TIDMSTB
RNS Number : 8278F
Secure Trust Bank PLC
24 March 2022
PRESS RELEASE
Thursday 24 March 2022
Embargoed release at 07:00 am
LEI: 213800CXIBLC2TMIGI76
This announcement contains inside information.
SECURE TRUST BANK PLC
Audited Final Results for the year ended 31 December 2021
Focus on attractive specialist markets following simplification
of the Group
Secure Trust Bank PLC ("STB", the "Bank" or the "Group") is
pleased to announce its financial results for the year ended 31
December 2021, delivering strong growth with a Statutory Profit
before Tax of GBP56.0 million (2020 restated: GBP19.1 million).
This is an excellent set of results as the Group successfully
navigated the impact of the Covid-19 pandemic and returned to
growth across its businesses. A return on average equity of 15.9%
(2020: 5.9%) is at the top end of the Group's stated target range.
New business performance is 42.1% higher year on year, which has
contributed to a 11.6% increase in core lending balances. New
business lending in Q4 2021 was a record for the Group. Following
the sale of its remaining non-core portfolios during the year and
the recent announcement that Debt Managers (Services) Limited
("DMS") is selling its full portfolio of loans in 2022, Secure
Trust Bank is a more focused Group with significant growth
opportunities across its four core specialist lending markets.
The Group's profits benefitted from the release of impairment
provisions during the period as the economic outlook improved
following the impact of the pandemic. Capital ratios improved,
given the short duration of the Group's lending portfolios, and the
liquidity position remains very healthy.
The Group will recommend a final dividend of 41.1 pence per
share making a total 2021 dividend of 61.1 pence per share,
reflecting the new dividend policy to pay 25% of earnings back to
shareholders.
FINANCIAL HIGHLIGHTS
Full Year
Full Year Restated(1) Change(2)
2021 2020 %
---------------------------- --------- ------------ ---------
Statutory profit before tax GBP56.0m GBP19.1m 193.2
---------------------------- --------- ------------ ---------
Basic earnings per share 244.7p 82.7p 195.9
---------------------------- --------- ------------ ---------
Ordinary dividend per share 61.1p 44.0p 38.9
---------------------------- --------- ------------ ---------
Return on average equity 15.9% 5.9% 10.0pp
---------------------------- --------- ------------ ---------
Net interest margin 6.4% 6.3% 0.1pp
---------------------------- --------- ------------ ---------
Cost of risk 0.1% 2.3% (2.2)pp
---------------------------- --------- ------------ ---------
Cost income ratio 63.2% 55.7% 7.5pp
---------------------------- --------- ------------ ---------
(1) The restatement of 2020 reflects the IFRS Interpretations
Committee's clarification on the accounting treatment of
Software-as a-Service arrangement. The profit before tax in 2020 is
GBP1.0 million lower than previously reported.
(2) pp represents the percentage point movement
31 Dec 31 Dec Change(2)
2021 2020 %
-------------------- ----------- ----------- ---------
Loan Book GBP2,531.9m GBP2,358.9m 7.3
-------------------- ----------- ----------- ---------
Loan Book - Core GBP2,530.6m GBP2,266.7m 11.6
-------------------- ----------- ----------- ---------
Deposits GBP2,103.2m GBP1,992.5m 5.6
-------------------- ----------- ----------- ---------
CET 1 capital ratio 14.5% 14.0% 0.5pp
-------------------- ----------- ----------- ---------
Total capital ratio 16.8% 16.3% 0.5pp
-------------------- ----------- ----------- ---------
OPERATIONAL HIGHLIGHTS
-- Customer satisfaction scores, as measured by Feefo, remained
high at 4.6 stars (2020:4.7 stars)
-- Total new business lending volumes increased by 42.1% to
GBP1,464.4 million (2020: GBP1,030.2 million)
-- Total lending balances increased by 7.3% to GBP2,531.9 million (2020: GBP2,358.9 million)
-- Core lending balances, excluding non-core portfolios,
increased by 11.6% to GBP2,530.6 million (2020: GBP2,266.7
million)
-- Total Business Finance core lending balances grew by 10.9% to
GBP1,422.9 million (2020: GBP1,282.6 million), supported by the
Greener Homes Scheme in Real Estate Finance and higher utilisation
levels in Commercial Finance.
-- Total Consumer Finance core lending balances grew by 12.6% to
GBP1,107.7 million (2020: GBP984.1 million), with a growth in
interest free products through strong retailer partnerships and new
product launches for used car finance.
-- Customer deposits grew to GBP2,103.2 million (2020:
GBP1,992.5 million) with management of the mix of the savings book
contributing to an improvement in cost of funds from 1.8% to
1.3%.
-- Disposals of non-core Consumer Mortgages and Asset Finance
portfolios completed in July 2021 and the disposal of the DMS full
portfolio of loans and decision to exit the debt purchase market
announced in March 2022.
-- In November 2021, we announced the purchase of AppToPay
Limited, subject to regulatory approval, which will allow us to
offer digital Buy Now Pay Later products.
-- Continued investment in Motor Transformation Programme and
the start of the digitalisation of the Savings platform.
Outlook and Strategy
The Group has refined its strategy this year with a new vision
to be the most trusted specialist lender in the UK. The new
strategy and plans were presented at our Capital Markets Day in
November 2021, where STB set out the significant opportunities it
sees for growth across its four core businesses. The Group
structure has been simplified with the sale of non-core portfolios
allowing the Group to focus on the markets where we see the
greatest potential. The Group will continue to invest in its
digital platforms to improve its operational efficiency and invest
in innovation with new products designed to meet the needs of our
customers.
The UK economic outlook is positive despite ongoing economic
headwinds and geopolitical tensions. Our specialist expertise in
core markets is driving lending growth as the impact of the
Covid-19 pandemic reduces and the Group's diversified business
model and capital strength will support future growth.
We are providing the following medium-term performance targets
for the Group, which have been updated to reflect the disposal of
the DMS loan portfolio. The Net Interest Margin has been revised
from >6% to >5.5% and the Cost income ratio from 50-55% to
<50%.
2021 Actual Medium Term
------------------------- ----------- -----------
Net Interest Margin 6.4% >5.5%
------------------------- ----------- -----------
Cost income ratio 63.2% <50%
------------------------- ----------- -----------
Return on Average Equity 15.9% 14% - 16%
------------------------- ----------- -----------
CET 1 14.5% >12.0%
------------------------- ----------- -----------
Compound Annual Growth 11.6% >15.0%
Rate(3)
------------------------- ----------- -----------
(3) CAGR is the annual growth rate calculated as the annualised
compound growth in 'core' loans and advances to customers since 31
December 2020. In 2021, the actual result is the Annual Growth Rate
for 2021
Lord Forsyth, Chairman, said:
"Looking forward, we have ambitious and achievable growth plans.
We have emerged positively from both Brexit and the COVID-19
pandemic by improving the quality of our lending and effective risk
management. The escalating cost of living crisis and the economic
war with Russia are additional challenges but we are flexible,
prudent, fleet of foot and well placed to grasp the opportunities
ahead."
David McCreadie, Chief Executive, said:
" One year into the role, I am very optimistic about our ability
to take advantage of the diverse opportunities within our
specialised lending businesses, despite the potential for economic
headwinds. My confidence is founded on our excellent performance in
2021, our simplified structure, and our clear plan to deliver
further lending growth and attractive returns.
We are a specialist lender in diverse markets. We are agile with
strong market expertise and partner relationships. We continue to
leverage and invest further in our digital capabilities and all of
our decisions are underpinned by rigorous credit discipline,
prudence and effective risk management.
I am looking forward to the period ahead with confidence and
excited to be working with my colleagues to help more customers as
we progress on our journey to become the most trusted specialist
lender in the UK. "
Results presentation
This announcement together with the associated investors'
presentation are available on:
www.securetrustbank.com/results-reports/results-reports-presentations
Secure Trust Bank will host a webcast for analysts and investors
today, 24 March 2021 at 10.00am, which can be accessed by
registering at:
https://webcasting.brrmedia.co.uk/broadcast/61fbe0e449f7751d18890d21
For those wishing to ask a question, please dial in to the event
by conference call:
Dial +44 (0)330 336 9601
Confirmation code: 5171497
Enquiries:
Secure Trust Bank PLC
David McCreadie, Chief Executive Officer
Rachel Lawrence, Chief Financial Officer
Tel: 0121 693 9100
Stifel Nicolaus Europe Limited (Joint Broker)
Robin Mann
Gareth Hunt
Stewart Wallace
Tel: 020 7710 7600
Canaccord Genuity Limited (Joint Broker)
Andrew Potts
Tel: 020 7523 8000
Tulchan Communications
Tom Murray
Misha Bayliss
Tel: 020 7353 4200
The person responsible for the release of this information on
behalf of STB is Mark Stevens, Company Secretary.
Forward looking statements
This announcement contains forward looking statements about the
business, strategy and plans of STB and its current objectives,
targets and expectations relating to its future financial condition
and performance. Statements that are not historical facts,
including statements about STB's or management's beliefs and
expectations, are forward looking statements. By their nature,
forward looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that will occur
in the future. STB's actual future results may differ materially
from the results expressed or implied in these forward looking
statements as a result of a variety of factors. These include UK
domestic and global economic and business conditions, risks
concerning borrower credit quality, market related risks including
interest rate risk, inherent risks regarding market conditions and
similar contingencies outside STB's control, the COVID-19 pandemic,
expected credit losses in certain scenarios involving forward
looking data, any adverse experience in inherent operational risks,
any unexpected developments in regulation or regulatory, and other
factors. The forward looking statements contained in this
announcement are made as of the date of this announcement, and
(except as required by law or regulation) STB undertakes no
obligation to update any of its forward looking statements.
Key Performance Indicators
The following key performance indicators are the primary
measures used by management to assess the performance of the
Group.
During the year the number of key performance indicators have
been reduced and realigned to the Group's new vision and
purpose.
Certain key performance indicators represent alternative
performance measures that are not defined or specified under
International Financial Reporting Standards ('IFRS'). Definitions
of the financial key performance indicators, their calculation and
an explanation of the reasons for their use can be found in the
Appendix to the Annual Report
on page 173 and 174.
Further explanation of the financial key performance indicators
are discussed in the narrative of the Financial review on pages 12
to 17, where they are identified by being in bold font.
Further explanation of the non-financial key performance
indicators is provided in the Managing our business responsibly and
Climate-related financial disclosures sections on pages 38 and
49.
The Directors' Remuneration Report, starting on page 76, sets
out how executive pay is linked to the assessment of key financial
and non-financial performance indicators.
2021 2020 2019
-------------------------------------------------------------------------------- ------- ------- -------
Grow
-------------------------------------------------------------------------------- ------- ------- -------
Net interest margin (%) 6.4 6.3 6.5
-------------------------------------------------------------------------------- ------- ------- -------
Why we measure this: Shows the interest margin earned on the Group's lending balances, net
of funding costs
-----------------------------------------------------------------------------------------------------------
Loans and advances to customers(1) (GBPmillion) 2,531.9 2,358.9 2,450.1
-------------------------------------------------------------------------------- ------- ------- -------
Why we measure this: Shows the growth in the Group's lending balances, which generate income
-----------------------------------------------------------------------------------------------------------
Annual growth rate(2) (%) 11.6 (1.8) 23.5
-------------------------------------------------------------------------------- ------- ------- -------
Why we measure this: Shows the rate of growth in the Group's lending balances
-----------------------------------------------------------------------------------------------------------
Return on average equity (%) 15.9 5.9 12.0
-------------------------------------------------------------------------------- ------- ------- -------
Why we measure this: Measures the Group's ability to generate profit from the equity available
to it
-----------------------------------------------------------------------------------------------------------
Sustain
-------------------------------------------------------------------------------- ------- ------- -------
Cost of risk(3) (%) 0.1 2.3 1.4
-------------------------------------------------------------------------------- ------- ------- -------
Why we measure this : Measures how effectively the Group manages the credit risk of its lending
portfolios
-----------------------------------------------------------------------------------------------------------
Common Equity Tier 1 (CET 1) ratio (%) 14.5 14.0 12.6
-------------------------------------------------------------------------------- ------- ------- -------
Why we measure this: The Common Equity Tier 1 ('CET 1') ratio demonstrates the Group's capital
strength
-----------------------------------------------------------------------------------------------------------
Cost to income ratio(4) (%) 63.2 55.7 58.5
-------------------------------------------------------------------------------- ------- ------- -------
Why we measure this: Measures how efficiently the Group utilises its cost base to produce
income
-----------------------------------------------------------------------------------------------------------
Care
-------------------------------------------------------------------------------- ------- ------- -------
Customer Feefo ratings (Stars) 4.6 4.7 4.7
-------------------------------------------------------------------------------- ------- ------- -------
(mark out of 5 based on star rating from 937 reviews, 2020: 1,466, 2019: 1,754)
-------------------------------------------------------------------------------- ------- ------- -------
Why we measure this : Indicator of customer satisfaction with the Group's products and services
-----------------------------------------------------------------------------------------------------------
Employee survey trust index score (%) 80 82 79
-------------------------------------------------------------------------------- ------- ------- -------
(based on 2021 all employee survey)
-------------------------------------------------------------------------------- ------- ------- -------
Why we measure this: Indicator of employee engagement and satisfaction
-----------------------------------------------------------------------------------------------------------
Environmental intensity indicator 3.0 3.1 4.7
-------------------------------------------------------------------------------- ------- ------- -------
(tonnes of carbon dioxide equivalent per GBP1 million Group income)
-------------------------------------------------------------------------------- ------- ------- -------
Why we measure this : Indicator of the Group's impact on the environment
-----------------------------------------------------------------------------------------------------------
(1) 2021 includes Assets held for sale of GBP1.3 million .
(2) Core lending balances only. See Appendix on page 173 for
further details.
(3) The reduction in the cost of risk in 2021 reflects an
improving trend.
(4) The increase in the cost to income ratio in 2021 reflects a
declining trend.
All page references throughout refer to the 2021 Annual Report
and Accounts.
Prior year results and key performance indicators have been
restated to reflect the IFRS Interpretations Committee's
clarification on the accounting treatment of Software-as-a-Service
arrangement. Further details are provided in Note 1 to the
financial statements on page 115.
Chairman's statement
I am delighted to report an excellent set of results with a
profit before tax of GBP56.0 million (2020: GBP19.1 million). This
has been achieved in the shadow of COVID-19 whilst we have
continued to support our customers, kept our people safe and
preserved our capital.
We have refined the Group's strategy with a new vision to be the
most trusted specialist lender in the UK. We have a clear plan for
achieving these goals which we outlined on our first Capital
Markets Day in November 2021. This renewed confidence is reflected
in our policy to return 25% of earnings to shareholders and the
Board is proposing a final dividend for 2021 of 41.1 pence,
bringing the total for the year to 61.1 pence.
We are determined to simplify the Group and focus on our key
specialist markets. During the year, we closed the OneBill product
and successfully disposed of the Asset Finance and Consumer
Mortgages portfolios and in March 2022, we announced the sale of
the Debt Managers (Services) Limited's loan portfolio. The
remaining businesses recorded growth in lending balances in
2021.
The appointment of David McCreadie as Chief Executive Officer in
January 2021 has proved to be transformational and he has
instituted with the Board's support and encouragement a number of
important changes to the Group's governance, operating model,
reward structures and engagement with stakeholders. He has achieved
a smooth transition in the executive leadership of the Group and
strengthened the management team by bringing in talented and
experienced people.
I would like to thank our employees for all their efforts in
challenging circumstances. They have managed to navigate the
pitfalls of the pandemic, delivering excellent service to our
customers from the office or their homes. Their commitment has been
a central contributing element to the Group's progress this
year.
I would also like to thank the Board for the quality of their
guidance, input and support. It has been a very busy year for
everyone. It was a real pleasure to welcome Finlay Williamson in
July 2021. He is an excellent colleague and brings important
experience in banking and financial services to the Board.
Looking forward, we have ambitious and achievable growth plans.
We have emerged positively from both Brexit and the COVID-19
pandemic by improving the quality of our lending and effective risk
management. The escalating cost of living crisis and the economic
war with Russia are additional challenges but we are flexible,
prudent, fleet of foot and well placed to grasp the opportunities
ahead.
Chief Executive's statement
I reflect on my first year with great pride and satisfaction
despite the continuing impacts of COVID-19. We have delivered
strong financial results, but as importantly, we have reset the
Group with a new vision and core purpose and the Group is growing
strongly again. We have brought fresh talent into the management
team and our people are telling us that Secure Trust Bank is a
great place to work.
By the end of 2021, core lending balances(1) had grown by 11.6%
to GBP2,530.6 million compared to the December 2020 position of
GBP2,266.7 million and net interest margin increased marginally to
6.4% (2020: 6.3%). Average core lending balances(2) were up 1.9%
year on year, and we finished the year with strong new business
growth in the final quarter.
Impairment charges have decreased significantly to GBP4.5
million (2020: GBP51.3 million). This primarily reflects the
release of impairment provisions due to the improving macroeconomic
forecasts, which will not reoccur in 2022, and lower default
rates.
The investment in growth we have made has had an adverse impact
on our cost to income ratio, which stands at 63.2% for 2021 (2020:
55.7%). With the anticipated future growth in lending and a renewed
focus on cost control, we expect to improve the cost to income
ratio in line with our medium-term target range of 50-55%.
As a result we have delivered an excellent financial performance
with profit before tax of GBP56.0 million (2020: GBP19.1
million).
Capital ratios have remained healthy throughout the year and
significantly ahead of regulatory minimums. At 31 December 2021,
the Common Equity Tier 1 ratio was 14.5% (2020: 14.0%) and the
total capital ratio was 0.5% higher at 16.8% than last year (2020:
16.3%).
The Group's funding comes primarily from personal customers'
deposits. This year, we have changed the mix from higher cost fixed
term bonds to ISAs and Notice accounts, which has resulted in a
lower cost of funds of 1.3% (2020: 1.8%).
New vision and purpose
I outlined the Group's new vision and purpose at our first
Capital Markets Day on 3 November 2021. As our markets change and
the expectations and needs of our customers evolve, so the Bank
needs to respond accordingly. By asking ourselves, "when are we at
our best?", our new purpose became clear. We are here to help more
consumers and businesses fulfil their ambitions and our new vision
is to be the most trusted specialist lender in the UK. Across our
diverse business units, we achieve this purpose in different ways,
whether it be Real Estate Finance providing financial support for
professional property developers and investors or Retail Finance
providing instant credit for the purchase of goods online or in
store.
Our refreshed strategy is set out on page 10 across the three
themes of Grow, Sustain and Care. Our growth ambitions are
reflected in a new medium-term target to deliver 15%+ compound
annual growth rate in lending balances. We are continuing to invest
in technology to help more customers and to enhance their
experience. In 2021, the Group invested GBP1.7 million in
transformational growth within Vehicle Finance and Savings.
Technology will also support innovative new products such as the
Buy Now Pay Later ('BNPL') product offering within Retail Finance
and Vehicle Finance's Prime Personal Contract Purchase ('PCP')
solutions for used vehicles. All of this will be underpinned by our
market expertise, rigorous credit discipline, prudence and
effective risk management.
This renewed vision and purpose is consistent with focusing on
our core(1) businesses where we see the largest growth potential.
We completed the sale of the Asset Finance and Consumer Mortgages
portfolios in July 2021, closed the OneBill product and in March
2022, we announced the sale of the Debt Managers (Services)
Limited's loan portfolio. We will continue to invest in our
remaining businesses across Business Finance and Consumer Finance
and will take advantage of any M&A opportunities which
complement our core markets.
On 25 November 2021, we announced the purchase of AppToPay
Limited, subject to regulatory approval, which will allow us to
offer digital BNPL products. We see it as a natural step for us,
opening up attractive new opportunities for our existing customers
and providing us with access to a new, fast-growing specialist
lending market. We plan to launch this digital offering alongside
our other Retail Finance products in 2022.
Lending performance
The impact of COVID-19 changed as we went through the year.
During the first quarter, the UK was in lockdown and whilst
restrictions eased gradually through the summer months, the
policies of national governments varied. By the final quarter of
2021, the UK's nominal GDP output recovered back to 2019 levels.
The success of the vaccination programmes and the UK Government's
economic interventions have created more favourable economic
conditions and enabled us to return to pre-pandemic lending
criteria gradually through the year.
Our diversified portfolio continues to support our growth
aspirations despite the drag in the first quarter from COVID-19. It
is pleasing to see our strategy driving growth in core lending
balances(1) of 11.6% in 2021.
Total core lending balances(1) in our Business Finance
businesses have grown by 10.9% to GBP1,422.9 million (2020:
GBP1,282.6 million). New lending has been partly driven by our
Greener Homes Scheme supporting property developers and investors
to meet the UK's clean growth strategy by 2035 and high client
retention allied with higher utilisation of lending facilities in
Commercial Finance. During the year we offered our existing
customers access to the Government guaranteed Recovery Loan Scheme
('RLS'), which replaced the Coronavirus Business Interruption Loan
('CBIL') Scheme and Coronavirus Large Business Interruption Loan
('CLBIL') Scheme.
Total core lending balances(1) in our Consumer Finance
businesses have grown by 12.6% to GBP1,107.7 million (2020:
GBP984.1 million). Our offering of market leading software and
strong retailer partnerships is driving retailer growth in interest
free credit products. In March 2021, we launched the new Prime Hire
Purchase lending product for used car finance and followed it up in
November 2021 with a Prime PCP offering.
The current and longer-term impacts of climate change are an
important consideration within our future plans. Whilst we have
made good progress with understanding these impacts, we recognise
we need to embed further the impact of climate change on the
Group's strategy. This work will be progressed in 2022. Further
information on our progress and plans for 2022 are presented on
page 11.
Supporting our customers
As we have refined our strategy, our customers remain at the
heart of what we do. Our enduring aim is to make Secure Trust Bank
easy to deal with and the new technology will allow customers to
transact with the Group when it is convenient for them.
I am pleased that our customer service scores continue to
reflect the positive ways we supported them during the pandemic.
The most recent ratings, measured through Feefo, achieved an
average score of 4.6 stars out of 5 (2020: 4.7 stars out of 5). In
addition we were recently awarded Customer Service Excellence for
the ninth consecutive year.
Within the Consumer Finance businesses, customers have completed
their COVID-19 payment holidays arrangements. One challenging area
for our service delivery in the second half of the year has been
the difficulty in recruiting contact centre staff due to the
tightness in the UK labour market although we have been able to
continue to support our customers.
Our People
I am pleased with the smooth transition within the executive
management team during my first year in office. I was delighted to
welcome Chris Harper as Chief Risk Officer, Katie Docherty as Chief
Operating Officer and Charles Mayo as General Counsel to the team.
Chris held the same role at RBS International; Katie previously
held a similar role for HSBC, Retail Banking and Wealth Management,
Australia and Charles joined us from Simmons & Simmons. These
appointments complement and broaden the experience of the executive
team.
I have enjoyed tremendous support from colleagues across the
Group and would like to thank them for their ongoing commitment.
For a second year running, they have coped admirably with the
challenges of COVID-19 and the restrictions imposed on them. All
the COVID-19 policies and procedures have been co-ordinated by a
central team, composed of representatives from all our locations.
They have changed and evolved based on the guidance available and
regularly updated by the UK and Welsh Governments. The majority of
colleagues have continued to work from home and we have closely
managed the engagement, motivation and wellbeing of all employees
through the year. In November 2021, 81% of colleagues said that
Secure Trust Bank was a Great Place to Work(c), maintaining a
similar score to 2020, despite enduring a second year of
restrictions.
We continue to take the issue of wellbeing and mental health
extremely seriously. We have extended our offer of a 'wellbeing
hour', where employees can take time to participate in activities
which promote good mental health and positivity, to being a monthly
event. This is in addition to other initiatives, including our
network of mental health first aiders across the organisation.
In the second half of the year, we moved to a hybrid working
model where colleagues split their time between working from the
office and from home. Our colleagues have supported these changes
and we expect the hybrid model to continue after the impact of the
COVID-19 pandemic has reduced.
Outlook
The outlook for the UK economy is uncertain in 2022 but
unemployment rates are expected to be low and stable. There are a
number of economic headwinds and the increasing geopolitical
tensions as a result of Russia's invasion of Ukraine are likely to
lower growth projections.
There is concern about the impact of rising inflation on
customers' net disposable income and ability to repay debt. The
Consumer Prices Index rose to 5.4% for the year to 31 December 2021
and is forecast to increase further in 2022. In response, the Bank
of England has increased the Base Rate three times which now stands
at 0.75%. GDP growth continues to be adversely affected by supply
side constraints and the ongoing COVID-19 pandemic with growth
projections for 2023 and 2024 being revised downwards.
Although, the degree of the uncertainty around the economic
outlook is unusually high, on balance, we are positive about the
outlook for Secure Trust Bank.
One year into the role, I am very optimistic about our ability
to take advantage of the diverse opportunities within our
specialised lending businesses, despite the potential for economic
headwinds. My confidence is founded on our excellent performance in
2021, our simplified structure, and our clear plan to deliver
further lending growth and attractive returns.
We are a specialist lender in diverse markets. We are agile with
strong market expertise and partner relationships. We continue to
leverage and invest further in our digital capabilities and all of
our decisions are underpinned by rigorous credit discipline,
prudence and effective risk management.
I am looking forward to the period ahead with confidence and
excited to be working with my colleagues to help more customers as
we progress on our journey to become the most trusted specialist
lender in the UK.
(1) Excludes the Consumer Mortgages and Asset Finance loan books
disposed of in July 2021. See Appendix on page 173 for further
details.
Financial review
Restated
2021 2020 Movement
Income statement GBPmillion GBPmillion %
------------------------------------------------------------ ------------ ----------- --------
Interest income and similar income 180.0 192.5 (6.5)
------------------------------------------------------------ ------------ ----------- --------
Interest expense and similar charges (29.2) (41.6) (29.8)
------------------------------------------------------------ ------------ ----------- --------
Net interest income 150.8 150.9 (0.1)
------------------------------------------------------------ ------------ ----------- --------
Fee and commission income 14.3 16.0 (10.6)
------------------------------------------------------------ ------------ ----------- --------
Fee and commission expense (0.6) (0.8) (25.0)
------------------------------------------------------------ ------------ ----------- --------
Net fee and commission income 13.7 15.2 (9.9)
------------------------------------------------------------ ------------ ----------- --------
Operating income 164.5 166.1 (1.0)
------------------------------------------------------------ ------------ ----------- --------
Net impairment charge on loans and advances to customers (4.5) (51.3) (91.2)
------------------------------------------------------------ ------------ ----------- --------
Gains/(losses) on modification of financial assets 1.5 (3.1) (148.4)
------------------------------------------------------------ ------------ ----------- --------
Loss on disposal of loan books (1.4) - -
------------------------------------------------------------ ------------ ----------- --------
Losses from derivatives and hedge accounting (0.1) - -
------------------------------------------------------------ ------------ ----------- --------
Operating expenses (104.0) (92.6) 12.3
------------------------------------------------------------ ------------ ----------- --------
Profit before income tax 56.0 19.1 193.2
------------------------------------------------------------ ------------ ----------- --------
Income tax expense (10.4) (3.7) 181.1
------------------------------------------------------------ ------------ ----------- --------
Profit for the year 45.6 15.4 196.1
------------------------------------------------------------ ------------ ----------- --------
Basic earnings per share (pence) 244.7 82.7 195.9
------------------------------------------------------------ ------------ ----------- --------
Selected Key Performance Indicators and performance metrics
------------------------------------------------------------ ------------ ----------- --------
Net interest margin 6.4% 6.3% 0.1pp
------------------------------------------------------------ ------------ ----------- --------
Cost of funds 1.3% 1.8% (0.5)pp
------------------------------------------------------------ ------------ ----------- --------
Cost to income ratio 63.2% 55.7% 7.5pp
------------------------------------------------------------ ------------ ----------- --------
Cost of risk 0.1% 2.3% (2.2)pp
------------------------------------------------------------ ------------ ----------- --------
Return on average equity 15.9% 5.9% 10.0pp
------------------------------------------------------------ ------------ ----------- --------
Common Equity Tier 1 ('CET 1') ratio 14.5% 14.0% 0.5pp
------------------------------------------------------------ ------------ ----------- --------
Total capital ratio 16.8% 16.3% 0.5pp
------------------------------------------------------------ ------------ ----------- --------
pp represents the percentage point movement
Certain key performance indicators and performance metrics
represent alternative performance measures that are not defined or
specified under IFRS. Definitions of these alternative performance
measures, their calculation and an explanation of the reasons for
their use can be found in the Appendix to the Annual Report on page
173. In the narrative of this financial review, key performance
indicators are identified by being in bold font. Prior year results
and key performance indicators have been restated to reflect the
IFRS Interpretations Committee's clarification on the accounting
treatment of Software-as-a-Service arrangement. Further details are
provided in Note 1 to the financial statements on page 115.
The Directors' Remuneration Report, starting on page 76, sets
out how executive pay is linked to the assessment of key financial
and non-financial performance metrics.
Profit and earnings
The Group has achieved a strong set of financial results. Profit
before tax was positively impacted by a significant reduction in
impairment charges driven by a more favourable economic outlook
than in 2020. Operating income was impacted by lower average
lending balances year on year and higher costs reflect increased
activity.
Statutory profit before tax increased by 193.2% to GBP56.0
million (2020: GBP19.1 million). Consequently, earnings per share
increased from 82.7 pence per share to 244.7 pence per share and
return on average equity increased from 5.9% to 15.9%. Detailed
disclosures of earnings per ordinary share are shown in Note 11.
The components of the Group's profit are analysed in more detail in
the sections below.
Net interest income
Net interest income of GBP150.8 million was 0.1% lower than the
prior year. Excluding the non-core portfolios sold in the year, net
interest income was GBP149.2 million, 1.6% higher than the prior
year. Loans and advances to customers excluding the non-core
portfolios increased by 11.6% from GBP2,266.7 million to GBP2,530.6
million. Despite the balance sheet growth in the year, with total
loans and advances to customers increasing by 7.3% from GBP2,358.9
million to GBP2,531.9 million (including assets held for sale of
GBP1.3 million relating to a small leasing book), average lending
balances over 2021 were 1.3% lower than the average over 2020 as a
result of the lockdowns in the first quarter of 2021.
Interest income continued to be impacted by the change in the
overall mix of lending brought about by the pandemic, and away from
higher margin products. Vehicle Finance's average lending balances
reduced from GBP292.1 million in 2020 to GBP245.8 million in 2021
driving a reduction in revenue of GBP6.2 million year on year.
The Group continued to manage down the levels of relatively
high-cost fixed rate funding as it matured and was replaced with
ISAs and Notice products. As a result of this interest expense was
GBP29.2 million (2020: GBP41.6 million), a reduction of 29.8%. The
cost of funds reduced to 1.3% (2020: 1.8%).
The Group's net interest margin improved to 6.4% (2020: 6.3%),
with the impact of lower cost of funding, partly offset by the
transition to lower yield interest free Retail Finance lending and
the product mix shift from higher margin Vehicle Finance
lending.
Net fee and commission income
Net fee and commission income fell by 9.9% to GBP13.7 million
(2020: GBP15.2 million). This was driven predominately by the
closure of the OneBill product in the year with the resulting
reduction of GBP3.4 million of net fee and commission in the year.
Both core Business and Consumer businesses returned to growth in
the year with an increase of 17.3% in net fee and commission
income, reflecting the increased activity.
Impairment charge
In 2021 the cost of risk reduced from 2.3% in 2020 to 0.1%. The
impairment charge for the year was GBP4.5 million (2020: GBP51.3
million).
As in previous years, the majority of our impairment charge
arises from the Consumer Finance businesses. The decrease in the
impairment charge is predominantly driven by the IFRS 9 requirement
to account for forward-looking factors rather than actual defaults
experienced in the year. Our IFRS 9 models use the correlation
between macroeconomic variables, such as unemployment and house
price indices, and historic credit losses to derive estimated
future losses given a range of forecast variables. The more
positive macroeconomic assumptions as at 31 December 2021 reduced
the 2021 impairment charge by GBP13.2 million.
The 2021 impairment charge includes an additional GBP5.1 million
from the impact of applying additional expert credit judgements in
the year, which has led to a total of GBP13.3 million of overlays
being added to provision levels estimated using the Group's IFRS 9
models as at 31 December 2021. In response to the rising cost of
living, a new expert credit judgement for customer affordability
was introduced at GBP4.6 million (2020: GBPnil) offsetting the
release of GBP3.1 million in COVID-19 related provisions.
Overall, the impairment provision as a proportion of the gross
loans and advances to customers reduced from 3.4% as at 31 December
2020 to 2.6% as at 31 December 2021. This reflects the changes in
the macroeconomic assumptions outlined above and improving credit
quality of the book. A breakdown of the charge by product is shown
in Note 3. Further analysis of the Group's loan book and its credit
risk exposures is provided in Notes 15, 17 and 38.
Disposal of loan books
During the year the Group disposed of the Asset Finance and
Consumer Mortgage portfolios. The loss on disposal relates
primarily to the sale of the Consumer Mortgage book (loss of GBP1.3
million), with the beneficial interest being assigned to the
purchaser as at 31 December 2020. GBP1.3 million of interest income
is recognised within net interest income, resulting in a overall
nil profit impact. The Asset Finance sale resulted in a GBP0.1
million loss. Both had limited impact on Group's operations as the
service delivery of both portfolios were outsourced to third party
providers.
Following a strategic review, the Board has decided to exit the
debt purchase market and, on 11 March 2022 announced that it had
agreed to sell Debt Managers (Services) Limited's portfolio of
loans to Intrum UK Finance Limited. The value of the portfolio as
at 30 September 2021 was GBP84.7 million and the value of the
consideration for the portfolio as at 30 September 2021 was GBP94.0
million. The Group estimates that in 2022 the sale will (taking
into account anticipated market exit costs) generate a net profit
before tax benefit and the release of around GBP72 million of risk
weighted assets on completion. Completion is subject to approvals
from originators of the loans which is expected to complete by June
2022.
Operating expenses
2020 was a year of reduced activity due to the pandemic. In 2021
activity levels increased and as a result the Group's cost base has
increased by 12.3% to GBP104.0 million (2020: GBP92.6 million). The
main drivers of this increase are GBP5.2 million of higher employee
costs, the one-off VAT reclaim of GBP3.3 million in 2020 not
recurring and an uplift in activity level leading to higher legal
collection costs. As a result, the Group's cost to income ratio
increased from 55.7% in 2020 to 63.2%.
Taxation
The effective statutory tax rate has reduced to 18.6% (2020:
19.4%). The effective rate for 2021 has decreased below the
Corporation Tax rate of 19% as the banking surcharge cost has been
more than offset by the deferred tax credit arising from a
reassessment of the rates at which the deferred tax asset would
reverse out in future periods.
The previous rates had assumed the level of Corporation Tax
would remain at 19% but legislation has been enacted during the
period, so with effect from 1 April 2023 the Corporation Tax rate
will increase to 25%. The revised rates continue to assume banking
surcharge of 8% on any taxable profits of Secure Trust Bank PLC in
excess of GBP25 million in an accounting period. The Government is
legislating to reduce the banking surcharge to 3% on bank tax
profits in excess of GBP100 million with effect from 1 April 2023,
however the Finance Bill containing these changes was not
substantively enacted until after 31 December 2021. The reduction
in the closing deferred tax asset from applying the legislation is
expected to be less than GBP0.9 million. Further information is
provided in Note 10.
Distributions to shareholders
The Board recommend the payment of a final dividend for 2021 of
41.1 pence per share which, together with the interim dividend of
20.0 pence per share represents a total dividend for the year of
61.1 pence per share (2020: 44.0 pence per share).
Balance sheet
Restated
2021 2020
Summarised balance sheet GBPmillion GBPmillion
----------------------------------- ----------- -----------
Assets
----------------------------------- ----------- -----------
Cash and balances at central banks 235.7 181.5
----------------------------------- ----------- -----------
Loans and advances to banks 50.3 63.3
----------------------------------- ----------- -----------
Debt securities 25.0 -
----------------------------------- ----------- -----------
Loans and advances to customers(1) 2,530.6 2,358.9
----------------------------------- ----------- -----------
Derivative financial instruments 3.8 4.8
----------------------------------- ----------- -----------
Other assets 40.5 52.7
----------------------------------- ----------- -----------
2,885.9 2,661.2
----------------------------------- ----------- -----------
Liabilities
----------------------------------- ----------- -----------
Due to banks 390.8 276.4
----------------------------------- ----------- -----------
Deposits from customers 2,103.2 1,992.5
----------------------------------- ----------- -----------
Tier 2 subordinated liabilities 50.9 50.8
----------------------------------- ----------- -----------
Derivative financial instruments 6.2 6.1
----------------------------------- ----------- -----------
Other liabilities 32.4 67.8
----------------------------------- ----------- -----------
2,583.5 2,393.6
----------------------------------- ----------- -----------
(1) Excludes Assets held for sale of GBP1.3 million (2020: nil),
which is included within Other assets.
The assets of the Group increased by 8.4% to GBP2,885.9 million
as at 31 December 2021 (2020: GBP2,661.2 million). The liabilities
of the Group increased by 7.9% to GBP2,583.5 million (2020:
GBP2,393.6 million).
Loans and advances to customers
Loans and advances to customers (which include secured and
unsecured loans and finance lease receivables) increased by 7.3% to
GBP2,531.9 million (including assets held for sale of GBP1.3
million) as at 31 December 2021 (2020: GBP2,358.9 million).
Excluding non-core portfolios which were sold during the year the
annual growth was stronger at 11.6%.
Loan originations in the year, being the total of new loans and
advances to customers entered into during the year, increased by
42.1% to GBP1,464.4 million (2020: GBP1,030.2 million).
Further analysis of loans and advances to customers, including a
breakdown of the arrears profile of the Group's loan books, is
provided in Notes 15, 16, 17 and 38.
Debt securities and Due to banks
Debt securities consist solely of sterling UK Government
Treasury Bills ('T-Bills'). As at 31 December the Group held
GBP25.0 million of T-Bills (2020: GBPnil) which was temporarily
required to be utilised as collateral against Term Funding Scheme
with additional incentives for SMEs ('TFSME').
Amounts due to banks consisted primarily of drawings from the
Bank of England TFSME facility. During the year Term Funding Scheme
('TFS') funding was replaced with TFSME funding. Overall funding
increased by GBP117.0 million, which supported lending.
Deposits from customers
Customer deposits include Fixed term bonds, ISAs, Notice and
Access accounts. Customer deposits increased by 5.6% during the
year and closed at GBP2,103.2 million (2020: GBP1,992.5 million).
Total funding ratio increased to 112.4% (2020: 109.5%), in part to
fund expected Commercial Finance drawdowns in the first quarter of
2022. As set out on page 17, the mix of the deposit book has
continued to change, with a continuation of the shift from
long-term Fixed term bonds into ISAs. This has brought about the
improvement in cost of funds referred to on page 13.
Tier 2 subordinated liabilities
Tier 2 subordinated liabilities represent two GBP25.0 million
tranches of 6.75% Fixed Rate Callable Subordinated Notes, including
interest accrued. Further details of the note issuances are
provided in Note 32. The Notes qualify as Tier 2 capital.
Capital
Management of capital
Our capital management policy is focused on optimising
shareholder value over the long term. Capital is allocated to
achieve targeted risk adjusted returns whilst ensuring appropriate
surpluses are held above the minimum regulatory requirements.
Key factors influencing the management of capital include:
-- The level of buffers and the capital requirement set by the
Prudential Regulation Authority ('PRA')
-- Estimated credit losses calculated using IFRS 9 methodology,
and the applicable transitional rules
-- New business volumes
-- The product mix of new business.
Capital resources
Capital resources increased over 2021 from GBP325.9 million to
GBP350.6 million. This includes the proposed 2021 dividend of
GBP7.7 million. The increase was wholly due to CET 1 capital and
was driven by retained earnings growth, offset by the impact of
changes to the IFRS 9 adjustment as set out below.
Restated
2021 2020
Capital GBPmillion GBPmillion
-------------------- ----------- -----------
CET 1 capital 303.6 280.8
-------------------- ----------- -----------
Tier 2 capital 47.0 45.1
-------------------- ----------- -----------
Total capital 350.6 325.9
-------------------- ----------- -----------
Total risk exposure 2,087.4 1,999.7
-------------------- ----------- -----------
Restated
2021 2020
Capital ratios % %
-------------------- ---- --------
CET 1 capital ratio 14.5 14.0
-------------------- ---- --------
Total capital ratio 16.8 16.3
-------------------- ---- --------
Leverage ratio 10.3 10.3
-------------------- ---- --------
The Group has elected to adopt the IFRS 9 transitional rules.
For 2021, this allows for 50% (2020: 70%) of the initial IFRS 9
transition adjustment, net of attributable deferred tax, to be
added back to eligible capital. The same relief is allowed for
increases in provisions between 1 January 2018 to 31 December 2019,
except where these provisions relate to defaulted accounts. The
same relief is allowed for increases in provisions since 1 January
2020, however as a response to the COVID-19 pandemic, this is
applied at 100% (2020: 100%). All transitional relief will taper
off by 31 December 2024.
The Group's regulatory capital is divided into:
-- CET 1 capital, which comprises shareholders' funds, after
adding back the IFRS 9 transition adjustment and deducting
qualifying intangible assets, both of which are net of attributable
deferred tax.
-- Tier 2 capital, which is solely subordinated debt net of
unamortised issue costs, capped at 25% of the capital
requirement.
The Group operates the standardised approach to credit risk,
whereby risk weightings are applied to the Group's on and off
balance sheet exposures. The weightings applied are those
stipulated in the Capital Requirements Regulation.
Excluding the impact of the IFRS 9 transitional rules, the
Group's CET 1 capital ratio and total capital ratio would reduce to
14.0% and 16.2% respectively.
Capital requirements
The Total Capital Requirement, set by the PRA, includes both the
calculated requirement derived using the standardised approach and
the additional capital derived in conjunction with the Internal
Capital Adequacy Assessment Process ('ICAAP'). In addition, capital
is held to cover generic buffers set at a macroeconomic level by
the PRA.
Restated
2021 2020
GBPmillion GBPmillion
---------------------------- ----------- -----------
Total Capital Requirement 196.7 191.4
---------------------------- ----------- -----------
Capital conservation buffer 51.9 50.0
---------------------------- ----------- -----------
Countercyclical buffer - -
---------------------------- ----------- -----------
Total 248.6 241.4
---------------------------- ----------- -----------
The increase in lending balances through the year resulted in an
increase in risk weighted assets over 2021, bringing the total risk
exposure up from GBP1,999.7 million to GBP2,087.4 million.
The capital conservation buffer has been held at 2.5% of total
risk exposure since 1 January 2019. The countercyclical capital
buffer was 0% throughout 2021 as part of the PRA's response to
COVID-19.
Liquidity
Liquidity resources
We continued to hold significant surplus liquidity over the
minimum requirements throughout 2021, managing liquidity by holding
High Quality Liquid Assets ('HQLA') and utilising predominantly
retail funding balances from customer deposits over 2021. Some of
the additional liquidity will be used to fund planned Commercial
Finance drawdowns in 2022. Total liquid assets increased to
GBP303.0 million as at 31 December 2021 (2020: GBP232.1
million).
The Group is a participant in the Bank of England's Sterling
Money Market Operations under the Sterling Monetary Framework and
has drawn GBP390.0 million under the TFSME. The Group has no liquid
asset exposures outside of the United Kingdom and no amounts that
are either past due or impaired.
Liquid assets 2021 2020
-------------- ----- -----
Aaa - Aa3 259.0 180.5
--------------- ----- -----
A1 - A3 38.9 46.5
--------------- ----- -----
Unrated 5.1 5.1
--------------- ----- -----
303.0 232.1
-------------- ----- -----
We continue to attract customer deposits to support balance
sheet growth. We continue to focus on attracting ISA account
funding, with less emphasis on retaining more expensive fixed term
bonds. The composition of customer deposits is shown in the table
below.
2021 2020
Customer Deposits % %
------------------ ------ ----
Fixed term bonds 46 54
---------------------- ------ ----
Notice accounts 37 35
---------------------- ------ ----
ISA 12 7
---------------------- ------ ----
Access accounts 5 4
---------------------- ------ ----
100 100
--------------------- ------ ----
Management of liquidity
The Group uses a number of measures to manage liquidity. These
include:
-- The Overall Liquidity Adequacy Requirement ('OLAR'), which is
the Board's view of the Group's liquidity needs as set out in the
Board approved Internal Liquidity Adequacy Assessment Process
('ILAAP').
-- The Liquidity Coverage Ratio ('LCR'), which is a regulatory
measure that assesses net 30-day cash outflows as a proportion of
HQLA.
-- Total funding ratio, as defined in the Appendix to the Annual
Report.
-- High Quality Liquid Assets ('HQLA') are held in the Bank of
England Reserve Account and UK Treasury Bills. For LCR purposes the
HQLA excludes UK Treasury Bills which are encumbered to provide
collateral as part of the Group's TFSME drawings with the Bank of
England.
The Group met the LCR minimum threshold throughout the year and,
as at 31 December 2021, the LCR was 439.1%.
Business review
Consumer Finance
Retail Finance
Retail Finance includes lending products for in-store and online
retailers to enable consumer purchases.
2021 2020 Movement Movement
GBPmillion GBPmillion GBPmillion %
------------------ ----------- ------------ ----------- --------
Lending balance 764.8 658.4 106.4 16.2
------------------ ----------- ------------ ----------- --------
Total revenue 67.7 70.7 (3.0) (4.2)
------------------ ----------- ------------ ----------- --------
Impairment charge 5.0 14.5 (9.5) (65.5)
------------------ ----------- ------------ ----------- --------
What we do
-- We operate a market leading online e-commerce service to
retailers, providing unsecured, prime lending products to the UK
customers to facilitate the purchase of a wide range of consumer
products including cycle, music, furniture, outdoor/leisure,
electronics, dental, jewellery, home improvements and football
season tickets. These markets include a large number of household
names such as Watches of Switzerland, DFS, Sofology, Performance
Cycles and Watchfinder.
-- The finance products are either interest bearing or have
promotional credit subsidised by retailers, allowing customers to
spread the cost of purchases into more affordable monthly
payments.
-- The online processing system allows customers to digitally
sign their credit agreements, thereby speeding up the pay-out
process, and removing the need to handle sensitive personal
documents.
-- The business is supported by a highly experienced senior team
and workforce.
2021 performance
Retail Finance reported strong lending growth and revenue
performance in the second half of 2021. Overall, revenues in 2021
decreased by 4.2% or GBP3.0 million to GBP67.7 million (2020:
GBP70.7 million) recovering from a 10.9% decline year on year for
the first six months of 2021. Since our retailer partners re-opened
their stores in mid-April after the national lockdown in response
to COVID-19, new business levels have responded positively and
total new lending in 2021 was GBP771.5 million, 26% higher year on
year (2020: GBP614.5 million).
As a result, at 31 December 2021, lending balances reached
GBP764.8 million (2020: GBP658.4 million), an increase of 16.2%,
providing a strong platform for revenue growth for 2022. The mix of
new business towards interest free lending, however, has reduced
the overall gross yield. The growth in 2021 has come primarily from
the furniture, jewellery and healthcare sub-markets.
Impairment charges reduced to GBP5.0 million (2020: GBP14.5
million), which is driven by a non-recurring release in provisions
from more benign macroeconomic conditions and improved customer
credit quality due to the increased mix of interest free lending.
All the payment holiday arrangements introduced since the start of
COVID-19 had concluded by 31 December 2021.
We anticipate further lending growth from our existing retail
partners and our operational plans are focused on improving the
customer journey for both our channel partners and customers. The
planned launch of new Buy Now Pay Later products using the
technology from the proposed acquisition of AppToPay will promote
additional lending.
Vehicle Finance
Finance is arranged through motor dealerships, brokers and
internet introducers and involves fixed rate, fixed term hire
purchase and personal contract purchase arrangements on used
cars.
2021 2020 Movement Movement
GBPmillion GBPmillion GBPmillion %
------------------ ----------- ------------ ----------- --------
Lending balance 263.3 243.9 19.4 8.0
------------------ ----------- ------------ ----------- --------
Total revenue 39.3 45.5 (6.2) (13.6)
------------------ ----------- ------------ ----------- --------
Impairment charge 0.1 20.7 (20.6) (99.5)
------------------ ----------- ------------ ----------- --------
What we do
-- We provide hire purchase lending products for used cars
primarily to near-prime customers. In 2021 we launched a hire
purchase lending and Personal Contract Purchase ('PCP') product
into the consumer prime credit market, and in 2019 a Stock Funding
product to allow dealers to finance vehicles on their forecourt as
part exchanges, from auction partners or from other trade
sources.
-- Finance is provided via technology platforms allowing the
business to receive applications online from its introducers;
provide an automated decision; facilitate document production
through to pay-out to dealer; and manage in-life loan accounts.
-- All lending is secured against the vehicle being
financed.
2021 performance
The number of used vehicles bought on consumer finance at point
of sale increased by 10%(1) in 2021 over 2020, but remained 9%
lower than in 2019. The amount advanced increased by significantly
more year on year, up 19%, to GBP19.2 billion in 2021, reflecting
the increase in used vehicle values.
In 2021, our Vehicle Finance business advanced GBP134.4 million
of new business lending to consumers and GBP65.4 million in Stock
Funding to used car dealers, both significantly ahead of the amount
recorded in 2020 (Consumer: GBP65.9 million and Stock Funding:
GBP12.7 million). The new Prime Hire Purchase offering, which
launched in 2021, delivered GBP14.6 million of new lending. The new
Prime PCP product was launched in November 2021.
New lending accelerated in the second half of the year whilst
lending balances at 31 December 2021 reached GBP263.3 million,
which is 8.0% higher year on year (2020: GBP243.9 million), average
lending balances in 2021 were 15.9% lower than in 2020. As a
result, revenues were 13.6% or GBP6.2 million lower at GBP39.3
million (2020: GBP45.5 million).
The impairment charge for 2021 was GBP0.1 million (2020: GBP20.7
million). This result was driven by a release in provisions arising
from more benign macroeconomic conditions, which will not be
repeated in 2022, and lower than expected defaults.
In 2021, we amended the credit policy to allow lending to
acquire both electric and hybrid vehicles, which now amounts to 1%
of the portfolio.
In 2022, we are looking to increase the lending growth from the
new Prime Hire Purchase and PCP products launched in 2021.
Furthermore, we will utilise the technology investment and enhanced
customer journeys delivered by our Motor Transformation Programme
across all our products to improve growth and enhance earnings.
1. Source: Finance & Leasing Association.
Debt Management
Credit management services for the Group and external
clients.
2021 2020 Movement Movement
GBPmillion GBPmillion GBPmillion %
--------------------------- ----------- ------------ ----------- --------
Lending balance 79.6 81.8 (2.2) (2.7)
--------------------------- ----------- ------------ ----------- --------
Total revenue 14.6 14.8 (0.2) (1.4)
--------------------------- ----------- ------------ ----------- --------
Impairment (credit)/charge (0.6) 8.9 (9.5) (106.7)
--------------------------- ----------- ------------ ----------- --------
What we do
-- Debt Managers (Services) Limited ('DMS') is a credit
management services business and primarily invests in purchased
debt portfolios from third parties and fellow Group undertakings.
In addition, it collects debt on behalf of a range of clients.
-- Debt purchase allows DMS to acquire paying and non paying
accounts and recover amounts due over an extended period.
-- All customer-facing staff receive training on how to
effectively use industry recognised techniques to help identify
signs of vulnerability. We aim to provide all customers with the
best possible customer service by recognising every customer is
different.
-- Customers that need additional support are managed by a
specialist Customer Care Team. We work closely with debt charities
to ensure that customers receive an appropriate service for
them.
2021 progress
Revenues decreased marginally by GBP0.2 million to GBP14.6
million in the year to 31 December 2021 (2020: GBP14.8 million).
Lending balances reduced by GBP2.2 million to GBP79.6 million at 31
December 2021 (2020: GBP81.8 million).
New portfolios acquired in 2021 from external parties were
GBP23.3 million (2020: GBP20.5 million). This was lower than
expected due to fewer portfolios available in the market, as
selling organisations deferred debt sales into 2022.
The impairment credit for the year was GBP0.6 million (2020:
GBP8.9 million) reflecting that, across the year, the actual
collections performed in line with the forecast collections.
Following a strategic review, the Board decided to exit the debt
purchase market. On 11 March 2022, it announced that it had agreed
to sell the DMS's portfolio of loans to Intrum UK Finance Limited.
Further information can be found in the Financial review on page
14.
Business Finance
Real Estate Finance
Supports SMEs in providing finance principally for residential
development and residential investment.
2021 2020 Movement Movement
GBPmillion GBPmillion GBPmillion %
------------------ ----------- ------------ ----------- --------
Lending balance 1,109.6 1,051.9 57.7 5.5
------------------ ----------- ------------ ----------- --------
Total revenue 54.8 54.0 0.8 1.5
------------------ ----------- ------------ ----------- --------
Impairment charge 0.1 5.2 (5.1) (98.1)
------------------ ----------- ------------ ----------- --------
What we do
-- Real Estate Finance lends on portfolios of residential
property and the development of new build property.
-- Lending enables the development of new build property,
commercial to residential conversions.
-- Lending is sourced and supported both directly and via
introducers and brokers and is typically provided over a term of up
to five years with conservative loan-to-value criteria.
-- We have an experienced, specialist team with many years of
property expertise, who are nimble and responsive within the
market. Through a difficult trading period, our partnerships with
our brokers, introducers and customers have been key to a growth in
lending balances in 2021. We maintain a strong risk management
framework to existing and prospective customers, giving us a strong
foundation.
2021 performance
Real Estate Finance experienced a slower first half of the year
due to the COVID-19 restrictions and so it was pleasing to report a
5.5% growth in lending balances in 2021 to GBP1,109.6 million
(2020: GBP1,051.9 million). New business lending doubled to
GBP376.1 million (2020: GBP189.5 million). Revenues were 1.5% or
GBP0.8 million higher at GBP54.8 million (2020: GBP54.0 million) as
the mix in the book moved towards investment loans from higher
margin development loans. The mix of investment loans increased
from 74% to 87% in 2021, reflecting the maturity of a number of
larger development loans.
The new Greener Homes Scheme supports property developers and
investors to meet the UK Government's Clean Growth Strategy by
2035. The new product launched in June 2021 generated new loans of
GBP136.9 million in the year.
The macroeconomic environment has been less adversely impacted
than expected. There was a small impairment charge of GBP0.1
million in 2021 (2020: GBP5.2 million) reflecting the impact of
more favourable macroeconomic assumptions applied during the year,
a low number of loans in default, and continued strong portfolio
management. None of our customers had payment holidays at the end
of the year.
Commercial Finance
Provision of invoice discounting and factoring to SME
businesses.
2021 2020 Movement Movement
GBPmillion GBPmillion GBPmillion %
--------------------------- ----------- ------------ ----------- --------
Lending balance 313.3 230.7 82.6 35.8
--------------------------- ----------- ------------ ----------- --------
Total revenue 17.4 15.2 2.2 14.5
--------------------------- ----------- ------------ ----------- --------
Impairment (credit)/charge (0.2) 1.1 (1.3) (118.2)
--------------------------- ----------- ------------ ----------- --------
What we do
-- Lending remains predominantly against receivables, typically
releasing 90% of qualifying invoices under invoice discounting and
factoring services. Other assets can also be funded either long or
short-term and for a range of loan-to-value ratios alongside these
facilities.
-- Commercial Finance has also provided additional unsecured
lending to existing customers through the Government guaranteed
Coronavirus Business Interruption Loan ('CBIL') Scheme, Coronavirus
Large Business Interruption Loan ('CLBIL') Scheme and Recovery Loan
Scheme ('RLS').
-- Commercial Finance business is sourced and supported both
directly and via introducers.
-- The Commercial Finance team has a strong reputation across
the Asset Based Lending market. Its experienced specialist team
works effectively with its partners across private equity and
accountancy practices.
2021 performance
Commercial Finance maintained its strong first half performance
into the second half of 2021. Lending balances increased by 35.8%
to GBP313.3 million by the end of December 2021 (2020: GBP230.7
million). Average lending balances increased by 17.0% year on year
whilst clients' undrawn availability ran at historically high
levels with undrawn funds averaging GBP109.1 million through the
year. As a result, revenues grew by 14.5% or GBP2.2 million to
GBP17.4 million in 2021 (2020: GBP15.2 million).
This performance was driven by healthy levels of new business
and low client attrition. There was a small impairment credit of
GBP0.2 million in 2021 (2020: GBP1.1 million charge) reflecting our
strong and effective credit risk practices and the strength of our
lending security, notably our clients' receivables. The 2020
impairment charge reflected worsening macroeconomic forecasts not
customer losses.
In the 2021 Interim Report, we reported that the British
Business Bank had approved the Group's application to offer our
clients support under the Recovery Loan Scheme ('RLS') where the UK
Government guarantees up to 80% of each RLS facility. By the end of
December 2021, five deals had been completed with facilities
totalling GBP13.0 million. The Group will continue offering
facilities under the amended RLS scheme where applications from 1
January will benefit from a revised 70% guarantee level.
Of the GBP52.9 million advanced under the previous UK Government
CBILs and CLBILs which closed in March 2021, the balances at 31
December 2021 were GBP32.1 million. Commercial Finance took the
conscious decision not to participate in the UK Government's Bounce
Bank Loan Scheme.
Looking forward, Commercial Finance starts 2022 with a strong
new business pipeline and a stable customer base.
Savings
The Group attracts funding primarily via retail savings,
offering individuals competitive, simple products, applied for and
serviced online and backed by the UK Financial Services
Compensation Scheme.
2021 2020 Movement Movement
GBPmillion GBPmillion GBPmillion %
----------------- ----------- ------------ ----------- --------
Fixed term bonds 974.6 1,076.4 (101.8) (9.5)
----------------- ----------- ------------ ----------- --------
Notice accounts 771.9 705.1 66.8 9.5
----------------- ----------- ------------ ----------- --------
ISAs 255.0 129.6 125.4 96.8
----------------- ----------- ------------ ----------- --------
Access accounts 101.7 81.4 20.3 24.9
----------------- ----------- ------------ ----------- --------
2,103.2 1,992.5 110.7 5.6
----------------- ----------- ------------ ----------- --------
What we do
-- We offer a range of savings accounts that are purposefully
simple in design, with a choice of products from same day
withdrawal to 180-day notice, and one to seven year fixed terms
across both bonds and ISAs.
-- Accounts are made available and priced in line with our
ongoing funding needs, allowing each individual to hold a maximum
balance of GBP1 million.
-- Our range of savings products enables us to access the
majority of the UK personal savings markets and compete for
significant liquidity pools, achieving a lower marginal cost
with the volume, mix and the rates offered optimised to the
demand
of our funding needs.
2021 performance
The Savings business has continued to raise deposits in an
increasingly competitive market through our range of retail savings
products. Over GBP1.0 billion of new deposits were generated in
2021, the majority of which came from external new funding
(GBP661.4 million). This increased total savings balances to GBP2.1
billion by the end of 2021 (2020: 2.0 billion).
Our strategy to diversify our product range through our Fixed
Rate ISA and Access products has enabled us to reduce our cost of
retail deposits, despite acquisition rates across savings products
increasing during the second half of the year.
ISA balances have almost doubled to GBP255.0 million (2020:
GBP129.6 million), while variable rate deposits have similarly
grown to GBP873.6 million (2020: GBP774.8 million), driven by
customers' continued preference for shorter-dated deposit accounts.
The operation has been further simplified during 2021 through the
closure of our OneBill account and a small book of non-personal
savings products.
Alignment of existing savings rates to market reductions during
the first half of 2021 reduced the cost of retail deposits. We
expect a continued rise in the cost of retail deposits in 2022
through further increases in the Base Rate and continued
competition for new deposits. We will therefore continue our
strategy to diversify our product range by launching our Access
account to new and existing customers during the first quarter of
2022.
To support this our new digital proposition will be delivered
during the year, creating a platform to enable the growth of retail
deposits in a cost-effective way.
Principal risks and uncertainties
Risk management
A fundamental element of the Group's strategy is the effective
management of risk, in order to protect the Group's depositors,
borrowers and shareholders, to ensure that the Group maintains
sufficient capital, liquidity and operational control at all times
and acts in a reputable way. This is reflected in the Group's
strategy and values, in particular the 'Sustain' strategy and 'Risk
Aware' value, which demonstrate the Group's commitment to protect
the reputation, integrity and sustainability of the Group.
The Group's Chief Risk Officer is responsible for leading the
Group's Risk Function, which is independent from the Group's
operational and commercial functions. The Risk Function is
responsible for ensuring that appropriate risk management processes
and controls are in place, and that they are sufficiently robust,
to ensure that key risks are identified, assessed, monitored and
mitigated. The Chief Risk Officer is responsible for reporting to
the Board that the Group's principal risks are appropriately
managed and that it is operating within its risk appetite.
Risk appetite
The Group's Board approves the firm's risk appetite statements
that confirm the risk parameters within which the strategic aims
and vision of the Group are to be achieved. The Group has
identified the risk drivers and major risk categories relevant to
the business to enable it to produce a comprehensive suite of risk
appetite statements and metrics which underpin the strategy of the
Group.
Governance
The Group's risk management frameworks, policies and procedures
are regularly reviewed and updated to ensure that they accurately
identify the risks that the Group faces in its business activities
and are appropriate for the nature, scale and complexity of the
Group's business. The Group's risk management frameworks support
decision-making across the Group and are designed to ensure that
each risk is managed, monitored and overseen through a dedicated
risk-specific committee.
Effective risk committees are operating at Board, Group and
individual business unit level to ensure there is clear
accountability for risk management, a robust framework and risk
identification and mitigation strategies are in place across the
Group.
In 2021 a new Executive Risk Committee ('ERC'), chaired by the
Chief Risk Officer was established to further embed and align the
Group's risk management frameworks. The Committee reviews key risk
management information from across the risk disciplines, with
material escalated to the Executive Committee ('ExCo') and/or the
Risk Committee of the Board ('BRC') as required.
The Group operates a 'Three Lines of Defence' model for the
management of its risks. The Three Lines of Defence, when taken
together, control and manage risks in line with the Group's risk
appetite. The three lines are:
-- First Line: the Business Line Managers who own and manage
risk;
-- Second Line: functions that oversee or specialise in risk
management or compliance (Information Security, Operational Risk,
Prudential Risk, Credit Risk, Financial Crime and Compliance
Teams); and
-- Third Line: Internal Audit.
Each line of defence effectively ensures a robust risk framework
within the Group. The Group ensures that each line understands its
respective responsibilities and those of the other lines and has
the appropriate resource and expertise in order to fulfil its
responsibilities.
The Group operates an Enterprise-Wide Risk Management Framework
('ERMF') , which supports the coordination of risk management
disciplines across the Group. Underneath the ERMF sit individual
risk discipline frameworks and policies which set standards on:
-- Risk identification: activities are embedded through
integration with key business processes to ensure the Group:
- Considers how existing activities may impact the current and
future risk profile
- Considers the implications of new products
- Has an awareness of how external influences may affect
risk.
-- Risk management: focuses on the application of tools,
techniques and processes to quantify risks in order to effectively
measure risk and its change over time.
-- Risk monitoring: Board and senior management are provided
with timely identification of the risk position, current emerging
risks, material threats and opportunities to enable appropriate
management actions.
-- Risk reporting: The Board, Committees, and senior management
are informed of any changes in the Group's risk profile or position
and necessary actions via regular reporting. In addition, ad-hoc
reporting to address any specific concerns affecting risk
management or strategies must be available.
Further details of the Group's risk management framework,
including risk appetite, governance arrangements and key
committees, can be found on the Group's website:
www.securetrustbank.com/our-corporate-information/risk-management
Risk overview
Executive management performs ongoing monitoring and assessment
of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or
liquidity. The following table shows the principal risks facing the
Group, the movement indicates how the risk profile for each
individual risk has shifted over the course of 2021. This year
Financial Crime and Climate Change have been split out from
Regulatory and Operational Risk respectively to provide further
insight into the work currently being undertaken by the Group.
Principal risk Change to the risk profile over 2021
------------------------------------------------------------------------------ ------------------------------------
Credit risk Improving
Credit risk is the risk that a counterparty will be unable to satisfy their
debt servicing
commitments when due.
------------------------------------------------------------------------------ ------------------------------------
Liquidity and Funding risk Stable
The risk that the Group is unable to meet its obligations as they fall due or
can only do
so at excessive cost.
------------------------------------------------------------------------------ ------------------------------------
Capital risk Stable
Capital risk is the risk that the Group will have insufficient capital
resources to meet minimum
regulatory requirements and to support the business.
------------------------------------------------------------------------------ ------------------------------------
Market risk Stable
The risk that the value of, or revenue generated from, the Group's assets and
liabilities
is impacted as a result of market movements, predominantly interest rates.
------------------------------------------------------------------------------ ------------------------------------
Operational risk Stable
Operational risk is the risk that the Group may be exposed to direct or
indirect loss arising
from inadequate or failed internal processes, personnel and succession,
technology or infrastructure,
or from external factors.
------------------------------------------------------------------------------ ------------------------------------
Conduct risk Stable
The risk that the Group's products and services, and the way they are
delivered, result in
poor outcomes for customers, or harm to the Group.
------------------------------------------------------------------------------ ------------------------------------
Regulatory risk Stable
The risk that the Group fails to be compliant with all relevant regulatory
requirements.
------------------------------------------------------------------------------ ------------------------------------
Financial Crime risk Stable
The risk that the Group fails to prevent the facilitation of financial crime
by not having
effective systems and controls and does not meet regulatory requirements.
------------------------------------------------------------------------------ ------------------------------------
Climate Change risk Stable
The risk of the potential 'physical' effects of climate change and the
'transitional' risks
from the UK's adjustment towards a carbon neutral economy on the Group's
strategy, performance
and operational resilience.
------------------------------------------------------------------------------ ------------------------------------
Notes 38 to 41 to the financial statements provide further
analysis of credit, liquidity, market and capital risks.
Further details of the principal risks, the changes in risk
profile during the 2021 financial year and the Group's risk
management framework are set out in the following section. There is
also analysis of some of the key strategic and emerging risks which
may
impact the Group.
Credit risk
-----------------------------------------------------------------------------------------------------
Description
Credit risk is the risk that a counterparty will be unable to satisfy their debt servicing
commitments when due. Counterparties include the consumers to whom the Group lends on a secured
and unsecured basis and the small and medium size enterprises ('SME') to whom the Group lends
on a secured basis as well as the market counterparties with whom the Group deals.
-------------------------------------------------------------------------------------------------------
Mitigation
The Group manages credit risk through internal controls and through a three lines of defence
model. The Consumer Credit Risk Committee and SME Credit Committees, which are the monitoring
committees for credit risk, report to the Risk Committee. The ERC approves lending authorities
in respect of SME lending. Each consumer lending product has a monthly portfolio review which
reviews business performance. Policy and scorecard changes are approved at the Consumer Credit
Risk Committee.
For Real Estate Finance and Commercial Finance, lending decisions are made by their respective
Credit Committees, using expert judgement and assessment against criteria set out in the lending
policies. Exposure to credit risk is also managed in part by obtaining security. Vehicle Finance
loans are secured against motor vehicles. Real Estate Finance loans are secured against property.
Commercial Finance advances are secured against a debtor book, inventory, plant and machinery
or property if a commercial mortgage is provided.
Management monitors the credit ratings of the counterparties in relation to the Group's loans
and advances to banks. There is no direct exposure to the Eurozone and peripheral Eurozone
countries.
Forbearance
The Group does not routinely reschedule contractual arrangements where customers default on
their repayments. It may offer the customer the option to reduce or defer payments for a short
period, in which cases the loan will retain the normal contractual payment due dates and will
be treated the same as any other defaulting cases for impairment purposes.
-------------------------------------------------------------------------------------------------------
Consumer Finance credit risk
Application, arrears and loss trends for the Retail Finance and Vehicle Finance portfolios
are monitored monthly by the Credit Risk function. Since the end of lockdown Retail Finance
business volumes have returned to pre-pandemic levels. Portfolio quality continues to improve
driven by the proportion of new business in the lower risk furniture and jewellery sectors.
Arrears cases remain below expectations as reflected by the higher quality business being
written.
Vehicle Finance has seen volumes steadily increasing, particularly in the second half of the
year, as credit policy has returned to pre-pandemic standards. The Prime Hire Purchase product
is starting to see higher volumes as introducers are aware of our risk appetite, and the Prime
PCP product was launched in December 2021. Impairments are performing well and are lower than
expectation.
The increase in inflation in the second half of 2021 resulting in rising energy prices and
the cost of living will impact customers that had low levels of disposable income, meaning
that they will have to prioritise the debts that they pay. This is likely to result in increased
impairments on the Consumer portfolios. The Group has implemented an Expert Credit Judgement
overlay to account for the heightened risk of default from the highest risk, lowest income
customers.
Business Finance credit risk
New business origination activities in Business Finance returned to business as usual as the
UK exited lockdown during the year. New business in Real Estate Finance was driven in part
by the launch of the Greener Home Scheme product, which against some large scheduled repayments
saw the balances grow modestly throughout the year. In Real Estate Finance, the majority of
customers impacted by the COVID-19 pandemic saw rental income recover and as a result there
was no need to extend the forbearance measures previously agreed; with loans moved back to
original terms.
In Commercial Finance the Government guaranteed loan schemes (CBILS, CLBILS, RLS) were deployed
in response to COVID-19. The business has successfully provided circa GBP65.9 million of loans
and has received circa 30% in repayments so far. Commercial Finance took the conscious decision
not to participate in the UK Government's Bounce Back Loan Scheme. The overall Commercial
Finance portfolio has grown through the year, despite significant unutilised headroom.
The Group has not relaxed any of its key risk appetite parameters during the year. Management
continues to monitor each of the portfolios closely and regularly reviews the external events
and changes to the wider environment that could have a material impact on any of them.
Concentration risk
Management assesses the potential concentration risk from geographic, product and individual
loan concentration. Due to the well diversified nature of its lending operations, the Group
does not consider there to be a material exposure arising from concentration risk.
Model risk and the impact of IFRS 9
The IFRS 9 models have been monitored closely throughout the year and found to be working
effectively. A new Probability of Default model was implemented for the Real Estate Finance
business in the second half of 2021 and has performed well. Minor enhancements have been made
to the models where appropriate ahead of a routine full review, and where appropriate, redevelopment
in 2022. The extreme economic conditions brought about by COVID-19 have required particular
focus on the macroeconomic variables that drive the forward-looking elements of the IFRS 9
models (the Economic Response Model). Unemployment rate has the largest influence on the Economic
Response Model element of IFRS 9, with House Price Index also playing an influence in the
Real Estate Portfolio. Throughout the year the Bank has continued to stress the IFRS 9 models
with a number of unemployment scenarios, to assist with business planning and forecasting.
Payment holidays have kept the provision levels produced by the IFRS 9 models artificially
low in the first half of 2021, so where necessary overlays were used to maintain provision
cover at appropriate levels.
-------------------------------------------------------------------------------------------------------
Change during the year - Improving
Given the positive response seen from the portfolios to the pandemic and the robust credit
appetite controls that continue to be applied, the overall assessment of credit risk improved
during the year. Despite the low numbers of defaults experienced throughout the year, however,
difficult economic conditions are expected in 2022. Inflation is expected to rise and labour
shortages and supply chain disruption are expected to continue.
-------------------------------------------------------------------------------------------------------
Liquidity and Funding risk
-----------------------------------------------------------------------------------------------------
Description
Liquidity and funding risk is the risk that the Group is unable to meet its obligations as
they fall due or can only do so at excessive cost. The Group maintains adequate liquidity
resources and a prudent, stable funding profile at all times to cover liabilities as they
fall due in normal and stressed conditions.
The Group manages its liquidity in line with internal and regulatory requirements, and at
least annually assesses the robustness of the liquidity requirements as part of the Group's
Internal Liquidity Adequacy Assessment Process ('ILAAP').
-------------------------------------------------------------------------------------------------------
Mitigation Risk tolerance and stress testing
The Board sets and approves the Group's liquidity and funding risk appetite. Liquidity and
funding risk is managed by the Group's Treasury function and is overseen by the Assets & Liabilities
Committee ('ALCO'). The Group's ALCO monitors compliance with the Group's policies and oversees
the overall strategy, guidelines and limits so that the Group's future plans and strategy
can be achieved within risk appetite.
The Liquidity Working Group ('LWG'), a working group of ALCO including representation from
Business Unit Finance Directors, embeds the identification, monitoring, measurement and management
of liquidity and funding risks in the day-to-day activities of the Group. The Risk Function
is responsible for ensuring that appropriate risk management processes and controls are in
place, and that they are sufficiently robust to ensure that key risks are identified, assessed,
monitored and mitigated.
Liquidity and funding metrics are monitored daily through daily liquidity reporting and on
an ongoing basis through monthly ALCO meetings. Metrics are also included in the monthly information
pack presented at the Group's ExCo, the BRC and the Board.
The aim is not to measure liquidity and funding with a single metric but rather a range of
principles and metrics which, when taken together, helps ensure that the Group's liquidity
and funding risk is maintained at an acceptable level. The primary measures used by management
to assess the adequacy of liquidity is the Overall Liquidity Adequacy Rule ('OLAR') (which
is the Board's own view of the Group's liquidity needs as set out in the Board-approved ILAAP),
the Liquidity Coverage Ratio ('LCR'), and the Funding to Loan Ratio. The Group manages liquidity
by working to ensure compliance with the most binding metric.
In line with the Prudential Regulation Authority's ('PRA') self-sufficiency rule (the OLAR)
the Group seek at all times to maintain liquidity resources which are adequate, both as to
amount and quality, to ensure that there is no significant risk that its liabilities cannot
be met as they fall due under stressed conditions. The Group defines liquidity adequacy as
the:
* Ongoing ability to accommodate the refinancing of
liabilities upon maturity and other means of
withdrawal at acceptable cost;
* Ability to fund asset growth; and
* Capacity to otherwise meet contractual obligations
through unconstrained access to funding at reasonable
market rates.
To meets its liquidity requirements the Group maintains a buffer of unencumbered High Quality
Liquid Assets ('HQLA').
The Group conducts regular and comprehensive liquidity stress testing to identify sources
of potential liquidity strain and to ensure that the Group's liquidity position remains within
the Board Risk Appetite and prudential regulatory requirements and limits. Stress testing
covers idiosyncratic, market-wide, and combined stress scenarios, with additional stress scenarios
including reverse stresses and combinations of sensitivity analysis across individual items.
Contingency funding plans
If for reasons which may be beyond the business' control, the Group was to encounter a significant
and sustained outflow of deposits or other stress on liquidity resource, the Recovery Plan
incorporates the Group's plans to ensure that it remains sufficiently liquid to remain a viable
independent financial institution during a severe liquidity stress event. Recovery Plan Early
Warning Indicators and Invocation Trigger Points are regularly monitored and reported against.
The Recovery Plan is applied consistently with the Group's ILAAP as part of the overall liquidity
risk management framework dealing with contingent funding requirements as they arise. The
Group also retains access to the Bank of England liquidity schemes, including the Discount
Window Facility.
-------------------------------------------------------------------------------------------------------
Change during the year - Stable
The Group has maintained its liquidity ratios in excess of regulatory requirements throughout
the year and continues to hold significant levels of HQLA.
A number of enhancements were made to the liquidity and funding risk management in 2021. These
included a further review of the quantum of liquidity the Group holds to support its franchise
in business-as-usual and stressed conditions. A thorough review of the Group's regulatory
liquidity reporting has also been completed. The stress tests performed as part of the ILAAP
confirmed that the Group has sufficient funds to satisfy the OLAR requirement and there is
no significant risk that liabilities cannot be met as they fall due. The Group's LCR as at
31 December 2021 was significantly higher than the regulatory requirement.
-------------------------------------------------------------------------------------------------------
Capital risk
---------------------------------------------------------------------------------------------------------
Description
Capital risk is the risk that the Group will have insufficient capital resources to meet minimum
regulatory requirements and to support the business. The Group adopts a conservative approach
to managing its capital and at least annually assesses the robustness of the capital requirements
as part of the Group's Internal Capital Adequacy Assessment Process ('ICAAP').
-----------------------------------------------------------------------------------------------------------
Mitigation
Capital Management is defined as the operational and governance processes by which capital
requirements are established and capital resources maintained and allocated, such that regulatory
requirements are met while maximising returns. These processes and associated roles and responsibilities
are set out in the Group's Capital Management Policy, which is approved by the BRC. The Board
regularly reviews the current and forecast capital position to ensure capital resources are
sufficient to support planned levels of growth.
In accordance with the EU's Capital Requirements Directive V ('CRD V') and the required parameters
set out in the EU's Capital Requirement Regulation, which have been prescribed into UK law
following Brexit, the Group maintains an ICAAP which is updated at least annually.
The ICAAP is a process that brings together the management framework (i.e. the policies, procedures,
strategies and systems that the Group has implemented to identify, manage and mitigate its
risks) and the financial disciplines of business planning and capital management.
Not all material risks can be mitigated by capital, but where capital is appropriate the Board
has adopted an approach to determine the level of capital we need to hold. This method takes
the Pillar 1 capital formula calculations (standardised approach for credit, market and operational
risk) as a starting point, and then considers whether each of the calculations delivers a
sufficient capital sum adequate to cover management's assessment of anticipated risks. Where
it is considered that the Pillar 1 calculations do not reflect the risk, an additional capital
add-on in Pillar 2 is applied, as per the Total Capital Requirement issued by the PRA.
A complete assessment of the Group's capital requirement is contained in its Pillar 3 disclosures.
Pillar 3 disclosures for the Group for the year ended 31 December 2021 are published as a
separate document on our website.
-----------------------------------------------------------------------------------------------------------
Change during the year - Stable
As set out in the Financial review, the Group's capital position improved in 2021, reflecting
the growth in profits. The Group continues to meet its capital ratio measures. Details of
the CET 1, total capital ratio and leverage ratio are included in the Financial review on
page 16.
The 2021 ICAAP showed that the Group continues to be able to meet its minimum capital requirements,
even under extreme stress scenarios. In addition to the ICAAP, the Group performs regular
budgeting and reforecasting exercises which consider a five-year time horizon. These forecasts
are used to plan for future lending growth at a rate that both increases year-on-year profits
and maintains a healthy capital surplus. They considered the impact of known and anticipated
future regulatory changes including the estimated impact of the re-introduction of the countercyclical
capital buffer ('CCyB') prior to its announcement in December 2021.
The PRA's proposed increases in CCyB explained on page 25 will not challenge the Group's minimum
regulatory capital position. The Group will continue to monitor its future capital requirements
as it grows its risk weighted assets over the reporting period.
The Group also models a number of stressed scenarios looking over a five-year time horizon,
which consider a range of growth rates over those years as part of the viability and going
concern assessments.
The 2020 pandemic demonstrated the benefit of the relatively short duration of the Group's
lending portfolios. As the crisis took hold, the reduction in certain of our markets and our
tightening of credit risk appetite led to a swift reduction in our balance sheet, thereby
reducing pressure on capital levels. This feature of our balance sheet allows us to flex future
growth rates in response to changing economic conditions.
The Group adopted transitional provisions in respect of the implementation of IFRS 9. These
provisions allow the capital impact of the standard to be phased in over a five-year period.
As a response to the pandemic, further capital relief was made available, and the Group's
reported capital position takes account of this relief. Further details are provided in the
Financial review on page 16.
-----------------------------------------------------------------------------------------------------------
Market risk
----------------------------------------------------------------------------------------------------
Description
The Group's market risk is primarily linked to interest rate risk. Interest rate risk refers
to the exposure of the Group's financial position to adverse movements in interest rates.
When interest rates change, the present value and timing of future cash flows change. This
in turn changes the underlying value of the Group's assets, liabilities and off-balance sheet
instruments and hence its economic value. Changes in interest rates also affect the Group's
earnings by altering interest-sensitive income and expenses, affecting its net interest income.
The principal currency in which the Group operates is Sterling, although a small number of
transactions are completed in US dollars, Euros and other currencies in the Commercial Finance
business. The Group has no significant exposures to foreign currencies and hedges any residual
currency risks to Sterling.
------------------------------------------------------------------------------------------------------
Mitigation Risk tolerance and stress testing
Market risk is managed by the Group's Treasury function and is overseen by the ALCO. The Group
does not take significant unmatched positions and does not operate a trading book.
The Group's risk management framework, policies and procedures are regularly reviewed and
updated to ensure that they accurately identify the risks that the Group faces in its business
activities and are appropriate for the nature, scale and complexity of the Group's business.
The Group uses an interest rate sensitivity gap analysis which informs the Group of any significant
mismatched interest rate risk positions that require hedging. The Group reports the interest
rate mismatch on a monthly basis to ALCO, considering Market Value Sensitivity ('MVS') as
a proportion of the overall capital position of the Group and Earnings at Risk as a proportion
of forecast net interest income. These are mainly assessed against 200bps and 100bps parallel
shifts in rates respectively. These measures also assess the Group's exposure to a potential
negative interest rate environment.
The Group also monitors its exposure to the Economic Value of Equity ('EVE') as a proportion
of own funds and CET 1 against a 200bps parallel shift in rates, as well as the six standardised
shocks prescribed by the Basel Committee on Banking Supervision ('BCBS').
The Group also monitors its exposure to basis risk, optionality, and any residual non-GBP
positions. Processes are also in place to review and react to movements to the Bank of England
Base Rate.
All such exposures are maintained within the risk appetite set by the Board and are monitored
by ALCO.
------------------------------------------------------------------------------------------------------
Change during the year - Stable
The Group's exposure to market risk continues to be primarily focused on interest rate risk,
with only modest exposures to foreign exchange risk. Performance against risk appetite is
closely tracked and reviewed to align with Group Strategy. The Group remained within risk
appetite in respect of market risk throughout the year.
The Group has made further enhancements to market risk management in 2021 and regularly reviews
the risk management framework.
------------------------------------------------------------------------------------------------------
Operational risk
----------------------------------------------------------------------------------------------------
Description
Operational risk is the risk that the Group may be exposed to direct or indirect loss arising
from inadequate or failed internal processes, personnel and succession, technology/ infrastructure,
or from external factors.
The scope of Operational risk is broad and includes business process, business continuity,
third party, Financial Crime, Change, Human Resources, Information Security and IT risk, including
Cyber risk. The Group's customers, operations, processes, products and people are exposed
to these inherent risks so it has made significant investments to carefully manage and mitigate
these risks and ensure there is a robust and effective Operational Risk Framework in operation
across all areas of its business.
------------------------------------------------------------------------------------------------------
Mitigation
The Group has an Operational Risk Framework designed in accordance with the 'Principles for
the Sound Management of Operational Risk' issued by the Basel Committee on Banking Supervision.
This Framework defines and facilitates the following activities:
* A Risk and Control Self-Assessment process to
identify, assess and mitigate risks across all
business units through improvements to the control
environment
* The Governance arrangements for managing and
reporting these risks
* Risk appetite statements and associated thresholds
and metrics
* An incident management process that defines how
incidents should be managed and associated
remediation, reporting and root-cause analysis.
The design and effectiveness of the Group's Operational Risk Framework is regularly audited
by the Group's Internal Audit function.
The Framework ensures appropriate governance is in place to provide adequate and effective
oversight of the Group's operational risks. The governance framework includes the Group Operational
Risk Committee, the ERC and the BRC.
The Group has a defined set of qualitative and quantitative operational risk appetite measures.
These measures cover all categories of operational risk and are reported and monitored monthly.
In addition to the delivery of Framework requirements Operational Risk has also focused on
these thematic areas in 2021:
* COVID-19 (business disruption) - The pandemic has
increased the inherent risks faced by our business
across a number of operational risk categories and
has remained a key area of focus in 2021. As well as
working to minimise the operational implications
through changes to our operating practices, the Group
has also been focusing on the safe return of
colleagues to the offices over the second half of the
year. The threat of new variants remains, and we
continue to closely monitor the situation. The
pandemic has increased the competitiveness of the UK
job market with hybrid working allowing recruiters to
look nationally for new talent. Inflationary
pressures have also increased pressure on wages
across the sector, further increasing the importance
of succession planning and mitigating key person
risk.
* Supplier management - The Group uses a number of
third parties to support its IT and operational
processes. The Group recognises that it is important
to effectively manage these suppliers and has
embedded a suite of standard controls for all its
material suppliers to reduce the risk of operational
impacts on these critical services. This has been
particularly important during the COVID-19 pandemic,
so we have remained in regular contact with our key
suppliers and gained assurances over their ongoing
ability to support our operations. Further tools have
been developed, and are being rolled out, to help
understand the quality of the resilience controls in
operation at our critical suppliers. This will
continue to be an area of focus for 2022.
* Operational and IT resilience - Many elements of the
Operational Risk Framework support the ongoing
resilience of the Group's operational and IT services,
including business continuity management, disaster
recovery, incident management, process management,
and the cyber strategy. The Group has defined a
formal plan to respond to the new requirements of the
Consultation Papers issued on this subject by the
Financial Conduct Authority ('FCA') and PRA.
Compliance with these requirements and continuing to
enhance the resilience of our services remains a key
priority.
* Information security and cyber risk - The Group has
paid considerable attention to ensuring the effective
management of risks arising from a failure or breach
of its information technology systems that could
result in customer exposure, business disruption,
financial losses, or reputational damage.
* Change Management - The effective delivery of Change
Management programmes plays an important role in
meeting the Group's regulatory requirements,
improving services and delivering our strategic
plans. Ineffective change management processes could
lead to poor customer outcomes, business disruption,
financial loss and regulatory breaches. Change
Management processes and governance are defined and
embedded across the Group.
------------------------------------------------------------------------------------------------------
Change during the year - Stable
The Group uses the 'The Standardised Approach' for assessing its operational risk capital,
in recognition of the enhancements made to its framework and embedding this across the Group.
The Group continues to invest in resource, expertise and systems to support the Operational
Risk Framework and Policy. In 2021 the Group has continued to enhance these standards and
has introduced a number of improvements to the control frameworks in place across our principal
operational risks.
Whilst the pandemic increased the inherent operational risk across a number of key areas of
our business, the Group continues to adapt successfully to the new working conditions and
demonstrated its operational resilience. Overall, the assessment is that the level of risk
has remained stable.
------------------------------------------------------------------------------------------------------
Conduct risk
----------------------------------------------------------------------------------------------------
Description
We define Conduct Risk as the risk that the Group's products and services, and the way they
are delivered, result in poor outcomes for customers, or harm to the Group. This could be
as a direct result of poor or inappropriate execution of the Group's business activities or
staff behaviour.
------------------------------------------------------------------------------------------------------
Mitigation
The Group takes a principles-based approach and includes retail and commercial customers in
our definition of 'customer', which covers all business units and both regulated and unregulated
activities. Detailed policies are in place to address the fair treatment of customers, with
the Conduct Risk Policy setting out the overarching approach to managing conduct risk.
------------------------------------------------------------------------------------------------------
Change during the year - Stable
The Group has continued to operate within overall risk appetite, remaining focused on delivering
good customer outcomes.
As reported in the 2021 Interim Report, pressure has been seen on some conduct risk metrics.
For example some contact centre service levels have been outside tolerance for some periods
with resources not matching requirements. The number of affordability complaints received
has also been flagged for attention in Vehicle Finance - increased volumes have also been
noted by other motor finance lenders according to the Finance & Leasing Association.
The Group anticipates that the drivers of conduct risk will continue to be the ongoing resourcing
challenges (being experienced across the financial services industry as competition for recruitment
increases) and related conduct considerations, and the long-term impact of the pandemic on
the Group's customers.
------------------------------------------------------------------------------------------------------
Regulatory risk
-------------------------------------------------------------------------------------------------
Description
Regulatory Risk is the risk that the Group fails to be compliant with all relevant regulatory
requirements. This could occur if the Group failed to interpret, implement and embed processes
and systems to address regulatory requirements, emerging risks, key focus areas and initiatives
or deal properly with new laws and regulations.
---------------------------------------------------------------------------------------------------
Mitigation
The Group seeks to manage regulatory risks through the ERMF. The Group Compliance and Regulatory
Risk Committee, Group Financial Crime Committee and Prudential Horizon Scanning forum are
responsible for reviewing and monitoring regulatory changes. The committees monitor operational
incidents with a regulatory impact, and ensure that appropriate actions are taken. They also
review and approve the relevant risk management framework.
---------------------------------------------------------------------------------------------------
Change during the year - Stable
In the year ended 31 December 2021, new and revised regulations and legislation that have
come into force have been actioned. These changes included the introduction of Breathing Space
through the Debt Respite Scheme, the FCA's guidance on vulnerability, the application of the
FCA Directory requirements to other entities in the Group, changes to identification of Material
Risk Takers, and the PRA's final rules for the implementation of Basel Standards.
The Group took part in a number of FCA reviews and surveys during the year, including car
repossessions prior to the FCA COVID-19 guidance being changed, forbearance survey, credit
broking survey, coronavirus financial resilience survey and the pilot diversity and inclusion
survey.
Notifications were submitted to the regulators in the year relating to the sale of the asset
finance, and mortgage portfolios; and material outsourcings.
Projects and initiatives are in place for changes in 2022 including outsourcing and third-party
risk management, regulatory returns, operational resilience, UK GDPR data transfers.
The Group's horizon scanning activities track industry and regulatory developments including
the PRA's work on a strong and simple prudential framework for non-systemic banks and building
societies, the FCA's new Consumer Duty, the Government's national data strategy and the PRA
and FCA's transformation agendas related to data.
---------------------------------------------------------------------------------------------------
Financial Crime risk
-----------------------------------------------------------------------------------------------------
Description
The risk that the Group fails to prevent the facilitation of financial crime by not having
effective systems and controls and does not meet regulatory requirements.
-------------------------------------------------------------------------------------------------------
Mitigation
The inherent risk of the Group is assessed with the use of the recognised ERMF methodology.
Investment continues to be made in enhancing skills, systems and controls and this is an area
which is closely monitored by the ExCo. This remains an important area of focus for the Group
and as such has now been reflected as a separate risk. The Group appointed a new Money Laundering
Reporting Officer who was approved by the FCA in December 2020. The Group continues to have
no appetite for establishing or maintaining customer relationships or executing transactions
that facilitate financial crime and has no appetite for sanctions breaches. Horizon scanning
is conducted to identify emerging trends and typologies as well as preparing for new legislation
and regulation. This also involves participating in key industry forums (or associations)
such as those hosted by UK Finance. Financial Crime policies and standards were updated in
2021 to ensure alignment with our regulatory obligations.
-------------------------------------------------------------------------------------------------------
Change during the year - Stable
The Group continues to invest in recruitment for both the first and second Lines of defence
and in colleagues' development to improve their capabilities through industry-recognised financial
crime qualifications. The Group has built a system of controls designed to comply with the
UK Bribery Act 2010 and the Criminal Finances Act 2017. To strengthen our financial crime
controls there has been focus in areas such as further improving sanctions screening, assessing
risks presented by products and appropriate transaction monitoring and reinforcing horizon
scanning, policies and governance to adhere to our risk appetite and stay abreast of increasing
regulatory expectations. The Financial Crime Risk team own our control framework with accountability
for execution owned by our colleagues within the first line. In order to monitor the effectiveness
of our control framework, key performance indicators are defined, reported against and escalated
through our Governance Committee structure. To support cultural awareness an internal campaign
under the banner of "Spot the signs, stop the crimes" has been initiated.
-------------------------------------------------------------------------------------------------------
Climate Change risk
-------------------------------------------------------------------------------------------------------
Description
Climate change, and society's response to it, present financial risks to the UK financial
services sector. While these risks will crystallise in full over the coming years, they are
already becoming apparent in the shorter term as consumers' preferences change and governments
implement their strategic responses. The Group has now established processes to monitor our
risk exposure in relation to both the potential 'Physical' effects of climate change and the
'Transitional' risks from the UK's adjustment towards a carbon neutral economy.
---------------------------------------------------------------------------------------------------------
Change during the year - Stable
Overall, our assessment of the combined risk associated with Climate Change is 'Stable'. The
Group has installed robust controls to manage the associated risks and will continue to develop
our business plans in the future as the risks evolve and our customer, clients and businesses
adapt to the changes required in our markets to meet the UK's target to bring all greenhouse
gas emissions to net zero by 2050. Enhanced disclosures are made in this year's Annual Report
and Accounts in line with the guidance from the 'Task Force on Climate-Related Financial Disclosures'.
Specific detail on each of the key risks identified and mitigation are covered within the
'Strategy' section of our Climate-related financial disclosures on pages 49 to 55.
---------------------------------------------------------------------------------------------------------
Strategic and emerging risks
In addition to the principal risks disclosed above, the Board
and Executive considers strategic and emerging risks, including key
factors, trends and uncertainties which can influence the results
of the Group. These are reviewed monthly by the ERC and biannually
by the ExCo. Below are some of key risks themes which have been
areas of focus over the course of 2021:
Macroeconomic environment and market conditions
The Group operates exclusively within the UK and its performance
is influenced by the domestic macroeconomic environment. The
economy affects demand for the Group's products, margins that can
be earned from our lending assets and the levels of impairment.
Economic uncertainty continued throughout 2021 due to
combination of the global ramifications of COVID-19 and the UK
markets adjusting to leaving the European Union. The start of 2021
saw continued use of lockdowns to curb the spread of COVID-19,
suppressing economic activity.
The second half of 2021 saw a rebound in many sectors, with many
asset prices increasing due to pent up demand and, in the case of
vehicles, global supply chain difficulties. Inflationary pressures
on the economy, raises the likelihood of future increases in
interest rates, after a decade of historically low Base Rates.
The Group closely monitors the macroeconomic environment and
performs regular stress testing to ensure that the implications of
any economic shocks can be sustained and managed.
People
The pandemic has increased the competitiveness of the UK job
market with hybrid working allowing recruiters to look nationally
for new talent. Inflationary pressures have also increased pressure
on wages across the sector.
In 2021 the Group introduced a new Hybrid Working Policy and
continues to monitor the wider employment market and respond as
required.
Inflation
There have been growing inflationary pressures on the UK economy
in 2021 and this is forecast to stretch into 2022, with economists
predicting higher Base Rates as markets price in Base Rate
increases over the course of 2022. The outlook remains far from
clear and is further complicated by COVID-19.
In response to increasing inflation rates in 2021, the Group
introduced a GBP4.6 million provision to reflect the expected
increase in delayed repayments and defaults if customers struggle
to pay all their bills on a timely basis. The Group will continue
to monitor customer affordability closely and will tighten lending
parameters if required .
Directors' responsibility statement
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
are required to prepare the group financial statements in
accordance with UK adopted international accounting standards in
conformity with the requirements of the Companies Act 2006.
In preparing the parent company financial statements, the
directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and accounting estimates that are reasonable
and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
In preparing the group financial statements, International
Accounting Standard 1 requires that directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in UK adopted IFRS Standards are insufficient
to enable users to understand the impact of particular
transactions, other events and conditions on the entity's financial
position and financial performance; and
-- make an assessment of the company's ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
-- the Financial Statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the company and the undertakings included in the consolidation
taken as a whole;
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- the Annual Report and Financial Statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's position,
performance, business model and strategy.
Consolidated statement of comprehensive income
For the year ended 31 December
Restated
2021 2020
Note GBPmillion GBPmillion
-------------------------------------------------------------------------------------- ---- ----------- -----------
Income statement
-------------------------------------------------------------------------------------- ---- ----------- -----------
Interest income and similar income 4.1 180.0 192.5
-------------------------------------------------------------------------------------- ---- ----------- -----------
Interest expense and similar charges 4.1 (29.2) (41.6)
-------------------------------------------------------------------------------------- ---- ----------- -----------
Net interest income 4.1 150.8 150.9
-------------------------------------------------------------------------------------- ---- ----------- -----------
Fee and commission income 4.2 14.3 16.0
-------------------------------------------------------------------------------------- ---- ----------- -----------
Fee and commission expense 4.2 (0.6) (0.8)
-------------------------------------------------------------------------------------- ---- ----------- -----------
Net fee and commission income 4.2 13.7 15.2
-------------------------------------------------------------------------------------- ---- ----------- -----------
Operating income 164.5 166.1
-------------------------------------------------------------------------------------- ---- ----------- -----------
Net impairment charge on loans and advances to customers 17 (4.5) (51.3)
-------------------------------------------------------------------------------------- ---- ----------- -----------
Gains/(losses) on modification of financial assets 5 1.5 (3.1)
-------------------------------------------------------------------------------------- ---- ----------- -----------
Loss on disposal of loan books 6 (1.4) -
-------------------------------------------------------------------------------------- ---- ----------- -----------
Losses from derivatives and hedge accounting 7 (0.1) -
-------------------------------------------------------------------------------------- ---- ----------- -----------
Operating expenses 8 (104.0) (92.6)
-------------------------------------------------------------------------------------- ---- ----------- -----------
Profit before income tax 56.0 19.1
-------------------------------------------------------------------------------------- ---- ----------- -----------
Income tax expense 10 (10.4) (3.7)
-------------------------------------------------------------------------------------- ---- ----------- -----------
Profit for the year 45.6 15.4
-------------------------------------------------------------------------------------- ---- ----------- -----------
Other comprehensive income
-------------------------------------------------------------------------------------- ---- ----------- -----------
Items that will not be reclassified to the income statement
-------------------------------------------------------------------------------------- ---- ----------- -----------
Revaluation reserve 0.5 (0.4)
-------------------------------------------------------------------------------------- ---- ----------- -----------
Taxation (0.1) 0.2
-------------------------------------------------------------------------------------- ---- ----------- -----------
0.4 (0.2)
-------------------------------------------------------------------------------------- ---- ----------- -----------
Items that will be reclassified to the income statement
-------------------------------------------------------------------------------------- ---- ----------- -----------
Cash flow hedge reserve (0.4) -
-------------------------------------------------------------------------------------- ---- ----------- -----------
Taxation 0.1 -
-------------------------------------------------------------------------------------- ---- ----------- -----------
(0.3) -
-------------------------------------------------------------------------------------- ---- ----------- -----------
Other comprehensive income for the year, net of income tax 0.1 (0.2)
-------------------------------------------------------------------------------------- ---- ----------- -----------
Total comprehensive income for the year 45.7 15.2
-------------------------------------------------------------------------------------- ---- ----------- -----------
Profit attributable to:
-------------------------------------------------------------------------------------- ---- ----------- -----------
Equity holders of the Company 45.6 15.4
-------------------------------------------------------------------------------------- ---- ----------- -----------
Total comprehensive income attributable to:
-------------------------------------------------------------------------------------- ---- ----------- -----------
Equity holders of the Company 45.7 15.2
-------------------------------------------------------------------------------------- ---- ----------- -----------
Earnings per share for profit attributable to the equity holders of the Company during
the
year (pence per share)
-------------------------------------------------------------------------------------- ---- ----------- -----------
Basic earnings per ordinary share 11.1 244.7 82.7
-------------------------------------------------------------------------------------- ---- ----------- -----------
Diluted earnings per ordinary share 11.2 239.4 81.0
-------------------------------------------------------------------------------------- ---- ----------- -----------
All comprehensive income relates to continuing operations.
The primary statements have been restated to reflect the IFRS Interpretations Committee's
clarification on the accounting treatment of Software-as-a-Service arrangement. See Note 1.3
for further details.
Consolidated statement of financial position
As at 31 December
Restated Restated
2021 2020 2019
Note GBPmillion GBPmillion GBPmillion
---------------------------------------------------------- ---- ----------- ----------- -----------
ASSETS
---------------------------------------------------------- ---- ----------- ----------- -----------
Cash and balances at central banks 235.7 181.5 105.8
---------------------------------------------------------- ---- ----------- ----------- -----------
Loans and advances to banks 13 50.3 63.3 48.4
---------------------------------------------------------- ---- ----------- ----------- -----------
Debt securities 14 25.0 - 25.0
---------------------------------------------------------- ---- ----------- ----------- -----------
Loans and advances to customers 15 2,530.6 2,358.9 2,450.1
---------------------------------------------------------- ---- ----------- ----------- -----------
Fair value adjustment for portfolio hedged risk 18 (3.5) 5.7 (0.9)
---------------------------------------------------------- ---- ----------- ----------- -----------
Derivative financial instruments 18 3.8 4.8 0.9
---------------------------------------------------------- ---- ----------- ----------- -----------
Assets held for sale 19 1.3 - -
---------------------------------------------------------- ---- ----------- ----------- -----------
Investment property 20 4.7 4.3 4.8
---------------------------------------------------------- ---- ----------- ----------- -----------
Property, plant and equipment 21 9.3 9.9 11.3
---------------------------------------------------------- ---- ----------- ----------- -----------
Right-of-use assets 22 2.2 2.9 3.6
---------------------------------------------------------- ---- ----------- ----------- -----------
Intangible assets 23 6.9 7.7 9.0
---------------------------------------------------------- ---- ----------- ----------- -----------
Current tax assets 0.8 - -
---------------------------------------------------------- ---- ----------- ----------- -----------
Deferred tax assets 25 6.9 6.6 8.0
---------------------------------------------------------- ---- ----------- ----------- -----------
Other assets 26 11.9 15.6 14.7
---------------------------------------------------------- ---- ----------- ----------- -----------
Total assets 2,885.9 2,661.2 2,680.7
---------------------------------------------------------- ---- ----------- ----------- -----------
LIABILITIES AND EQUITY
---------------------------------------------------------- ---- ----------- ----------- -----------
Liabilities
---------------------------------------------------------- ---- ----------- ----------- -----------
Due to banks 27 390.8 276.4 308.5
---------------------------------------------------------- ---- ----------- ----------- -----------
Deposits from customers 28 2,103.2 1,992.5 2,020.3
---------------------------------------------------------- ---- ----------- ----------- -----------
Fair value adjustment for portfolio hedged risk 18 (5.3) 4.7 (0.7)
---------------------------------------------------------- ---- ----------- ----------- -----------
Derivative financial instruments 18 6.2 6.1 0.6
---------------------------------------------------------- ---- ----------- ----------- -----------
Liabilities directly associated with assets held for sale 19 2.0 - -
---------------------------------------------------------- ---- ----------- ----------- -----------
Current tax liabilities - 1.0 3.3
---------------------------------------------------------- ---- ----------- ----------- -----------
Lease liabilities 29 3.1 3.9 4.5
---------------------------------------------------------- ---- ----------- ----------- -----------
Other liabilities 30 31.3 56.3 40.9
---------------------------------------------------------- ---- ----------- ----------- -----------
Provisions for liabilities and charges 31 1.3 1.9 0.7
---------------------------------------------------------- ---- ----------- ----------- -----------
Subordinated liabilities 32 50.9 50.8 50.6
---------------------------------------------------------- ---- ----------- ----------- -----------
Total liabilities 2,583.5 2,393.6 2,428.7
---------------------------------------------------------- ---- ----------- ----------- -----------
Equity attributable to owners of the parent
---------------------------------------------------------- ---- ----------- ----------- -----------
Share capital 34 7.5 7.5 7.4
---------------------------------------------------------- ---- ----------- ----------- -----------
Share premium 82.2 82.2 81.2
---------------------------------------------------------- ---- ----------- ----------- -----------
Cash flow hedge reserve (0.3) - -
---------------------------------------------------------- ---- ----------- ----------- -----------
Revaluation reserve 1.3 0.9 1.1
---------------------------------------------------------- ---- ----------- ----------- -----------
Retained earnings 211.7 177.0 162.3
---------------------------------------------------------- ---- ----------- ----------- -----------
Total equity 302.4 267.6 252.0
---------------------------------------------------------- ---- ----------- ----------- -----------
Total liabilities and equity 2,885.9 2,661.2 2,680.7
---------------------------------------------------------- ---- ----------- ----------- -----------
Company statement of financial position
As at 31 December
Restated Restated
2021 2020 2019
Note GBPmillion GBPmillion GBPmillion
------------------------------------------------ ---- ----------- ----------- -----------
ASSETS
------------------------------------------------ ---- ----------- ----------- -----------
Cash and balances at central banks 235.7 181.5 105.8
------------------------------------------------ ---- ----------- ----------- -----------
Loans and advances to banks 13 47.4 61.7 45.2
------------------------------------------------ ---- ----------- ----------- -----------
Debt securities 14 25.0 - 25.0
------------------------------------------------ ---- ----------- ----------- -----------
Loans and advances to customers 15 2,450.3 2,269.8 2,353.6
------------------------------------------------ ---- ----------- ----------- -----------
Fair value adjustment for portfolio hedged risk 18 (3.5) 5.7 (0.9)
------------------------------------------------ ---- ----------- ----------- -----------
Derivative financial instruments 18 3.8 4.8 0.9
------------------------------------------------ ---- ----------- ----------- -----------
Investment property 20 5.7 5.3 4.8
------------------------------------------------ ---- ----------- ----------- -----------
Property, plant and equipment 21 3.7 4.5 6.5
------------------------------------------------ ---- ----------- ----------- -----------
Right-of-use assets 22 1.5 2.0 2.5
------------------------------------------------ ---- ----------- ----------- -----------
Intangible assets 23 5.4 6.2 7.4
------------------------------------------------ ---- ----------- ----------- -----------
Investments in group undertakings 24 4.3 4.1 4.1
------------------------------------------------ ---- ----------- ----------- -----------
Current tax assets 1.5 - -
------------------------------------------------ ---- ----------- ----------- -----------
Deferred tax assets 25 6.8 7.1 8.6
------------------------------------------------ ---- ----------- ----------- -----------
Other assets 26 99.8 104.4 101.2
------------------------------------------------ ---- ----------- ----------- -----------
Total assets 2,887.4 2,657.1 2,664.7
------------------------------------------------ ---- ----------- ----------- -----------
LIABILITIES AND EQUITY
------------------------------------------------ ---- ----------- ----------- -----------
Liabilities
------------------------------------------------ ---- ----------- ----------- -----------
Due to banks 27 390.8 276.4 308.5
------------------------------------------------ ---- ----------- ----------- -----------
Deposits from customers 28 2,103.2 1,992.5 2,020.3
------------------------------------------------ ---- ----------- ----------- -----------
Fair value adjustment for portfolio hedged risk 18 (5.3) 4.7 (0.7)
------------------------------------------------ ---- ----------- ----------- -----------
Derivative financial instruments 18 6.2 6.1 0.6
------------------------------------------------ ---- ----------- ----------- -----------
Current tax liabilities - 0.4 2.2
------------------------------------------------ ---- ----------- ----------- -----------
Lease liabilities 29 2.3 2.9 3.3
------------------------------------------------ ---- ----------- ----------- -----------
Other liabilities 30 43.8 61.8 42.0
------------------------------------------------ ---- ----------- ----------- -----------
Provisions for liabilities and charges 31 1.3 1.9 0.7
------------------------------------------------ ---- ----------- ----------- -----------
Subordinated liabilities 32 50.9 50.8 50.6
------------------------------------------------ ---- ----------- ----------- -----------
Total liabilities 2,593.2 2,397.5 2,427.5
------------------------------------------------ ---- ----------- ----------- -----------
Equity attributable to owners of the parent
------------------------------------------------ ---- ----------- ----------- -----------
Share capital 34 7.5 7.5 7.4
------------------------------------------------ ---- ----------- ----------- -----------
Share premium 82.2 82.2 81.2
------------------------------------------------ ---- ----------- ----------- -----------
Cash flow hedge reserve (0.3) - -
------------------------------------------------ ---- ----------- ----------- -----------
Revaluation reserve 0.7 0.7 0.7
------------------------------------------------ ---- ----------- ----------- -----------
Retained earnings 204.1 169.2 147.9
------------------------------------------------ ---- ----------- ----------- -----------
Total equity 294.2 259.6 237.2
------------------------------------------------ ---- ----------- ----------- -----------
Total liabilities and equity 2,887.4 2,657.1 2,664.7
------------------------------------------------ ---- ----------- ----------- -----------
The Company has elected to take the exemption under section 408
of the Companies Act 2006 not to present the parent company income
statement. The profit for the parent company for the year of
GBP45.8 million is presented in the Company statement of changes in
equity.
Consolidated statement of changes in equity
Share Share Revaluation Retained
capital premium Cash flow hedge reserve reserve earnings Total
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Balance at 1 January 2020
(as previously stated) 7.4 81.2 - 1.1 164.4 254.1
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Software-as-a-Service
adjustment net of tax
(see Note 1.3) - - - - (2.1) (2.1)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Balance at 1 January 2020
(as restated) 7.4 81.2 - 1.1 162.3 252.0
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total comprehensive income
for the period
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Profit for 2020 - - - - 15.4 15.4
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Other comprehensive income,
net of income tax
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Revaluation reserve - - - (0.4) - (0.4)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Tax on revaluation reserve - - - 0.2 - 0.2
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total other comprehensive
income - - - (0.2) - (0.2)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total comprehensive income
for the period - - - (0.2) 15.4 15.2
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Transactions with owners,
recorded
directly in equity
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Contributions by and
distributions to owners
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Issue of ordinary shares 0.1 1.0 - - - 1.1
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Share-based payments - - - - (0.3) (0.3)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Tax on share-based payments - - - - (0.4) (0.4)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total contributions by and
distributions to owners 0.1 1.0 - - (0.7) 0.4
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Balance at 31 December 2020 7.5 82.2 - 0.9 177.0 267.6
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total comprehensive income
for the period
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Profit for 2021 - - - - 45.6 45.6
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Other comprehensive income,
net of income tax
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Cash flow hedge reserve - - (0.4) - - (0.4)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Tax on cash flow hedge
reserve - - 0.1 - - 0.1
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Revaluation reserve - - - 0.5 - 0.5
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Tax on revaluation reserve - - - (0.1) - (0.1)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total other comprehensive
income - - (0.3) 0.4 - 0.1
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total comprehensive income
for the period - - (0.3) 0.4 45.6 45.7
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Transactions with owners, recorded directly in equity
------------------------------------------------------ ----------------------- ----------- ----------- -----------
Contributions by and
distributions to owners
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Dividends - - - - (11.9) (11.9)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Share-based payments - - - - 1.0 1.0
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total contributions by and
distributions to owners - - - - (10.9) (10.9)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Balance at 31 December 2021 7.5 82.2 (0.3) 1.3 211.7 302.4
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Company statement of changes in equity
Share Share Revaluation Retained
capital premium Cash flow hedge reserve reserve earnings Total
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Balance at 1 January 2020
(as previously stated) 7.4 81.2 - 0.7 150.0 239.3
Software-as-a-Service
adjustment net of tax
(see Note 1.3) - - - - (2.1) (2.1)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Balance at 1 January 2020
(as restated) 7.4 81.2 - 0.7 147.9 237.2
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total comprehensive income
for the period
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Profit for 2020 - - - - 22.0 22.0
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Transactions with owners, recorded directly in equity
----------------------------------------------------------------------------------------------------------------------
Contributions by and
distributions to owners
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Issue of ordinary shares 0.1 1.0 - - - 1.1
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Share-based payments - - - - (0.3) (0.3)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Tax on share-based payments - - - - (0.4) (0.4)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total contributions by and
distributions to owners 0.1 1.0 - - (0.7) 0.4
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Balance at 31 December 2020 7.5 82.2 - 0.7 169.2 259.6
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total comprehensive income
for the period
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Profit for 2021 - - - - 45.8 45.8
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Other comprehensive income,
net of income tax
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Cash flow hedge reserve - - (0.4) - - (0.4)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Tax on cash flow hedge
reserve - - 0.1 - - 0.1
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total other comprehensive
income - - (0.3) - - (0.3)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total comprehensive income
for the period - - (0.3) - 45.8 45.5
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Transactions with owners, recorded directly in equity
----------------------------------------------------------------------------------------------------------------------
Contributions by and
distributions to owners
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Dividends - - - - (11.9) (11.9)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Share-based payments - - - - 1.0 1.0
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Total contributions by and
distributions to owners - - - - (10.9) (10.9)
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Balance at 31 December 2021 7.5 82.2 (0.3) 0.7 204.1 294.2
---------------------------- ----------- ----------- ----------------------- ----------- ----------- -----------
Consolidated statement of cash flows
For the year ended 31 December
Restated
2021 2020
Note GBPmillion GBPmillion
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash flows from operating activities
---------------------------------------------------------------------------------- -------- ----------- -----------
Profit for the year 45.6 15.4
---------------------------------------------------------------------------------- -------- ----------- -----------
Adjustments for:
---------------------------------------------------------------------------------- -------- ----------- -----------
Income tax expense 10 10.4 3.7
---------------------------------------------------------------------------------- -------- ----------- -----------
Depreciation of property, plant and equipment 21 1.3 1.4
---------------------------------------------------------------------------------- -------- ----------- -----------
Depreciation of right-of-use assets 22 0.7 0.7
---------------------------------------------------------------------------------- -------- ----------- -----------
Loss on disposal of intangible assets - 0.5
---------------------------------------------------------------------------------- -------- ----------- -----------
Amortisation of intangible assets 23 1.5 2.0
---------------------------------------------------------------------------------- -------- ----------- -----------
Impairment charge on loans and advances to customers 4.5 51.3
---------------------------------------------------------------------------------- -------- ----------- -----------
(Gains)/losses on modification of financial assets 5 (1.5) 3.1
---------------------------------------------------------------------------------- -------- ----------- -----------
Share-based compensation 35 1.0 (0.3)
---------------------------------------------------------------------------------- -------- ----------- -----------
Revaluation (gain)/impairment 20,21,22 (0.4) 1.1
---------------------------------------------------------------------------------- -------- ----------- -----------
Loss on disposal of loan books 6 1.4 -
---------------------------------------------------------------------------------- -------- ----------- -----------
Other non-cash items included in profit before tax 0.4 1.5
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash flows from operating profits before changes in operating assets and
liabilities 64.9 80.4
---------------------------------------------------------------------------------- -------- ----------- -----------
Changes in operating assets and liabilities:
---------------------------------------------------------------------------------- -------- ----------- -----------
- loans and advances to customers (238.4) 37.5
---------------------------------------------------------------------------------- -------- ----------- -----------
- loans and advances to banks and balances at central banks 4.7 (3.5)
---------------------------------------------------------------------------------- -------- ----------- -----------
- other assets 6.0 (0.9)
---------------------------------------------------------------------------------- -------- ----------- -----------
- deposits from customers 110.7 (27.8)
---------------------------------------------------------------------------------- -------- ----------- -----------
- provisions for liabilities and charges (0.7) (0.7)
---------------------------------------------------------------------------------- -------- ----------- -----------
- other liabilities (24.4) 15.4
---------------------------------------------------------------------------------- -------- ----------- -----------
Income tax paid (12.6) (4.8)
---------------------------------------------------------------------------------- -------- ----------- -----------
Net cash (outflow)/inflow from operating activities (89.8) 95.6
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash flows from investing activities
---------------------------------------------------------------------------------- -------- ----------- -----------
Consideration on sale of loan books 6 60.4 -
---------------------------------------------------------------------------------- -------- ----------- -----------
Redemption of debt securities 90.0 130.0
---------------------------------------------------------------------------------- -------- ----------- -----------
Purchase of debt securities (90.0) (105.0)
---------------------------------------------------------------------------------- -------- ----------- -----------
Purchase of property, plant and equipment 21 (0.2) (0.8)
---------------------------------------------------------------------------------- -------- ----------- -----------
Purchase of intangible assets 23 (1.1) (1.1)
---------------------------------------------------------------------------------- -------- ----------- -----------
Net cash inflow from investing activities 59.1 23.1
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash flows from financing activities
---------------------------------------------------------------------------------- -------- ----------- -----------
Drawdown/(repayment) of amounts due to banks 114.4 (31.7)
---------------------------------------------------------------------------------- -------- ----------- -----------
Issue of ordinary shares - 1.1
---------------------------------------------------------------------------------- -------- ----------- -----------
Dividends paid 12 (11.9) -
---------------------------------------------------------------------------------- -------- ----------- -----------
Repayment of lease liabilities 29 (0.9) (1.0)
---------------------------------------------------------------------------------- -------- ----------- -----------
Net cash inflow/(outflow) from financing activities 101.6 (31.6)
---------------------------------------------------------------------------------- -------- ----------- -----------
Net increase in cash and cash equivalents 70.9 87.1
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash and cash equivalents at 1 January 232.1 145.0
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash and cash equivalents at 31 December 36 303.0 232.1
---------------------------------------------------------------------------------- -------- ----------- -----------
Company statement of cash flows
For the year ended 31 December
Restated
2021 2020
Note GBPmillion GBPmillion
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash flows from operating activities
---------------------------------------------------------------------------------- -------- ----------- -----------
Profit for the year 45.8 22.0
---------------------------------------------------------------------------------- -------- ----------- -----------
Adjustments for:
---------------------------------------------------------------------------------- -------- ----------- -----------
Income tax expense 10 9.5 2.8
---------------------------------------------------------------------------------- -------- ----------- -----------
Depreciation of property, plant and equipment 21 0.8 1.0
---------------------------------------------------------------------------------- -------- ----------- -----------
Depreciation of right-of-use assets 22 0.5 0.5
---------------------------------------------------------------------------------- -------- ----------- -----------
Loss on disposal of intangible assets - 0.5
---------------------------------------------------------------------------------- -------- ----------- -----------
Amortisation of intangible assets 23 1.2 1.6
---------------------------------------------------------------------------------- -------- ----------- -----------
Impairment charge on loans and advances to customers 2.7 41.0
---------------------------------------------------------------------------------- -------- ----------- -----------
(Gains)/losses on modification of financial assets 5 (1.5) 3.1
---------------------------------------------------------------------------------- -------- ----------- -----------
Share-based compensation 35 0.8 (0.3)
---------------------------------------------------------------------------------- -------- ----------- -----------
Revaluation (gain)/impairment 20,21.22 (0.4) 1.0
---------------------------------------------------------------------------------- -------- ----------- -----------
Investment income (4.8) -
---------------------------------------------------------------------------------- -------- ----------- -----------
Loss on disposal of loan books 6 1.4 -
---------------------------------------------------------------------------------- -------- ----------- -----------
Other non-cash items included in profit before tax 0.5 1.5
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash flows from operating profits before changes in operating assets and
liabilities 56.5 74.7
---------------------------------------------------------------------------------- -------- ----------- -----------
Changes in operating assets and liabilities:
---------------------------------------------------------------------------------- -------- ----------- -----------
- loans and advances to customers (244.1) 40.4
---------------------------------------------------------------------------------- -------- ----------- -----------
- loans and advances to banks and balances at central banks 4.7 (3.5)
---------------------------------------------------------------------------------- -------- ----------- -----------
- other assets 11.7 (3.2)
---------------------------------------------------------------------------------- -------- ----------- -----------
- deposits from customers 110.7 (27.8)
---------------------------------------------------------------------------------- -------- ----------- -----------
- provisions for liabilities and charges (0.8) (0.7)
---------------------------------------------------------------------------------- -------- ----------- -----------
- other liabilities (19.4) 19.8
---------------------------------------------------------------------------------- -------- ----------- -----------
Income tax paid (11.1) (3.5)
---------------------------------------------------------------------------------- -------- ----------- -----------
Net cash (outflow)/inflow from operating activities (91.8) 96.2
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash flows from investing activities
---------------------------------------------------------------------------------- -------- ----------- -----------
Consideration on sale of loan books 6 60.4 -
---------------------------------------------------------------------------------- -------- ----------- -----------
Redemption of debt securities 90.0 130.0
---------------------------------------------------------------------------------- -------- ----------- -----------
Purchase of debt securities (90.0) (105.0)
---------------------------------------------------------------------------------- -------- ----------- -----------
Purchase of property, plant and equipment 21 - (0.3)
---------------------------------------------------------------------------------- -------- ----------- -----------
Purchase of intangible assets 23 (0.8) (0.9)
---------------------------------------------------------------------------------- -------- ----------- -----------
Net cash inflow from investing activities 59.6 23.8
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash flows from financing activities
---------------------------------------------------------------------------------- -------- ----------- -----------
Drawdown/(repayment) of amounts due to banks 114.4 (31.7)
---------------------------------------------------------------------------------- -------- ----------- -----------
Issue of ordinary shares - 1.1
---------------------------------------------------------------------------------- -------- ----------- -----------
Dividends paid 12 (11.9) -
---------------------------------------------------------------------------------- -------- ----------- -----------
Repayment of lease liabilities 29 (0.7) (0.7)
---------------------------------------------------------------------------------- -------- ----------- -----------
Net cash inflow/(outflow) from financing activities 101.8 (31.3)
---------------------------------------------------------------------------------- -------- ----------- -----------
Net increase in cash and cash equivalents 69.6 88.7
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash and cash equivalents at 1 January 230.5 141.8
---------------------------------------------------------------------------------- -------- ----------- -----------
Cash and cash equivalents at 31 December 36 300.1 230.5
---------------------------------------------------------------------------------- -------- ----------- -----------
Notes to the preliminary results
1. Accounting policies
The principal accounting policies applied in the preparation of
the consolidated financial statements are set out below, and if
applicable, directly under the relevant note. These policies have
been consistently applied to all the years presented, unless
otherwise stated.
1.1. Reporting entity
Secure Trust Bank PLC is a public limited company incorporated
in England and Wales in the United Kingdom (referred to as
'the Company') and is limited by shares. The Company is
registered in England and Wales and has the registered number
00541132. The registered address of the Company is One Arleston
Way, Shirley, Solihull, West Midlands B90 4LH. The consolidated
financial statements of the Company as at and for the year ended 31
December 2021 comprise Secure Trust Bank PLC and its subsidiaries
(together referred to as 'the Group' and individually as
'subsidiaries'). The Group is primarily involved in banking and
financial services.
1.2. Basis of presentation
The figures shown for the year ended 31 December 2021 are not
statutory accounts within the meaning of section 435 of the
Companies Act 2006. The statutory accounts for the year ended 31
December 2021 on which the auditors have given an unqualified audit
report and did not contain an adverse statement under section
498(2) or 498(3) of the Companies Act 2006 will be delivered to the
Registrar of Companies after the Annual General Meeting. The
figures shown for the year ended 31 December 2020 are not statutory
accounts. A copy of the statutory accounts has been delivered to
the Registrar of Companies, contained an unqualified audit report
and did not contain an adverse statement under section 498(2) or
498(3) of the Companies Act 2006. This announcement has been agreed
with the Company's auditors for release.
IFRS interest rate benchmark reform
During 2020, amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16 were published, which require transition away from the
London InterBank Offered Rate ('LIBOR') to the Sterling OverNight
Index Average ('SONIA'), phase 2 of which are effective for annual
periods beginning on or after 1 January 2021. The Group has no
material financial assets or liabilities which have LIBOR as a
contractual term, and therefore these amendments had no impact on
the Group.
There are no IFRS that are issued but not yet effective that
will have a material impact on the Group.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity or areas where assumptions
and estimates are significant to the consolidated financial
statements are disclosed in Note 17.
The Directors have assessed, in the light of current and
anticipated economic conditions, the Group's ability to continue as
a going concern. The Directors confirm they are satisfied that the
Company and the Group have adequate resources to continue in
business for the foreseeable future. For this reason, they continue
to adopt the 'going concern' basis for preparing accounts, as set
out in the going concern and viability section of the Strategic
Report starting on page 36.
The consolidated financial statements were authorised for issue
by the Board of Directors on 23 March 2022.
1.3. Software-as-a-Service agreements prior year adjustment
The Group's previous accounting policy was to treat all
configuration and customisation work carried out by the
Software-as-a-Service ('SaaS') provider, third parties and
contractors as part of a SaaS contract as a prepayment, which was
amortised over the underlying hosting contract.
However, during the year, the IFRS Interpretations Committee
published an agenda decision clarifying how arrangements in respect
of SaaS cloud technology arrangements should be accounted for. Only
configuration and customisation work carried out by the SaaS
provider or a subcontractor (agent) of the SaaS provider, which is
distinct from SaaS access, should be treated as a prepayment, with
the prepayment being amortised over the underlying hosting
contract. Configuration and customisation work carried out by third
parties or employees or in-house contractors that do not meet the
definition of an intangible asset should be expensed as
incurred.
Therefore the Group was required to change its accounting
policy, to remove costs incurred by third parties and contractors
from the SaaS prepayment and expense these amounts, and to adjust
the amortisation charge accordingly.
Due to the change in accounting policy, the Group is required to
restate its comparatives in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors. The prior
year adjustment reduces opening retained earnings at 1 January 2020
by GBP2.1 million (being a GBP2.6 million restatement of
prepayments less deferred tax of GBP0.5 million) and reduces profit
after tax for the year ended 31 December 2020 by GBP0.8 million
(being an increase in operating expenses of GBP1.0 million less
GBP0.2 million deferred tax). Accordingly, the prior year
adjustment to opening retained earnings at 1 January 2021 is GBP2.9
million.
A summary of the impact on the primary statements is as
follows:
As originally stated Prior year adjustment Restated
2019 2019 2019
Statement of financial position GBPmillion GBPmillion GBPmillion
-------------------------------------- -------------------- --------------------- -----------
Cloud software development prepayment 6.4 (2.6) 3.8
-------------------------------------- -------------------- --------------------- -----------
Deferred tax assets 7.5 0.5 8.0
-------------------------------------- -------------------- --------------------- -----------
Other assets 2,668.9 - 2,668.9
-------------------------------------- -------------------- --------------------- -----------
Total assets 2,682.8 (2.1) 2,680.7
-------------------------------------- -------------------- --------------------- -----------
Total liabilities 2,428.7 - 2,428.7
-------------------------------------- -------------------- --------------------- -----------
Total equity 254.1 (2.1) 252.0
-------------------------------------- -------------------- --------------------- -----------
Total liabilities and equity 2,682.8 (2.1) 2,680.7
-------------------------------------- -------------------- --------------------- -----------
As originally stated Prior year adjustment Restated
2020 2020 2020
Income statement GBPmillion GBPmillion GBPmillion
--------------------------------------------------------- -------------------- --------------------- -----------
Operating income 166.1 - 166.1
--------------------------------------------------------- -------------------- --------------------- -----------
Net impairment charge on loans and advances to customers (51.3) - (51.3)
--------------------------------------------------------- -------------------- --------------------- -----------
Losses on modification of financial assets (3.1) - (3.1)
--------------------------------------------------------- -------------------- --------------------- -----------
Operating expenses (91.6) (1.0) (92.6)
--------------------------------------------------------- -------------------- --------------------- -----------
Profit before income tax 20.1 (1.0) 19.1
--------------------------------------------------------- -------------------- --------------------- -----------
Income tax expense (3.9) 0.2 (3.7)
--------------------------------------------------------- -------------------- --------------------- -----------
Profit for the year 16.2 (0.8) 15.4
--------------------------------------------------------- -------------------- --------------------- -----------
Basic earnings per share 87.0 4.3 82.7
--------------------------------------------------------- -------------------- --------------------- -----------
As originally stated Prior year adjustment Restated
2020 2020 2020
Statement of financial position GBPmillion GBPmillion GBPmillion
-------------------------------------- -------------------- --------------------- -----------
Cloud software development prepayment 8.2 (3.6) 4.6
-------------------------------------- -------------------- --------------------- -----------
Deferred tax assets 5.9 0.7 6.6
-------------------------------------- -------------------- --------------------- -----------
Other assets 2,650.0 - 2,650.0
-------------------------------------- -------------------- --------------------- -----------
Total assets 2,664.1 (2.9) 2,661.2
-------------------------------------- -------------------- --------------------- -----------
Total liabilities 2,393.6 - 2,393.6
-------------------------------------- -------------------- --------------------- -----------
Total equity 270.5 (2.9) 267.6
-------------------------------------- -------------------- --------------------- -----------
Total liabilities and equity 2,664.1 (2.9) 2,661.2
-------------------------------------- -------------------- --------------------- -----------
The impact of the change on the income statement for the year
ended December 2021 is an increase in profit before tax of
approximately GBP0.2 million.
The impact of the prior year adjustment on the cash flow
statement for the year ended 31 December 2020 is to reduce profit
for the year by GBP0.8 million, reduce income tax expense by GBP0.2
million and increase the movement in other assets included in
changes in operating assets and liabilities by GBP1.0 million.
There is no change to the net increase/decrease in cash and
equivalents.
The impact of the prior year adjustment on the primary
statements of the Company is the same as above.
1.4. Consolidation
Subsidiaries
Subsidiaries are all investees controlled by the Group. The
Group controls an investee when it is exposed, or has rights, to
variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the
investee. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group.
The acquisition method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interest. The
excess of the cost of acquisition, excluding directly attributable
costs, over the fair value of the Group's share of the identifiable
net assets acquired is recorded as goodwill. If the cost of
acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognised directly in the
income statement.
The parent company's investments in subsidiaries are recorded at
cost less, where appropriate, provision for impairment. The fair
value of the underlying business of the Company's only material
investment was significantly higher than carrying value, and
therefore no impairment was required.
Intercompany transactions, balances and unrealised gains and
losses on transactions between Group companies are eliminated.
Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the
Group.
Discontinued operations
Subsidiaries are de-consolidated from the date that control
ceases. Discontinued operations are a component of an entity that
has been disposed of, and represents a major line of business and
is part of a single co-ordinated disposal plan.
1.5. Financial assets and financial liabilities accounting
policy
Derecognition
Financial assets are derecognised when the rights to receive
cash flows from the financial assets have expired or where the
Group has transferred substantially all of the risks and rewards of
ownership or in the event of a substantial modification. There have
not been any instances where assets have only been partially
derecognised. The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
Amortised cost measurement
The amortised cost of a financial asset or financial liability
is the amount at which the financial asset or financial liability
is measured at initial recognition, plus or minus the cumulative
amortisation using the EIR method of any difference between the
initial amount recognised and the maturity amount, minus any
reduction for impairment.
Fair value measurement
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value of
assets and liabilities traded in active markets are based on
current bid and offer prices respectively. If the market for a
financial instrument is not active the Group establishes a fair
value by using an appropriate valuation technique. These include
the use of recent arm's length transactions, reference to other
instruments that are substantially the same for which market
observable prices exist, net present value and discounted cash flow
analysis.
Financial assets (with the exception of derivative financial
instruments) accounting policy
The Group classifies its financial assets at inception into
three measurement categories; 'amortised cost', 'fair value through
other comprehensive income' ('FVOCI') and 'fair value through
profit and loss' ('FVTPL'). A financial asset is measured at
amortised cost if both the following conditions are met and it has
not been designated as at FVTPL:
-- the asset is held within a business model whose objective is
to hold the asset to collect its contractual cash flows; and
-- the contractual terms of the financial asset give rise to
cash flows on specified dates that represent payments of solely
principal and interest on the outstanding principal amount.
The Group's current business model for all financial assets,
with the exception of derivative financial instruments, is to hold
to collect contractual cash flows and all assets held give rise to
cash flows on specified dates that represent solely payments of
principal and interest on the outstanding principal amount. All the
Group's financial assets are therefore currently classified as
amortised cost, except for derivative financial instruments. Loans
are recognised when funds are advanced to customers and are carried
at amortised cost using the effective interest rate method.
A debt instrument would be measured at FVOCI only if both the
below conditions are met and it has not been designated as
FVTPL:
-- the asset is held within a business model whose objective is
achieved by both collecting its contractual cash flows and selling
the financial asset; and
-- the contractual terms of the financial asset give rise to
cash flows on specified dates that represent payments of solely
principal and interest on the outstanding principal amount.
The Group currently has no financial instruments classified as
FVOCI.
On initial recognition of an equity investment that is not held
for trading, the Group may irrevocably elect to present subsequent
changes in fair value in other comprehensive income. This election
would be made on an investment by investment basis. The Group
currently holds no such investments.
All other assets are classified as FVTPL.
Financial assets are not reclassified subsequent to their
initial recognition, except in the period after the Group changes
its business model for managing financial assets. The Group has not
reclassified any financial assets during the reporting period.
Financial liabilities (with the exception of derivative
financial instruments)
The Group classifies its financial liabilities as measured at
amortised cost. Such financial liabilities are recognised when cash
is received from depositors and carried at amortised cost using the
effective interest rate method.
1.6. Foreign currencies
Transactions in foreign currencies are initially recorded at the
rates of exchange prevailing on the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies
are retranslated into the Company's functional currency at the
rates prevailing on the balance sheet date. Exchange differences
arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in the income
statement for the period.
2. Critical accounting judgements and key sources of estimation
uncertainty
2.1. Judgements
No critical judgements have been identified.
2.2. Key sources of estimation uncertainty
Estimations which could have a material impact on the Group's
financial results and are therefore considered to be key sources of
estimation uncertainty all relate to allowances for impairment of
loans and advances and are therefore set out in Note 17.
3. Operating segments
The Group is organised into seven operating segments, which
consist of the different products available, disclosed below:
Business Finance
1) Real Estate Finance: lending on portfolios of residential
property as well as the development of new build property..
2) Asset Finance: lending to small and medium sized enterprises
to acquire commercial assets, which was sold during 2021.
3) Commercial Finance: lending is predominantly against
receivables, typically releasing 90% of qualifying invoices under
invoice discounting and factoring services. Unsecured lending to
existing customers through the Government guaranteed Coronavirus
Business Interruption Loan Scheme, Coronavirus Large Business
Interruption Loan Scheme and Recovery Loan Scheme is also
provided.
Consumer Finance
4) Vehicle Finance: hire purchase lending for used cars
primarily to prime and near-prime customers and Personal Contract
Purchase lending into the consumer prime credit market, both
secured against the vehicle financed. In addition a Stocking
Funding product is also offered to allow dealers to finance
vehicles on their forecourt as part exchanges, from auction
partners or from other trade sources.
5) Retail Finance: a market leading online service to retailers,
providing unsecured prime lending products to the UK customers of
its retail partners to facilitate the purchase of a wide range of
consumer products.
6) Debt Management: a credit management services business which
primarily invests in purchased debt portfolios from third parties,
as well as fellow group undertakings. In addition, it collects debt
on behalf of a range of clients.
7) Consumer mortgages for the self-employed, contract workers,
those with complex income and those with a recently restored credit
history, sold via select mortgage intermediaries, which was sold
during 2021.
Other
The 'Other' segment includes other products, which are
individually below the quantitative threshold for separate
disclosure and fulfil the requirement of IFRS 8.28 by reconciling
operating segments to the amounts in the financial statements.
Other includes principally OneBill (the Group's consumer bill
management service), which was closed during 2021 and RentSmart
(principally the funding and operation of finance leases through a
disclosed agency agreement with RentSmart Limited). Assets and
liabilities in respect of the RentSmart business are included in
Assets and liabilities held for sale (see Note 19 for further
details).
The Asset Finance, Debt Management and Consumer Mortgages
segments all fall below the quantitative threshold for separate
disclosure, but the Directors consider that they represent
sufficiently distinct types of business to merit separate
disclosure.
Management review these segments by looking at the income, size
and growth rate of the loan books, impairments and customer
numbers. Except for these items no costs or balance sheet items are
allocated to the segments.
Net impairment
charge/(credit)
on loans and
Interest income Fee and commission Revenue from advances to Loans and advances
and similar income income external customers customers to customers
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
31 December 2021
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Real Estate Finance 54.5 0.3 54.8 0.1 1,109.6
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Asset Finance 0.3 - 0.3 0.1 -
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Commercial Finance 8.8 8.6 17.4 (0.2) 313.3
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Business Finance 63.6 8.9 72.5 - 1,422.9
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Retail Finance 65.0 2.7 67.7 5.0 764.8
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Vehicle Finance 38.0 1.3 39.3 0.1 263.3
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Debt Management 14.3 0.3 14.6 (0.6) 79.6
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Consumer Mortgages 1.3 - 1.3 - -
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Consumer Finance 118.6 4.3 122.9 4.5 1,107.7
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Other (2.2) 1.1 (1.1) - -
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
180.0 14.3 194.3 4.5 2,530.6
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Net impairment
charge/(credit)
on loans and
Interest income Fee and commission Revenue from advances to Loans and advances
and similar income income external customers customers to customers
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
31 December 2020
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Real Estate Finance 54.0 - 54.0 5.2 1,051.9
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Asset Finance 1.5 - 1.5 0.9 10.4
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Commercial Finance 7.3 7.9 15.2 1.1 230.7
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Business Finance 62.8 7.9 70.7 7.2 1,293.0
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Retail Finance 68.5 2.2 70.7 14.5 658.4
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Vehicle Finance 44.6 0.9 45.5 20.7 243.9
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Debt Management 14.2 0.6 14.8 8.9 81.8
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Consumer Mortgages 3.3 0.1 3.4 (0.1) 77.7
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Consumer Finance 130.6 3.8 134.4 44.0 1,061.8
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Other (0.9) 4.3 3.4 0.1 4.1
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
192.5 16.0 208.5 51.3 2,358.9
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Interest expense and similar charges, fee and commission expense
and operating expenses are not aligned to operating segments for
day-to-day management of the business, so they cannot be allocated
on a reliable basis. Accordingly, profit by operating segment has
not been disclosed.
All of the Group's operations are conducted wholly within the
United Kingdom and geographical information is therefore not
presented.
4. Operating income
All items below arise from financial instruments measured at
amortised cost unless otherwise stated.
4.1 Net interest income
2021 2020
GBPmillion GBPmillion
---------------------------------------------------- ----------- -----------
Loans and advances to customers 182.0 193.8
---------------------------------------------------- ----------- -----------
Cash and balances at central banks 0.2 0.4
---------------------------------------------------- ----------- -----------
Debt securities - 0.1
---------------------------------------------------- ----------- -----------
182.2 194.3
---------------------------------------------------- ----------- -----------
Expense on financial instruments hedging assets (2.2) (1.8)
---------------------------------------------------- ----------- -----------
Interest income and similar income 180.0 192.5
---------------------------------------------------- ----------- -----------
Deposits from customers (27.3) (39.4)
---------------------------------------------------- ----------- -----------
Due to banks (0.3) (0.7)
---------------------------------------------------- ----------- -----------
Subordinated liabilities (3.4) (3.4)
---------------------------------------------------- ----------- -----------
(31.0) (43.5)
---------------------------------------------------- ----------- -----------
Income on financial instruments hedging liabilities 1.8 1.9
---------------------------------------------------- ----------- -----------
Interest expense and similar charges (29.2) (41.6)
---------------------------------------------------- ----------- -----------
Net interest income 150.8 150.9
---------------------------------------------------- ----------- -----------
Interest income and expense accounting policy
For all financial instruments measured at amortised cost, the effective interest rate method
is used to measure the carrying value and allocate interest income or expense. The effective
interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument to:
* the gross carrying amount of the financial asset; or
* the amortised cost of the financial liability.
In calculating the effective interest rate for financial instruments, other than assets that
were credit-impaired on initial recognition, the Group estimates cash flows considering all
contractual terms of the financial instrument (for example, early redemption penalty charges
and broker commissions) and anticipated customer behaviour, but does not consider future credit
losses. For financial assets that were impaired on initial recognition (also referred to as
purchased or originated credit-impaired assets - 'POCI'), a credit adjusted effective interest
rate is calculated using estimated future cash flows, including expected credit losses.
The calculation of the effective interest rate includes all fees received and paid that are
an integral part of the effective interest rate, transaction costs and all other premiums
or discounts. Transaction costs include incremental costs that are directly attributable to
the acquisition or issue of a financial instrument.
For financial assets that are not considered to be credit-impaired ('stage 1' and 'stage 2'
assets), interest income is recognised by applying the effective interest rate to the gross
carrying amount of the financial asset. For financial assets that become credit-impaired subsequent
to initial recognition ('stage 3' assets), from the next reporting period onwards interest
income is recognised by applying the effective interest rate to the amortised cost of the
financial asset. The credit risk of financial assets that become credit-impaired are not expected
to improve such that they are no longer considered credit-impaired, however, if this were
to occur the calculation of interest income would revert back to the gross basis. The Group's
definition of stage 1, stage 2 and stage 3 assets is set out in Note 17.
For financial assets that were credit-impaired on initial recognition ('POCI' assets), income
is calculated by applying the credit adjusted effective interest rate to the amortised cost
of the asset. Collection activity costs are not included in the amortised cost of the assets,
but are included in operating expenses in the income statement, and are recognised as incurred,
in common with other businesses in the sector. For such financial assets the calculation of
interest income will never revert to a gross basis, even if the credit risk of the asset improves.
Further details regarding when an asset becomes credit-impaired subsequent to initial recognition
is provided within Note 17.
4.2 Net fee and commission income
2021 2020
GBPmillion GBPmillion
------------------------------ ----------- -----------
Fee and disbursement income 12.5 14.1
------------------------------ ----------- -----------
Commission income 1.2 1.3
------------------------------ ----------- -----------
Other income 0.6 0.6
------------------------------ ----------- -----------
Fee and commission income 14.3 16.0
------------------------------ ----------- -----------
Other expenses (0.6) (0.8)
------------------------------ ----------- -----------
Fee and commission expense (0.6) (0.8)
------------------------------ ----------- -----------
Net fee and commission income 13.7 15.2
------------------------------ ----------- -----------
Fees and commission income is all recognised under IFRS 15
Revenue from contracts to customers and consists principally of the
following:
-- Commercial Finance - discounting, service and arrangement
fees.
-- Retail Finance - principally comprises of account management
fees received from customers and referral fees received from third
parties.
-- Vehicle Finance - primarily relates to vehicle collection
charges made to customers and loan administration fees charged to
dealers in respect of the Stocking Funding product.
-- OneBill - weekly and monthly fees. The OneBill product is now
closed.
Fee and commission expenses consist primarily of vehicle
recovery fees payable recognised as incurred in respect of Vehicle
Finance.
Net fee and commission income accounting policy
Fees and commission income that is not considered an integral part of the effective interest
rate of a financial instrument are recognised under IFRS 15 when the Group satisfies performance
obligations by transferring promised services to customers and presented in the income statement
as fee and commission income.
Fees and commission income and expenses that are an integral part of the effective interest
rate of a financial instrument are included in the effective interest rate and presented in
the income statement as interest income or expense.
No significant judgements are made in evaluating when a customer obtains control of promised
goods or services.
5. Gains/(losses) on modification of financial assets
Although not included as an option within customer contracts,
following regulatory guidance the Group offered payment holidays to
its Consumer Finance and Asset Finance customers during 2020 due to
the COVID-19 pandemic, which were not considered to be substantial.
This is considered under IFRS 9 as a modification to contractual
cash flows, which requires the carrying value of these loans to be
adjusted to the net present value of future cash flows.
A small number of payment holidays were granted during 2021,
resulting in no further loan modification losses being
recognised.
The movement during the year in the net present value of the
loans remaining to be unwound as a result of the modification was
as follows:
2021 2020 2020
2021 Retail 2021 Vehicle Retail 2020
Vehicle Finance Finance Total finance Finance Total
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------------------------- ---------------- ----------- ----------- ----------- ----------- -----------
Reduction in net present value
----------------------------------- ---------------- ----------- ----------- ----------- ----------- -----------
At 1 January 2.5 0.6 3.1 - - -
----------------------------------- ---------------- ----------- ----------- ----------- ----------- -----------
(Credit)/charge to the income
statement (1.1) (0.4) (1.5) 2.5 0.6 3.1
----------------------------------- ---------------- ----------- ----------- ----------- ----------- -----------
Balance remaining to be unwound at
31 December 1.4 0.2 1.6 2.5 0.6 3.1
----------------------------------- ---------------- ----------- ----------- ----------- ----------- -----------
Of the loan modification loss remaining, GBP0.9 million (2020:
GBP1.1 million) relates to financial assets with a loss allowance
based on lifetime ECL.
2021 2020
Financial assets (with loss allowance based on lifetime ECL) modified during the period GBPmillion GBPmillion
---------------------------------------------------------------------------------------- ----------- -----------
Gross loans and advances before modification - 527.2
---------------------------------------------------------------------------------------- ----------- -----------
Less: allowances for impairments on loans and advances - (55.6)
---------------------------------------------------------------------------------------- ----------- -----------
- 471.6
---------------------------------------------------------------------------------------- ----------- -----------
Loan modification loss - (0.9)
---------------------------------------------------------------------------------------- ----------- -----------
Net amortised cost after modification - 470.7
---------------------------------------------------------------------------------------- ----------- -----------
Modification of loans accounting policy
A customer's account may be modified to assist customers who are in or have recently overcome
financial difficulties and have demonstrated both the ability and willingness to meet the
current or modified loan contractual payments. Substantial loan modifications result in the
derecognition of the existing loan, and the recognition of a new loan at the new origination
effective interest rate based on the expected future cash flows at origination. Determination
of the origination probability of default ('PD') for the new loan is required, based on the
PD as at the date of the modification, which is used for the calculation of the impairment
provision against the new loan. Any deferred fees or deferred interest, and any difference
between the fair value of the derecognised loan and the new loan, is written off to the income
statement on recognition of the new loan.
Where the modification is not considered to be substantial, neither the origination effective
interest rate nor the origination probability of default for the modified loan changes. The
net present value of changes to the future contractual cash flows adjusts the carrying amount
of the original asset with the difference immediately being recognised in profit or loss.
The adjusted carrying amount is then amortised over the remaining term of the modified loan
using the original effective interest rate.
6. Loss on disposal of loan books
Both the Consumer Mortgages and Asset Finance loan books were
sold in July 2021. The breakdown of the loss on disposal recognised
in the income statement for the year is set out below.
Consumer Asset
Mortgages Finance Total
GBPmillion GBPmillion GBPmillion
-------------------------------------- ----------- ----------- -----------
Consideration received 54.4 5.8 60.4
--------------------------------------- ----------- ----------- -----------
Carrying value of loan books disposed (54.5) (5.8) (62.4)
--------------------------------------- ----------- ----------- -----------
Income less disposal costs (1.2) (0.1) 0.6
--------------------------------------- ----------- ----------- -----------
Loss on disposal of loan books (1.3) (0.1) (1.4)
--------------------------------------- ----------- ----------- -----------
7. Losses on derivatives and hedge accounting
As a part of its risk management strategy, the Group uses
derivatives to economically hedge financial assets and liabilities.
For further information on the Group's risk management strategy for
market risk refer to the Principal risks and uncertainties section
of the Group's Strategic Report starting on page 26.
Hedge accounting is employed by the Group to minimise the
accounting volatility associated with the change in fair value of
derivative financial instruments. This volatility does not reflect
the economic reality of the Group's hedging strategy, the Group
only uses derivatives for the hedging of risks.
Hedge ineffectiveness recognised in losses from derivatives and
hedge accounting in the income statement is set out below:
2021 2020
GBPmillion GBPmillion
---------------------------------------------------- ----------- -----------
Fair value hedges
---------------------------------------------------- ----------- -----------
Fair value movement in period - Interest rate swaps 0.9 1.2
---------------------------------------------------- ----------- -----------
Fair value movement in period - Hedged item (0.8) (1.2)
---------------------------------------------------- ----------- -----------
0.1 -
---------------------------------------------------- ----------- -----------
The gain recognised in other comprehensive income in the period
is as follows:
2021 2020
GBPmillion GBPmillion
------------------------------------------------------------ ----------- -----------
Cash flow hedges
------------------------------------------------------------ ----------- -----------
Fair value movement in period - Interest rate swaps 0.4 -
------------------------------------------------------------ ----------- -----------
Interest reclassified to the income statement in the period - -
------------------------------------------------------------ ----------- -----------
0.4 -
------------------------------------------------------------ ----------- -----------
Although the Group uses derivatives exclusively to hedge
interest rate risk exposures, income statement volatility can still
arise due to hedge accounting ineffectiveness or because hedge
accounting is not achievable. Where such volatility arises it will
trend back to zero over time. All derivatives held by the Group
have been highly effective in the period resulting in minimal hedge
accounting ineffectiveness recognised in the income statement.
Future ineffectiveness may arise as a result of:
-- differences between the expected and actual volume of
prepayments, as the Group hedges to the expected repayment date
taking into account expected prepayments based on past
experience;
-- hedging derivatives with a non-zero fair value at the date of
initial designation; or
-- differences in the timing of cash flows for the hedged item
and the hedging instrument.
How fair value and cash flow hedge accounting affect the
financial statements and the main sources of the residual hedge
ineffectiveness remaining in the income statement are set out
below. Further information on the current derivative portfolio and
the allocation to hedge accounting types is included in Note
18.
Derivative financial instruments accounting policy
The Group enters into derivatives to manage exposures to fluctuations in interest rates. Derivatives
are not used for speculative purposes. Derivatives are carried at fair value with movements
in fair value recognised in the income statement. Derivatives are valued by discounted cash
flow models using yield curves based on overnight indexed swap ('OIS') rates. All derivatives
are carried as assets where fair value is positive and as liabilities when fair value is negative.
Derivatives are not offset in the financial statements unless the Group has both a legally
enforceable right and intention to offset.
The Group does not hold contracts containing embedded derivatives.
Where cash collateral is received, to mitigate the risk inherent in the amounts due to the
Group, it is included as a liability within the due to banks line within the statement of
financial position. Where cash collateral is given, to mitigate the risk inherent in amounts
due from the Group, it is included as an asset in the loans and advances to banks line within
the statement of financial position.
Hedge accounting
Following transition to IFRS 9, the Group has elected to apply IAS 39 for all of its hedge
accounting requirements. When transactions meet specified criteria the Group can apply two
types of hedge accounting:
* Hedges of the fair value of recognised assets or
liabilities or firm commitments (fair value hedges).
* Hedges of highly probable future cash flows
attributable to a recognised asset or liability (cash
flow hedges).
The Group does not have hedges of net investments.
At inception of a hedge, the Group formally documents the relationship between the hedged
items and hedging instruments, as well as its risk management objective and strategy for undertaking
various hedge transactions. The Group also documents its assessment, both at hedge inception
and on an ongoing basis, of whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in fair values of the hedged items (i.e. the fair
value offset between the hedged item and hedging instrument is within the 80% -125% range).
When the European Union adopted IAS 39 in 2004, it removed certain hedge accounting requirements,
commonly referred to as the EU carve-out. The relaxed requirements under the carve-out allow
the Group to apply the 'bottom up' method when calculating macro-hedge ineffectiveness. This
option is not allowed under full IFRS. The Group has applied the EU carve-out accordingly.
Fair value hedge accounting
Fair value hedge accounting results in the carrying value of the hedged item being adjusted
to reflect changes in fair value attributable to the hedged risk, thereby offsetting the effect
of the related movement in the fair value of the derivative. Changes in the fair value of
derivatives and hedged items that are designated and qualify as fair value hedges are recorded
in the income statement.
In a one-to-one hedging relationship in which a single derivative hedges a single hedged item,
the carrying value of the underlying asset or liability (the hedged item) is adjusted for
the hedged risk to offset the fair value movement of the related derivative. In the case of
a portfolio hedge, an adjustment is included in the fair value adjustments for portfolio hedged
risk line in the statement of financial position to offset the fair value movements in the
related derivative. The Group currently only designates portfolio hedges.
If the hedge no longer meets the criteria for hedge accounting, expires or is terminated,
the cumulative fair value adjustment to the carrying amount of a hedged item is amortised
to the income statement over the period to maturity of the previously designated hedge relationship
and recorded as net interest income. If the underlying item is sold or repaid, the unamortised
fair value adjustment is immediately recognised in the income statement.
Cash flow hedge accounting
The effective portion of changes in the fair value of derivatives that are designated and
qualify as cash flow hedges are recognised in other comprehensive income and presented in
the cash flow hedge reserve in equity. Any ineffective portion of changes in the fair value
of the derivative is recognised immediately in the income statement. Amounts recognised in
the cash flow hedge reserve are subsequently reclassified to the income statement when the
underlying asset or liability being hedged impacts the income statement, for example when
interest payments are recognised, and are recorded in the same income statement line in which
the income or expense associated with the related hedged item is reported.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing in equity at that time remains
in equity and is recognised in the periods when the hedged item affects the income statement.
When a forecast transaction is no longer expected to occur (for example, the recognised hedged
item is disposed of), the cumulative gain or loss previously recognised in other comprehensive
income is immediately reclassified to the income statement.
The cash flow hedge reserve represents the cumulative amount of gains and losses on hedging
instruments deemed effective in cash flow hedges. The cumulative deferred gain or loss on
the hedging instrument is recognised in profit or loss only when the hedged transaction impacts
the profit or loss, or is included directly in the initial cost or other carrying amount of
the hedged non-financial items (basis adjustment). As at 31 December 2020, the reserve balance
was insignificant, and therefore is not disclosed in the statement of financial position.
8. Operating expenses
Restated
2021 2020
GBPmillion GBPmillion
-------------------------------------------------------- ----------- -----------
Employee costs, including those of Directors:
-------------------------------------------------------- ----------- -----------
Wages and salaries 47.4 44.9
-------------------------------------------------------- ----------- -----------
Social security costs 5.8 5.0
-------------------------------------------------------- ----------- -----------
Pension costs 2.0 1.9
-------------------------------------------------------- ----------- -----------
Share-based payment transactions 0.9 -
-------------------------------------------------------- ----------- -----------
Depreciation of property, plant and equipment (Note 21) 1.3 1.4
-------------------------------------------------------- ----------- -----------
Depreciation of lease right-of-use assets (Note 22) 0.7 0.7
-------------------------------------------------------- ----------- -----------
Amortisation of intangible assets (Note 23) 1.5 2.0
-------------------------------------------------------- ----------- -----------
Operating lease rentals 0.6 0.5
-------------------------------------------------------- ----------- -----------
Other administrative expenses 43.8 36.2
-------------------------------------------------------- ----------- -----------
Total operating expenses 104.0 92.6
-------------------------------------------------------- ----------- -----------
As described in Note 3, operating expenses are not aligned to
operating segments for day-to-day management of the business, so
they cannot be allocated on a reliable basis.
Post-retirement obligations accounting policy
The Group contributes to defined contribution schemes for the benefit of certain employees.
The schemes are funded through payments to insurance companies or trustee-administered funds
at the contribution rates agreed with individual employees. The Group has no further payment
obligations once the contributions have been paid. The contributions are recognised as an
employee benefit expense when they are due. There are no post-retirement benefits other than
pensions.
Remuneration of the auditor and its associates, excluding VAT,
was as follows:
2021 2020
GBP'000 GBP'000
------------------------------------------------------------------------------------- -------- --------
Fees payable to the Company's auditor for the audit of the Company's annual accounts 639 443
------------------------------------------------------------------------------------- -------- --------
Fees payable to the Company's auditor for other services:
------------------------------------------------------------------------------------- -------- --------
The audit of the Company's subsidiaries, pursuant to legislation 50 40
------------------------------------------------------------------------------------- -------- --------
Other assurance services 110 58
------------------------------------------------------------------------------------- -------- --------
799 541
------------------------------------------------------------------------------------- -------- --------
Other assurance services related to the Term Funding Scheme with
additional incentives for SMEs audit, Interim independent review
report and profit certification (2020: Interim independent review
report and profit certification).
9. Average number of employees
2021 2020
Number Number
----------- ------- -------
Directors 8 8
----------- ------- -------
Management 279 254
----------- ------- -------
Other 686 759
----------- ------- -------
973 1,021
----------- ------- -------
10. Income tax expense
Restated
2021 2020
GBPmillion GBPmillion
--------------------------------------------------------------- ----------- -----------
Current taxation
--------------------------------------------------------------- ----------- -----------
Corporation tax charge - current year 11.2 3.0
--------------------------------------------------------------- ----------- -----------
Corporation tax charge - adjustments in respect of prior years (0.5) (0.5)
--------------------------------------------------------------- ----------- -----------
10.7 2.5
--------------------------------------------------------------- ----------- -----------
Deferred taxation
--------------------------------------------------------------- ----------- -----------
Deferred tax charge - current year (0.7) 0.7
--------------------------------------------------------------- ----------- -----------
Deferred tax charge - adjustments in respect of prior years 0.4 0.5
--------------------------------------------------------------- ----------- -----------
(0.3) 1.2
--------------------------------------------------------------- ----------- -----------
Income tax expense 10.4 3.7
--------------------------------------------------------------- ----------- -----------
Tax reconciliation
--------------------------------------------------------------- ----------- -----------
Profit before tax 56.0 19.1
--------------------------------------------------------------- ----------- -----------
Tax at 19.00% (2020: 19.00%) 10.6 3.6
--------------------------------------------------------------- ----------- -----------
Banking surcharge 1.4 -
--------------------------------------------------------------- ----------- -----------
Rate change on deferred tax assets (1.5) (0.1)
--------------------------------------------------------------- ----------- -----------
Prior period adjustments (0.1) -
--------------------------------------------------------------- ----------- -----------
Other - 0.2
--------------------------------------------------------------- ----------- -----------
Income tax expense for the year 10.4 3.7
--------------------------------------------------------------- ----------- -----------
The 2020 tax charge has been restated for the SaaS prior year
adjustment. See Note 1.3 for further details.
The Government legislated on 10 June 2021 to increase the main
Corporation Tax rate to 25% from 1 April 2023. The Group is also
subject to an 8% surcharge on the profits of banking companies in
excess of GBP25 million. The Government is proposing to reduce the
banking surcharge to 3% on bank tax profits in excess of GBP100
million with effect from 1 April 2023. The Finance Bill containing
these changes was substantively enacted on 2 February 2022.
Deferred tax is based on the combined effect of Corporation Tax
and banking surcharge as enacted at the balance sheet date and
therefore the proposed banking surcharge change has not been
reflected in the revised forecast tax rates used in the financial
statements. The main component of the deferred tax asset is
deferred tax on the IFRS 9 transition adjustment, which reverses on
a straight-line basis over 10 years commencing in 2018. The
reduction in the closing deferred tax asset from applying the draft
legislation is not expected to be material.
Income taxation accounting policy
Current income tax which is payable on taxable profits is recognised as an expense in the
period in which the profits arise.
Deferred tax is provided in full on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements.
Deferred tax is determined using tax rates and laws that have been enacted or substantially
enacted by the statement of financial position date and are expected to apply when the related
deferred tax asset is realised or the deferred tax liability is settled.
11. Earnings per ordinary share
11.1 Basic
Basic earnings per ordinary share are calculated by dividing the
profit attributable to equity holders of the parent by the weighted
average number of ordinary shares as follows:
Restated
2021 2020
----------------------------------------------------------------- ---------- ----------
Profit attributable to equity holders of the parent (GBPmillion) 45.6 15.4
----------------------------------------------------------------- ---------- ----------
Weighted average number of ordinary shares (number) 18,637,444 18,615,480
----------------------------------------------------------------- ---------- ----------
Earnings per share (pence) 244.7 82.7
----------------------------------------------------------------- ---------- ----------
11.2 Diluted
Diluted earnings per ordinary share are calculated by dividing
the profit attributable to equity holders of the parent by the
weighted average number of ordinary shares in issue during the
year, as noted above, as well as the number of dilutive share
options in issue during the year, as follows:
Restated
2021 2020
--------------------------------------------------------- ---------- ----------
Weighted average number of ordinary shares 18,637,444 18,615,480
--------------------------------------------------------- ---------- ----------
Number of dilutive shares in issue at the year-end 407,729 399,713
--------------------------------------------------------- ---------- ----------
Fully diluted weighted average number of ordinary shares 19,045,173 19,015,193
--------------------------------------------------------- ---------- ----------
Dilutive shares being based on:
--------------------------------------------------------- ---------- ----------
Number of options outstanding at the year-end 949,193 789,854
--------------------------------------------------------- ---------- ----------
Weighted average exercise price (pence) 370 477
--------------------------------------------------------- ---------- ----------
Average share price during the period (pence) 1,103 1,238
--------------------------------------------------------- ---------- ----------
Diluted earnings per share (pence) 239.4 81.0
--------------------------------------------------------- ---------- ----------
12. Dividends
2021 2020
GBP'000 GBP'000
------------------------------------------------------------------- -------- --------
2020 final dividend - 44.0 pence per share (paid May 2021) 8.2 -
------------------------------------------------------------------- -------- --------
2021 interim dividend - 20.0 pence per share (paid September 2021) 3.7 -
------------------------------------------------------------------- -------- --------
11.9 -
------------------------------------------------------------------- -------- --------
The Directors recommend the payment of a final dividend of 41.1
pence per share (2020: 44.0 pence per share). The final dividend,
if approved by members at the Annual General Meeting, will be paid
on 19 May 2022 with an associated record date of 22 April 2022.
Dividends accounting policy
Final dividends on ordinary shares are recognised in equity in the period in which they are
approved by shareholders. Interim dividends on ordinary shares are recognised in equity in
the period in which they are paid.
13. Loans and advances to banks
Moody's long-term ratings are as follows:
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------------- ----------- ----------- ----------- -----------
A1 - A3 45.2 58.2 42.3 56.6
------------------------------------------- ----------- ----------- ----------- -----------
Arbuthnot Latham & Co. Limited - No rating 5.1 5.1 5.1 5.1
------------------------------------------- ----------- ----------- ----------- -----------
50.3 63.3 47.4 61.7
------------------------------------------- ----------- ----------- ----------- -----------
None of the loans and advances to banks are either past due or
impaired.
Loans and advances to banks includes restricted cash of GBP6.3
million (2020: GBP11.7 million). See Note 36.1 for a reconciliation
to cash and cash equivalents.
14. Debt securities
Group and Company
Debt securities of GBP25.0 million (2020: GBPnil) consist solely
of sterling UK Government Treasury Bills ('T-Bills'). The Group's
intention is to hold the asset to collect its contractual cash
flows of principal and interest and, therefore, they are stated in
the statement of financial position at amortised cost. The number
of T-Bills held increased to GBP25.0 million over the year, from
GBPnil as at 31 December 2020 which was temporarily required to be
utilised as collateral against the Term Funding Scheme with
additional incentives for SMEs.
All of the debt securities had a rating agency designation,
based on Moody's long-term ratings of Aa3 (2020: Aa2). None of the
debt securities were either past due or impaired.
The accounting policy for debt securities is included in Note 1.5 Financial assets and financial
liabilities accounting policy.
15. Loans and advances to customers
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
---------------------------------------------------------------- ----------- ----------- ----------- -----------
Gross loans and advances 2,598.1 2,441.6 2,511.2 2,349.7
---------------------------------------------------------------- ----------- ----------- ----------- -----------
Less: allowances for impairment of loans and advances (Note 17) (67.5) (82.7) (60.9) (79.9)
---------------------------------------------------------------- ----------- ----------- ----------- -----------
2,530.6 2,358.9 2,450.3 2,269.8
---------------------------------------------------------------- ----------- ----------- ----------- -----------
The fair value of loans and advances to customers is shown in
Note 42.
Group and Company
At 31 December 2021 Retail Finance loans included in loans and
advances to customers of GBP579.9 million (2020: GBP498.4 million)
were pre-positioned under the Bank of England's liquidity support
operations and Term Funding Scheme with additional incentives for
SMEs, and were available for use as collateral within the
schemes.
The following loans are secured upon real estate:
2021 2021 2020 2020
Loan balance Loan-to-value Loan balance Loan-to-value
GBPmillion % GBPmillion %
-------------------- ------------- -------------- ------------- --------------
Real Estate Finance 1,109.6 56% 1,051.9 56%
-------------------- ------------- -------------- ------------- --------------
Consumer Mortgages - - 77.7 51%
-------------------- ------------- -------------- ------------- --------------
1,109.6 1,129.6
-------------------- ------------- -------------- ------------- --------------
Under its credit policy, the Real Estate Finance business lends
to a maximum loan-to-value of 70% for investment loans and 60% for
residential development loans and up to 65% for pre-let commercial
development loans (based on gross development value).
All property valuations at loan inception, and the majority of
development stage valuations, are performed by independent
Chartered Surveyors, who perform their work in accordance with the
Royal Institution of Chartered Surveyors Valuation - Professional
Standards.
Group
GBP3.5 million of cash collateral has been received as at 31
December 2021 in respect of certain loans and advances (2020:
GBP3.7 million).
The accounting policy for loans and advances to customers is included in Note 1.5 Financial
assets and financial liabilities accounting policy.
16. Finance lease receivables
Loans and advances to customers include finance lease
receivables as follows:
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
----------------------------------------------------------------- ----------- ----------- ----------- -----------
Gross investment in finance lease receivables:
----------------------------------------------------------------- ----------- ----------- ----------- -----------
- Not more than one year 137.1 143.9 135.9 141.5
----------------------------------------------------------------- ----------- ----------- ----------- -----------
- Later than one year and no later than five years 253.2 239.0 252.9 237.6
----------------------------------------------------------------- ----------- ----------- ----------- -----------
390.3 382.9 388.8 379.1
----------------------------------------------------------------- ----------- ----------- ----------- -----------
Unearned future finance income on finance leases (105.7) (103.3) (105.5) (102.6)
----------------------------------------------------------------- ----------- ----------- ----------- -----------
Net investment in finance leases 284.6 279.6 283.3 276.5
----------------------------------------------------------------- ----------- ----------- ----------- -----------
The net investment in finance leases may be analysed as follows:
----------------------------------------------------------------- ----------- ----------- ----------- -----------
- Not more than one year 87.5 93.2 86.5 91.3
----------------------------------------------------------------- ----------- ----------- ----------- -----------
- Later than one year and no later than five years 197.1 186.4 196.8 185.2
----------------------------------------------------------------- ----------- ----------- ----------- -----------
284.6 279.6 283.3 276.5
----------------------------------------------------------------- ----------- ----------- ----------- -----------
Finance lease receivables include Vehicle Finance to consumers,
Asset Finance and the RentSmart loan book.
Lessor accounting policy
The present value of the lease payments on assets leased to customers under agreements which
transfer substantially all the risks and rewards of ownership, with or without ultimate legal
title, are recognised as a receivable. The difference between the gross receivable and the
present value of the receivable is recognised as unearned finance income. Lease income is
recognised over the term of the lease using the net investment method, which reflects a constant
periodic rate of return.
17. Allowances for impairment of loans and advances
Group
Not credit-impaired Credit-impaired
------------------------------ ---------------
Stage 1: Stage 2: Stage 3:
Subject to Subject to Subject to Gross loans and
12-month ECL lifetime ECL lifetime ECL Total provision receivables Provision cover
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion %
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
31 December 2021
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Business
Finance:
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Real Estate
Finance 0.1 0.4 2.7 3.2 1,112.8 0.3%
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Commercial
Finance 0.5 0.1 0.5 1.1 314.4 0.3%
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Consumer
Finance:
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Retail Finance 10.0 7.6 4.1 21.7 786.5 2.8%
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Vehicle Finance:
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Voluntary
termination
provision 4.2 - - 4.2
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Other impairment 3.7 11.9 14.4 30.0
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
7.9 11.9 14.4 34.2 297.5 11.5%
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Debt Management - - 7.3 7.3 86.9 8.4%
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
18.5 20.0 29.0 67.5 2,598.1 2.6%
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Not credit-impaired Credit-impaired
---------------------------- ---------------
Stage 1: Stage 2: Stage 3:
Subject to Subject to Subject to Gross loans and
12-month ECL lifetime ECL lifetime ECL Total provision receivables Provision cover
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion %
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
31 December 2020
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Business Finance:
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Real Estate
Finance 1.4 2.7 1.3 5.4 1,057.3 0.5%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Asset Finance 0.6 0.1 1.3 2.0 12.4 16.1%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Commercial
Finance 0.7 0.5 0.1 1.3 232.0 0.6%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Consumer Finance:
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Retail Finance 13.2 7.9 3.5 24.6 683.0 3.6%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Vehicle Finance:
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Voluntary
termination
provision 4.8 - - 4.8
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Other impairment 6.2 16.0 15.2 37.4
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
11.0 16.0 15.2 42.2 286.1 14.8%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Debt Management - - 7.0 7.0 88.8 7.9%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Consumer
Mortgages 0.2 - - 0.2 77.9 0.3%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Other - - - - 4.1 0.0%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
27.1 27.2 28.4 82.7 2,441.6 3.4%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
The impairment charge disclosed in the income statement can be
analysed as follows:
2021 2020
GBPmillion GBPmillion
-------------------------------------------------------- ----------- -----------
Expected credit losses: impairment charge 4.9 50.3
-------------------------------------------------------- ----------- -----------
Charge in respect of off balance sheet loan commitments (0.2) 0.7
-------------------------------------------------------- ----------- -----------
Loans written off, net of amounts utilised - 0.6
-------------------------------------------------------- ----------- -----------
Recoveries of loans written off (0.2) (0.3)
-------------------------------------------------------- ----------- -----------
4.5 51.3
-------------------------------------------------------- ----------- -----------
Total provisions above include expert credit judgements as
follows:
2021 2020
GBPmillion GBPmillion
-------------------------------------------------------------------------------------------- ----------- -----------
Specific overlays held against credit-impaired secured assets held within the Business
Finance
portfolio (0.4) (3.4)
-------------------------------------------------------------------------------------------- ----------- -----------
Management judgement in respect of:
-------------------------------------------------------------------------------------------- ----------- -----------
Consumer Finance affordability 4.6 -
-------------------------------------------------------------------------------------------- ----------- -----------
Vehicle Finance used car valuations 1.5 0.7
-------------------------------------------------------------------------------------------- ----------- -----------
Uncertainty over the future impact of the COVID-19 pandemic 0.4 3.5
-------------------------------------------------------------------------------------------- ----------- -----------
POCI adjustment (see below) 7.3 6.7
-------------------------------------------------------------------------------------------- ----------- -----------
Other (0.1) 0.7
-------------------------------------------------------------------------------------------- ----------- -----------
Expert credit judgements over the IFRS 9 model results 13.3 8.2
-------------------------------------------------------------------------------------------- ----------- -----------
The specific overlays for Business Finance have been estimated
on an individual basis by assessing the recoverability and
condition of the secured asset, along with any other recoveries
that may be made.
For further details on Consumer Finance affordability and
Vehicle Finance used car valuations, see Notes 17.1.2. and 17.1.5
respectively.
POCI adjustment
The Group's debt management business purchases credit-impaired
loans from the Company and other unrelated third parties. Under
IFRS 9, these are classified as Purchased and Originated
Credit-Impaired ('POCI') loans. As a practical expedient, income on
POCI loans is initially recognised by applying the original
credit-adjusted EIR to the expected future cash flows arising from
the POCI assets. The Group's accounting policy is to recognise POCI
income by applying the original credit-adjusted EIR to the
amortised cost of the assets. Expected changes in cash flows since
the date of purchase are recognised as an impairment gain or loss
in the income statement. At the year end, reductions in credit
quality resulted in a GBP7.3 million (2020: GBP6.7 million)
impairment provision.
Reconciliations of the opening to closing allowance for
impairment of loans and advances are presented below:
Not credit-impaired Credit-impaired
--------------------------------------- ------------------------
Stage 1:
Subject to Stage 2: Stage 3:
12-month ECL Subject to lifetime ECL Subject to lifetime ECL Total
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------ ------------- ------------------------ ------------------------ -----------
At 1 January 2021 27.1 27.3 28.3 82.7
------------------------------------ ------------- ------------------------ ------------------------ -----------
(Decrease)/increase due to change in
credit risk
------------------------------------ ------------- ------------------------ ------------------------ -----------
- Transfer to stage 2 (5.3) 27.1 (0.2) 21.6
------------------------------------ ------------- ------------------------ ------------------------ -----------
- Transfer to stage 3 (0.1) (15.7) 20.6 4.8
------------------------------------ ------------- ------------------------ ------------------------ -----------
- Transfer to stage 1 2.9 (5.3) - (2.4)
------------------------------------ ------------- ------------------------ ------------------------ -----------
Passage of time (10.9) (6.7) (3.0) (20.6)
------------------------------------ ------------- ------------------------ ------------------------ -----------
New loans originated 18.2 - - 18.2
------------------------------------ ------------- ------------------------ ------------------------ -----------
Matured and derecognised loans (4.1) (4.1) - (8.2)
------------------------------------ ------------- ------------------------ ------------------------ -----------
Changes to model methodology (0.1) (0.2) 0.9 0.6
------------------------------------ ------------- ------------------------ ------------------------ -----------
Changes to credit risk parameters (8.0) (2.3) 0.7 (9.6)
------------------------------------ ------------- ------------------------ ------------------------ -----------
Other adjustments 0.5 - - 0.5
------------------------------------ ------------- ------------------------ ------------------------ -----------
Charge to income statement (6.9) (7.2) 19.0 4.9
------------------------------------ ------------- ------------------------ ------------------------ -----------
Allowance utilised in respect of
write-offs (1.7) (0.1) (18.3) (20.1)
------------------------------------ ------------- ------------------------ ------------------------ -----------
31 December 2021 18.5 20.0 29.0 67.5
------------------------------------ ------------- ------------------------ ------------------------ -----------
During the year, GBP1.6 million was utilised in respect of the
Asset Finance and Consumer Mortgage book sales.
Not credit-impaired Credit-impaired
---------------------------- ---------------
Stage 1: Stage 2: Stage 3:
Subject to Subject to Subject to
12-month ECL lifetime ECL lifetime ECL Total
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------------------- ------------- ------------- --------------- -----------
At 1 January 2020 21.6 24.1 14.9 60.6
------------------------------------------------- ------------- ------------- --------------- -----------
(Decrease)/increase due to change in credit risk
------------------------------------------------- ------------- ------------- --------------- -----------
- Transfer to stage 2 (5.4) 33.8 - 28.4
------------------------------------------------- ------------- ------------- --------------- -----------
- Transfer to stage 3 - (20.7) 28.3 7.6
------------------------------------------------- ------------- ------------- --------------- -----------
- Transfer to stage 1 3.1 (6.6) - (3.5)
------------------------------------------------- ------------- ------------- --------------- -----------
Passage of time (10.9) (10.5) 3.7 (17.7)
------------------------------------------------- ------------- ------------- --------------- -----------
New loans originated 11.9 - - 11.9
------------------------------------------------- ------------- ------------- --------------- -----------
Matured and derecognised loans (2.5) (2.9) - (5.4)
------------------------------------------------- ------------- ------------- --------------- -----------
Changes to credit risk parameters 11.4 10.1 7.4 28.9
------------------------------------------------- ------------- ------------- --------------- -----------
Other adjustments 0.1 - - 0.1
------------------------------------------------- ------------- ------------- --------------- -----------
Charge to income statement 7.7 3.2 39.4 50.3
------------------------------------------------- ------------- ------------- --------------- -----------
Allowance utilised in respect of write-offs (2.2) - (26.0) (28.2)
------------------------------------------------- ------------- ------------- --------------- -----------
31 December 2020 27.1 27.3 28.3 82.7
------------------------------------------------- ------------- ------------- --------------- -----------
The tables above have been prepared based on monthly movements
in the ECL.
Passage of time represents the impact of accounts maturing
through their contractual life and the associated reduction in PDs.
For stage 3 assets it represents the unwind of the discount applied
in calculating the ECL.
Changes to model methodology represent movements that have
occurred due to enhancements made to the models during the
year.
Changes to credit risk parameters represent movements that have
occurred due to the Group updating model inputs. This would include
the impact of, for example, updating the macroeconomic scenarios
applied to the models.
Other adjustments represent the movement in the Vehicle Finance
voluntary termination provision.
Stage 1 write-offs arise on Vehicle Finance accounts where
borrowers have exercised their right to voluntarily terminate their
agreements.
A breakdown of the gross receivable by internal credit risk
rating is shown below:
2021 2020
------------------------------------------------- -------------------------------------------------
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------- ------------- ---------- ---------- ---------- ------------- ---------- ---------- ----------
Business Finance:
------------------- -------- ---------- ---------- ---------- ------------- ---------- ---------- ----------
Strong 107.6 - - 107.6 521.8 26.9 10.4 559.1
------------------- -------- ---------- ---------- ---------- ------------- ---------- ---------- ----------
Good 915.8 26.6 - 942.4 156.2 138.3 - 294.5
------------------- -------- ---------- ---------- ---------- ------------- ---------- ---------- ----------
Satisfactory 179.7 138.2 5.2 323.1 391.0 14.4 0.1 405.5
------------------- -------- ---------- ---------- ---------- ------------- ---------- ---------- ----------
Weak - 14.1 40.0 54.1 4.5 22.8 15.3 42.6
------------------- -------- ---------- ---------- ---------- ------------- ---------- ---------- ----------
1,203.1 178.9 45.2 1,427.2 1,073.5 202.4 25.8 1,301.7
------------------- -------- ---------- ---------- ---------- ------------- ---------- ---------- ----------
Consumer Finance:
------------------- -------- ---------- ---------- ---------- --------- ---------- ---------- ----------
Good 360.3 95.7 5.3 461.3 288.2 76.8 5.5 370.5
------------------- -------- ---------- ---------- ---------- --------- ---------- ---------- ----------
Satisfactory 338.5 63.3 7.1 408.9 302.0 55.4 7.4 364.8
------------------- -------- ---------- ---------- ---------- --------- ---------- ---------- ----------
Weak 167.6 34.8 11.4 213.8 172.6 47.7 13.5 233.8
------------------- -------- ---------- ---------- ---------- --------- ---------- ---------- ----------
Consumer Mortgages - - - - 77.9 - - 77.9
------------------- -------- ---------- ---------- ---------- --------- ---------- ---------- ----------
Debt Management - - 86.9 86.9 - - 88.8 88.8
------------------- -------- ---------- ---------- ---------- --------- ---------- ---------- ----------
866.4 193.8 110.7 1,170.9 840.7 179.9 115.2 1,135.8
-------------- ------------- ---------- ---------- ---------- --------- ---------- ---------- ----------
Internal credit risk rating is based on the most recent credit
risk score of a customer.
During 2021 the credit rating methodology for Real Estate
Finance was updated. As a result the year on year change is not
directly comparable.
Company
Not credit-impaired Credit-impaired
------------------------------ ---------------
Stage 1: Stage 2: Stage 3:
Subject to Subject to Subject to Gross loans and
12-month ECL lifetime ECL lifetime ECL Total provision receivables Provision cover
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion %
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
31 December 2021
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Business
Finance:
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Real Estate
Finance 0.1 0.4 2.7 3.2 1,112.8 0.3%
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Commercial
Finance 0.5 0.1 0.5 1.1 314.4 0.3%
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Consumer
Finance:
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Retail Finance 10.1 7.7 4.1 21.9 786.5 2.8%
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Vehicle Finance:
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Voluntary
termination
provision 4.2 - - 4.2
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Other impairment 3.7 12.1 14.7 30.5
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
7.9 12.1 14.7 34.7 297.5 11.7%
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
18.6 20.3 22.0 60.9 2,511.2 2.4%
---------------- ------------- --------------- --------------- --------------- --------------- ---------------
Not credit-impaired Credit-impaired
---------------------------- ---------------
Stage 1: Stage 2: Stage 3:
Subject to Subject to Subject to Gross loans and
12-month ECL lifetime ECL lifetime ECL Total provision receivables Provision cover
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion %
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
31 December 2020
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Business Finance:
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Real Estate
Finance 1.4 2.7 1.3 5.4 1,057.3 0.5%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Asset Finance 0.6 0.1 1.3 2.0 12.4 16.1%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Commercial
Finance 0.7 0.5 0.1 1.3 232.0 0.6%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Consumer Finance:
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Retail Finance 13.8 8.2 3.6 25.6 683.0 3.7%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Vehicle Finance:
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Voluntary
termination
provision 4.8 - - 4.8
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Other impairment 6.6 17.4 16.6 40.6
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
11.4 17.4 16.6 45.4 286.6 15.8%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Consumer
Mortgages 0.2 - - 0.2 77.9 0.3%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Other - - - - 0.5 0.0%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
28.1 28.9 22.9 79.9 2,349.7 3.4%
----------------- ------------- ------------- --------------- --------------- ---------------- ---------------
Total provisions above include expert credit judgements of
GBP6.0 million (2020: GBP1.2 million), being the same as Group but
excluding the POCI adjustment.
Reconciliations of the opening to closing allowance for
impairment of loans and advances are presented below:
Not credit-impaired Credit-impaired
--------------------------------------- ------------------------
Stage 1:
Subject to Stage 2: Stage 3:
12-month ECL Subject to lifetime ECL Subject to lifetime ECL Total
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------ ------------- ------------------------ ------------------------ -----------
At 1 January 2021 28.2 29.0 22.7 79.9
------------------------------------ ------------- ------------------------ ------------------------ -----------
(Decrease)/increase due to change in
credit risk
------------------------------------ ------------- ------------------------ ------------------------ -----------
- Transfer to stage 2 (5.6) 28.6 (0.2) 22.8
------------------------------------ ------------- ------------------------ ------------------------ -----------
- Transfer to stage 3 (0.1) (16.5) 21.5 4.9
------------------------------------ ------------- ------------------------ ------------------------ -----------
- Transfer to stage 1 3.1 (5.6) - (2.5)
------------------------------------ ------------- ------------------------ ------------------------ -----------
Passage of time (12.5) (8.2) (4.7) (25.4)
------------------------------------ ------------- ------------------------ ------------------------ -----------
New loans originated 19.1 - - 19.1
------------------------------------ ------------- ------------------------ ------------------------ -----------
Mature and derecognised loans (4.3) (4.4) - (8.7)
------------------------------------ ------------- ------------------------ ------------------------ -----------
Changes to model methodology (0.1) (0.2) 0.9 0.6
------------------------------------ ------------- ------------------------ ------------------------ -----------
Changes to credit risk parameters (8.0) (2.3) 0.4 (9.9)
------------------------------------ ------------- ------------------------ ------------------------ -----------
Other adjustments 0.5 - (0.1) 0.4
------------------------------------ ------------- ------------------------ ------------------------ -----------
Charge to income statement (7.9) (8.6) 17.8 1.3
------------------------------------ ------------- ------------------------ ------------------------ -----------
Allowance utilised in respect of
write-offs (1.7) (0.1) (18.5) (20.3)
------------------------------------ ------------- ------------------------ ------------------------ -----------
31 December 2021 18.6 20.3 22.0 60.9
------------------------------------ ------------- ------------------------ ------------------------ -----------
Not credit-impaired Credit-impaired
---------------------------- ---------------
Stage 1: Stage 2: Stage 3:
Subject to Subject to Subject to
12-month ECL lifetime ECL lifetime ECL Total
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------------------- ------------- ------------- --------------- -----------
At 1 January 2020 22.8 26.9 19.0 68.7
------------------------------------------------- ------------- ------------- --------------- -----------
(Decrease)/increase due to change in credit risk
------------------------------------------------- ------------- ------------- --------------- -----------
- Transfer to stage 2 (5.7) 36.2 - 30.5
------------------------------------------------- ------------- ------------- --------------- -----------
- Transfer to stage 3 - (22.5) 30.5 8.0
------------------------------------------------- ------------- ------------- --------------- -----------
- Transfer to stage 1 3.2 (6.5) - (3.3)
------------------------------------------------- ------------- ------------- --------------- -----------
Passage of time (11.3) (12.0) 1.2 (22.1)
------------------------------------------------- ------------- ------------- --------------- -----------
New loans originated 12.6 - - 12.6
------------------------------------------------- ------------- ------------- --------------- -----------
Matured and derecognised loans (2.7) (3.2) - (5.9)
------------------------------------------------- ------------- ------------- --------------- -----------
Changes to model methodology - - - -
------------------------------------------------- ------------- ------------- --------------- -----------
Changes to credit risk parameters 11.4 10.1 (1.7) 19.8
------------------------------------------------- ------------- ------------- --------------- -----------
Other adjustments 0.1 - - 0.1
------------------------------------------------- ------------- ------------- --------------- -----------
Charge to income statement 7.6 2.1 30.0 39.7
------------------------------------------------- ------------- ------------- --------------- -----------
Allowance utilised in respect of write-offs (2.2) - (26.3) (28.5)
------------------------------------------------- ------------- ------------- --------------- -----------
31 December 2020 28.2 29.0 22.7 79.9
------------------------------------------------- ------------- ------------- --------------- -----------
The tables above have been prepared based on monthly movements
in the ECL. Stage 1 write-offs arise on Vehicle Finance accounts
that have exercised their right to voluntarily terminate their
agreements.
Passage of time represents the impact of accounts maturing
through their contractual life and the associated reduction in PDs.
For stage 3 assets it represents the unwind of the discount applied
in calculating the ECL.
Changes to model methodology represent movements that have
occurred due to enhancements made to the models during the
year.
Changes to credit risk parameters represent movements that have
occurred due to the Group updating model inputs. This would include
the impact of, for example, updating the macroeconomic scenarios
applied to the models.
Other adjustments represent the movement in the Vehicle Finance
voluntary termination provision.
Stage 1 write-offs arise on Vehicle Finance accounts that have
exercised their right to voluntarily terminate their
agreements.
Impairment of financial assets and loan commitments accounting
policy
The Group recognises loss allowances for Expected Credit Losses
('ECL') on all financial assets carried at amortised cost,
including lease receivables and loan commitments.
Stage 1 assets
Credit loss allowances are measured as an amount equal to
lifetime ECL, except for the following assets, for which they are
measured as 12-month ECL:
-- Financial assets determined to have low credit risk at the
reporting date.
-- Financial assets which have not experienced a significant
increase in credit risk since their initial recognition.
-- Financial assets which have experienced a significant
increase in credit risk since their initial recognition but have
subsequently met the Group's cure policy, as set out below.
A low credit risk asset is considered to have low credit risk
when its credit risk rating is equivalent to the widely understood
definition of 'investment grade' assets. The Group has assessed all
its debt securities, which represents UK Treasury bills, and loans
held in STB Leasing Limited, for which credit risk is retained by
its partner RentSmart, to be low credit risk.
Stage 2 assets
Assets which have experienced a significant increase in credit
risk since their initial recognition and have not subsequently met
the Group's cure policy are classified as stage 2 assets and are
reclassified from stage 1, for which loss allowances are measured
at an amount equal to 12-month ECL, to stage 2, for which ECL is
measured as lifetime ECL.
The Group's definitions of a significant increase in credit risk
and default are set out below.
For Consumer Finance, the credit risk of a financial asset is
considered to have experienced a significant increase in credit
risk since initial recognition where there has been a significant
increase in the remaining lifetime probability of default of the
asset. The Group may also use its expert credit judgement and where
possible relevant historical and current performance data,
including bureau data, to determine that an exposure has undergone
a significant increase in credit risk.
For Business Finance, the credit risk of a financial asset is
considered to have experienced a significant increase in credit
risk where certain early warning indicators apply. These indicators
may include notification of county court judgements or,
specifically for the Real Estate Finance portfolio, cost over-runs
and timing delays experienced by borrowers.
As a backstop, the Group considers that a significant increase
in credit risk occurs no later than when an asset is more than 30
days past due for all portfolios.
Stage 3 assets
At each reporting date, the Group assesses whether financial
assets carried at amortised cost are credit-impaired or defaulted
(stage 3). A financial asset is considered to be credit-impaired
when an event or events that have a detrimental impact on estimated
future cash flows have occurred, or have other specific
unlikeliness to pay indicators. Evidence that a financial asset is
credit-impaired includes the following observable data:
-- Initiation of bankruptcy proceedings.
-- Notification of bereavement.
-- Identification of loan meeting debt sale criteria.
-- Initiation of repossession proceedings.
-- A material covenant breach that has remained unremedied for
more than 90 days.
In addition, a loan that is 90 days or more past due is
considered credit-impaired for all portfolios. The credit risk of
financial assets that become credit-impaired are not expected to
improve so they remain credit-impaired.
For Commercial Finance facilities that do not have a fixed term
or repayment structure, evidence that a financial asset is
credit-impaired includes:
-- the client ceasing to trade; or
-- unpaid debtor balances that are dated at least six months
past their normal recourse period.
Cure policy
The credit risk of a financial asset may improve such that it is
no longer considered to have experienced a significant increase in
credit risk if it meets the Group's cure policy. The Group's cure
policy for all portfolios requires sufficient payments to be made
to bring an account back within less than 30 days past due and for
such payments to be maintained for six consecutive months.
The Group has determined stage 3 to be an absorbing state. Once
a loan is in default it is not therefore expected to cure back to
stage 1 or 2.
Calculation of expected credit loss
ECL are probability weighted estimates of credit losses which
are measured as the present value of all cash shortfalls.
Specifically, this is the difference between the contractual cash
flows due and the cash flows expected to be received, discounted at
the original effective interest rate or, for portfolios purchased
outside of the Group by Debt Managers (Services) Limited, the
credit adjusted effective interest rate. For undrawn loan
commitments ECL is measured as the difference between the
contractual cash flows due if the commitment is drawn and the cash
flows expected to be received.
Lifetime ECL is the ECL that results from all possible default
events over the expected life of a financial asset.
12-month ECL is the portion of lifetime ECL that results from
default events on a financial asset that are possible within 12
months after the reporting date.
ECL are calculated by multiplying three main components: the
probability of default ('PD'), exposure at default and loss given
default ('LGD') discounted at the original effective interest rate
of an asset. These variables are derived from internally developed
statistical models and historical data, adjusted to reflect
forward-looking information and are discussed in turn further
below. Management adjustments are made to modelled output to
account for situations where known or expected risk factors have
not been considered in the modelling process.
Probability of default ('PD') and credit risk grades
Credit risk grades are a primary input into the determination of
the PD for exposures. The Group allocates each exposure to a credit
risk grade at origination and at each reporting period to predict
the risk of default. Credit risk grades are determined using
qualitative and quantitative factors that are indicative of the
risk of default e.g. arrears status and loan applications scores.
These factors vary for each loan portfolio. Exposures are subject
to ongoing monitoring, which may result in an exposure being moved
to a different credit risk grade. In monitoring exposures
information such as payment records, request for forbearance
strategies and forecast changes in economic conditions are
considered for Consumer Finance. Additionally, for Business Finance
portfolios information obtained during periodic client reviews, for
example audited financial statements, management accounts, budgets
and projections are considered, with particular focus on key
ratios, compliance with covenants and changes in senior management
teams.
Exogenous, Maturity, Vintage modelling is used in the production
of forward-looking lifetime PDs. This method entails modelling the
effects of external (exogenous) factors against cohorts of lending
and their time on the books creating a clean relationship to best
demonstrate the movement in default rates as macroeconomic
variables are changed. These models are extrapolated to provide PD
estimates for the future, based on forecasted economic
scenarios.
Exposure at default ('EAD')
EAD represents the expected exposure in the event of a default.
EAD is derived from the current exposure and potential changes to
the current amount allowed under the terms of the contract,
including amortisation overpayments and early terminations. The EAD
of a financial asset is its gross carrying amount. For loan
commitments the EAD includes the amount drawn as well as potential
future amounts that may be drawn under the terms of the contract,
estimated based on historical observations and forward-looking
forecasts.
For Commercial Finance facilities that have no specific term, an
assumption is made that accounts close 36 months after the
reporting date for the purposes of measuring lifetime ECL. This
assumption is based on industry experience of average client life.
These facilities do not have a fixed term or repayment structure
but are revolving and increase or decrease to reflect the value of
the collateral i.e. receivables or inventory. The Group can cancel
the facilities with immediate effect, although this contractual
right is not enforced in the normal day-to-day management of the
facility. Typically, demand would only be made on the failure of a
client business or in the event of a material event of default,
such as a fraud. In the normal course of events, the Group's
exposure is recovered through receipt of remittances from the
client's debtors rather than from the client itself.
The ECL for such facilities is estimated taking into account the
credit risk management actions that the Group expects to take to
mitigate against losses. These include a reduction in advance rate
and facility limits or application of reserves against a facility
to improve the likelihood of full recovery of exposure from the
debtors.
Alternative recovery routes mitigating ECL would include
refinancing by another funding provider, taking security over other
asset classes or secured personal guarantees from the client's
principals.
Loss given default ('LGD')
LGD is the magnitude of the likely loss in the event of default.
This takes into account recoveries either through curing or, where
applicable, through auction sale of repossessed collateral and debt
sale of the residual shortfall amount. For loans secured by retail
property, loan-to-value ratios are key parameters in determining
LGD. LGDs are calculated on a discounted cash flow basis using the
financial instrument's origination effective interest rate as the
discount factor.
Incorporation of forward-looking data
The Group incorporates forward-looking information into both its
assessment of whether the credit risk of a financial asset has
increased significantly since initial recognition and its
measurement of expected credit loss. This is achieved by developing
a number of potential economic scenarios and modelling expected
credit losses for each scenario. To ensure material non-linear
relationships between economic factors and credit losses are
reflected in the calculation of ECL, a severe stress scenario is
used as one of these scenarios. The outputs from each scenario are
combined using the estimated likelihood of each scenario occurring
to derive a probability weighted expected credit loss. The four
scenarios adopted and probability weighting applied are set out
below.
The Group has considered which economic variables impact credit
risk and credit losses. The key drivers of credit risk and credit
losses included in the macroeconomic scenarios for all portfolios,
with the exception of Real Estate Finance, have been identified as
annual unemployment rate growth and annual house price index
growth. For the Real Estate Finance portfolio the key drivers have
been identified as unemployment rate growth and the annual house
price index growth. Base case assumptions applied for each of these
variables have been sourced from external consensus or Bank of
England forecasts. Further details of the assumptions applied to
other scenarios are presented below.
Expert credit judgements
Where the ECL model output does not reflect the level of credit
risk, judgement is used to calculate expert credit judgements.
Presentation of loss allowance
Loss allowances for ECL are presented in the statement of
financial position as follows with the loss recognised in the
income statement:
-- Financial assets measured at amortised cost: as a deduction
from the gross carrying amount of the assets.
-- Other loan commitments: generally, as a provision.
For the Real Estate Finance and Commercial Finance portfolios,
where a loan facility is agreed that includes both drawn and
undrawn elements and the Group cannot identify the ECL on the loan
commitment separately, a combined loss allowance for both drawn and
undrawn components of the loan is presented as a deduction from the
gross carrying amount of the drawn component, with any excess of
the loss allowance over the gross drawn amount presented as a
provision.
When a loan is uncollectible, it is written off against the
related ECL allowance. Such loans are written off after all
necessary procedures have been completed and the amount of the loss
has been determined.
Vehicle Finance voluntary termination provision
In addition to recognising allowances for ECLs, the Group holds
a provision for voluntary terminations ('VT') for all Vehicle
Finance financial assets. VT is a legal right provided to customers
who take out hire purchase agreements. The provision is calculated
by multiplying the probability of VT of an asset by the expected
shortfall on VT discounted back at the original effective interest
rate of the asset. VT allowances are not held against loans in
default (stage 3 loans).
The VT provision is presented in the statement of financial
position as a deduction from the gross carrying amount of Vehicle
Finance assets with the loss recognised in the income
statement.
Write off
Loans and advances to customers are written off partially or in
full when the Group has exhausted all viable recovery options. The
majority of write-offs arise from Debt Relief Orders, insolvencies,
IVAs, deceased customers where there is no estate and vulnerable
customers in certain circumstances. Amounts subsequently recovered
on assets previously written off are recognised in the impairment
charge in the income statement.
Intercompany receivables
The parent company's expected credit loss on amounts due from
related companies, calculated by applying probability of default
and loss given default to the amount outstanding at the year-end,
was not material at 31 December 2021 or 31 December 2020.
17.1. Key sources of estimation uncertainty
Estimations which could have a material impact on the Group's
financial results and are therefore considered to be key sources of
estimation uncertainty all relate to the impairment charge on loans
and advances to customers and are therefore set out below.
The continuing potential impact of COVID-19 on the macroeconomic
environment has been considered in determining reasonably possible
changes in key sources of estimation uncertainty which may occur in
the next 12 months.
The impairment charge comprises of two principal elements:
-- modelled expect credit losses ('ECLs'), and
-- expert credit judgements, which are overlaid onto the output
from the models.
As discussed above modelled ECLs are calculated by multiplying
three main components: the probability of default ('PD'), exposure
at default and loss given default ('LGD'). These variables are
derived from internally developed statistical models and historical
data, adjusted to reflect forward-looking information.
Exogenous, Maturity, Vintage modelling is used in the production
of forward-looking lifetime PDs in the calculation of ECLs. As the
Group's performance data does not go back far enough to capture a
full economic cycle, the proxy series of the quarterly rates of
write offs for UK unsecured lending data is used to build an
economic response model to incorporate the effects of
recession.
The Group's policy for the determination of LGD is outlined
above.
The determination of both the PD and LGD require estimation
which is discussed further below.
17.1.1. Estimation of PDs
Sensitivity to reasonably possible changes in PD could
potentially result in material changes in the ECL allowance for
Vehicle Finance and Retail Finance.
A 15% change in the PD for Vehicle Finance would immediately
impact the ECL allowance by GBP2.3 million (2020: a 10% change
impacted the ECL allowance by GBP2.2 million).
A 30% change in the PD for Retail Finance would immediately
impact the ECL allowance by GBP4.6 million (2020: a 20% change
impacted the ECL allowance by GBP5.0 million).
During the year, there was a 14% (2020: 3%) change in PD for
Vehicle Finance, and a 27% (2020: 20%) change in PD for Retail
Finance.
Due to the relatively low levels of provisions on the Business
Finance books, sensitivity to reasonably possible changes in PD are
not considered material.
17.1.2. Consumer Finance customer affordability
A new PD judgement has also been applied at the year end to
reflect the heightened risk of lower customer affordability in the
Consumer businesses due to the increased cost of living. A 15%
uplift has been applied to the ECL on loans identified as most
likely to be impacted by increases in cost of living, which impacts
the ECL by GBP4.6 million. If the uplift factor was increased to
20%, the ECL would be impacted by a further GBP0.9 million.
17.1.3. Vehicle Finance cure rates
Where loans are in stage 3, and return to less than 90 days past
due, expected future cure rates are an element of the PD
calculation. Cure rates are currently above the assumption used in
the model of 6.3%, but management are expecting that cure rates
will return to their pre-COVID-19 pandemic levels. An increase in
the cure rate to 12% would decrease the ECL by GBP2.0 million.
17.1.4. Vehicle Finance recovery rates
With the exception of the Vehicle Finance portfolio, the
sensitivity of the ECL allowance to reasonably possible changes in
the LGD is not considered material. The Vehicle Finance portfolio
is particularly sensitive to changes in LGD due to the range of
outcomes which could crystallise depending on whether the Group is
able to recover the vehicle as security. For the Vehicle Finance
portfolio a 20% change in the LGD is considered reasonably possible
due to delays in the vehicle collection process. A 20% reduction in
the vehicle recovery rate assumption element of the LGD for Vehicle
Finance would increase the ECL by GBP2.0 million (2020: GBP1.9
million). During the year, there was an 0% (2020: 16%) change in
the vehicle recovery rate assumption.
17.1.5. Vehicle Finance used car values
Since the onset of the COVID-19 pandemic, we have observed an
increase in used car prices of 32%. This increase in used car
prices has been incorporated into the modelled LGD reducing the ECL
provision by GBP3.0m (2020: GBP0.7 million), however, the Directors
believe that only 12% of the increase in used car prices will be
permanent and have applied an overlay for lower recoveries with an
increased provision of GBP1.5 million for the year ended 31
December 2021 (2020: GBP0.7 million).
17.1.6. LGD on Real Estate Finance loans in stage 3
The ECL on Real Estate Finance loans in stage 3 is calculated
using a probability weighted expected outcome for each loan, with
the scenarios ranging from best case to downside case(s) to worst
case. If the base cases were removed, with a corresponding increase
in downside case(s) and no movement in worst case, which management
considers to be a reasonably possible outcome, the ECL would
increase by GBP2.2 million. The average actual weighting given to
the base cases at December 2021 was 62.5%.
17.1.7. Incorporation of forward-looking data
The Group incorporates forward-looking information into both its
assessment of whether the credit risk of a financial asset has
increased significantly since initial recognition and its
measurement of expected credit loss by developing a number of
potential economic scenarios and modelling expected credit losses
for each scenario. Further detail on this process is provided
above.
The macroeconomic scenarios used were internally developed,
having regard to externally published scenarios. The scenarios and
weightings applied are summarised below:
UK Unemployment Rate - Annual Average UK HPI - movement from December 2021
------------------------------------------- ------------------------------------------
2022 2023 2024 5 Yr Average 2022 2023 2024 5 Yr Average
Scenario Weightings % % % % % % % %
-------------- ---------- ------- ------ ------ ------------------ -------- -------- ------ --------------
December 2021
-------------- ---------- ------- ------ ------ ------------------ -------- -------- ------ --------------
Upside 20% 4.1 4.0 4.0 4.0 0.8 3.9 8.1 8.3
-------------- ---------- ------- ------ ------ ------------------ -------- -------- ------ --------------
Base 50% 4.9 4.4 4.2 4.3 1.0 1.9 3.9 4.9
-------------- ---------- ------- ------ ------ ------------------ -------- -------- ------ --------------
Downside 25% 5.7 5.6 4.8 4.9 (3.0) (1.9) 2.1 2.7
-------------- ---------- ------- ------ ------ ------------------ -------- -------- ------ --------------
Severe 5% 6.8 8.3 6.8 6.3 (10.7) (11.2) (7.2) (6.2)
-------------- ---------- ------- ------ ------ ------------------ -------- -------- ------ --------------
UK Unemployment Rate - Annual Average UK HPI - movement from December 2020
------------------------------------------- ------------------------------------------
5 Yr
2021 2022 2023 5 Yr Average 2021 2022 2023 Average
Scenario Weightings % % % % % % % %
-------------- ---------- ------- ------ ------ ------------------ -------- -------- -------- ------------
December 2020
-------------- ---------- ------- ------ ------ ------------------ -------- -------- -------- ------------
Upside 20% 5.9 5.9 5.2 5.1 (2.2) (2.9) 1.9 3.7
-------------- ---------- ------- ------ ------ ------------------ -------- -------- -------- ------------
Base 45% 7.5 8.2 7.0 6.6 (4.1) (7.4) (2.8) (0.3)
-------------- ---------- ------- ------ ------ ------------------ -------- -------- -------- ------------
Downside 25% 7.7 8.4 7.2 6.7 (4.4) (7.0) (2.2) (0.0)
-------------- ---------- ------- ------ ------ ------------------ -------- -------- -------- ------------
Severe 10% 8.4 10.1 8.3 7.5 (16.4) (24.4) (20.4) (16.3)
-------------- ---------- ------- ------ ------ ------------------ -------- -------- -------- ------------
The sensitivity of the ECL allowance to reasonably possible
changes in macroeconomic scenario weighting is presented below:
Increase in downside case
weighting by 10% and reduction in Increase in severe stress case
upside case weighting by 5% and reduction in base case
------------------------------------ ---------------------------------------------
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
---------------- ----------------- ----------------- ---------------------- ---------------------
Vehicle Finance 0.2 0.4 0.2 0.2
---------------- ----------------- ----------------- ---------------------- ---------------------
Retail Finance 0.3 0.5 0.2 0.2
---------------- ----------------- ----------------- ---------------------- ---------------------
The sensitivity is immaterial for other lending products.
The Group recognised an impairment charge of GBP4.5 million
(2020: GBP51.3 million). Were each of the macroeconomic scenarios
to be applied 100%, rather than using the weightings set out above,
the increase/(decrease) on ECL provisions would be as follows:
Vehicle Finance Retail Finance Business Finance Total Group
2021 2021 2021 2021
Scenario GBPmillion GBPmillion GBPmillion GBPmillion
--------- --------------- -------------- ---------------- -----------
Upside (1.2) (2.0) (2.5) (5.7)
--------- --------------- -------------- ---------------- -----------
Base (0.4) (0.4) (1.9) (2.7)
--------- --------------- -------------- ---------------- -----------
Downside 1.0 1.5 0.5 3.0
--------- --------------- -------------- ---------------- -----------
Severe 3.3 4.6 8.4 16.3
--------- --------------- -------------- ---------------- -----------
Vehicle Finance Retail Finance Business Finance Total Group
2020 2020 2020 2020
Scenario GBPmillion GBPmillion GBPmillion GBPmillion
--------- --------------- -------------- ---------------- -----------
Upside (3.0) (3.8) (2.1) (8.9)
--------- --------------- -------------- ---------------- -----------
Base 0.1 0.1 0.4 0.6
--------- --------------- -------------- ---------------- -----------
Downside 1.0 1.2 - 2.2
--------- --------------- -------------- ---------------- -----------
Severe 3.2 4.1 8.4 15.7
--------- --------------- -------------- ---------------- -----------
17.1.8. Debt Management forecast collections on POCI debt
A +/-8.0% change in Debt Management forecast collections, which
the Directors consider to be a reasonable possible change, would
increase or decrease loans and advances to customers by GBP6.4
million (2020: GBP6.5 million) respectively, resulting in a
corresponding GBP6.4 million (2020: GBP6.5 million) increase or
decrease in profit or loss.
17.1.9. Climate-risk impact
The Group has considered the impact of climate-related risks on
the financial statements, in particular the impact on impairment
within the Vehicle Finance business. While the effects of climate
change represent a source of uncertainty (in respect of potential
transitional risks such as those that may arise from changes in
future Government policy), the Group does not consider there to be
a material impact on its judgements and estimates from the
physical, transition and other climate-related risks in the
short-term.
18. Derivative financial instruments
Group and Company
Interest rate swaps are held for risk mitigation purposes. The
table below provides an analysis of the notional amount and fair
value of derivatives by hedge accounting relationship. The amount
of ineffectiveness recognised for each hedge type is shown in Note
7. Notional amount is the amount on which payment flows are derived
and does not represent amounts at risk.
Notional Assets Liabilities Notional Assests Liabilities
2021 2021 2021 2020 2020 2020
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Interest rate swaps designated in fair value hedges
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
In less than one year 382.1 0.3 (0.7) 228.4 0.4 (0.6)
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
More than one year but less than three
years 564.6 2.9 (3.0) 599.7 2.3 (3.1)
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
More than three years but less than five
years 194.3 0.4 (2.2) 263.6 2.0 (2.4)
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
More than five years - - - 1.8 0.1 -
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
1,141.0 3.6 (5.9) 1,093.5 4.8 (6.1)
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Interest rate swaps designated in cash flow hedges
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
In less than one year - - -
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
More than one year but less than three
years 4.7 - (0.1) - - -
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
More than three years but less than five
years 9.4 - (0.2) 4.7 - -
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
14.1 - (0.3) 4.7 - -
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Foreign exchange swaps
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
In less than one year 15.3 0.2 - 13.0 - -
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
1,170.4 3.8 (6.2) 1,111.2 4.8 (6.1)
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
In order to manage interest rate risk arising from fixed rate
financial instruments, the Group reviews interest rate swaps
requirements on a monthly basis. The exposure from the portfolio
frequently changes due to the origination of new instruments,
contractual repayments and early prepayments made in each period.
As a result, the Group adopts a dynamic hedging strategy (sometimes
referred to as 'macro' or 'portfolio' hedge) to hedge its exposure
profile by closing and entering into new swap agreements on a
monthly basis. The Group establishes the hedging ratio by matching
the notional of the derivatives with the principal of the portfolio
being hedged.
The following table sets out details of the hedged exposures
covered by the Group's hedging strategies:
Accumulated amount
of fair value Accumulated amount
Carry amount of adjustments Carry amount of of fair value adjustments
hedged item in the hedged items hedged item in the hedged items
Asset/(liability) Asset/(liability) Asset/(liability) Asset/(liability)
2021 2021 2020 2020
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------- ------------------ ------------------------ ------------------ -------------------------
ASSETS
------------------------- ------------------ ------------------------ ------------------ -------------------------
Interest rate fair value
hedges
------------------------- ------------------ ------------------------ ------------------ -------------------------
Loans and advances to
customers
------------------------- ------------------ ------------------------ ------------------ -------------------------
Fixed rate Real Estate
Finance loans 354.9 (2.1) 300.0 4.3
------------------------- ------------------ ------------------------ ------------------ -------------------------
Fixed rate Vehicle
Finance loans 86.3 (0.4) 97.2 0.7
------------------------- ------------------ ------------------------ ------------------ -------------------------
Fixed rate Retail Finance
loans 160.4 (1.0) 116.2 0.5
------------------------- ------------------ ------------------------ ------------------ -------------------------
Fixed rate Consumer
Mortgages Loans - - 9.9 0.2
------------------------- ------------------ ------------------------ ------------------ -------------------------
601.6 (3.5) 523.3 5.7
------------------------- ------------------ ------------------------ ------------------ -------------------------
Interest rate fair value
hedges
------------------------- ------------------ ------------------------ ------------------ -------------------------
Cash and balances at
Central banks
------------------------- ------------------ ------------------------ ------------------ -------------------------
Bank of England reserve 14.1 N/A 4.7 N/A
------------------------- ------------------ ------------------------ ------------------ -------------------------
615.7 (3.5) 528.0 5.7
------------------------- ------------------ ------------------------ ------------------ -------------------------
LIABILITIES
------------------------- ------------------ ------------------------ ------------------ -------------------------
Interest rate fair value
hedges
------------------------- ------------------ ------------------------ ------------------ -------------------------
Deposits from customers
------------------------- ------------------ ------------------------ ------------------ -------------------------
Fixed rate customer
deposits (539.5) 5.3 (570.2) (4.7)
------------------------- ------------------ ------------------------ ------------------ -------------------------
(539.5) 5.3 (570.2) (4.7)
------------------------- ------------------ ------------------------ ------------------ -------------------------
The accumulated amount of fair value hedge adjustments remaining
in the statement of financial position for hedged items that have
ceased to be adjusted for hedging gains and losses is GBPnil (2020:
GBPnil).
The following table shows the impact of financial assets and
financial liabilities relating to transactions where:
-- there is an enforceable master netting agreement in place but
the offset criteria are not otherwise satisfied, and
-- financial collateral is paid and received.
Gross amount reported Master netting Net amounts after
on balance sheet arrangements Financial collateral offsetting
GBPmillion GBPmillion GBPmillion GBPmillion
----------------------- ---------------------- ---------------------- -------------------- -----------------------
31 December 2021
----------------------- ---------------------- ---------------------- -------------------- -----------------------
Derivative financial
assets
----------------------- ---------------------- ---------------------- -------------------- -----------------------
Interest rate swaps 3.6 (3.6) - -
----------------------- ---------------------- ---------------------- -------------------- -----------------------
Foreign exchange swaps 0.2 - - 0.2
----------------------- ---------------------- ---------------------- -------------------- -----------------------
3.8 (3.6) - 0.2
----------------------- ---------------------- ---------------------- -------------------- -----------------------
Derivative financial
liabilities
----------------------- ---------------------- ---------------------- -------------------- -----------------------
Interest rate swaps (6.2) 3.6 2.7 0.1
----------------------- ---------------------- ---------------------- -------------------- -----------------------
Gross amount reported on Master netting Financial Net amounts after
balance sheet arrangements collateral offsetting
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------- ------------------------ ------------------------- ----------- -------------------------
31 December 2020
------------------------- ------------------------ ------------------------- ----------- -------------------------
Interest rate swaps
------------------------- ------------------------ ------------------------- ----------- -------------------------
Derivative financial
assets 4.8 (4.8) - -
------------------------- ------------------------ ------------------------- ----------- -------------------------
Derivative financial
liabilities (6.1) 4.8 1.3 -
------------------------- ------------------------ ------------------------- ----------- -------------------------
Master netting arrangements do not meet the criteria for
offsetting in the statement of financial position. This is because
the arrangement creates an agreement for a right of set-off of
recognised amounts which is enforceable only following an event of
default, insolvency or bankruptcy of the Group or counterparties.
Furthermore, the Group and its counterparties do not intend to
settle on a net basis or realise the assets and settle the
liabilities simultaneously.
Financial collateral consists of cash settled, typically daily
or weekly, to mitigate the credit risk on the fair value of
derivatives.
19. Assets and liabilities held for sale
As at 31 December 2021, assets of GBP1.3 million relating to a
loan book and a liability of GBP2.0 million relating to collateral
held, both in STB Leasing Limited, were in the process of being
sold to its partner, RentSmart Limited. Under IFRS 5, Non-current
Assets Held for Sale and Discontinued Operations, these are
required to be reclassified as 'Held for sale' on the face of the
statement of financial position as they are expected to be sold
within 12 months of the balance sheet date. The assets and
liabilities were sold for their carrying amount on 31 January
2022.
The business is not significant enough to be classified as
discontinued operations, or to be disclosed as a separate operating
segment in Note 3. There is no provision held against the RentSmart
loans, as the credit risk associated with those loans is retained
by RentSmart Limited. No impairment losses have been recognised on
the classification of these operations as held for sale.
20. Investment property
Group Company
GBPmillion GBPmillion
-------------------------------------------- ----------- -----------
Fair value
-------------------------------------------- ----------- -----------
At 1 January 2020 4.8 4.8
-------------------------------------------- ----------- -----------
Transfer from property, plant and equipment - 1.1
-------------------------------------------- ----------- -----------
Revaluation (0.5) (0.6)
-------------------------------------------- ----------- -----------
At 31 December 2020 4.3 5.3
-------------------------------------------- ----------- -----------
Revaluation 0.4 0.4
-------------------------------------------- ----------- -----------
At 31 December 2021 4.7 5.7
-------------------------------------------- ----------- -----------
The Group's investment properties, which are let to third party
occupiers, comprise:
-- Secure Trust House, Boston Drive, Bourne End, SL8 5YS.
-- 50% of Yorke House, Arleston Way, Shirley, Solihull, B90 4LH,
excluding land.
The Company's investment properties includes the two properties
above and 25 and 26 Neptune Court, Vanguard Way, Cardiff CF24 5PJ,
which is occupied by one of the Company's subsidiaries.
Investment properties are stated at fair value as at 31 December
2021 based on external valuations performed by professionally
qualified valuers Knight Frank LLP. These valuations have been
undertaken in accordance with the current editions of RICS
Valuation - Global Standards, which incorporate the International
Valuations Standards, and the RICS UK National Supplement. The
valuations were carried out using the comparative and investment
methods, and were arrived at by reference to market evidence of the
transaction prices paid for similar properties, together with
evidence of demand within the vicinity of the subject properties.
In estimating the fair value of the properties, the valuers
consider the highest and best use of the properties. Knight Frank
LLP were paid a fixed fee for the valuations. Knight Frank LLP also
undertakes some professional work in respect of the Group's Real
Estate Finance business, although this is limited in relation to
the activities of the Group as a whole. An increase in the fair
value of investment property has been
recognised and its carrying value has been adjusted accordingly.
Movements in the fair value of investment property are recognised
operating expenses in the income statement.
Investment property accounting policy
Investment property, which is property held to earn rentals and for capital appreciation,
is measured initially at cost, including transaction costs. Subsequent to initial recognition,
investment property is measured at fair value. External valuations are performed on a triennial
basis. Gains or losses arising from changes in the fair value of investment property are included
in the income statement in the period in which they arise.
An investment property is derecognised upon disposal or when the investment property is permanently
withdrawn from use and no future economic benefits are expected from the disposal. Any gain
or loss arising on derecognition of the property (calculated as the difference between the
net disposal proceeds and the carrying amount of the asset) is included in the income statement
in the period in which the property is derecognised.
21. Property, plant and equipment
Group
Freehold land Leasehold Computer
and buildings property and other equipment Total
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------- -------------- ----------- -------------------- -----------
Cost or valuation
------------------------- -------------- ----------- -------------------- -----------
At 1 January 2020 7.4 0.1 8.4 15.9
------------------------- -------------- ----------- -------------------- -----------
Additions - - 0.7 0.7
------------------------- -------------- ----------- -------------------- -----------
Revaluation (0.8) - - (0.8)
------------------------- -------------- ----------- -------------------- -----------
At 31 December 2020 6.6 0.1 9.1 15.8
------------------------- -------------- ----------- -------------------- -----------
Additions - - 0.2 0.2
------------------------- -------------- ----------- -------------------- -----------
Revaluation 0.3 - - 0.3
------------------------- -------------- ----------- -------------------- -----------
At 31 December 2021 6.9 0.1 9.3 16.3
------------------------- -------------- ----------- -------------------- -----------
Accumulated depreciation
------------------------- -------------- ----------- -------------------- -----------
At 1 January 2020 - - (4.6) (4.6)
------------------------- -------------- ----------- -------------------- -----------
Depreciation charge (0.1) - (1.3) (1.4)
------------------------- -------------- ----------- -------------------- -----------
Revaluation 0.1 - - 0.1
------------------------- -------------- ----------- -------------------- -----------
At 31 December 2020 - - (5.9) (5.9)
------------------------- -------------- ----------- -------------------- -----------
Depreciation charge (0.2) - (1.1) (1.3)
------------------------- -------------- ----------- -------------------- -----------
Revaluation 0.2 - - 0.2
------------------------- -------------- ----------- -------------------- -----------
At 31 December 2021 - - (7.0) (7.0)
------------------------- -------------- ----------- -------------------- -----------
Net book amount
------------------------- -------------- ----------- -------------------- -----------
At 31 December 2020 6.6 0.1 3.2 9.9
------------------------- -------------- ----------- -------------------- -----------
At 31 December 2021 6.9 0.1 2.3 9.3
------------------------- -------------- ----------- -------------------- -----------
The Group's freehold properties, which are occupied by the
Group, comprise:
-- the Registered Office of the Company.
-- 50% of Yorke House, Arleston Way, Shirley B90 4LH, plus the
value of the land.
-- 25 and 26 Neptune Court, Vanguard Way, Cardiff CF24 5PJ
Company
Freehold Computer
property and other equipment Total
GBPmillion GBPmillion GBPmillion
----------------------------------------- ----------- -------------------- -----------
Cost or valuation
----------------------------------------- ----------- -------------------- -----------
At 1 January 2020 3.5 6.1 9.6
----------------------------------------- ----------- -------------------- -----------
Additions - 0.3 0.3
----------------------------------------- ----------- -------------------- -----------
Transfer to investment properties (1.1) - (1.1)
----------------------------------------- ----------- -------------------- -----------
Revaluation (0.3) - (0.3)
----------------------------------------- ----------- -------------------- -----------
At 31 December 2020 and 31 December 2021 2.1 6.4 8.5
----------------------------------------- ----------- -------------------- -----------
Accumulated depreciation
----------------------------------------- ----------- -------------------- -----------
At 1 January 2020 - (3.1) (3.1)
----------------------------------------- ----------- -------------------- -----------
Depreciation charge (0.1) (0.9) (1.0)
----------------------------------------- ----------- -------------------- -----------
Revaluation 0.1 - 0.1
----------------------------------------- ----------- -------------------- -----------
At 31 December 2020 - (4.0) (4.0)
----------------------------------------- ----------- -------------------- -----------
Depreciation charge - (0.8) (0.8)
----------------------------------------- ----------- -------------------- -----------
At 31 December 2021 - (4.8) (4.8)
----------------------------------------- ----------- -------------------- -----------
Net book amount
----------------------------------------- ----------- -------------------- -----------
At 31 December 2020 2.1 2.4 4.5
----------------------------------------- ----------- -------------------- -----------
At 31 December 2021 2.1 1.6 3.7
----------------------------------------- ----------- -------------------- -----------
The Company's freehold properties are the same as Group, but
exclude 25 and 26 Neptune Court, Vanguard Way, Cardiff CF24 5PJ,
which is not occupied by the Company.
Freehold properties are stated at fair value as at 31 December
2021 based on external valuations performed by professionally
qualified valuers Knight Frank LLP, which is performed on the same
basis as investment properties (see Note 20). A increase in the
fair value of freehold property has been recognised and its
carrying value has been adjusted accordingly. Movements in the fair
value of freehold property are recognized in other comprehensive
income, to the extent that any reductions do not exceed the initial
increase, which resulted in the following revaluation
movements:
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
----------------------------------------------------------------- ------------ ----------- ----------- -----------
Revaluation surplus/(deficit) recognised in other comprehensive
income 0.5 (0.4) - -
----------------------------------------------------------------- ------------ ----------- ----------- -----------
Revaluation deficit recognised in the income statement - (0.3) - (0.2)
----------------------------------------------------------------- ------------ ----------- ----------- -----------
The carrying value of freehold land which is included in the
total carrying value of freehold land and buildings and which is
not depreciated is GBP1.3 million (2020: GBP1.3 million).
The historical cost of freehold property included at fair value
is as follows:
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
--------------- ----------- ----------- ----------- -----------
Cost 5.4 5.4 1.6 1.6
--------------- ----------- ----------- ----------- -----------
Depreciation (1.7) (1.6) - -
--------------- ----------- ----------- ----------- -----------
Net book value 3.7 3.8 1.6 1.6
--------------- ----------- ----------- ----------- -----------
Property, plant and equipment accounting policy
Property is held at its revalued amount, being its fair value at the date of valuation less
any subsequent accumulated depreciation. Revaluations are carried out annually at the reporting
date, and movements are recognised in Other Comprehensive Income, net of any applicable deferred
tax. External valuations are performed on a triennial basis.
Plant and equipment is stated at historical cost less depreciation. Historical cost includes
expenditure that is directly attributable to the acquisition of the items. Pre-installed computer
software licences are capitalised as part of the computer hardware it is installed on. Depreciation
is calculated using the straight-line method to allocate their cost to their residual values
over their estimated useful lives, which are subject to regular review:Land not depreciated
Freehold buildings 50 years
Leasehold improvements shorter of life of lease or seven years
Computer equipment three to five years
Other equipment five to ten years
Gains and losses on disposals are determined by comparing proceeds with carrying amounts.
These are included in the income statement.
The Group applies IAS 36 to determine whether property, plant and equipment is impaired.
22. Right-of-use assets
Group Company
------------------------------------------------ -------------------------------------------------
Leasehold Leased motor Leasehold Leased motor
property vehicles Total property vehicles Total
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
Cost
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
At 1 January 2020 4.2 0.3 4.5 2.9 0.2 3.1
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
Additions 0.2 0.1 0.3 0.2 - 0.2
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
At 31 December
2020 4.4 0.4 4.8 3.1 0.2 3.3
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
Disposals - (0.1) (0.1) - - -
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
At 31 December
2021 4.4 0.3 4.7 3.1 0.2 3.3
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
Accumulated
depreciation
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
At 1 January 2020 (0.7) (0.2) (0.9) (0.5) (0.1) (0.6)
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
Depreciation
charge (0.6) (0.1) (0.7) (0.4) (0.1) (0.5)
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
Impairment (0.3) - (0.3) (0.2) - (0.2)
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
At 31 December
2020 (1.6) (0.3) (1.9) (1.1) (0.2) (1.3)
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
Depreciation
charge (0.6) (0.1) (0.7) (0.5) - (0.5)
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
Disposals - 0.1 0.1 - - -
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
At 31 December
2021 (2.2) (0.3) (2.5) (1.6) (0.2) (1.8)
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
Net book amount
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
At 31 December
2020 2.8 0.1 2.9 2.0 - 2.0
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
At 31 December
2021 2.2 - 2.2 1.5 - 1.5
----------------- ----------------- ---------------- ----------- ----------------- ----------------- -----------
Lessee accounting policy
The Group assesses whether a contract is or contains a lease at inception of the contract.
The Group recognises a right-of-use asset and a corresponding lease liability with respect
to all lease arrangements in which it is the lessee, except for short-term leases (defined
as leases with a lease term of 12 months or less) and leases of low value assets. For these
leases, the Group recognises the lease payments as an operating expense on a straight-line
basis over the term of the lease unless another systematic basis is more representative of
the time pattern in which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the future lease payments,
discounted by using the rate implicit in the lease. If this rate cannot be readily determined,
the Group uses its incremental borrowing rate. It is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability (using the effective interest rate
method) and by reducing the carrying amount to reflect the lease payments made, and is presented
as a separate line in the consolidated statement of financial position.
The right-of-use assets comprise the initial measurement of the corresponding lease liability,
lease payments made at or before the commencement day, less any lease incentives received
and any initial direct costs. They are subsequently measured at cost less accumulated depreciation
and impairment charges and are depreciated over the shorter of the lease term and useful life
of the underlying asset. The depreciation starts at the commencement date of the lease. The
right-of-use assets are presented as a separate line in the consolidated statement of financial
position. The Group applies IAS 36 to determine whether a right-of-use asset is impaired and
accounts for any identified impairment loss as described in the 'Property, Plant and Equipment'
policy.
Rentals made under operating leases for less than 12 months in duration, and operating leases
on low value items, are recognised in the income statement on a straight-line basis over the
term of the lease.
23. Intangible assets
Group
Other
Goodwill Computer software intangible assets Total
GBPmillion GBPmillion GBPmillion GBPmillion
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Cost or valuation
---------------------------------------------------- ----------- ----------------- ------------------ -----------
At 1 January 2020 1.0 16.7 2.2 19.9
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Additions - 1.1 - 1.1
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Transfers from property, plant and equipment - 0.1 - 0.1
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Disposals - (1.3) - (1.3)
---------------------------------------------------- ----------- ----------------- ------------------ -----------
At 31 December 2020 1.0 16.6 2.2 19.8
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Additions - 1.1 - 1.1
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Transfers to cloud software development prepayments - (0.4) - (0.4)
---------------------------------------------------- ----------- ----------------- ------------------ -----------
At 31 December 2021 1.0 17.3 2.2 20.5
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Accumulated amortisation
---------------------------------------------------- ----------- ----------------- ------------------ -----------
At 1 January 2020 - (9.3) (1.6) (10.9)
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Amortisation charge - (1.8) (0.2) (2.0)
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Disposals - 0.8 - 0.8
---------------------------------------------------- ----------- ----------------- ------------------ -----------
At 31 December 2020 - (10.3) (1.8) (12.1)
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Amortisation charge - (1.3) (0.2) (1.5)
---------------------------------------------------- ----------- ----------------- ------------------ -----------
At 31 December 2021 - (11.6) (2.0) (13.6)
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Net book amount
---------------------------------------------------- ----------- ----------------- ------------------ -----------
At 31 December 2020 1.0 6.3 0.4 7.7
---------------------------------------------------- ----------- ----------------- ------------------ -----------
At 31 December 2021 1.0 5.7 0.2 6.9
---------------------------------------------------- ----------- ----------------- ------------------ -----------
Goodwill above relates to the following cash generating units,
which are part of the Retail Finance operating segment:
2021 2020
GBPmillion GBPmillion
--------------- ----------- -----------
Music business 0.3 0.3
--------------- ----------- -----------
V12 0.7 0.7
--------------- ----------- -----------
Total 1.0 1.0
--------------- ----------- -----------
The recoverable amount of these cash generating units are
determined on a value in use calculation which uses cash flow
projections based on financial forecasts covering a three-year
period, and a discount rate of 11.97% (2020: 8%). Cash flow
projections during the forecast period are based on the expected
rate of new business. A zero growth based scenario is also
considered. The Directors believe that any reasonably possible
change in the key assumptions on which recoverable amount is based
would not cause the aggregate carrying amount to exceed the
aggregate recoverable amount of the cash generating unit.
Other intangible assets were recognised as part of the V12
Finance Group acquisition. These were recorded at fair value, and
are being amortised on a straight-line basis as follows:
Years
--------------------- -----
Distribution channel 10
--------------------- -----
Company
Goodwill Computer software Total
GBPmillion GBPmillion GBPmillion
---------------------------------------------------- ----------- ----------------- -----------
Cost or valuation
---------------------------------------------------- ----------- ----------------- -----------
At 1 January 2020 0.3 12.4 12.7
---------------------------------------------------- ----------- ----------------- -----------
Additions - 0.9 0.9
---------------------------------------------------- ----------- ----------------- -----------
Disposals - (1.3) (1.3)
---------------------------------------------------- ----------- ----------------- -----------
At 31 December 2020 0.3 12.0 12.3
---------------------------------------------------- ----------- ----------------- -----------
Additions - 0.8 0.8
---------------------------------------------------- ----------- ----------------- -----------
Transfers to cloud software development prepayments - (0.4) (0.4)
---------------------------------------------------- ----------- ----------------- -----------
At 31 December 2021 0.3 12.4 12.7
---------------------------------------------------- ----------- ----------------- -----------
Accumulated amortisation
---------------------------------------------------- ----------- ----------------- -----------
At 1 January 2020 - (5.3) (5.3)
---------------------------------------------------- ----------- ----------------- -----------
Amortisation charge - (1.6) (1.6)
---------------------------------------------------- ----------- ----------------- -----------
Disposals - 0.8 0.8
---------------------------------------------------- ----------- ----------------- -----------
At 31 December 2020 - (6.1) (6.1)
---------------------------------------------------- ----------- ----------------- -----------
Amortisation charge - (1.2) (1.2)
---------------------------------------------------- ----------- ----------------- -----------
At 31 December 2021 - (7.3) (7.3)
---------------------------------------------------- ----------- ----------------- -----------
Net book amount
---------------------------------------------------- ----------- ----------------- -----------
At 31 December 2020 0.3 5.9 6.2
---------------------------------------------------- ----------- ----------------- -----------
At 31 December 2021 0.3 5.1 5.4
---------------------------------------------------- ----------- ----------------- -----------
Goodwill above relates to the music business cash generating
unit, which is part of the Retail Finance operating segment. The
recoverable amount is determined on the same basis as for the
Group.
Intangible assets accounting policy
(a) Goodwill
Goodwill represents the excess of the cost of the acquisition over the fair value of the Group's
share of the net identifiable assets acquired at the date of acquisition. Goodwill is held
at cost less accumulated impairment charge and is deemed to have an infinite life.
The Group reviews the goodwill for impairment at least annually or when events or changes
in economic circumstances indicate that impairment may have taken place. An impairment charge
is recognised in the income statement if the carrying amount exceeds the recoverable amounts.
(b) Computer software
Acquired computer software licences are capitalised on the basis of the costs incurred to
acquire and bring to use the specific software.
Costs associated with developing or maintaining computer software programmes are recognised
as an expense as incurred unless the technical feasibility of the development has been demonstrated,
and it is probable that the expenditure will enable the asset to generate future economic
benefits in excess of its originally assessed standard of performance, in which case they
are capitalised.
These costs are amortised on a straight-line basis over their expected useful lives, which
are between three to ten years.
(c) Other intangibles
The acquisition of subsidiaries has been accounted for in accordance with IFRS 3 'Business
Combinations', which requires the recognition of the identifiable assets acquired and liabilities
assumed at their acquisition date fair values. As part of this process, it was necessary to
recognise certain intangible assets which are separately identifiable and which are not included
on the acquiree's balance sheet, which are amortised over their expected useful lives, as
set out above.
The Group applies IAS 36 to determine whether an intangible asset is impaired.
-----------------------------------------------------------------------------------------------------
24. Investments in group undertakings
Company
GBPmillion
----------------------------------------------------------------- ----------
Cost and net book value
----------------------------------------------------------------- ----------
At 1 January 2020 and December 2020 4.1
----------------------------------------------------------------- ----------
Equity contributions to subsidiaries in respect of share options 0.2
----------------------------------------------------------------- ----------
At 31 December 2021 4.3
----------------------------------------------------------------- ----------
Shares in subsidiary undertakings of Secure Trust Bank PLC are
stated at cost less any provision for impairment. All subsidiary
undertakings are unlisted and none are banking institutions. All
are 100% owned by the Company. The subsidiary undertakings were all
incorporated in the UK and wholly owned via ordinary shares. All
subsidiary undertakings are included in the consolidated financial
statements and have an accounting reference date of 31
December.
Details are as follows:
Principal activity
---------------------------------------------------- -----------------------------------------
Owned directly
---------------------------------------------------- -----------------------------------------
Debt Managers (Services) Limited Debt management
---------------------------------------------------- -----------------------------------------
Secure Homes Services Limited Property rental
---------------------------------------------------- -----------------------------------------
STB Leasing Limited Leasing
---------------------------------------------------- -----------------------------------------
V12 Finance Group Limited Holding company
---------------------------------------------------- -----------------------------------------
Owned indirectly via an intermediate holding company
---------------------------------------------------- -----------------------------------------
V12 Personal Finance Limited Dormant
---------------------------------------------------- -----------------------------------------
V12 Retail Finance Limited Sourcing and servicing of unsecured loans
---------------------------------------------------- -----------------------------------------
The registered office of the Company, and all subsidiary
undertakings, is One Arleston Way, Shirley, Solihull, West Midlands
B90 4LH.
Secure Homes Services Limited, STB Leasing Limited and V12
Personal Finance Limited are exempt from the requirements of the
Companies Act 2006 relating to the audit of individual accounts by
virtue of s479A, and the Company has given guarantees accordingly
under s479C in respect of the years ended 31 December 2021 and 31
December 2020, or period ended 30 June 2020 in the case of STB
Leasing Limited.
25. Deferred taxation
Restated Restated
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------------------- ----------- ----------- ----------- -----------
Deferred tax assets:
------------------------------------------------- ----------- ----------- ----------- -----------
Other short-term timing differences 6.9 6.6 6.8 7.1
------------------------------------------------- ----------- ----------- ----------- -----------
At 31 December 6.9 6.6 6.8 7.1
------------------------------------------------- ----------- ----------- ----------- -----------
Deferred tax assets:
------------------------------------------------- ----------- ----------- ----------- -----------
Prior period closing (as previously stated) 6.6 7.5 7.1 8.1
------------------------------------------------- ----------- ----------- ----------- -----------
Deferred tax on Software-as-a-Service adjustment - 0.5 - 0.5
------------------------------------------------- ----------- ----------- ----------- -----------
Prior period closing (as restated) 6.6 8.0 7.1 8.6
------------------------------------------------- ----------- ----------- ----------- -----------
Income statement 0.3 (1.2) (0.4) (1.1)
------------------------------------------------- ----------- ----------- ----------- -----------
Other comprehensive income - (0.2) 0.1 (0.4)
------------------------------------------------- ----------- ----------- ----------- -----------
At 31 December 6.9 6.6 6.8 7.1
------------------------------------------------- ----------- ----------- ----------- -----------
Prior year deferred tax has been restated. See Note 1.3 for
further details.
Deferred tax accounting policy
Deferred tax assets and liabilities are offset if there is a legally enforceable right to
offset current tax assets and liabilities, and they relate to taxes levied by the same tax
authority on the same taxable entity, or on different tax entities, when they intend to settle
current tax liabilities and assets on a net basis or their tax assets and liabilities will
be realised simultaneously.
Deferred tax assets are recognised where it is probable that future taxable profits will be
available against which the temporary differences can be utilised.
26. Other assets
Restated Restated
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------------------- ----------- ----------- ----------- -----------
Other receivables 0.4 3.3 0.3 2.3
-------------------------------------- ----------- ----------- ----------- -----------
Amounts due from related companies - - 89.3 90.9
-------------------------------------- ----------- ----------- ----------- -----------
Cloud software development prepayment 4.8 4.6 4.8 4.6
-------------------------------------- ----------- ----------- ----------- -----------
Other prepayments and accrued income 6.7 7.7 5.4 6.6
-------------------------------------- ----------- ----------- ----------- -----------
11.9 15.6 99.8 104.4
-------------------------------------- ----------- ----------- ----------- -----------
Cloud software development costs, principally relating to the
Group's Motor Transformation Programme, do not meet the intangible
asset recognition criteria and are therefore classified as a
prepayment, which is expensed to the income statement over the
useful economic life of the software. The prior year cloud software
development prepayment figure has been restated. See Note 1.3 for
further details.
27. Due to banks
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------------------------------------ ----------- ----------- ----------- -----------
Amounts due under the Bank of England's liquidity support
operations, Term Funding Scheme
and Term Funding Scheme with additional incentives for SMEs 390.0 273.0 390.0 273.0
------------------------------------------------------------------ ----------- ----------- ----------- -----------
Amounts due to other credit institutions 0.7 3.3 0.7 3.3
------------------------------------------------------------------ ----------- ----------- ----------- -----------
Accrued interest 0.1 0.1 0.1 0.1
------------------------------------------------------------------ ----------- ----------- ----------- -----------
390.8 276.4 390.8 276.4
------------------------------------------------------------------ ----------- ----------- ----------- -----------
The accounting policy for amounts due to banks is included in Note 1.5 Financial assets and
financial liabilities accounting policy.
28. Deposits from customers
Group and Company
2021 2020
GBPmillion GBPmillion
----------------- ----------- -----------
Access accounts 101.7 81.4
----------------- ----------- -----------
Fixed term bonds 974.6 1,076.4
----------------- ----------- -----------
Notice accounts 771.9 705.1
----------------- ----------- -----------
ISAs 255.0 129.6
----------------- ----------- -----------
2,103.2 1,992.5
----------------- ----------- -----------
The accounting policy for deposits from customers is included in Note 1.5 Financial assets
and financial liabilities accounting policy.
29. Lease liabilities
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------------------------------- ----------- ----------- ----------- -----------
At 1 January 3.9 4.5 2.9 3.3
--------------------------------------------------- ----------- ----------- ----------- -----------
New leases - 0.3 - 0.2
--------------------------------------------------- ----------- ----------- ----------- -----------
Payments (0.9) (1.0) (0.7) (0.7)
--------------------------------------------------- ----------- ----------- ----------- -----------
Interest expense 0.1 0.1 0.1 0.1
--------------------------------------------------- ----------- ----------- ----------- -----------
At 31 December 3.1 3.9 2.3 2.9
--------------------------------------------------- ----------- ----------- ----------- -----------
Lease liabilities - Gross
--------------------------------------------------- ----------- ----------- ----------- -----------
- No later than one year 0.9 0.9 0.7 0.7
--------------------------------------------------- ----------- ----------- ----------- -----------
- Later than one year and no later than five years 2.3 3.0 1.7 2.4
--------------------------------------------------- ----------- ----------- ----------- -----------
- More than five years 0.1 0.3 - -
--------------------------------------------------- ----------- ----------- ----------- -----------
3.3 4.2 2.4 3.1
--------------------------------------------------- ----------- ----------- ----------- -----------
Less: Future finance expense (0.2) (0.3) (0.1) (0.2)
--------------------------------------------------- ----------- ----------- ----------- -----------
Lease liabilities - Net 3.1 3.9 2.3 2.9
--------------------------------------------------- ----------- ----------- ----------- -----------
Lease liabilities - Gross
--------------------------------------------------- ----------- ----------- ----------- -----------
- No later than one year 0.8 0.9 0.7 0.6
--------------------------------------------------- ----------- ----------- ----------- -----------
- Later than one year and no later than five years 2.2 2.7 1.6 2.3
--------------------------------------------------- ----------- ----------- ----------- -----------
- More than five years 0.1 0.3 - -
--------------------------------------------------- ----------- ----------- ----------- -----------
3.1 3.9 2.3 2.9
--------------------------------------------------- ----------- ----------- ----------- -----------
The accounting policy for lease liabilities is included in Note 22 Lessee accounting policy.
30. Other liabilities
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------------- ----------- ----------- ----------- -----------
Other payables 18.3 46.2 14.9 41.1
--------------------------------- ----------- ----------- ----------- -----------
Amounts due to related companies - - 17.9 12.6
--------------------------------- ----------- ----------- ----------- -----------
Accruals and deferred income 13.0 10.1 11.0 8.1
--------------------------------- ----------- ----------- ----------- -----------
31.3 56.3 43.8 61.8
--------------------------------- ----------- ----------- ----------- -----------
31. Provisions for liabilities and charges
Group and Company
Customer
redress ECL allowance on loan commitments Other Total
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------- ----------- --------------------------------- ----------- -----------
Balance at 1 January 2020 0.2 0.4 0.1 0.7
------------------------------------- ----------- --------------------------------- ----------- -----------
(Release)/charge to income statement (0.2) 0.7 1.4 1.9
------------------------------------- ----------- --------------------------------- ----------- -----------
Utilised - - (0.7) (0.7)
------------------------------------- ----------- --------------------------------- ----------- -----------
Balance at 31 December 2020 - 1.1 0.8 1.9
------------------------------------- ----------- --------------------------------- ----------- -----------
(Release)/charge to income statement - (0.2) 0.3 0.1
------------------------------------- ----------- --------------------------------- ----------- -----------
Utilised - - (0.7) (0.7)
------------------------------------- ----------- --------------------------------- ----------- -----------
Balance at 31 December 2021 - 0.9 0.4 1.3
------------------------------------- ----------- --------------------------------- ----------- -----------
Customer redress provision
The Group provided for its best estimate of redress payable in
respect of outstanding claims relating to historical sales of
accident, sickness and unemployment insurance, by considering the
likely future uphold rate for claims, in the context of confirmed
issues and historical experience.
The Financial Conduct Authority announced a deadline for making
these customer redress claims, which gave consumers until 29 August
2019 to make a claim, so no further claims were accepted after this
date. At 31 December 2021, all such claims had been settled and
therefore no further customer redress provision was required.
ECL allowance on loan commitments
In accordance with the requirements of IFRS 9 the Group holds an
ECL allowance against loans it has committed to lend but have not
yet been drawn. For the Real Estate Finance and Commercial Finance
portfolios, where a loan facility is agreed that includes both
drawn and undrawn elements and the Group cannot identify the ECL on
the loan commitment separately, a combined loss allowance for both
drawn and undrawn components of the loan is presented as a
deduction from the gross carrying amount of the drawn component,
with any excess of the loss allowance over the gross drawn amount
presented as a provision. At 31 December 2021 no provision was held
for losses in excess of drawn amounts.
Other
Other includes
-- provision for fraud, which relates to cases where the Group
has reasonable evidence of suspected fraud, but further
investigation is required before the cases can be dealt with
appropriately
-- restructuring provision; and
-- s75 Consumer Credit Act 1974 provision.
The Directors expect all provisions to be fully utilised within
the next 12 months.
Provisions for liabilities and charges accounting policy
A provision is recognised where there is a present obligation as a result of a past event,
it is probable that the obligation will be settled and it can be reliably estimated.
32. Subordinated liabilities
Group and Company
2021 2020
GBPmillion GBPmillion
------------------------ ----------- -----------
Notes at par value 50.0 50.0
------------------------ ----------- -----------
Unamortised issue costs (0.3) (0.4)
------------------------ ----------- -----------
Accrued interest 1.2 1.2
------------------------ ----------- -----------
50.9 50.8
------------------------ ----------- -----------
Subordinated liabilities comprises two tranches of 6.75% Fixed
Rate Reset Callable Subordinated Notes due 2028 ('the Notes')
issued in 2018. The Notes mature in 2028 but the issuer may at its
discretion redeem the Notes in 2023. The Notes are listed on the
Global Exchange Market of the Irish Stock Exchange plc trading as
Euronext Dublin.
-- The Notes are redeemable for cash at their principal amount
on a fixed date.
-- The Company has a call option to redeem the securities early
in the event of a 'tax event' or a 'capital disqualification
event',
which is at the full discretion of the Company.
-- Interest payments are paid at six monthly intervals and are
mandatory.
-- The Notes give the holders' rights to the principal amount on
the Notes, plus any unpaid interest, on liquidation. Any such
claims are subordinated to senior creditors, but rank pari passu
with holders of other subordinated obligations and in priority to
holders of share capital.
The above features provide the issuer with a contractual
obligation to deliver cash or another financial asset to the
holders, and therefore the Notes are classified as financial
liabilities.
Transaction costs that are directly attributable to the issue of
the Notes and are deducted from the financial liability and
expensed to the income statement on an effective interest rate
basis over the expected life of the Notes.
The Notes are treated as Tier 2 regulatory capital which is used
to support the continuing growth of the business taking into
account increases in regulatory capital buffers. The issue of the
Notes is part of an ongoing programme to diversify and expand the
capital base of the Group.
The accounting policy for subordinated liabilities is included in Note 1.5 Financial assets
and financial liabilities accounting policy.
33. Contingent liabilities and commitments
33.1 Contingent liabilities
As a financial services business, the Group must comply with
numerous laws and regulations, which significantly affect the way
it does business. Whilst the Group believes there are no material
unidentified areas of failure to comply with these laws and
regulations, there can be no guarantee that all issues have been
identified.
33.2 Capital commitments
At 31 December 2021, the Group and Company had no capital
commitments (2020: GBPnil).
33.3 Credit commitments
Group and Company
Commitments to extend credit to customers were as follows:
2021 2020
GBPmillion GBPmillion
-------------------- ----------- -----------
Business Finance
-------------------- ----------- -----------
Real Estate Finance 68.9 63.5
---------------------- ----------- -----------
Commercial Finance 120.9 128.5
---------------------- ----------- -----------
Consumer Finance
-------------------- ----------- -----------
Retail Finance 83.6 69.3
---------------------- ----------- -----------
Vehicle Finance 0.5 0.2
---------------------- ----------- -----------
273.9 261.5
-------------------- ----------- -----------
34. Share capital
Number GBPmillion
-------------------- ---------- ----------
At 1 January 2020 18,477,500 7.4
-------------------- ---------- ----------
Issued during 2020 156,162 0.1
-------------------- ---------- ----------
At 31 December 2020 18,633,662 7.5
-------------------- ---------- ----------
Issued during 2021 14,143 -
-------------------- ---------- ----------
At 31 December 2021 18,647,805 7.5
-------------------- ---------- ----------
Share capital comprises ordinary shares with a par value of 40
pence each.
Equity instruments accounting policy
Equity instruments issued by the Company are recorded at the proceeds received, net of direct
issuance costs. Any amounts received over nominal value are recorded in the share premium
account, net of direct issuance costs. Costs associated with the listing of shares are expensed
immediately.
35. Share-based payments
At 31 December 2021 and 31 December 2020, the Group had four
share-based payment schemes in operation:
-- 2017 long term incentive plan
-- 2017 Sharesave plan
-- 2017 deferred bonus plan
-- 'Phantom' share option scheme
A summary of the movements in share options during the year is
set out below:
Weighted Weighted
average average
exercise exercise
Forfeited price of price of
lapsed Vested and options options
Outstanding and Outstanding exercisable outstanding outstanding
at Granted cancelled Exercised at 31 at 31 at 31 at 31
1 January during during during December December December December
2021 the year the year the year 2021 2021 Vesting 2021 2020
Number Number Number Number Number Number dates GBP GBP
---------- ----------- -------- --------- --------- ----------- ----------- --------- ----------- -----------
Equity
settled
---------- ----------- -------- --------- --------- ----------- ----------- --------- ----------- -----------
2017 long
term
incentive
plan 473,096 243,550 (300,999) (13,847) 401,800 5,572 2022-2024 0.40 0.40
---------- ----------- -------- --------- --------- ----------- ----------- --------- ----------- -----------
2017
Sharesave
plan 572,464 57,645 (87,663) - 542,446 8,589 2022-2024 6.17 12.28
---------- ----------- -------- --------- --------- ----------- ----------- --------- ----------- -----------
2017
deferred
bonus
plan 51,319 13,023 (43,830) (826) 19,686 1,670 2022-2024 0.40 0.40
---------- ----------- -------- --------- --------- ----------- ----------- --------- ----------- -----------
1,096,879 314,218 (432,492) (14,673) 963,932 15,831 3.65 5.26
---------- ----------- -------- --------- --------- ----------- ----------- --------- ----------- -----------
Weighted
average
exercise
price 5.26 2.29 2.76 0.40 3.65
---------- ----------- -------- --------- --------- ----------- ----------- --------- ----------- -----------
Cash
settled
---------- ----------- -------- --------- --------- ----------- ----------- --------- ----------- -----------
'Phantom'
share
option
scheme 281,667 - (187,500) - 94,167 94,167 2019 25.00 25.00
---------- ----------- -------- --------- --------- ----------- ----------- --------- ----------- -----------
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
----------------------------------------------------- ----------- ----------- ----------- -----------
Expense incurred in relation to share-based payments 0.9 - 0.9 -
----------------------------------------------------- ----------- ----------- ----------- -----------
35.1. Long term incentive plan ('LTIP')
The LTIP was established on 3 May 2017. Two separate awards to a
number of participants were made under this plan during the year,
as set out below.
35.1.1 LTIP Restricted share award
56,023 (2020: Nil) options were awarded which were not subject
to any performance conditions. The awards will vest three years
from the date of grant. The original grant date valuation was
determined using a Black-Scholes model. Measurement inputs and
assumptions used for the grant date valuation were as follows:
Awarded during
2021
-------------------------------- --------------
Share price at grant date GBP11.73
-------------------------------- --------------
Exercise price GBP0.40
-------------------------------- --------------
Expected dividend yield 5.49%
----------------------------------- --------------
Expected stock price volatility 46.27%
----------------------------------- --------------
Risk free interest rate 0.00%
----------------------------------- --------------
Average expected life (years) 3.00
----------------------------------- --------------
Original grant date valuation GBP9.94
----------------------------------- --------------
35.1.2 LTIP
187,527 (2020: 267,602) options were awarded which are subject
to four performance conditions, which are based on:
-- rank of the total shareholder return ('TSR') over the
performance period against the TSR of the comparator group of peer
group companies;
-- rank of the TSR over the performance period against the TSR
of the FTSE Small Cap Index;
-- growth of the TSR in absolute terms; and
-- maintaining appropriate risk practices over the performance
period reflecting the longer-term strategic risk management of the
Group.
The awards have a performance term of three years, and will be
released to the participants on the vesting date. The awards will
vest on the date on which the Board determines that these
conditions have been met.
Of the share options exercised during the year, 13,317 (2020:
1,112) were exercised for shares, and 530 (2020: 1,537) were
exercised for a cash alternative at a deemed market price of
GBP11.90 (2020: GBP9.11).
The original grant date valuation was determined using a
Black-Scholes model for the EPS and risk management tranches, and a
Monte Carlo model for the TSR tranche. Measurement inputs and
assumptions used for the grant date valuation were as follows:
Awarded during Awarded during
2021 2020
-------------------------------- -------------- --------------
Share price at grant date GBP11.73 GBP7.32
-------------------------------- -------------- --------------
Exercise price GBP0.40 GBP0.40
-------------------------------- -------------- --------------
Expected dividend yield 5.49% 4.18%
---------------------------------- -------------- --------------
Expected stock price volatility 45.56% 43.87%
---------------------------------- -------------- --------------
Risk free interest rate 0.11% -0.07%
---------------------------------- -------------- --------------
Average expected life (years) 3.00 3.00
---------------------------------- -------------- --------------
Original grant date valuation GBP6.99 GBP4.08
---------------------------------- -------------- --------------
35.2. Sharesave plan
The Sharesave plan was established on 3 May 2017.
This plan allows all employees to save for three years, subject
to a maximum monthly amount of GBP500, with the option to buy
shares in Secure Trust Bank PLC when the plan matures. Participants
cannot change the amount that they have agreed to save each month
but they can suspend payments for up to six months. Participants
can withdraw their savings at any time but, if they do this before
the completion date, they lose the option to buy shares at the
Option Price, and in most circumstances if participants cease to
hold plan-related employment before the third anniversary of the
grant date, then the options are also lost. The options ordinarily
vest approximately three years after grant date, and are
exercisable for a period of six months following vesting.
35.2. Sharesave plan
The original grant date valuation was determined using a
Black-Scholes model. Measurement inputs and assumptions used were
as follows:
Awarded during 2021 Awarded during 2020
-------------------------------- ------------------- -------------------
Share price at grant date GBP12.45 GBP6.32
-------------------------------- ------------------- -------------------
Exercise price GBP10.69 GBP5.31
-------------------------------- ------------------- -------------------
Expected stock price volatility 53.84% 44.97%
-------------------------------- ------------------- -------------------
Expected dividend yield 5.49% 13.92%
-------------------------------- ------------------- -------------------
Risk free interest rate 0.74% 0.00%
-------------------------------- ------------------- -------------------
Average expected life (years) 3.00 3.00
-------------------------------- ------------------- -------------------
Original grant date valuation GBP4.12 GBP0.93
-------------------------------- ------------------- -------------------
35.3. Deferred bonus plan
The deferred bonus plan was established on 3 May 2017.
In 2021 and 2020, awards were granted to certain Senior Managers
of the Group. The awards vest in three equal tranches after one,
two and three years following deferral. Accordingly, the following
awards remain outstanding under the plan, entitling the members of
the scheme to purchase shares in the Company:
Awards granted Awards granted Awards granted
Vesting after Vesting after Vesting after
one year two years three years Awards granted
Number Number Number Total
----------------------- -------------- -------------- -------------- --------------
At 1 January 2020 9,886 9,886 9,890 29,662
----------------------- -------------- -------------- -------------- --------------
Granted 11,679 11,679 11,682 35,040
----------------------- -------------- -------------- -------------- --------------
Exercised (9,886) (3,497) - (13,383)
----------------------- -------------- -------------- -------------- --------------
At 31 December 2020 11,679 18,068 21,572 51,319
----------------------- -------------- -------------- -------------- --------------
Granted 4,057 4,340 4,626 13,023
----------------------- -------------- -------------- -------------- --------------
Exercised (826) - - (826)
----------------------- -------------- -------------- -------------- --------------
Cancelled (9,183) (15,572) (19,075) (43,830)
----------------------- -------------- -------------- -------------- --------------
At 31 December 2021 5,727 6,836 7,123 19,686
----------------------- -------------- -------------- -------------- --------------
Vested and exercisable 1,670 - - 1,670
----------------------- -------------- -------------- -------------- --------------
35.3. Deferred bonus plan
Two separate awards were made under this plan during the year,
1,702 in April 2021 and 11,321 in September 2021. The original
grant date valuation was determined using a Black-Scholes model.
Measurement inputs and assumptions used were as follows:
Granted in Granted in
Granted in Granted in April 2021 Granted in Granted in September 2021
April 2021 April 2021 Awards vesting September 2021 September 2021 Awards vesting
Awards vesting Awards vesting after three Awards vesting Awards vesting after three
after one year after two years years after one year after two years years
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Share price at
grant date GBP11.73 GBP11.73 GBP11.73 GBP12.45 GBP12.45 GBP12.45
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Exercise price GBP0.40 GBP0.40 GBP0.40 GBP0.40 GBP0.40 GBP0.40
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Expected
dividend yield 5.49% 5.49% 5.49% 5.49% 5.49% 5.49%
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Expected stock
price
volatility 46.54% 53.22% 46.27% 42.06% 60.86% 53.84%
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Risk free
interest rate 0.00% 0.00% 0.00% 0.74% 0.74% 0.74%
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Average expected
life (years) 1.00 2.00 3.00 0.58 1.58 2.58
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Original grant
date valuation GBP10.85 GBP10.39 GBP9.94 GBP11.54 GBP11.06 GBP10.59
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Granted 2020 Granted 2020 Granted 2020
Awards vesting after one Awards vesting after two Awards vesting after
year years three years
-------------------------- -------------------------- -------------------------- -------------------------
Share price at grant date GBP7.32 GBP7.32 GBP7.32
-------------------------- -------------------------- -------------------------- -------------------------
Exercise price GBP0.40 GBP0.40 GBP0.40
-------------------------- -------------------------- -------------------------- -------------------------
Expected dividend yield 12.02% 12.02% 12.02%
----------------------------- -------------------------- -------------------------- -------------------------
Expected stock price
volatility 66.54% 53.01% 45.76%
----------------------------- -------------------------- -------------------------- -------------------------
Risk free interest rate 0.00% 0.00% 0.00%
----------------------------- -------------------------- -------------------------- -------------------------
Average expected life (years) 1.00 2.00 3.00
----------------------------- -------------------------- -------------------------- -------------------------
Original grant date valuation GBP6.09 GBP5.36 GBP4.70
----------------------------- -------------------------- -------------------------- -------------------------
35.4 Cash settled share-based payments
On 16 March 2015, a four-year 'phantom' share option scheme was
established in order to provide effective long term incentive to
senior management of the Group. Under the scheme, no actual shares
would be issued by the Company, but those granted awards under the
scheme would be entitled to a cash payment. The amount of the award
is calculated by reference to the increase in the value of an
ordinary share in the Company over an initial value set at GBP25
per ordinary share, being the price at which the shares resulting
from the exercise of the first tranche of share options under the
share option scheme were sold in November 2014.
During the year, 187,500 awards under this plan were cancelled.
As at 31 December 2021, 94,167 (2020: 281,667) share options
remained outstanding. The options vested during 2019 and are
exercisable for a period of 10 years after grant date.
As at 31 December 2021, the estimated fair value has been
prepared using the Black-Scholes model. Measurement inputs and
assumptions used were as follows:
2021 2020
-------------------------------- -------- -------
Share price at reporting date GBP12.35 GBP8.75
-------------------------------- -------- -------
Expected stock price volatility 45.30% 45.89%
-------------------------------- -------- -------
Expected dividend yield 5.49% 10.06%
-------------------------------- -------- -------
Risk free interest rate 0.55% 0.00%
-------------------------------- -------- -------
Average expected life (years) 3.34 4.92
-------------------------------- -------- -------
Fair value GBP1.06 GBP0.30
-------------------------------- -------- -------
This resulted in the following being recognised in the financial
statements:
2021 2020
GBPmillion GBPmillion
---------- ----------- -----------
Liability 0.1 0.2
---------- ----------- -----------
35.4 Cash settled share-based payments
For each award granted during the year, expected volatility was
determined by calculating the historical volatility of the Group's
share price over the period equivalent to the expected term of the
options being granted. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions, and behavioural
considerations.
Share-based compensation accounting policy
The fair value of equity settled share-based payment awards are calculated at grant date and
recognised over the period in which the employees become unconditionally entitled to the awards
(the vesting period). The amount is recognised in operating expenses in the income statement,
with a corresponding increase in equity. Further details of the valuation methodology is set
out above.
The fair value of cash settled share-based payments is recognised in operating expenses in
the income statement with a corresponding increase in liabilities over the vesting period.
The liability is remeasured at each reporting date and at the settlement date based on the
fair value of the options granted, with a corresponding adjustment to operating expenses.
36. Cash flow statement
36.1. Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash
equivalents comprise the following balances with less than three
months' maturity from the date of acquisition.
Group Group Company Company
2021 2020 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------------------------------ ----------- ----------- ----------- -----------
Cash and balances at central banks 235.7 181.5 235.7 181.5
------------------------------------------------------------ ----------- ----------- ----------- -----------
Loans and advances to banks (Note 13) 50.3 63.3 47.4 61.7
------------------------------------------------------------ ----------- ----------- ----------- -----------
Debt securities 25.0 - 25.0 -
------------------------------------------------------------ ----------- ----------- ----------- -----------
Less restricted cash
------------------------------------------------------------ ----------- ----------- ----------- -----------
Included in cash and balances at central banks (1.7) (1.0) (1.7) (1.0)
------------------------------------------------------------ ----------- ----------- ----------- -----------
Included in loans and advances to central banks (Note 13) (6.3) (11.7) (6.3) (11.7)
------------------------------------------------------------ ----------- ----------- ----------- -----------
Total restricted cash (8.0) (12.7) (8.0) (12.7)
------------------------------------------------------------ ----------- ----------- ----------- -----------
303.0 232.1 300.1 230.5
------------------------------------------------------------ ----------- ----------- ----------- -----------
36.2. Changes in liabilities arising from financing
activities
All changes in liabilities arising from financing activities
arise from changes in cash flows, apart from GBP0.1 million (2020:
GBP0.1 million) of lease liabilities interest expense, as shown in
Note 29, and GBP0.1 million (2020: GBP0.2 million) amortisation of
issue costs on subordinated liabilities, as shown in Note 32.
Cash and cash equivalents accounting policy
For the purpose of the statement of cash flows, cash and cash equivalents comprise cash in
hand and demand deposits, and cash equivalents, being highly liquid investments which are
convertible into cash with an insignificant risk of changes in value with a maturity of three
months or less at the date of acquisition, including certain loans and advances to banks and
short-term highly liquid debt securities.
37. Financial risk management strategy
By their nature, the Group's activities are principally related
to the use of financial instruments. The Directors and senior
management of the Group have formally adopted a Group risk appetite
statement which sets out the Board's attitude to risk and internal
controls. Key risks identified by the Directors are formally
reviewed and assessed at least once a year by the Board. In
addition key business risks are identified, evaluated and managed
by operating management on an ongoing basis by means of procedures
such as physical controls, credit and other authorisation limits
and segregation of duties. The Board also receives regular reports
on any risk matters that need to be brought to its attention.
Significant risks identified in connection with the development of
new activities are subject to consideration by the Board. There are
budgeting procedures in place and reports are presented regularly
to the Board detailing the results of each principal business unit,
variances against budget and prior year, and other performance
data.
A more detailed description of the risk governance structure is
contained in the Strategic Report beginning on page 26.
Included within the principal financial risks inherent in the
Group's business are credit risk (Note 38), market risk (Note 39),
liquidity risk (Note 40), and capital risk (Note 41).
38. Credit risk
The Company and Group take on exposure to credit risk, which is
the risk that a counterparty will be unable to satisfy their debt
servicing commitments when due. Counterparties include the
consumers to whom the Group lends on a secured and unsecured basis
and the small and medium size enterprises ('SME') to whom the Group
lends on a secured basis as well as the market counterparties with
whom the Group deals.
Impairment provisions are provided for expected credit losses at
the statement of financial position date. Significant changes in
the economy could result in losses that are different from those
provided for at the statement of financial position date.
Management therefore carefully manages the Group's exposures to
credit risk as it considers this to be the most significant risk to
the business. Disclosures relating to collateral on loans and
advances to customers are disclosed in Note 15.
The Board monitors the ratings of the counterparties in relation
to the Group's loans and advances to banks. Disclosures of these at
the year-end are contained in Note 13. There is no direct exposure
to the Eurozone and peripheral Eurozone countries.
See page 28 for further details on the mitigation and change
during the year of credit risk.
Group
With the exception of loans and advances to customers, the
carrying amount of financial assets represents the Group's maximum
exposure to credit risk. The Group's maximum exposure to credit
risk for loans and advances to customers by portfolio and IFRS 9
stage without taking account of any collateral held or other credit
enhancements attached was as follows:
Stage 1 Stage 2 Stage 3 Total
------------ ---------- ---------------------------------- ---------------------------------------- ----------
Purchased
<= 30 days > 30 days Excl. purchased credit --
past due past due Total credit-impaired impaired Total
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
31 December
2021
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Business
Finance
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Real Estate
Finance 911.4 161.4 - 161.4 40.0 - 40.0 1,112.8
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Commercial
Finance 291.7 17.5 - 17.5 5.2 - 5.2 314.4
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Consumer
Finance
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Retail
Finance 659.4 120.1 2.6 122.7 4.4 - 4.4 786.5
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Vehicle
Finance 207.0 68.9 2.2 71.1 19.4 - 19.4 297.5
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Debt
Management - - - - 10.8 76.1 86.9 86.9
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total drawn
exposure 2,069.5 367.9 4.8 372.7 79.8 76.1 155.9 2,598.1
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Off balance
sheet
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Loan
commitments 271.0 2.9 - 2.9 - - - 273.9
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total gross
exposure 2,340.5 370.8 4.8 375.6 79.8 76.1 155.9 2,872.0
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Less:
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Impairment
allowance (18.5) (16.6) (3.4) (20.0) (23.1) (5.9) (29.0) (67.5)
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Provision
for loan
commitments (0.9) - - - - - - (0.9)
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total net
exposure 2,321.1 354.2 1.4 355.6 56.7 70.2 126.9 2,803.6
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
GBP50.3 million (2020: GBP35.4 million) of collateral in the
form of property has been pledged as security for Real Estate
Finance Stage 3 balances of GBP37.3 million (2020: GBP24.0
million). GBP8.9 million (2020: GBP9.9 million) of collateral in
the form of vehicles has been pledged as security for Vehicle
Finance Stage 3 balances of GBP18.0 million (2020: GBP22.5
million).
Stage 1 Stage 2 Stage 3 Total
------------ ---------- ---------------------------------- ---------------------------------------- ----------
Purchased
<= 30 days > 30 days Excl. purchased credit --
past due past due Total credit-impaired impaired Total
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
31 December
2020
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Business
Finance
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Real Estate
Finance 858.9 136.5 37.9 174.4 24.0 - 24.0 1,057.3
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Asset
Finance 9.5 1.4 - 1.4 1.5 - 1.5 12.4
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Commercial
Finance 205.1 26.6 - 26.6 0.3 - 0.3 232.0
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Consumer
Finance
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Retail
Finance 589.1 86.8 3.3 90.1 3.8 - 3.8 683.0
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Vehicle
Finance 173.7 87.2 2.6 89.8 22.6 - 22.6 286.1
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Debt
Management - - - - 11.7 77.1 88.8 88.8
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Consumer
Mortgages 74.9 - 1.8 1.8 1.2 - 1.2 77.9
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Other 4.1 - - - - - - 4.1
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total drawn
exposure 1,915.3 338.5 45.6 384.1 65.1 77.1 142.2 2,441.6
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Off balance
sheet
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Loan
commitments 261.5 - - - - - - 261.5
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total gross
exposure 2,176.8 338.5 45.6 384.1 65.1 77.1 142.2 2,703.1
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Less:
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Impairment
allowance (27.1) (22.7) (4.5) (27.2) (21.7) (6.7) (28.4) (82.7)
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Provision
for loan
commitments (1.1) - - - - - - (1.1)
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total net
exposure 2,148.6 315.8 41.1 356.9 43.4 70.4 113.8 2,619.3
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
A reconciliation of opening to closing allowance for impairment
of loans and advances to customers is presented in Note 17.
Company
The Group's maximum exposure to credit risk for loans and
advances to customers by portfolio and IFRS 9 stage without taking
account of any collateral held or other credit enhancements
attached was as follows:
Stage 1 Stage 2 Stage 3 Total
------------ ---------- ---------------------------------- ---------------------------------------- ----------
Purchased
<= 30 days > 30 days Excl. purchased credit --
past due past due Total credit-impaired impaired Total
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
31 December
2021
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Business
Finance
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Real Estate
Finance 911.4 161.4 - 161.4 40.0 - 40.0 1,112.8
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Commercial
Finance 291.7 17.5 - 17.5 5.2 - 5.2 314.4
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Consumer
Finance
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Retail
Finance 659.4 120.1 2.6 122.7 4.4 - 4.4 786.5
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Vehicle
Finance 207.0 68.9 2.2 71.1 19.4 - 19.4 297.5
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total drawn
exposure 2,069.5 367.9 4.8 372.7 69.0 - 69.0 2,511.2
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Off balance
sheet
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Loan
commitments 271.0 2.9 - 2.9 - - - 273.9
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total gross
exposure 2,340.5 370.8 4.8 375.6 69.0 - 69.0 2,785.1
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Less:
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Impairment
allowance (18.6) (16.7) (3.6) (20.3) (22.0) - (22.0) (60.9)
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Provision
for loan
commitments (0.9) - - - - - - (0.9)
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total net
exposure 2,321.0 354.1 1.2 355.3 47.0 - 47.0 2,723.3
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Stage 1 Stage 2 Stage 3 Total
------------ ---------- ---------------------------------- ---------------------------------------- ----------
Purchased
<= 30 days > 30 days Excl. purchased credit --
past due past due Total credit-impaired impaired Total
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
31 December
2020
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Business
Finance
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Real Estate
Finance 858.9 136.5 37.9 174.4 24.0 - 24.0 1,057.3
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Asset
Finance 9.5 1.4 - 1.4 1.5 - 1.5 12.4
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Commercial
Finance 205.1 26.6 - 26.6 0.3 - 0.3 232.0
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Consumer
Finance
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Retail
Finance 589.1 86.8 3.3 90.1 3.8 - 3.8 683.0
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Vehicle
Finance 174.0 87.5 2.6 90.1 22.5 - 22.5 286.6
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Consumer
Mortgages 74.9 - 1.8 1.8 1.2 - 1.2 77.9
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Other 0.5 - - - - - - 0.5
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total drawn
exposure 1,912.0 338.8 45.6 384.4 53.3 - 53.3 2,349.7
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Off balance
sheet
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Loan
commitments 261.5 - - - - - - 261.5
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total gross
exposure 2,173.5 338.8 45.6 384.4 53.3 - 53.3 2,611.2
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Less:
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Impairment
allowance (28.1) (24.2) (4.7) (28.9) (22.9) - (22.9) (79.9)
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Provision
for loan
commitments (1.1) - - - - - - (1.1)
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
Total net
exposure 2,144.3 314.6 40.9 355.5 30.4 - 30.4 2,530.2
------------ ---------- ---------- ---------- ---------- --------------- ---------- ----------- ----------
38.1. Concentration risk
Management assesses the potential concentration risk from
geographic, product and individual loan concentration. Due to the
nature of the Group's lending operations the Directors consider the
lending operations of the Group as a whole to be well diversified.
Details of the Group's loans and advances to customers and loan
commitments by product is provided in Notes 3 and 33
respectively.
Geographical concentration
The Group's Real Estate Finance loan book is secured against UK
property only. The geographical concentration of these business
loans and advances to customers, by location of the security is as
follows:
Group and Company
Real Estate Finance Consumer Mortgages Real Estate Finance Consumer Mortgages
GBPmillion GBPmillion GBPmillion GBPmillion
2021 2021 2020 2020
------------------------------------ ------------------- ------------------ ------------------- ------------------
Central England 90.1 - 139.7 14.6
------------------------------------ ------------------- ------------------ ------------------- ------------------
Greater London 619.7 - 638.4 10.2
------------------------------------ ------------------- ------------------ ------------------- ------------------
Northern England 66.2 - 65.8 16.2
------------------------------------ ------------------- ------------------ ------------------- ------------------
South East England (excl. Greater
London) 258.7 - 171.3 25.6
------------------------------------ ------------------- ------------------ ------------------- ------------------
South West England 30.7 - 18.1 7.3
------------------------------------ ------------------- ------------------ ------------------- ------------------
Scotland, Wales and Northern Ireland 47.4 - 24.0 4.0
------------------------------------ ------------------- ------------------ ------------------- ------------------
Gross loans and receivables 1,112.8 - 1,057.3 77.9
------------------------------------ ------------------- ------------------ ------------------- ------------------
Allowance for impairment (3.2) - (5.4) (0.2)
------------------------------------ ------------------- ------------------ ------------------- ------------------
Total 1,109.6 - 1,051.9 77.7
------------------------------------ ------------------- ------------------ ------------------- ------------------
38.2. Forbearance
Business Finance
-- Real Estate Finance: Where clients provided evidence of
payment difficulties, the business supported by providing one, or
both of extensions to maturity dates and altered payment profiles
to provide short-term payment holidays for all or part of payments
due. In total, 15% of customers by volume were granted a form of
payment holiday during the prior year. As at 31 December 2021 0.9%
of customers by volume remained on a payment holiday.
Consumer Finance
-- Retail Finance: Approximately 2.1% of customers were granted
COVID-19 payment holidays during 2020. As at 31 December 2021 no
customers remained on the payment holiday.
-- Vehicle Finance: Approximately 15.6% of customers were
granted COVID-19 payment holidays during 2020. As at 31 December
2021 no customers remained on the payment holiday.
Where consumer customers have come to the end of their payment
holiday, under COVID-19 arrangements, and have been unable to
return to regular payments, they have been provided with a reduced
payment arrangement.
Throughout 2021 the Group did not routinely reschedule
contractual arrangements where customers default on their
repayments. In cases where it offered the customer the option to
reduce or defer payments for a short period, the loans retained the
normal contractual payment due dates and were treated the same as
any other defaulting cases for impairment purposes. Arrears
tracking would continue on the account with any impairment charge
being based on the original contractual due dates for all
products.
All forbearance arrangements are formally discussed and agreed
with the customer. By offering customers in financial difficulty
the option of forbearance the Group potentially exposes itself to
an increased level of risk through prolonging the period of non
contractual payment and/or potentially placing the customer into a
detrimental position at the end of the forbearance period. All
forbearance arrangements are reviewed and monitored regularly to
assess the ongoing potential risk, suitability and sustainability
to the Group.
Where forbearance measures are not possible or are considered
not to be in the customer's best interests, or where such measures
have been tried and the customer has not adhered to the forbearance
terms that have been agreed, the Group will consider realising its
security and taking possession of the property in order to sell it
and clear the outstanding debt.
39. Market risk
The Group's, market risk is primarily linked to interest rate
risk. Interest rate risk refers to the exposure of the Group's
financial position to adverse movements in interest rates.
When interest rates change, the present value and timing of
future cash flows change. This in turn changes the underlying value
of the Group's assets, liabilities and off-balance sheet
instruments and hence its economic value. Changes in interest rates
also affect the Group's earnings by altering interest-sensitive
income and expenses, affecting its net interest income.
The principal currency in which the Group operates is Sterling,
although a small number of transactions are completed in US
dollars, Euros and other currencies in the Commercial Finance
business. The Group has no significant exposures to foreign
currencies and hedges any residual currency risks to Sterling. The
Group does not operate a trading book.
See page 31 for further details on the mitigation and change
during the year of market risk.
Interest rate risk
Group and Company
The Group seeks to 'match' interest rate risk on either side of
the statement of financial position. However, this is not a perfect
match and interest rate risk is present on the mismatch between
fixed rate loans and savings products and variable rate assets and
liabilities.
The Group monitors the interest rate mismatch on at least a
monthly basis using market value sensitivity and earnings at risk,
which were as follows at 31 December:
2021 Restated 2020
GBPmillion GBPmillion
------------------------------------- ----------- -------------
Market value sensitivity
------------------------------------- ----------- -------------
+200bp parallel shift in yield curve 2.7 2.2
------------------------------------- ----------- -------------
-200bp parallel shift in yield curve (2.7) (0.1)
------------------------------------- ----------- -------------
Earnings at risk sensitivity
------------------------------------- ----------- -------------
+100bp parallel shift in yield curve 1.4 1.0
------------------------------------- ----------- -------------
-100bp parallel shift in yield curve (0.4) (0.1)
------------------------------------- ----------- -------------
In 2020 a zero percent interest rate floor was applied to the
yield curve within the above metrics. In 2021 the Group decided to
remove this floor following the addition of negative policy rates
to the Bank of England's monetary policy toolkit. This has resulted
in the large variance year-on-year.
The Directors consider that 200bps in the case of Market value
sensitivity and 100bps in the case of Earnings at risk are a
reasonable approximation of possible changes.
40. Liquidity and funding risk
Liquidity and funding risk is the risk that the Group is unable
to meet its obligations as they fall due or can only do so at
excessive cost. The Group maintains adequate liquidity resources
and a prudent, stable funding profile at all times to cover
liabilities as they fall due in normal and stressed conditions.
The Group manages its liquidity in line with internal and
regulatory requirements, and at least annually assesses the
robustness of the liquidity requirements as part of the Group's
Internal Liquidity Adequacy Assessment Process ('ILAAP').
See page 29 for further details on the mitigation and change
during the year of liquidity and funding risk.
The tables below analyse the contractual undiscounted cash flows
for financial liabilities into relevant maturity groupings:
More than
Not more More than three one year but
Gross nominal than three months but less less than five More than
Carrying amount outflow months than one year years five years
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
---------------- --------------- ---------------- ---------------- ---------------- ---------------- -----------
At 31 December
2021
---------------- --------------- ---------------- ---------------- ---------------- ---------------- -----------
Due to banks 390.8 394.1 0.1 1.0 393.0 -
---------------- --------------- ---------------- ---------------- ---------------- ---------------- -----------
Deposits from
customers 2,103.2 2,131.9 752.6 807.4 566.1 5.8
---------------- --------------- ---------------- ---------------- ---------------- ---------------- -----------
Subordinated
liabilities 50.9 56.8 0.8 2.5 53.5 -
---------------- --------------- ---------------- ---------------- ---------------- ---------------- -----------
Liabilities
associated with
assets held for
sale 2.0 2.0 2.0 - - -
---------------- --------------- ---------------- ---------------- ---------------- ---------------- -----------
Lease
liabilities 3.1 3.3 0.9 2.3 0.1 -
---------------- --------------- ---------------- ---------------- ---------------- ---------------- -----------
Other financial
liabilities 18.3 18.3 18.3 - - -
---------------- --------------- ---------------- ---------------- ---------------- ---------------- -----------
2,568.3 2,606.4 774.7 813.2 1,012.7 5.8
---------------- --------------- ---------------- ---------------- ---------------- ---------------- -----------
Derivative
financial
liabilities 6.2 5.5 0.1 1.5 3.9 -
---------------- --------------- ---------------- ---------------- ---------------- ---------------- -----------
2,574.5 2,611.9 774.8 814.7 1,016.6 5.8
---------------- --------------- ---------------- ---------------- ---------------- ---------------- -----------
More than
More than three one year but
Gross nominal Not more than months but less less than five More than
Carrying amount outflow three months than one year years five years
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
At 31 December
2020
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Due to banks 276.4 276.7 13.4 113.3 150.0 -
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Deposits from
customers 1,992.5 2,029.3 919.4 496.5 609.7 3.7
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Subordinated
liabilities 50.8 59.2 0.8 2.5 55.9 -
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Lease liabilities 3.9 4.2 0.9 3.0 0.3 -
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Other financial
liabilities 46.2 46.2 46.2 - - -
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
2,369.8 2,415.6 980.7 615.3 815.9 3.7
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Derivative
financial
liabilities 6.1 4.6 0.5 1.5 2.6 -
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
2,375.9 2,420.2 981.2 616.8 818.5 3.7
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Company
The contractual undiscounted cash flows for financial
liabilities of the Company are the same as above except for the
following:
More than
Not more More than three one year but
Gross nominal than three months but less less than five More than
Carrying amount outflow months than one year years five years
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
At 31 December
2021
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Lease liabilities 2.3 2.4 0.7 1.7 - -
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Other financial
liabilities 32.8 32.8 32.8 - - -
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Non-derivative
financial
liabilities 2,580.0 2,618.0 787.0 812.6 1,012.6 5.8
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Total 2,586.2 2,623.5 787.1 814.1 1,016.5 5.8
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
More than
Not more More than three one year but
Gross nominal than three months but less less than five More than
Carrying amount outflow months than one year years five years
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
At 31 December
2020
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Lease liabilities 2.9 3.1 0.7 2.4 - -
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Other financial
liabilities 53.7 53.7 53.7 - - -
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Non-derivative
financial
liabilities 2,376.3 2,422.0 988.0 614.7 815.6 3.7
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Total 2,382.4 2,426.6 988.5 616.2 818.2 3.7
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
41. Capital risk
Capital risk is the risk that the Group will have insufficient
capital resources to meet minimum regulatory requirements and to
support the business. The Group adopts a conservative approach to
managing its capital and at least annually assesses the robustness
of the capital requirements as part of the Group's Internal Capital
Adequacy Assessment Process ('ICAAP'). The Group manages Tier 1 and
Tier 2 as capital, noting the regulatory adjustments required in
the table below.
Further information on capital is included within our Pillar 3
disclosures, which can be found on the Group's website.
See page 30 for further details on the mitigation and change
during the year of capital risk.
The following table, which is unaudited and therefore not in
scope of the independent auditor's report, shows the regulatory
capital resources for the Group. The Group has adopted the IFRS 9
transitional rules. For further detail see the Financial Review on
page 16.
Tier 2 capital comprises solely subordinated debt, excluding
accrued interest, capped at 25% of the capital requirement.
Restated
2021 2020
GBPmillion GBPmillion
(unaudited) (unaudited)
--------------------------------------------------- ------------ ------------
Tier 1
--------------------------------------------------- ------------ ------------
Share capital 7.5 7.5
--------------------------------------------------- ------------ ------------
Share premium 82.2 82.2
--------------------------------------------------- ------------ ------------
Retained earnings 211.7 177.0
--------------------------------------------------- ------------ ------------
Revaluation reserve 1.3 0.9
--------------------------------------------------- ------------ ------------
IFRS 9 transition adjustment 13.9 26.9
--------------------------------------------------- ------------ ------------
Goodwill (1.0) (1.0)
--------------------------------------------------- ------------ ------------
Intangible assets net of attributable deferred tax (4.3) (4.5)
--------------------------------------------------- ------------ ------------
CET1 capital before foreseeable dividend 311.3 289.0
--------------------------------------------------- ------------ ------------
Foreseeable dividend (7.7) (8.2)
--------------------------------------------------- ------------ ------------
CET1 capital 303.6 280.8
--------------------------------------------------- ------------ ------------
Tier 2
---------------------------------------------------------------------- ------ ------
Subordinated liabilities 50.9 50.8
---------------------------------------------------------------------- ------ ------
Less ineligible portion (3.9) (5.7)
---------------------------------------------------------------------- ------ ------
Total Tier 2 capital 47.0 45.1
---------------------------------------------------------------------- ------ ------
Own Funds 350.6 325.9
---------------------------------------------------------------------- ------ ------
Reconciliation to total equity:
---------------------------------------------------------------------- ------ ------
IFRS 9 transition adjustment (13.9) (26.9)
---------------------------------------------------------------------- ------ ------
Eligible subordinated liabilities (47.0) (45.1)
---------------------------------------------------------------------- ------ ------
Cash flow hedge reserve (0.3) -
---------------------------------------------------------------------- ------ ------
Goodwill and other intangible assets net of attributable deferred tax 5.3 5.5
---------------------------------------------------------------------- ------ ------
Foreseeable dividend 7.7 8.2
---------------------------------------------------------------------- ------ ------
Total equity 302.4 267.6
---------------------------------------------------------------------- ------ ------
The Group is subject to capital requirements imposed by the PRA
on all financial services firms. During the periods, the Group
complied with these requirements.
42. Classification of financial assets and liabilities
Group
Total carrying Total carrying
amount Fair value Fair value amount Fair value Fair value
GBPmillion GBPmillion hierarchy level GBPmillion GBPmillion hierarchy level
2021 2021 2021 2020 2020 2020
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Cash and balances
at central banks 235.7 235.7 Level 1 181.5 181.5 Level 1
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Loans and
advances to
banks 50.3 50.3 Level 2 63.3 63.3 Level 2
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Debt securities 25.0 25.0 Level 1 - - -
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Loans and
advances to
customers 2,530.6 2,568.6 Level 3 2,358.9 2,420.6 Level 3
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Derivative
financial
instruments 3.8 3.8 Level 2 4.8 4.8 Level 2
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Assets held for
sale 1.3 1.3 Level 3 - - -
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Other financial
assets 0.4 0.4 Level 3 3.3 3.3 Level 3
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
2,847.1 2,885.1 2,611.8 2,673.5
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Due to banks 390.8 390.8 Level 2 276.4 276.4 Level 2
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Deposits from
customers 2,103.2 2,106.9 Level 3 1,992.5 2,010.2 Level 3
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Derivative
financial
instruments 6.2 6.2 Level 2 6.1 6.1 Level 2
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Liabilities held
for sale 2.0 2.0 Level 3 - - -
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Lease liabilities 3.1 3.1 Level 3 3.9 3.9 Level 3
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Other financial
liabilities 18.3 18.3 Level 3 46.2 46.2 Level 3
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Subordinated
liabilities 50.9 50.7 Level 2 50.8 50.6 Level 2
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
2,574.5 2,578.0 2,375.9 2,393.4
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
All financial assets and liabilities at 31 December 2021 and 31
December 2020 were carried at amortised cost, except for derivative
financial instruments which are at fair value through profit and
loss. Therefore, for these assets and liabilities, the fair value
hierarchy noted above relates to the disclosure in this note
only.
Company
Total carrying Total carrying
amount Fair value Fair value amount Fair value Fair value
GBPmillion GBPmillion hierarchy level GBPmillion GBPmillion hierarchy level
2021 2021 2021 2020 2020 2020
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
At 31 December
2021
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Cash and balances
at central banks 235.7 235.7 Level 1 181.5 181.5 Level 1
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Loans and
advances to
banks 47.4 47.4 Level 2 61.7 61.7 Level 2
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Debt securities 25.0 25.0 Level 1 - - -
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Loans and
advances to
customers 2,450.3 2,487.1 Level 3 2,269.8 2,331.3 Level 3
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Derivative
financial
instruments 3.8 3.8 Level 2 4.8 4.8 Level 2
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Other financial
assets 89.6 89.6 Level 3 93.2 93.2 Level 3
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
2,851.8 2,888.6 2,611.0 2,672.5
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Due to banks 390.8 390.8 Level 2 276.4 276.4 Level 2
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Deposits from
customers 2,103.2 2,106.9 Level 3 1,992.5 2,010.2 Level 3
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Derivative
financial
instruments 6.2 6.2 Level 2 6.1 6.1 Level 2
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Liabilities
associated with
assets held for
sale 2.0 2.0 Level 3 - - -
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Lease liabilities 2.3 2.3 Level 3 2.9 2.9 Level 3
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Other financial
liabilities 32.8 32.8 Level 3 53.7 53.7 Level 3
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
Subordinated
liabilities 50.9 50.7 Level 2 50.8 50.6 Level 2
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
2,588.2 2,591.7 2,382.4 2,399.9
----------------- ----------------- ----------- ---------------- ----------------- ----------- -----------------
All financial assets and liabilities at 31 December 2021 and 31
December 2020 were carried at amortised cost except for derivative
financial instruments which are valued at fair value through profit
and loss. Therefore, for these assets, the fair value hierarchy
noted above relates to the disclosure in this note only.
Fair value classification
The tables above include the fair values and fair value
hierarchies of the Group and Company's financial assets and
liabilities. The Group measures fair value using the following fair
value hierarchy that reflects the significance of the inputs used
in making measurements:
-- Level 1: Quoted prices in active markets for identical assets
or liabilities.
-- Level 2: Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: Inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
Loans and advances to customers and Deposits from customers
The fair value of the financial assets and liabilities, is
calculated based upon the present value of the expected future
principal and interest cash flows. The rate used to discount the
cash flows was the market rate of interest at the balance sheet
date. For loans and advances to customers, the same assumptions
regarding the risk of default were applied as those used to derive
the carrying value.
Debt securities
The fair value of debt securities is based on the quoted price
where available.
Derivative financial instruments
The fair value of derivative financial instruments is calculated
based on the present value of the expected future cash flows of the
instruments. The rate used to discount the cash flows was the
market rate of interest at the balance sheet date.
Subordinated liabilities
The fair value subordinated liabilities is calculated based on
quoted market prices where available, or where an active market
quote is not available, a proxy is used from similar issuances.
For all remaining financial assets and liabilities, the fair
value of financial assets and liabilities is calculated to be
equivalent to their carrying value, due to their short maturity
dates.
43. Related party transactions
Related parties of the Company and Group include subsidiaries,
key management personnel, close family members of key management
personnel and entities which are controlled, jointly controlled or
significantly influenced, or for which significant voting power is
held, by Key Management Personnel or their close family
members.
A number of banking transactions were entered into with related
parties in the normal course of business on normal commercial
terms. These include loans and deposits as set out below. The
tables that follow relate to key management personnel, members of
their close family and related entities as described above:
2021 2020
GBPmillion GBPmillion
------------------------------------------ ----------- -----------
Loans
------------------------------------------ ----------- -----------
Loans outstanding at 1 January 0.4 4.4
------------------------------------------ ----------- -----------
Change in related parties during the year (0.4) (4.0)
------------------------------------------ ----------- -----------
Loans outstanding at 31 December - 0.4
------------------------------------------ ----------- -----------
Deposits
------------------------------------------ ----------- -----------
Deposits outstanding at 1 January 0.2 0.2
------------------------------------------ ----------- -----------
Change in related parties during the year (0.2) -
------------------------------------------ ----------- -----------
Deposits outstanding at 31 December - 0.2
------------------------------------------ ----------- -----------
The loan outstanding in the prior year above comprised a GBP0.4
million advance as part of a refinanced GBP0.4 million facility
agreed with a company in which a former member of the Key
Management Personnel of the Company holds 50% of the voting shares,
which was secured by property and personal guarantees.
This transaction was agreed by the Group's Real Estate Finance
business and arose during the normal course of business, was
subject to the usual Board governance and Credit Committee approval
procedures and was on substantially the same terms as for
comparable transactions with third parties.
The Company undertook the following transactions with other
companies in the Secure Trust Bank Group:
2021 2020
GBPmillion GBPmillion
------------------------------------------------------------- ----------- -----------
Interest income and similar income (21.0) (18.8)
------------------------------------------------------------- ----------- -----------
Gain on sale of defaulted debt 0.1 0.2
------------------------------------------------------------- ----------- -----------
Operating expenses (0.7) (0.8)
------------------------------------------------------------- ----------- -----------
Investment income 4.8 5.7
------------------------------------------------------------- ----------- -----------
(16.8) (13.7)
------------------------------------------------------------- ----------- -----------
Equity contribution to subsidiaries re. share-based payments 0.2 -
------------------------------------------------------------- ----------- -----------
The loans and advances with, and amounts receivable and payable
to, related companies are noted below:
Company Company
2021 2020
GBPmillion GBPmillion
------------------------------------------------ ----------- -----------
Amounts receivable from subsidiary undertakings 89.3 86.7
------------------------------------------------ ----------- -----------
Amounts due to subsidiary undertakings (17.9) (12.6)
------------------------------------------------ ----------- -----------
71.4 74.1
------------------------------------------------ ----------- -----------
All amounts above are repayable on demand and the Company
charged interest at a variable rate on amounts outstanding.
Directors' remuneration
The Directors' emoluments (including pension contributions and
benefits in kind) for the year are disclosed in the Directors'
Remuneration Report beginning on page 76.
At the year-end the ordinary shares held by the Directors are
disclosed in the Directors' Remuneration Report beginning on page
76. Details of the Directors' holdings of share options, as well as
details of those share options exercised during the year, are also
disclosed in the Directors' report.
44. Immediate parent company and ultimate controlling party
The Company has had no immediate parent company or ultimate
controlling party.
45. Country-by-Country reporting
The Capital Requirements (Country-by-Country Reporting)
Regulations 2013 introduced reporting obligations for institutions
within the scope of CRD V. The requirements aim to give increased
transparency regarding the activities of institutions.
The Country-by-Country Information is set out below:
Number Profit Tax paid
Nature Turnover of FTE before tax on profit
Name of activity Location GBPmillion employees GBPmillion GBPmillion
---------------------- ----------------- --------- ----------- ---------- ----------- -----------
31 December 2021
---------------------- ----------------- --------- ----------- ---------- ----------- -----------
Secure Trust Bank PLC Banking services UK 194.3 973 56.0 12.6
---------------------- ----------------- --------- ----------- ---------- ----------- -----------
Restated
Number Profit Tax paid
Nature Turnover of FTE before tax on profit
Name of activity Location GBPmillion employees GBPmillion GBPmillion
---------------------- ----------------- --------- ----------- ---------- ----------- -----------
31 December 2020
---------------------- ----------------- --------- ----------- ---------- ----------- -----------
Secure Trust Bank PLC Banking services UK 208.5 1,021 19.1 4.8
---------------------- ----------------- --------- ----------- ---------- ----------- -----------
46. Post balance sheet events
46.1 Acquisition of AppToPay Limited
On 25 November 2021, the Company announced its intention to
acquire 100% of the ordinary share capital of AppToPay Limited, the
owner of a proprietary technology platform. The acquisition is
complementary to the Group's existing retail finance proposition
and supports its planned entry into the Digital Buy Now Pay Later
market. The acquisition is subject to regulatory approval and the
AppToPay management team will continue in the business.
The cash consideration for the company of GBP1.0 million will be
paid on completion. In addition to this, an earn-out of a maximum
of GBP0.2 million is payable in 2023, subject to certain
performance conditions. The net identifiable assets of AppToPay
Limited, prior to fair value adjustments, comprises solely of
intangible assets.
The acquisition of AppToPay Limited will be accounted for in
accordance with IFRS 3 'Business Combinations', which requires the
recognition of the identifiable assets acquired and liabilities
assumed at their acquisition date fair values. As part of this
process, it will be also necessary to identify and recognise
certain assets and liabilities which are not included on the
acquiree's balance sheet, for example intangible assets. The
valuation of these assets and liabilities will be performed on
completion of the acquisition and reported in the June 2022 Interim
Report.
46.2 Sale of loan book and associated liabilities to Rentsmart
Limited
As at 31 December 2021, assets of GBP1.3 million relating to a
loan book and a liability of GBP2.0 million relating to collateral
held, both in STB Leasing Limited, were in the process of being
sold to its partner, RentSmart Limited. These assets and
liabilities were sold for their carrying amount on 31 January 2022.
Further details are set out in Note 19.
46.3 Sale of Debt Managers (Services) Limited loan portfolio
Following a strategic review, the Board has decided to exit the
debt purchase market and, on 11 March 2022 announced that it had
agreed to sell Debt Managers (Services) Limited's portfolio of
loans to Intrum UK Finance Limited. The value of the portfolio as
at 30 September 2021 was GBP84.7 million and the value of the
consideration for the portfolio as at 30 September 2021 was GBP94.0
million. The Group estimates that in 2022 the sale will (taking
into account anticipated market exit costs) generate a net profit
before tax benefit and the release of around GBP72 million of risk
weighted assets on completion. Completion is subject to approvals
from originators of the loans which is expected to complete by June
2022.
All of the above items are non-adjusting events.
Five year summary (unaudited)
Restated Restated*
2021 2020 2019 2018 2017
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Profit for the year
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Interest and similar income 180.0 192.5 191.4 169.2 149.3
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Interest expense and similar charges (29.2) (41.6) (46.0) (35.5) (26.7)
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Net interest income 150.8 150.9 145.4 133.7 122.6
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Net fee and commission income 13.7 15.2 20.1 17.9 14.9
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Operating income 164.5 166.1 165.5 151.6 137.5
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Net impairment charge on loans and advances to
customers (4.5) (51.3) (32.6) (32.4) (36.9)
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Gains/(losses) on modification of financial assets 1.5 (3.1) - - -
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Loss on disposal of loan books (1.4) - - - -
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Losses from derivatives and hedge accounting (0.1) - - - -
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Profit on sale of equity instruments
available-for-sale - - - - 0.3
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Operating expenses (104.0) (92.6) (96.8) (84.5) (71.6)
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Profit before income tax 56.0 19.1 36.1 34.7 29.3
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
2021 2020 2019 2018 2017
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Earnings per share for profit attributable to the
equity holders of the Company during the
year (pence per share)
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Basic earnings per ordinary share 244.7 82.7 168.3 153.2 128.8
----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
2020 2019
2021 Restated Restated 2018 2017
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Financial position
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Cash and balances at central banks 235.7 181.5 105.8 169.7 226.1
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Loans and advances to banks 50.3 63.3 48.4 44.8 34.3
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Debt securities 25.0 - 25.0 149.7 5.0
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Loans and advances to customers 2,530.6 2,358.9 2,450.1 2,028.9 1,598.3
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Fair value adjustment for portfolio hedged risk (3.5) 5.7 (0.9) - -
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Derivative financial instruments 3.8 4.8 0.9 - -
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Other assets 44.0 47.0 51.4 51.2 27.9
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Total assets 2,885.9 2,661.2 2,680.7 2,444.3 1,891.6
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Due to banks 390.8 276.4 308.5 263.5 113.0
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Deposits from customers 2,103.2 1,992.5 2,020.3 1,847.7 1,483.2
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Fair value adjustment for portfolio hedged risk (5.3) 4.7 (0.7) - -
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Derivative financial instruments 6.2 6.1 0.6 - -
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Subordinated liabilities 50.9 50.8 50.6 50.4 -
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Other liabilities 37.7 63.1 49.4 45.6 46.3
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Total shareholders' equity 302.4 267.6 252.0 237.1 249.1
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Total liabilities and shareholders' equity 2,885.9 2,661.2 2,680.7 2,444.3 1,891.6
------------------------------------------------ ----------- ----------- ----------- ----------- -----------
*The 2019 income statement has been restated to reflect the IFRS
Interpretations Committee's clarification on the accounting
treatment of Software-as-a-Service arrangement. Operating expenses
have been increased by GBP2.6 million.
Appendix to the Annual Report
Key performance indicators and other alternative performance
measures
(i) Net interest margin ratio
Net interest margin is calculated as interest income and similar
income less interest expense and similar charges for the financial
period as a percentage of the average loan book. The calculation of
the average loan book is the average of the monthly balance of
loans and advances to customers, net of provisions, over 13
months:
2021 2020
GBPmillion GBPmillion
--------------------------------------------------------------------------------------- ----------- -----------
Interest income and similar income 180.0 192.5
--------------------------------------------------------------------------------------- ----------- -----------
Interest expense and similar charges (29.2) (41.6)
--------------------------------------------------------------------------------------- ----------- -----------
Net interest income 150.8 150.9
--------------------------------------------------------------------------------------- ----------- -----------
Opening loan book 2,358.9 2,450.1
--------------------------------------------------------------------------------------- ----------- -----------
Closing loan book (including loans included in assets held for sale of GBP1.3 million) 2,531.9 2,358.9
--------------------------------------------------------------------------------------- ----------- -----------
Average loan book 2,374.0 2,406.0
--------------------------------------------------------------------------------------- ----------- -----------
Net interest margin 6.4% 6.3%
--------------------------------------------------------------------------------------- ----------- -----------
The net interest margin ratio measures the yield of the loan
book.
(ii) Core loans and advances to customers and annual growth
rate
Annual growth rate is calculated as the annualised growth in
'core' loans and advances to customers:
2021 2020
GBPmillion GBPmillion
----------------------------------------- ----------- -----------
Loans and advances to customers 2,530.6 2,358.9
----------------------------------------- ----------- -----------
Less non-core loan portfolios:
----------------------------------------- ----------- -----------
Asset Finance (sold during 2021) - (10.4)
----------------------------------------- ----------- -----------
Consumer Mortgages (sold during 2021) - (77.7)
----------------------------------------- ----------- -----------
Other - (4.1)
----------------------------------------- ----------- -----------
Total non-core portfolios - (92.2)
----------------------------------------- ----------- -----------
Core loans and advances to customers 2,530.6 2,266.7
----------------------------------------- ----------- -----------
11.6% (1.8)%
----------------------------------------- ----------- -----------
(iii) Return on average equity
Annualised return on average equity is calculated as the profit
after tax for the previous 12 months as a percentage of average
equity.
Average equity is calculated as the average of the monthly
equity balances.
Restated
2021 2020
GBPmillion GBPmillion
------------------------- ----------- -----------
Profit after tax 45.6 15.4
------------------------- ----------- -----------
Opening equity 267.6 252.0
------------------------- ----------- -----------
Closing equity 302.4 267.6
------------------------- ----------- -----------
Average equity 287.0 261.1
------------------------- ----------- -----------
Return on average equity 15.9% 5.9%
------------------------- ----------- -----------
Return on average equity is a measure of the Group's ability to
generate profit from the equity available to it.
(iv) Cost to income ratio
Cost to income ratio is calculated as operating expenses for the
financial period as a percentage of operating income for the
financial period:
Restated
2021 2020
GBPmillion GBPmillion
--------------------- ----------- -----------
Operating expenses 104.0 92.6
--------------------- ----------- -----------
Operating income 164.5 166.1
--------------------- ----------- -----------
Cost to income ratio 63.2% 55.7%
--------------------- ----------- -----------
The cost to income ratio measures how efficiently the Group is
utilising its cost base in producing income.
(v) Cost of risk
Cost of risk is calculated as the total of the net impairment
charge on loans and advances to customers and gains and losses on
modification of financial assets for the financial period as a
percentage of the average loan book:
2021 2020
GBPmillion GBPmillion
--------------------------------------------------------- ----------- -----------
Net impairment charge on loans and advances to customers 4.5 51.3
--------------------------------------------------------- ----------- -----------
(Gains)/losses on modification of financial assets (1.5) 3.1
--------------------------------------------------------- ----------- -----------
Total loan impairment charges 3.0 54.4
--------------------------------------------------------- ----------- -----------
Average loan book 2,374.0 2,406.0
--------------------------------------------------------- ----------- -----------
Cost of risk 0.1% 2.3%
--------------------------------------------------------- ----------- -----------
The cost of risk measures how effective the Group has been in
managing its impairment charge.
(vi) Cost of funds
Cost of funds is calculated as the interest expense (excluding
interest on liability swaps) for the financial period expressed as
a percentage of average loan book
2021 2020
GBPmillion GBPmillion
------------------------------------- ----------- -----------
Interest expense and similar charges 29.2 41.6
------------------------------------- ----------- -----------
Interest on liability swaps 1.8 1.9
------------------------------------- ----------- -----------
31.0 43.5
------------------------------------- ----------- -----------
Average loan book 2,374.0 2,406.0
------------------------------------- ----------- -----------
Cost of funds 1.3% 1.8%
------------------------------------- ----------- -----------
The cost of funds measures the cost of money being lent to
customers.
(vii) Funding ratio
The funding ratio is calculated as the total funding at the
year-end, being the sum of deposits from customers, borrowings
under the Bank of England's liquidity support operations, Term
Funding Scheme and the Term Funding Scheme with additional
incentives for SMEs, Tier 2 capital and equity, divided by the loan
book at the year-end:
2021 2020
GBPmillion GBPmillion
-------------------------------------------------------------------------------------------- ----------- -----------
Deposits from customers 2,103.2 1,992.5
-------------------------------------------------------------------------------------------- ----------- -----------
Borrowings under the Bank of England's liquidity support operations, Term Funding Scheme and
the Term Funding Scheme with additional incentives for SMEs (including accrued interest) 390.1 273.1
-------------------------------------------------------------------------------------------- ----------- -----------
Tier 2 capital (including accrued interest) 50.9 50.8
-------------------------------------------------------------------------------------------- ----------- -----------
Equity 302.4 267.6
-------------------------------------------------------------------------------------------- ----------- -----------
2,846.6 2,584.0
-------------------------------------------------------------------------------------------- ----------- -----------
Loan book (including loans included in assets held for sale of GBP1.3 million) 2,531.9 2,358.9
-------------------------------------------------------------------------------------------- ----------- -----------
Funding ratio 112.4% 109.5%
-------------------------------------------------------------------------------------------- ----------- -----------
The funding ratio measure the Group's liquidity.
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