide 15: H1 Market Update
H1 Market Update Volume Growth Continues despite Stagnant Markets UK Residential Mortgage Market Originations1 UK BTL Mortgage Market Originations1 20,000 90 8,000 £300 Precise Originations (£m) Precise Originations (£m) 18,000 80 7,000 £250 Originations (£m) Originations (£m) 16,000 70 6,000 14,000
Slide 16: Our BTL Product Proposition
1 Our BTL Product Proposition Tailored Products Appealing to a Wide Range of Customers HMO 4 Our Customer Base is Evolving1 Limited Company 8% Core BTL Why do Brokers and Customers Use Us? HMO 63% High Quality Credits with Significant Equity 4% LTV2: • Limited Company Diversified product offering
Slide 17: Our Specialist Residential Product Proposition
2 Our Specialist Residential Product Proposition CCFS Has Continued to See Originations Rise Despite a Wider Market Slow-down DMP Right-to-Buy Typical Residential Customer1 Why do Brokers and Customers Use us? 1% 3% Complex cases with strong affordability attributes • Slightly adverse Established le
Slide 18: Bridging
3 Bridging Controlled Originations and Maintaining Credit Quality Typical Bridging Customer1 Why do Customers Use us? Shorter Term duration at lower LTVs and higher margins • Purchasing property Bridging Originations4 FCA Prime3: 99% LTV2: 49% at auction Service led proposition Light • Speed of tu
Slide 19: Second Charge Lending
4 Second Charge Lending Controlled Originations in a Softening Market, Maintaining Credit Quality Typical Second Charge Customer1 Why do Customers Use us? Higher level of equity and attractive margins Second Charge • Existing mortgage Leader in Direct to Broker proposition Originations3 holders with
Slide 20: Broker Experience / Intermediary Journey
Broker Experience / Intermediary Journey Maintaining High Quality Service Standards for Brokers and Intermediaries Intermediary Journey BDRC Market Study: “Unprompted Willingness to Recommend” – Sep-17 Brokers asked “Which lenders do you recommend for any specialist › Service is a critical part of a
Slide 21: Diversified Distribution
Diversified Distribution A Nationwide Diverse Panel of Intermediaries Including All Major Distributors Intermediaries Distribution and Sales Heat Map (2016) c.9,000 c.17,000 brokers submitted an individual business writers application in 2016, largest distributor accounting for registered in 2016 56
Slide 22: Intermediary Engagement
Intermediary Engagement Proactive Communications and Dedicated Relationship Management Direct Activity › Relationships with senior management and decision makers at all significant distributors › Popular roadshow and distributor event programme which reached c.3,650 business writers in 2016 › BDMs t
Slide 23: III. Underwriting, Credit Risk Management & Lending Policy
III. Underwriting, Credit Risk Management & Lending Policy 23
Slide 24: Section Presenters
Charter Court Financial Services Section Presenters Peter Elcock Ian Lonergan Chief Risk Officer Chief Executive Officer Chris Preston Rob Williams Director of Credit Risk Director of Processing 24
Slide 25: Credit Risk Management
Credit Risk Management Maintaining Performance across Multiple Asset Classes within Credit Risk Appetite Parameters › Group credit risk capabilities informed by extensive Exact experience Credit Risk Team › The credit risk appetite, set by the Board, is reviewed annually and Total: 13 staff Peter El
Slide 26: Underwriting Process Design
Underwriting Process Design Experience with Exact Underpins the Approach to Developing Criteria and New Products Through-the-cycle data Exact Data Set Underwriting: Automated Decision Process set underpinning lending rules development › Deep insight into the credit profile of UK › Based on codified
Slide 27: Underwriting Approach
Underwriting Approach Efficient, Scalable and Consistent Comprehensive Underwriting Approach (LTL1) Underwriting in Numbers2,4 Decisions £40.2bn Automated decisions Applications £15.2bn Manual checks Offers £8.6bn Origination £6.7bn Exceptional Loan Performance4 Live Accounts 27,054 Manual Verificat
Slide 28: Precise Mortgages' Service Awards
Precise Mortgages’ Service Awards A Multi-award Winning Business 28
Slide 29: Case Study AQA Data Enriching Lending Criteria
Case Study AQA Data Enriching Lending Criteria CCJ Analysis Situation Setting and Objectives › A goal to establish appropriate scorecard cut-off strategies and lending policy rules for the mortgage origination proposition › Utilising intelligence gained from previous AQA credit analytic projects to
Slide 30: Credit Management Committee
Credit Management Committee Detailed Monthly Reviews Ensuring Comprehensive Information for Decision-Making and Monitoring Credit Management Committee Overview CMC Pack Sections and Key Chapters Credit Management Committee (“CMC”) meets monthly to monitor the credit risk environment, The pack produc
Slide 31: Loan Book Credit Performance by Product
Loan Book Credit Performance by Product Steady Performance over Time Buy-to-let Residential WA LTV RTB WA LTV HMO 80% HTB 80% Ltd. Co. & 0% 3% Acquired Ltd. Co. HMO 70% 14% 2% 70% 10% 3% 60% 60% DMP 2 50% 1% 50% Jun-17 Jun-17 Jan-14 Jan-15 Jan-16 Jan-17 Sep-14 May-14 Sep-15 May-15 Sep-16 May-16 May-
Slide 32: Loan Book Credit Performance by Product (Cont'd)
Loan Book Credit Performance by Product (Cont’d) Bridging Second Charge Non Reg. WA LTV WA LTV Non Reg. Heavy 70% BTL 70% Standard / 8% 15% 60% 60% Light 29% 50% 50% £218m 1 40% £161m1 40% 30% 30% Reg. Standard / 20% 20% Reg. Heavy Light 10% Residential 10% 8% 55% 85% Jan-14 Jan-15 Jun-17 Jan-14 Jan
Slide 33: IV. Capital Management & IRB
IV. Capital Management & IRB 33
Slide 34: Section Presenters
Charter Court Financial Services Section Presenters Sebastien Maloney Chief Financial Officer 34
Slide 35: Capitalisation
Capitalisation Robust Capital Position › RWAs calculated using standardised risk weightings CET 1 Ratio1 ‒ Well-prepared for transition to IRB subject to regulatory developments CET1 Capital (£m) 141 165 273 › RWA increases represent growth in the balance sheet and profitability 20% › Not subject to
Slide 36: Internal Ratings Based Approach
Internal Ratings Based Approach Solid Analytical and Scorecard-Decision Oriented Platform Means the Business is Well-Positioned for IRB Adoption PRA Requirement and Key Success Outcomes CCFS Response › Models built to IRB requirements and in production › Well-established ratings system for credit, c
Slide 37: V. Funding & Treasury
om, Charter Court “’mo® Financial Services V. Funding & Treasury
Slide 38: Section Presenters
Charter Court Financial Services Section Presenters Paul Whitlock Director of Savings Sebastien Maloney Chief Financial Officer Simon Allsop Director of Capital Markets 38
Slide 39: Funding
Funding Diversified, Sophisticated and Stable Funding Sources Diversified Funding Base with Declining Cost of Funding 2.4% › Direct-to-consumer, digital retail savings bank launched in March 2015 2.0% Retail › Tactical pricing, towards the top of best buy Deposits tables 1.7% (Core) › High customer
Slide 40: Retail Deposits
Retail Deposits Savings Market Strategy and Operations Savings Offering Strategy Savings Accounts Operations and Customer Journey Account opening, customer servicing and other operations are outsourced to › Launched in March 2015 to access additional retail funding and Newcastle Building Society (NB
Slide 41: Retail Deposits
Retail Deposits Overview of Deposit Book Overview › Attracted £1.86bn of deposits in 2016 and built a c.£4bn1 deposit book in just over 2 years, with a mix of terms of Fixed Rate Bonds, Notice and Easy Access Accounts £44k Average deposit balance per customer › Delivering required inflows with decre
Slide 42: Securitisations
Securitisations Overview Securitisation Overview Ratings › Programmatic issuer of high quality RMBS through the Precise Mortgage › 24 ratings upgrades, zero downgrades across deal bonds Funding franchise › At least 75% of rated notes on deals PMF1 to PMF 2014-2, and at least › Completed 8 securitisa
Slide 43: Treasury
Treasury Liquidity Risk Management – 3 Pillars Three Pillars of Liquidity Management Alternative Sources of Funding Regulatory Liquidity – LCR Management Liquidity – ILBR Access to Liquidity Other Wholesale Funding › Calculation is driven by › The required liquidity holding to › CCFS has pre-positio
Slide 44: VI. Servicing & Collections
VI. Servicing & Collections 44
Slide 45: Section Presenters
Charter Court Financial Services Section Presenters Fliss Dale Director of Collections and Recovery 45
Slide 46: Servicing & Collections
Servicing & Collections Experienced Team with a Consistent Approach to Collections and Servicing Collections and Customer Services Team Collection: High Risk Strategy and Litigation Processes1,2,3,4 Fliss Dale 3rd Party Associate instructed Calling Campaign Payment Date Director of Collections if no
Slide 47: Servicing & Collections
Servicing & Collections Fully Integrated Fitch Rated Servicing Platform High Quality Processes Feeding into Product Design › Credit knowledge and experience obtained through Exact feeding directly into the underwriting processes Compass › Third party and own book servicing, leveraging arrears Bespok
Slide 48: VII. Financial Performance
VII. Financial Performance 48
Slide 49: Section Presenters
Charter Court Financial Services Section Presenters Sebastien Maloney Chief Financial Officer 49
Slide 50: Summary Financials
Summary Financials Balance Sheet Growth Commentary Y/e 31-Dec (£m) 2014 2015 2016 H1 16 H1 17 (y-o-y) 1› Strong growth in loan book Net customer loans 1 860 1,947 3,812 2,799 4,411 58% Liquid assets 40 608 269 339 973 187% ‒ Half on half net loan growth of 58% to 30 June 2017 Other assets 8 49 76 79
Slide 51: Credit Performance Underpins Steady Financial Progress
Credit Performance Underpins Steady Financial Progress Exceptional Across All Products Segment Opening Gross Loans (£m) Originations (£m) Book Attrition (£m)1 Closing Gross Loans (£m)1 2,176 2,542 1,453 2014 2015 2016 H1 16 H1 17 2,176 800 711 759 1,504 855 855 (5) (132) (62) 855 Buy-to-let 304 248
Slide 52: Summary Financials
Summary Financials Income Statement Growth Commentary Y/e 31-Dec (£m) 2014 2015 2016 H1 16 H1 17 (y-o-y) Interest income 31 78 144 63 97 54% 1› Strong originations and economies of scale driving rapid net interest income growth Interest expense (15) (33) (57) (26) (32) 22% 1 ‒ >50% growth in interes
Slide 53: Interest Income by Product
Interest Income by Product Combination of the Increasing Scale and Attractive Yields Segment Average Net Loans (£m)1 Average Gross Yield (%)2 Interest Income (£m)3 2,344 64 48 1,506 3.84% 4.51% 4.25% 4.10% 26 Buy-to-Let 577 183 7 2014 2015 2016 H1 17 2014 2015 2016 H1 17 2014 2015 2016 H1 17 50 1,40
Slide 54: Interest Expense by Product
Interest Expense by Product Funding Costs Declining Significantly Source of Funding Average Balance (£m)1 Average Gross Interest Expense (%)2 Interest Expense (£m) 3,683 43 2,483 28 Retail Deposits 1.65% 1.73% 13 776 1.52% 0 n.a. 0 2014 2015 2016 H1 17 2014 2015 2016 H1 17 2014 2015 2016 H1 17 Asset
Slide 55: Underlying Performance
Underlying Performance Underlying Income Statement Growth Underlying Profitability Y/e 31-Dec (£m) 2014 2015 2016 H1 16 H1 17 (y-o-y) £m Interest income 31 78 144 63 97 54% 80 68 Interest expense (15) (33) (57) (26) (32) 22% 60 53 Net interest income 16 45 87 37 65 75% 45 40 40 28 30 Impairment char
Slide 56: Underlying Operating Expenses and Other Income
Underlying Operating Expenses and Other Income Controlled with Improving Efficiency Growth Commentary Y/e 31-Dec (£m) 2014 2015 2016 H1 16 H1 17 (y-o-y) Underlying other income 3.3 4.5 6.0 2.9 3.0 6% 1› Net fees from origination mainly comprise fees received from applications that do not subsequentl
Slide 57: Progress in 2017
Progress in 2017 A successful first 9 months of 2017 2.4 2,000 Originations 1,169 1,308 Cost of Risk 0.4 (£m) (bps)2 H1 16 H1 17 9M 17 H1 16 H1 17 4,411 4,800 3.12% 3.18% 2,799 Net Interest Loan Book Margin (£m) (%)3 H1 16 H1 17 9M 17 H1 16 H1 17 50% 65 35% Net Interest Cost Income 37 47% Income Rat
Slide 58: VIII. Wrap-up
om, Charter Court “’mo® Financial Services VII. Wrap-up
Slide 59: Summary
Summary Accelerating Financial Momentum Our Strengths Our Delivery Net Loans to Customers (£bn) Leveraging Deep Credit Know-how and Proprietary Data Analytics… 4.3 4.4 4.8 …Participating in Attractive Secured Lending Markets… 3.3 3.8 2.4 2.8 1.1 1.5 1.6 1.9 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16
Slide 60: Proven Business Model
Proven Business Model Frequently recognised as the best mortgage lender across multiple asset classes… …with an award-winning approach to distribution… …largely funded by a multi-award winning digital savings bank… …underpinned by a strong, highly rated operating platform… …and finally, is a great p
Slide 61: Appendices
»’su, Charter Court nom Financial Services
Slide 62: Key Stages of Development / Timeline
Key Stages of Development / Timeline Business Evolution Nov-08: Nov-09: Mar-12: Launched by 1st post-crisis Cumulative credit Today: current authorised analysis passes Ranked #3 Best Company to management team mortgage £5.2bn with investment administrator work for from Elliott (Sunday Times) 2008 20
Slide 63: Board Composition
Board Composition A Strong, Experienced Board Appointed Jun-17 Ian Lonergan Sebastien Peter Elcock Elizabeth Noël Chief Executive Maloney Chief Risk Harwerth Officer Chief Financial Officer Senior Officer Independent Director Appointed Jun-17 › Over 20 years of experience in › Over 17 years experien
Slide 64: 64
64
Charter Court Financial Services Group — Investor Presentation (November 2017) on 6ix