TIDMSTB TIDMARBB
RNS Number : 8407H
Secure Trust Bank PLC
19 March 2015
PRESS RELEASE
For immediate Release
19 March 2015
SECURE TRUST BANK PLC
Audited Final Results for the year to 31 December 2014
Growth and diversification drives record profits
Secure Trust Bank PLC ("STB" or "the Company") today announces
continued strong progress during 2014. An increase in customer
lending balances of 59% and growth in overall customer numbers of
22% reflect STB's success in gaining customers who are attracted by
the straightforward transparent banking solutions offered. A new
record statutory profit before tax figure of GBP26.1m, an increase
of 53% from 2013, evidences another progressive year.
Financial Highlights
-- Statutory profit before tax increased by 53% to GBP26.1m (2013: GBP17.1m)
-- Underlying* profit before tax increased by 32% to GBP33.3m (2013: GBP25.2m)
-- Operating income increased by 24% to GBP97.9m (2013: GBP79.0m)
-- Underlying* post-tax return on average equity 29% (2013: 31%)
-- Statutory post-tax return on average equity 23% (2013: 21%)
-- Reported earnings per share 122.3p (2013: 78.3p)
-- Underlying* earnings per share 155.8p (2013: 118.2p)
-- Proposed final dividend per share of 52p (2013: 47p)
-- Proposed total dividend per share of 68p (2013: 62p)
-- Net assets nearly doubled following successful GBP50m capital raise in July 2014
-- Core Tier 1 Capital ratio at year end of 23% (2013: 20%)
-- Loan to deposit ratio 102%** (2013: 90%)
Operational Highlights
-- Customer lending balances increased by 59% to GBP622.5m
-- Customer deposits increased by 39% to GBP608.4m. Funding for
Lending Scheme (FLS) usage remained unchanged at GBP16m
-- Customer numbers grew 22% to 429,507
-- Impairments have continued to be lower than the level expected at origination
-- Renewal of Customer Service Excellence Award, introduced by
the Cabinet Office in 2010 to replace the Kite Mark
-- Renewal of Fairbanking Foundation 4 star mark in respect of the current account product
-- Strong contribution from consumer lending activities
-- SME division established and now operational in Asset
Finance, Invoice Finance and Real Estate Finance sectors with
substantial pipeline of lending opportunities being progressed
Henry Angest, Chairman, said:
"Secure Trust Bank is today pleased to announce another year of
record levels of profits. These are the product of the ongoing
diligent execution of our strategic plan. During 2014 we further
improved our balance sheet strength and operational capabilities
giving us the ability to provide a wider range of products and
services to consumer and business customers whilst growing and
diversifying our loan book."
Paul Lynam, Chief Executive Officer, said:
"The 60(th) anniversary of Secure Trust Bank's incorporation
represented a record year of profits for the Company. The stated
2014 strategic objectives have been delivered with the controlled
growth of the consumer finance businesses and the creation of a new
SME lending division, continuing our prudent approach to capital
and liquidity. I am particularly pleased with the demand from
customers for our services and consistently high levels of customer
satisfaction evidenced by a number of external awards and FEEFO***
ratings in the range of 90 - 95%. Our current momentum and the
continuing UK economic recovery give us confidence for the current
year and beyond."
* Before acquisition costs (2014: GBP0.2m; 2013: GBP0.9m), fair
value amortisation (2014: GBP5.3m; 2013: GBP4.9m), costs associated
with share based payments (2014: GBP1.5m; 2013: GBP2.2m) and
Arbuthnot Banking Group management charges (2014: GBP0.2m; 2013:
GBP0.1m). All numbers quoted are before tax.
** This excludes the UK Treasury Bills borrowed from the Bank of
England under the Funding for Lending Scheme, which have
subsequently been pledged as part of a sale and repurchase
agreement. If these were included the loan to deposit ratio would
be 100%.
*** FEEFO is an independent online tool which allows customers
to publicly rate our service standards and record any verbatim
comments they want, no matter how candid (www.feefo.com).
-ENDS-
Enquiries:
Secure Trust Bank PLC
Henry Angest, Non-Executive Chairman Tel: 020 7012 2400
Andrew Salmon, Non-Executive Director
Paul Lynam, Chief Executive Officer Tel: 0121 693 9100
Neeraj Kapur, Chief Financial Officer
David Marshall, Director of Communications Tel: 020 7012 2400
Canaccord Genuity Limited
(Nominated Adviser and Joint Broker) Tel: 020 7523 8000 / 020 7665 4500
Roger Lambert
Sunil Duggal
Stifel Nicolaus Europe Limited Tel: 020 7710 7479
(Joint Broker)
Rob Mann
Gareth Hunt
Bell Pottinger Tel: 020 3772 2566
Ben Woodford
Dan de Belder
The 2014 Annual Report and Notice of Meeting will be posted and
available on the Secure Trust Bank website
http://www.securetrustbank.com/general/results-presentations by 9
April 2015. Copies may also be obtained from the Company Secretary,
Secure Trust Bank PLC, One Arleston Way, Solihull, West Midlands,
B90 4LH.
Consolidated statement of comprehensive income
Year Year
ended ended
31 December 31 December
2014 2013
Note GBPmillion GBPmillion
---------------------------------------------------------- ----- ------------- -------------
Interest receivable and similar income 93.6 73.8
Interest expense and similar charges (14.2) (12.9)
---------------------------------------------------------- ----- ------------- -------------
Net interest income 7 79.4 60.9
---------------------------------------------------------- ----- ------------- -------------
Fee and commission income 20.2 22.7
Fee and commission expense (1.7) (4.6)
---------------------------------------------------------- ----- ------------- -------------
Net fee and commission income 18.5 18.1
---------------------------------------------------------- ----- ------------- -------------
Operating income 97.9 79.0
---------------------------------------------------------- ----- ------------- -------------
Net impairment losses on loans and advances to customers (15.3) (15.6)
Gain from a bargain purchase - 0.4
Costs arising from acquisitions - (0.9)
Operating expenses 8 (56.5) (45.8)
---------------------------------------------------------- ----- ------------- -------------
Profit before income tax 26.1 17.1
Income tax expense 10 (5.6) (4.8)
---------------------------------------------------------- ----- ------------- -------------
Profit for the year 20.5 12.3
---------------------------------------------------------- ----- ------------- -------------
Other comprehensive income, net of income tax:
Cash flow hedging reserve
- Net amount transferred to profit or loss 0.4 -
---------------------------------------------------------- ----- ------------- -------------
Other comprehensive income for the year, net of income
tax 0.4 -
---------------------------------------------------------- ----- ------------- -------------
Total comprehensive income for the year 20.9 12.3
---------------------------------------------------------- ----- ------------- -------------
Profit attributable to:
---------------------------------------------------------- ----- ------------- -------------
Equity holders of the Company 20.5 12.3
---------------------------------------------------------- ----- ------------- -------------
Total comprehensive income attributable to:
---------------------------------------------------------- ----- ------------- -------------
Equity holders of the Company 20.9 12.3
---------------------------------------------------------- ----- ------------- -------------
Earnings per share for profit attributable to the
equity holders of the Company during the year
(expressed in pence per share)
Basic earnings per share 11 122.3 78.3
Diluted earnings per share 11 119.9 76.7
Consolidated statement of financial position
At 31 December
2014 2013
Note GBPmillion GBPmillion
--------------------------------------------- ----- ----------- -----------
ASSETS
Cash and balances at central banks 81.2 -
Loans and advances to banks 12 39.8 110.0
Loans and advances to customers 13 622.5 391.0
Debt securities held-to-maturity 15 16.3 -
Property, plant and equipment 18 8.1 5.0
Intangible assets 16 8.2 9.9
Deferred tax assets 24 1.0 1.9
Other assets 20 5.2 8.1
--------------------------------------------- ----- ----------- -----------
Total assets 782.3 525.9
--------------------------------------------- ----- ----------- -----------
LIABILITIES AND EQUITY
Liabilities
Due to banks 21 15.9 0.1
Deposits from customers 22 608.4 436.6
Current tax liabilities 3.6 1.4
Deferred tax liabilities 24 - 0.4
Other liabilities 23 29.5 25.8
--------------------------------------------- ----- ----------- -----------
Total liabilities 657.4 464.3
--------------------------------------------- ----- ----------- -----------
Equity attributable to owners of the parent
Share capital 26 7.3 6.3
Share premium 79.3 28.2
Retained earnings 38.1 27.3
Cash flow hedging reserve - (0.4)
Revaluation reserve 0.2 0.2
--------------------------------------------- ----- ----------- -----------
Total equity 124.9 61.6
--------------------------------------------- ----- ----------- -----------
Total liabilities and equity 782.3 525.9
--------------------------------------------- ----- ----------- -----------
Chairman's statement
I am delighted to report that 2014 was a year of further
progress across the Secure Trust Bank Group ("the Group"). We have
remained highly focused on offering outstanding customer service
and providing good outcomes for customers via our straightforward
transparent banking solutions while taking further steps to develop
our business model. Customer satisfaction levels have been
consistently high and the appeal of our proposition saw overall
customer numbers expand from 350,861 to 429,507 during 2014, an
increase of 22%.
Underlying profit before tax for 2014 was GBP33.3m, representing
an increase of 32% on the prior year. In the three years since the
IPO in late 2011 underlying profits before tax have increased by
322% and customer lending balances have also increased by over
300%. Having developed a meaningful consumer finance business our
strategy in 2014 was to augment these activities with the creation
of an SME division centred on the Asset Finance, Invoice Finance
and Real Estate Finance markets. This division became fully
operational in the second half of 2014 and the contribution has
helped to increase the momentum within the Group.
Our management philosophy of exercising prudence in respect of
capital, funding and lending remains unchanged. To support the
development of the SME division the Group undertook a share placing
in July 2014 which significantly increased the capital base. We
were pleased with the level of interest this offer generated and
welcomed several new significant shareholders to the register
during the year.
STB has started the new year with robust capital and funding
positions and significant organic and external business development
opportunities. I am confident that the Group will continue to
demonstrate profitable and sustainable growth over the coming
period. The Board proposes to pay a final dividend of 52p per
share. This, when added to the interim dividend of 16p, would mean
a full year dividend of 68p per share. If approved the final
dividend will be paid on 15 May 2015 to shareholders on the
register as at 17 April 2015.
Finally my Board and I would like to thank all of our employees
for their commitment and hard work and I would like to express my
appreciation to my fellow directors for their support during the
year.
Chief Executive's statement
Secure Trust Bank began 2014 with what I referred to at the time
as 'a clear strategy to maximise the potential of its existing
Retail Finance, Motor and Personal Unsecured Lending activities
while diversifying into secured lending areas to broaden the
Group's overall business'. I am pleased to report that the
successful execution of this strategy has enabled us to deliver
another strong set of financial results and record levels of
profits and underlying earnings. We have a robust capital position
and in light of the positive outlook, the confidence to continue to
grow the dividend.
Increased customer base coupled with high satisfaction
levels
We are now serving a record number of customers across our
savings, basic bank account, motor finance, retail point of sale
finance, unsecured personal lending, asset finance, invoice finance
and real estate finance markets. Just as has been the case for over
60 years Secure Trust Bank's friendly and professional staff are
fully committed to achieving good outcomes for our existing and
potential new customers via the provision of straightforward
transparent banking solutions.
All of our products are specifically designed to be as easy as
possible for customers to understand and appropriate for their
needs. I have previously mentioned an example where, unlike many
banks, we do not believe in offering products with features that we
regard as gimmicks such as deposit accounts that come with an
initial introductory bonus which, once expired, leaves customers
with poor savings rates. During 2014 and early 2015 the Financial
Conduct Authority (FCA) announced that as a result of its 'thematic
review' of the cash savings market it was proposing that banks
undertake a number of changes to provide better outcomes for
customers. I am pleased to note that these changes represent an
opportunity rather than a threat to Secure Trust Bank and serve to
underscore the benefits of being straightforward and transparent in
our dealings with customers.
During 2014 we extended the use of FEEFO (Feedback Forum) which
we introduced in 2013 to measure how satisfied our customers are
with us. FEEFO is an independent online tool which allows customers
to publicly rate our service standards and record any comments they
want, no matter how candid (www.feefo.com). Thus the customer is in
control of the scoring of the survey, not the surveyor. I believe
we are the only bank that uses FEEFO to gather customer
satisfaction data across its savings, current account and lending
products. This rich FEEFO data reflects how our customers actually
experience us and, given its importance, is the first thing
discussed at our weekly management meeting every Monday morning.
Real time focus on customer feedback informs management decisions
and our drive for continuous improvement. I am pleased to note that
we have consistently achieved customer satisfaction ratings in
excess of 90% across all of our products during the year.
In addition, we have continued to be awarded external accolades
and remain the only bank in the UK to hold the Customer Service
Excellence award (CSE). This award was introduced by the Cabinet
Office in 2010 to replace the Kite Mark. The CSE is a strong
independent endorsement of the way customer focus is embedded in
the culture of the business and the improvements we continue to
make to our products and services.
For the third year running we received confirmation that the
Fairbanking Foundation had renewed our 4 star mark, making us the
only bank in the UK to hold such a mark in respect of our current
account product.
We are well aware of the fact that complacency can damage
businesses, so we remain highly focused on improving our service
and products still further via the targeted investment in people,
systems and processes.
I am pleased to note that our ongoing customer focus continues
to be successful, with our overall customer base growing by 22%
during 2014.
Growth and diversification
STB entered the current economic cycle lending exclusively
unsecured consumer finance products. Growth in these portfolios
remains healthy with customer balances at the year end up 23% on
the prior year. These loans have continued to perform well. We see
considerable ongoing opportunities in consumer finance, which we
will seek to optimise.
However we also want to grow a range of secured lending
portfolios by leveraging the considerable knowledge and experience
of the directors and senior management in SME lending markets. We
felt that 2014 represented a suitable point in this economic cycle
to commence our long planned Asset Finance, Invoice Finance and
Real Estate Finance activities.
There has been plenty of commentary, from a range of opinion
formers, about the need for greater productivity across UK PLC. In
my opinion, a lot of businesses have deferred capital investment,
perhaps at the cost of improved productivity, partly because they
wanted to be sure that the UK economic recovery was entrenched
before taking on financial commitments and partly because of the
difficulty in securing financing from the larger banks which, in
aggregate, have shrunk their lending to SMEs.
As the UK economic recovery progresses the demand from
businesses for credit to invest in fixed assets and working capital
will inevitably increase. I believe STB is well positioned to
support viable businesses and in so doing grow a sustainable SME
business which will provide another source of profit growth for the
Company.
Similarly the demand from house builders for credit is likely to
remain high whilst they seek to build properties to help address
the UK housing shortage, especially in London and the South East.
Again, I see the potential for a sustainable business undertaking
residential development and investment finance, at prudent loan to
value ratios (LTVs), via our specialist Real Estate Finance
team.
Our overall objective is to continue to grow all of our lending
portfolios with a bias towards secured lending lines so that over
time these become the largest single component of the lending
portfolio. With this in mind investors will note that overall
lending balances have increased 59% year on year.
Controlling growth
As ever the Board's ongoing top strategic priority is to protect
the reputation and sustainability of STB via prudent balance sheet
management, investment for growth and robust risk and operational
controls. During 2014 we committed further investment into our risk
control and governance capabilities to adapt to the growth in the
business and the evolving regulatory environment. This is reflected
in the strengthening of the 'three lines of defence' operating
model across the Group. The Credit Risk function and Operational
Risk team have been enhanced, the latter via the establishment of a
new Head of Operational Risk role. The Finance function was boosted
by additional headcount. We have also appointed an experienced
Treasurer who joined us from Julian Hodge Bank. Contemporaneous
with this appointment we have invested in a new Asset and Liability
Management system to allow us to better manage the growing treasury
portfolio. A new Chief Technology Officer joined us in March 2014.
Throughout the year the Compliance function has also grown
considerably which in part reflects the transition of some of our
businesses from being licensed by the Office of Fair Trading (OFT)
to being regulated by the FCA. Finally a new Chief Internal Auditor
was appointed in Q4 2014.
Regulatory environment
Secure Trust Bank and the British Bankers Association have
continued to campaign for a level competitive playing field
throughout 2014. I believe key stakeholders and decision makers
appreciate that the barriers to growth faced by small and
challenger banks are disproportionate relative to their too big to
fail competitors.
It is also pertinent to note that the regulatory environment
continues to undergo rapid and significant change. HM Government
via the Bank of England, Prudential Regulation Authority (PRA), FCA
and Competition and Markets Authority (CMA) launched a series of
changes, market studies, consultations and investigations over the
last twelve months. These cover a very wide range of issues
including, the Financial Services Compensation regime, Mortgage
Lending criteria, Minimum Capital Leverage Ratios, Increased
Accountability in banks, Aligning Remuneration and Risk, Resolution
and Recovery Directives, Ring Fencing implementation guidelines,
Increased Liquidity requirements, the Senior Managers Regime, and a
review into the Cash Savings Market. In November 2014 the CMA
announced 'its decision to launch an in-depth market investigation
into the personal current account and SME retail banking sectors'.
Amongst the concerns expressed the CMA noted 'continuing barriers
to entry and expansion into the sector, limiting the ability of
smaller and newer providers to develop their businesses'. Finally a
new Payment Services Regulator was established. This is a
subsidiary of the FCA and assumes responsibility for the Payments
industry in April 2015. When it was launched in April 2014 the CEO
of the FCA noted that 'it also needs to be easier for challenger
banks to access these systems and compete with the bigger
players'.
The much greater focus on being able to demonstrate ever higher
standards of conduct and issues such as more onerous burdens of
personal responsibility will inevitably result in increased costs
and exposure for banks. Secure Trust Bank seeks to keep pace with
these changes hence the significant investment in our risk and
control capabilities detailed above. We will continue to closely
monitor the operating and regulatory environment and adapt our
business model to mitigate risk and maximise opportunities going
forward.
Prudent funding profile
Given the paragraph above it is no surprise than our funding
strategy remains to limit exposure to short term wholesale funding
and interbank markets and to broadly match fixed term fixed rate
customer lending with customer deposits of the same tenor and
interest rate basis. This helps us to minimise maturity
transformation and interest rate basis risks. During 2014 our
lending activities continued to be funded by customer deposits with
our year end loan to deposit ratio being 102% (expected to remain
at a similar level in 2015). Following the successful capital
issuance in July the Bank also has significant cash resources other
than those raised from customer deposits. As a result we have been
able to manage the loans to deposits ratio closer to the 100% level
whilst remaining comfortably funded at all times. To achieve a
broadly matched asset to liability position we increased the
average tenor of our deposits over the year with fixed term
deposits rising to 54% of total deposits. This compares to 44% as
at 31 December 2013.
At the time of writing the outlook for interest rates suggests
they will stay low for an extended period. The changes the bigger
banks are being obliged to make following the FCA's Thematic Review
into the cash savings market during 2014 should represent an
opportunity for STB. As a result I envisage funding conditions
remaining favourable for the foreseeable future.
Robust capital ratios and modest leverage
On a like for like basis our year end Core Tier 1 Capital ratio
of 22.6% remains very healthy and compares to the 2013 year end
position of 19.7%.
Consistent with the Basel III directive, in 2015 the PRA is
introducing a minimum leverage ratio disclosure requirement. This
has been set at 4%. As at 31 December 2014 STB's leverage ratio was
14.7%. This is very comfortably in excess of the new minimum and
serves to highlight the scope we have to increase our lending
activities whilst remaining modestly leveraged.
Profit growth funding investment for the future
The underlying profit for 2014 of GBP33.3m represents a 32%
increase on the GBP25.2m underlying profit before tax in 2013. The
statutory pre-tax profits for 2014 of GBP26.1m are 53% higher than
the prior year of GBP17.1m. As previously disclosed the variance
between the underlying and statutory profits has been heavily
influenced by the acquisition accounting treatment arising from
acquisitions, particularly the purchase of Everyday Loans in June
2012. The 2012 statutory profit included a one off profit of
GBP9.8m, much of which is required to be amortised in subsequent
periods. 2014 saw the last material amortisation adjustment in
respect of Everyday Loans. As such there should be closer alignment
between reported and underlying profits in the future.
Robust cost control remains a major ongoing focus. I have noted
already the ongoing investment in our overall organisational
capability to ensure that our growth is well controlled,
sustainable and managed in a manner that meets the Board's
expectations. In addition 2014 saw the commencement of three
significant new business lines being Asset Finance, Invoice Finance
and Real Estate Finance. Inevitably start up situations require
upfront investment whereby the initial establishment and day to day
running costs result in operating losses whilst the business
reaches the critical mass necessary to break even, before turning
profitable. 2015 will see a full year of costs in relation to these
new business lines which will result in a planned reduction in
short term profit growth for the group albeit for longer term
benefit.
Lending portfolio performing as expected
All aspects of risk are monitored closely with particular
attention to the performance of our lending book. Our impairment
levels have remained below the level which we had assumed within
our pricing models when originating the business in the motor,
personal unsecured and retail finance portfolios. We continue to
adopt a robust and dynamic formulaic approach to impairment
provisioning. Where appropriate, the Group has looked to support
customers, who are in financial difficulty and we seek to engage in
early communication with borrowers experiencing difficulty in
meeting their repayments.
Consumer lending operations make strong progress
Healthy double digit growth was achieved across the group's loan
portfolio in 2014. Total new business lending volumes grew 79% to
GBP545.9m (2013: GBP304.7m) which translated to an increase of 59%
in overall balance sheet lending assets to GBP622.5m (2013:
GBP391.0m). It should be noted that 75% of this annual balance
sheet growth was achieved in the second half of the year with a
strong contribution from Real Estate Finance.
Motor finance lending balances, net of provisions, of GBP137.9m
at 31 December 2014 (2013: GBP114.7m) exhibited very encouraging
growth rates. This business, which focuses on the near prime market
segment, continues to service the majority of the Top 100 UK car
dealer groups and enjoys extremely strong relationships with a
number of specialist motor intermediaries. In 2015 we intend to
write greater volumes of prime lending as a result of the many
positive dealer and broker relationships we have.
Retail point of sale business, net of provisions, grew strongly
as intended, with balances at 31 December 2014 increasing 37% to
GBP156.3m (2013: GBP114.4m). I am very pleased with the progress
here and the contribution from the V12 business since it was
acquired in 2013. The launch of the Season Ticket product was a
great success and is something that will be enhanced in 2015. Our
increased balance sheet strength has enabled the Retail Finance
team to pitch for larger retailer relationships with confidence and
success. A number of new strategic relationships commenced in 2014
including for example AO.com.
Personal unsecured lending balances, net of provisions,
increased to GBP87.6m at 31 December 2014 (2013: GBP77.8m).
Everyday Loans balances, net of provisions, grew to GBP93.9m at 31
December 2014 (2013: GBP81.4m). We continue to manage these
portfolios to focus on profit maximisation rather than dramatic
loan growth. Following the success of an initial Guarantor Loan
pilot a full product was launched in the second half of 2014. This
will help to support ongoing growth in this unsecured lending
segment.
Business finance division created as planned
In last year's Chief Executive statement I noted 'another key
objective is to begin the process of entering SME lending markets
to create new engines of profit growth and to further diversify the
lending portfolio via the addition of secured lending assets over
time'
Our strategy here was built on picking the best possible staff
and limiting our activities to secured lending to mitigate credit
risks. I am pleased to report that we have progressed further than
initially envisaged in light of the scale of the potential
available to us and our ability to secure very high quality,
experienced bankers. Each of the senior staff recruited into our
Real Estate Finance, Invoice Finance and latterly Asset Finance
teams, have a minimum of 25 years relevant lending experience. The
majority of the key staff also hold relevant banking and corporate
treasury qualifications.
Real Estate Finance was the first SME market we entered. New
business is being sourced via the strong personal relationships the
team has built up over many years with property principals and
specialist intermediaries. The vast majority of lending is to fund
residential development with a lower volume of residential
investment (Buy to Let) also being originated. We have a very
limited appetite for Commercial Property lending and recognise the
difficulties lending in this sector has caused to some banks in the
past. The demand seen has been greater than expected. Rather than
simply maximising new lending volumes we are exercising prudence
especially pending the results of the forthcoming general election
and clarification around any so called 'mansion taxes' or other
levies may have on the housing market. We believe we are currently
generating good quality Real Estate Finance transactions at
attractive yields without needing to offer aggressive structures.
The ongoing focus of the team will be on quality and profit rather
than simply volume.
Secure Trust Bank Commercial Services, the invoice finance
division of the bank, was launched as planned on 1 September after
a year in development. Interest in our entry to the market exceeded
expectations, resulting in a stronger than anticipated flow of new
business opportunities. As a result we have brought forward
recruitment plans for additional risk and business development
staff to ensure that the new business is properly managed and
controlled. Our customer proposition is built around relationships
and we are being very selective with the business being accepted in
the early stages of this business.
Finally we commenced writing Asset Finance in December via a
strategic partnership with Haydock Finance. Haydock are a long
established and very well regarded asset finance company operating
across the UK. We have been developing our partnership since 2012
and see considerable potential here. Haydock are providing a full
business process outsourcing service to STB. This is governed by a
detailed operating agreement which includes auditing and oversight
arrangements. All of the lending written fully conforms to STB's
credit policies and risk appetite and is assessed by STB staff
based in Haydock's premises. The SME division started 2015 with 38
staff. This is a considerable investment which is for the long term
benefit of STB but will result in a lowering of its growth in
profits in 2015.
Fee based accounts
Current account customer numbers reduced during 2014 reflecting
the reduced focus on this product whilst we concentrated our
investment in more profitable areas. Consistent with trends seen in
2013 customer satisfaction levels remained high but achieving
significant growth in customer numbers is likely to remain
difficult in part because the operational costs arising from
accessing the payments infrastructure make the product appear to be
uncompetitive compared to 'free if in credit' current accounts from
other banks. We are also watching developments in respect of basic
bank account products at High Street banks with interest.
As expected, the OneBill customer numbers continue to decline
over time with GBP7.1 million of income generated in 2014 compared
to GBP8.0 million in 2013. We continue to explore the potential to
offer a next generation OneBill product in conjunction with a
number of parties including government agencies. However this is
not an area of significant focus at present.
Debt Managers
Debt Managers has performed broadly in line with expectations.
The business is now trading profitably albeit it recorded a modest
pre-tax loss during 2014. There have been considerable structural
changes in this market which have been heavily influenced by the
transition of regulatory oversight from the OFT to the FCA. This
has driven consolidation amongst the larger debt purchasers with a
good example being the acquisition by Arrow Global of Capquest in
Q4 2014. Additionally a number of debt collection businesses have
ceased trading rather than seeking authorisation from the FCA. I
expect these market changes to benefit Debt Managers during
2015.
Our people
During 2014 our approach to the development of our employees was
recognised by the upgrading to silver status from bronze by
Investors in People (IIP). This places the Group in the top 6% of
all businesses that are accredited by IIP. We intend to build on
this during 2015 and will continue to place emphasis on the
training and development of our people and on recognising their
excellence. It gives me considerable pleasure to see the numerous
positive comments made by customers on FEEFO about the service
provided by helpful and friendly STB staff.
We remained heavily involved in charitable activities during the
year. Numerous events took place including making our call centre
available for free to support the Sport Relief TV event. I am very
proud of all the work done to help good causes and was particularly
pleased that we were able to present a cheque for GBP25,000 to the
Birmingham Children's Hospital just before Christmas. I applaud my
colleagues for both their charitable work and the sheer commitment
to delivering great service in a very friendly manner to our
customers throughout the year.
During the year the growth in the scale and scope of the Bank
has created many career progression opportunities for our staff.
This is reflected in the overall headcount increasing to 625 FTE
(2013: 550)
Current developments
There has been no material change to the underlying performance
of the business in the early months of 2015. The strong momentum
generated in the second half of last year has given us a good start
to the year. We continue to see potential to grow our lending
portfolio in line with our ambition and have a clear growth
strategy and a pipeline of organic and external new business
opportunities.
As I have already noted a number of significant proposals and
market investigations are being progressed by the regulatory
bodies. The Competition and Markets Authority's investigation into
the Current Account market in particular, could prove to be very
disruptive for the dominant banks. We are naturally studying
developments very closely and providing our input to relevant
debates and consultations as appropriate. We will seek to maximise
any opportunities that may arise. The continuing economic recovery
coupled with lower inflation and more optimistic households create
favourable conditions for ongoing growth in our Consumer Finance
portfolios, especially Motor and Retail Finance, which should
benefit from any increase in consumer spending. We expect to see
greater demand for credit from businesses and believe that
fundamental supply and demand factors will continue to drive the
need for an increase in the UK's housing stock. We believe we are
well positioned to benefit from these dynamics and are confident of
making further positive progress with our strategic plan during
2015.
Strategic report Business review
This section of the Report and Accounts contains the Strategic
Report required by the Companies Act 2006 to be prepared by the
directors of the Bank. It describes the component parts of the
Group's business; the principal risks and uncertainties; the
development and performance of the business during the financial
year; and the position of the business at the end of the year.
Financial and other key performance indicators are used where
appropriate. Where appropriate, reference is made to and additional
explanations provided about amounts included in the Group's
Accounts.
Consumer finance Personal lending
What we do
The Bank is well established in personal unsecured lending,
having been lending for over 35 years, with Moneyway being the
Bank's personal lending brand. During 2012 the Company acquired
Everyday Loans which represented a significant strategic
development for the Bank in the area of personal lending.
The personal loans which the Group offers are fixed rate, fixed
term products which are unsecured. Loan terms are between 12 months
and 60 months with advances varying from GBP500 to GBP15,000. Loans
are provided to customers for a variety of purposes which might
include, for example, home improvements, personal debt
consolidation and the purchase of vehicles.
Everyday Loans has continued to operate alongside Moneyway
through their equally well-known brand name, everydayloans.
How we do it
Distribution of the Group's personal loans is through brokers,
existing customers and affinity partners, and targeted to
UK-resident customers who are either employed or self-employed.
Loans are made to individuals over 21 years of age with an annual
income generally over GBP20,000, whilst Everyday Loans is a
provider of unsecured loans to a customer base predominantly in
lower income groups. Everyday Loans also offer any purpose
unsecured loans to tenants as well as homeowners.
The Group has broadened its online distribution capabilities in
the personal lending segment and operates significant introducer
relationships, including with Shop Direct.
The business utilises automated underwriting systems which, in
addition to providing significant cost advantages, ensure that
consistent credit decisions are made which improves on-going
performance monitoring and future policy decision making.
Differential pricing that reflects the credit risk of the
underlying customer is standard for the Group. These systems have
enabled the business to control risk whilst retaining the speed of
service needed to support introducers.
The levels of credit impairments on all portfolios have been
below the levels priced for when the loans were originated. The
credit risks in the lending book are continually scrutinised with
this data being used to inform changes in risk appetites and
pricing. The Group continues to invest to ensure the growth in its
business model is reflected in its overall risk and control
framework.
Everyday Loans operates through a network of offices where loans
are originated, serviced and collected. Applications are made by
phone or online, whilst Secure Trust Bank through its brand
Moneyway offers loans via the internet and a phone service
utilising an experienced team of UK based advisers.
Revenue and lending performance vs prior years
Personal lending revenue 2012 GBP24.2 million 2013 GBP41.8 million 2014 GBP49.4
million
Personal lending balance 2012 GBP142.0 2013 GBP159.2 2014 GBP181.4
at 31 December million million million
2014 performance
The Group's lending operations continued to grow in a controlled
way, with new personal lending volumes in the year, including
Everyday Loans, increasing to GBP127.7 million from GBP105.1
million in the previous year, an increase of 21%. This generated an
increase in personal lending assets during the year which, at the
year-end, including Everyday Loans, totalled GBP181.4 million
(December 2013: GBP159.2 million).
The growth in personal lending new business volumes has again
not been at the expense of price or quality. Income from personal
lending increased by 18% to GBP49.4 million whilst impairment
losses were GBP9.9 million compared to GBP10.3 million in 2013.
Consumer finance Motor finance
What we do
The Bank's motor finance business began lending in 2008 and
provides hire purchase lending products to a wide range of
customers including those who might otherwise be declined by other
finance companies. The Bank helps customers to get on the road as
well as helping introducers to sell more cars. Motor finance loans
are fixed rate, fixed term hire-purchase agreements and are secured
against the vehicle being financed.
Only passenger vehicles with certain features including an
engine size of less than three litres, an age ranging from new to a
maximum of ten years old by the end of the hire purchase agreement
and with a maximum mileage of 100,000 miles are financed. The
majority of vehicles financed are used cars. Finance term periods
are up to 60 months with a maximum loan size of GBP20,000.
Customers are either private individuals or self-employed small
business users. The Bank will also be introducing a prime lending
product during 2015.
How we do it
The Bank distributes its motor finance products via UK motor
dealers, brokers and internet introducers. New dealer relationships
are established by our UK-wide motor finance sales team with all
introducers subject to a strict vetting policy, which is reviewed
on a regular basis. The motor business has a dedicated sales team
responsible for all aspects of the management of the introducer
relationships.
The technology platform used allows the Bank to manage all
aspects of the motor business, from introducer set up and
application capture to decisioning and pay-out.
Motor lending is administered in the Group head office in
Solihull, however the UK motor dealers and brokers are UK-wide.
Revenue and lending performance vs prior years
Motor finance revenue 2012 GBP16.9 million 2013 GBP23.0 million 2014 GBP27.2
million
Motor finance balance 2012 GBP89.6 million 2013 GBP114.7 2014 GBP137.9
at 31 December million million
2014 performance
New business lending volumes for motor lending increased to
GBP71.4 million, an increase of 18% on the previous year. This
generated a significant increase in lending assets during the year,
which at the year-end totalled GBP137.9 million (December 2013:
GBP114.7 million).
Income from motor lending increased by 18% to GBP27.2 million
whilst impairment losses were 8% higher at GBP3.9 million, compared
to GBP3.6 million in 2013.
Consumer finance Retail finance
What we do
The Bank's retail finance business commenced lending in 2009 and
provides unsecured, prime lending products to the UK customers of
its retail partners to facilitate the purchase of a wide range of
consumer products across in-store, mail order and online channels.
The acquisition of the V12 Finance Group in January 2013 was
complementary to the Group's existing retail finance proposition
and the V12 management team continued in the business. V12 Retail
Finance has provided finance in co-operation with their retail
partners for more than 20 years. The acquisition enabled the group
to integrate its existing retail lending business with that of the
V12 Finance Group to generate synergistic benefits from the use of
a group-wide point of sale system. During 2014 the majority of the
Bank's retail partners have been migrated to the V12 platform.
Retail finance products are unsecured, fixed rate and fixed term
loans of up to 84 months in duration with a maximum loan size of
GBP25,000. The average new loan is for GBP800 over an 18 month
term. Lending is restricted to UK residents who are either employed
or self-employed.
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
or paying later for the goods.
The three largest sub-markets for retail finance at 31 December
2014 are the provision of finance for the purchase of sports and
leisure equipment (including cycles), musical instruments and
consumer electronics. Over the last three years cycle finance has
seen positive new business levels influenced by the success of
British cyclists in the Tour de France, the Olympics and
Paralympics. In addition, IT equipment is leased through the
Company's subsidiary undertaking STB Leasing Limited.
How we do it
The Group operates an online eCommerce service to retailers,
providing finance to customers through an industry-leading online
paperless processing system. This includes allowing customers to
digitally sign their credit agreements, thereby speeding up the
pay-out process, and removing the need to handle and copy sensitive
personal documents through electronic identity verification.
The Group serves retailers across a broad range of industries
including cycle, music, furniture, outdoor/leisure, electronics
dental and jewellery. V12 Retail Finance successfully launched its
sports season tickets finance offering during 2013.
The Group provides finance through a range of retailers
including household names such as Evans Cycles, PC World, AO.com,
Jessops, Halfords and DFS. Arrangements are in place with a number
of affinity partners including Creative United, ACTSmart and
RentSmart.
Retail lending is administered in V12 Retail Finance's offices
in Cardiff. The dedicated retail lending team aims to provide a
quality service to both retailers and customers.
Revenue and lending performance vs prior years
Retail finance revenue 2012 GBP5.8 million 2013 GBP14.5 million 2014 GBP18.4
million
Retail finance balance 2012 GBP64.2 million 2013 GBP114.4 2014 GBP156.3
at 31 December million million
2014 performance
New business lending volumes for retail lending grew strongly as
anticipated to GBP201.3 million, an increase of 45% on the previous
year. This generated a significant increase in lending assets
during the year, which at the year-end totalled GBP156.3 million
(December 2013: GBP114.4 million).
Income from Retail lending increased by 27% to GBP18.4 million.
Impairment losses were a modest GBP1.5 million in 2014, compared to
GBP1.7 million in 2013.
Consumer finance Current account and OneBill
What we do
The current account is open to everyone regardless of credit
history and comes with a prepaid card which can be used for
effective personal budgeting. The current account is a simple and
transparent bank account which has been designed to help customers
manage their money and keep control of their finances by only
letting them spend the money they have available each month. The
account does not have an overdraft facility so the account holders
can only spend money that they have available.
The account comes with a prepaid card, onto which money must be
loaded before it can be used, similar to a 'pay as you go' mobile
phone top-up. This can help the customers manage their money more
effectively because the money loaded onto the prepaid card is
separated from the money in their current account, so they can shop
safe in the knowledge that the bills will be paid from the money in
their current account. Customers generally make sure that they have
enough money in their current account to cover direct debits,
standing orders and any other regular payments, with the remaining
money transferred onto their card to spend at over 30 million
outlets, for online and telephone purchases and to make cash
withdrawals at ATMs showing the MasterCard(R) acceptance mark.
How we do it
Current accounts are distributed via the Bank's website, price
comparison websites, including Moneysupermarket and Compareprepaid,
debt management companies and through a direct outbound sales
team.
Once the account is opened the account holder can register for
the online and telephone banking service which gives access to
their account 24 hours a day, 7 days a week and allows the free
movement of money to and from their current account and prepaid
card.
The fees are simple and transparent with no hidden or unexpected
charges. For example, there are no charges should a direct debit or
standing order payment fail. Customers welcome the transparent
monthly account management fee, in return for which credit interest
is paid at base rate and customers have the ability to earn cash
rewards of up to 4% paid into their account on purchases made with
their card, both online and in store, at over 30 participating
major high street retailers. Any cash rebated as a consequence of
customer spending at the retailers on the scheme can help to reduce
or offset the monthly account charge. The account holder can have
additional cards linked to their account for family members at home
or abroad, at no extra monthly fee, with all cards eligible to earn
rewards. Participating retailers include well known stores such as
Asda, Argos, Boots, Debenhams, B&Q and Marks & Spencer.
The business has developed an on-line capability to service and
sign up accounts. It is now possible for a customer to open an
account on-line, be provided with the new account details and
transfer automatically all their direct debits and standing orders
in minutes.
Revenue and customer numbers vs prior years
Revenue 2012 GBP3.9 million 2013 GBP4.8 million 2014 GBP4.9 million
Customer numbers 2012 20,962 2013 22,860 2014 20,792
2014 performance
At 31 December 2014, the current account product had been taken
up by almost 21,000 customers with the account experiencing new
account openings averaging just under 350 per month for the 12
months to 31 December 2014. The current account generated income of
over GBP4.9 million in the year, which represented a small increase
over the previous year. OneBill, a household budgeting product,
generated income of GBP7.1 million in the year despite this product
being closed to new customers for a number of years. OneBill
account numbers declined from 24,297 to 22,731 during the 12 months
to 31 December 2014.
Business finance Asset finance
What we do
The Asset Finance business launched in the fourth quarter of the
year and provides funding to support SME businesses in acquiring
commercial assets and who may not be adequately served by the
traditional banks. The business will also provide SME commercial
owner occupiers with finance to buy the property they trade
from.
A number of loans have been drawn down during the period of
operation, financing assets in a number of commercial sectors,
including commercial vehicles, manufacturing equipment and laundry
equipment.
How we do it
The Asset Finance business is operated via a partnership with
Haydock Finance. Haydock are a well-established asset finance
company operating across the UK. Haydock are providing a full
business process outsourcing service to the Bank.
The current route to market is via introducers who are supported
by an internal marketing resource and a targeted web and social
media presence.
Facilities offered are hire purchase and finance lease
arrangements with terms of up to five years.
Revenue and lending performance vs prior years
Asset finance lending balance at 31 2013 GBPnil 2014 GBP4.5 million
December
2014 performance
The Asset Finance business model has been developed during the
year, but is in its infancy, with lending of GBP4.5 million at the
end of the year.
Business finance Commercial finance
What we do
During September 2014 the Bank launched its Commercial Finance
business to enter the UK Asset Based Lending (ABL) market. This
market has seen rapid growth during the last 20 years and there are
over 43,000 users of the service with advances in excess of GBP18
billion. The aim is to provide a full suite of ABL products to help
SMEs, with the two most significant products being invoice
discounting and invoice factoring.
The Invoice Finance product is by far the largest segment of the
ABL market and it focusses on companies who sell goods and services
to other business on credit terms. A key benefit of invoice finance
is the ability to provide funding against a client's unpaid sales
ledger. It is seen as a product to improve cashflow and competes
with other short term working capital products such as
overdrafts.
Commercial Finance dovetails into the overall SME lending
proposition which has been developed by the Bank with the intention
to broaden its product set.
How we do it
The Bank has recruited an experienced and proven management team
which will grow the business from a standing start in 2014 and
operates from premises in Manchester but will have teams operating
out of all key regions across the country. This will give the
business the flexibility to respond to customers' needs.
The Commercial Finance business uses a tried and tested
operating system in order to give top quality service to its
customers and to enable quick decision making, whilst managing
risk.
Revenue and lending performance vs prior years
Commercial Finance lending revenue 2013 GBPnil 2014 GBP0.1 million
Commercial Finance lending balance 2013 GBPnil 2014 GBP5.0 million
at 31 December
2014 performance
The Commercial Finance business has been developed during the
year with lending of GBP5.0 million at the end of the year,
generating income of GBP0.1 million.
Business finance Real Estate finance
What we do
The twin purposes of the Real Estate Finance business are to
finance remedies to the undersupply of housing stock in UK and
allowing property investors to invest. The business supports SMEs
over a financing term of up to five years with prudent loan to
value levels.
The Real Estate Finance team is staffed by experienced bankers
with proven property lending expertise. The team provide full
support to customers and introducers over the life of the
products.
How we do it
There are five main products available for our customers;
residential development, commercial development, residential
investment, commercial investment as well as mixed development. The
current route to market is via introducers who are served by a team
of Real Estate Finance regional managers. The speed of decision
making and flexibility of deal structuring are key factors to the
strength of the business. There is no geographic or individual
counterparty concentration risk to the lending.
Revenue and lending performance vs prior years
Real Estate Finance lending revenue 2013 GBPnil 2014 GBP2.4 million
Real Estate Finance lending balance 2013 GBP1.8 million 2014 GBP133.7 million
at 31 December
2014 performance
The Real Estate Finance business commenced operation in the
second half of 2013 and has concluded 47 deals during 2014,
advancing GBP135.7 million of funds to customers. There is also a
significant pipeline of both committed lending and deals yet to be
approved.
Savings
What we do
The Bank's savings accounts consist of notice accounts, fixed
term bonds and deposit accounts. At Secure Trust Bank, savings
accounts offer a simple way to save money. Interest rates offered
are competitive and provide value for money.
Deposit accounts can be opened for as little as GBP1 and
withdrawals can be made without notice or loss of interest.
The notice deposit accounts are made available in periods
ranging from 60 days to 183 days, with the majority at the 120 day
term, depending on the Group's funding requirements.
Fixed Price Deposit Bonds are launched to achieve the desired
maturity profiles of the Group.
How we do it
By virtue of a focus on higher margin lending, the absence of
large fixed overheads in the form of a branch network and a policy
of not cross-subsidising loss making products with profitable ones,
the Bank is able to offer competitive rates and has been successful
in attracting term deposits from a wide range of personal and
non-personal customers. This provides a funding profile which again
gives additional financial security to the business.
The Bank is a member of the Financial Services Compensation
Scheme (FSCS).
Methods of attracting deposits include product information on
price comparison websites (such as Moneysupermarket), best buy
tables and newspaper articles about the deposit accounts offered by
the Group.
All savings products are administered in the Group head office
in Solihull.
Savings performance vs prior years
Notice deposits 2012 GBP212 million 2013 GBP207 million 2014 GBP239 million
Deposit bonds 2012 GBP155 million 2013 GBP193 million 2014 GBP331 million
Current/sight accounts 2012 GBP32 million 2013 GBP36 million 2014 GBP38 million
2014 performance
The Bank's customer deposits primarily comprise notice deposits,
term deposits and fee-based accounts, being fee-based current
accounts and OneBill accounts. At 31 December 2014 customer
deposits totalled GBP608.4million. This represents an increase of
GBP171.8 million since the last year end.
The Bank's notice deposits totalled GBP239 million at the
year-end (December 2013: GBP207 million). New 120 day notice
accounts were introduced during the year and were successful,
raising additional new deposits of GBP95 million predominantly
during the second half of the year.
During the year, the Bank launched further fixed rate deposit
bonds, with two to seven year maturities which enable it to match
broadly the new lending activities. These again were very
successful as the Group raised new deposits of over GBP160 million,
achieving its desired funding maturity profile. At the year-end
term deposit bond balances totalled GBP331 million.
Additional services
Debt Collection
What we do
In January 2013 the Bank's subsidiary Debt Managers (Services)
Limited (DMS) acquired the trade and certain assets from Debt
Managers Holdings Limited, Debt Managers (AB) Limited and Debt
Managers Limited.
DMS collects debts on a contingent collections basis on behalf
of a range of clients including banks, retail and utility companies
and the public sector, as well as collecting delinquent debt for
the Bank. The business also selectively invests in purchased debt
portfolios.
During the year DMS received interim permission from the
Financial Conduct Authority (FCA) to conduct consumer credit
activities, this being a requirement on the transfer of licencing
from the Office of Fair Trading to the FCA.
How we do it
DMS has a scalable collections platform and makes use of the
latest call centre and customer relationship management technology,
including market leading dialler capability, IVR technology and
payment websites. The business has an experienced management team
with significant sector specific knowledge. The business ensures
that repayment plans are affordable by the customer and are
therefore sustainable.
DMS also offers business process outsourcing to clients,
enabling the outsourcing of call centre activities.
During the year the business has started a field services
operation, offering a range of services including reconnection
visits, asset recovery and process serving.
Revenue and lending performance vs prior years
Debt collection revenue 2013 GBP3.9 million 2014 GBP3.7 million
Debt collection portfolios at 31 2013 GBP0.3 million 2014 GBP3.1 million
December
2014 performance
Income decreased by 5% to GBP3.7 million when compared to
2013.
During the year, DMS acquired delinquent debt from the Bank,
which has contributed to an increase in the value of purchased debt
portfolios to GBP3.1 million, from GBP0.3 million in the previous
year.
Strategic report Financial review
Summarised income statement 2014 2013 Variance
GBPmillion GBPmillion GBPmillion
-------------------------------------- ----------- ----------- -----------
Interest, fee and commission income 113.8 96.5 17.3
Interest, fee and commission expense (15.9) (17.5) 1.6
-------------------------------------- ----------- ----------- -----------
Operating income 97.9 79.0 18.9
Impairment losses (15.3) (15.6) 0.3
Operating expenses (56.5) (45.8) (10.7)
Acquisition related items - (0.5) 0.5
-------------------------------------- ----------- ----------- -----------
Profit before tax 26.1 17.1 9.0
Costs of acquisition 0.2 0.9
Fair value amortisation 5.3 4.9
Share based incentive scheme 1.5 2.2
Net ABG management recharges 0.2 0.1
Underlying profit before tax 33.3 25.2 8.1
Underlying tax (7.2) (6.7) (0.5)
-------------------------------------- ----------- ----------- -----------
Underlying profit after tax 26.1 18.5 7.6
====================================== =========== =========== ===========
Underlying basic earnings per share 155.8 118.2 37.6
====================================== =========== =========== ===========
Income analysis
Operating income increased by 24% to GBP97.9 million. Growth was
achieved through increased levels of activity in all lending
sectors as well as the introduction of a full business lending
suite. New lending volumes in the personal lending, motor and
retail finance businesses increased in total by GBP96 million,
representing an increase of 31% on 2013.
Real Estate Finance generated income of GBP2.4 million during
the year, from a standing start, whilst the Asset Finance and
Commercial Finance businesses are in their nascent state and will
contribute towards the Group's profits during 2015. Income from
retail finance increased by 27%, which was helped through the full
integration of the legacy retail finance business with that of the
V12 Finance Group, which was acquired during the preceding year.
The Bank intends to create further diversified and balanced growth
in the lending books during 2015.
Income from the current account with a prepaid card remained
relatively stable during the year at GBP4.9 million, whilst the
expected decline in the income from the OneBill product following
its closure to new accounts in 2009 continued.
Impairment losses during the year were GBP15.3 million (2013:
GBP15.6 million). This is a decrease as a percentage of income
despite the inclusion of an increase in the collective provision.
Firstly, we believe this is a function of prudent underwriting and
an improving economy and secondly, as a result of a market
benchmarking exercise for non-performing loans, the Company
reassessed the recoverable value of charged-off loans resulting in
a reduction in the impairment charge of GBP2.4 million.
Operating expenses have increased, in line with expectations, as
significant investments have occurred in the infrastructure and
human capital of the Group. This investment will generate further
returns in the future.
Underlying profit before tax was GBP33.3 million, which is an
increase of 32% on the 2013 underlying profit before tax.
Underlying profit removes the effects from the income statement of
acquisition costs, fair value amortisation arising from
acquisitions, share option scheme costs and net ABG management
recharges.
Taxation
The effective tax rate on profit before tax is 21.5% (2013:
28.1%), which is in line with the weighted average corporate tax
rate during the year. The prior year's tax rate reflected the
effects of acquisition adjustments relating to deferred tax.
Distributions to shareholders
The directors recommend the payment of a final dividend of 52
pence per share which, together with the interim dividend of 16
pence per share paid on 19 September 2014, represents a total
dividend for the year of 68 pence per share (2013: 62 pence per
share).
Earnings per share
Detailed disclosures of earnings per ordinary share are shown in
Note 11 to the financial statements. Basic earnings per share
increased by 56% to 122.3 pence per share (2013: 78.3p). Whilst the
underlying basic earnings per share increased by 32% to 155.8 pence
per share (2013: 118.2p per share).
Summarised balance sheet
2014 2013
GBPmillion GBPmillion
------------------------------------ ----------- -----------
Assets
Cash and balances at central banks 81.2 -
Debt securities held-to-maturity 16.3 -
Loans and advances to banks 39.8 110.0
Loans and advances to customers 622.5 391.0
Other assets 22.5 24.9
------------------------------------ ----------- -----------
782.3 525.9
------------------------------------ ----------- -----------
Liabilities and equity
Due to banks 15.9 0.1
Deposits from customers 608.4 436.6
Other liabilities 33.1 27.6
Total equity 124.9 61.6
------------------------------------ ----------- -----------
782.3 525.9
------------------------------------ ----------- -----------
The total assets of the Group increased by GBP256.4 million or
49% primarily due to the continued growth in customer lending. Real
Estate Finance lending balances were GBP133.7 million at the year
end, from a virtual standing start this year, whilst Asset and
Commercial Finance balances, in their nascent stages of lending,
had lending balances totalling GBP9.6 million at the year end. The
consumer lending business sectors of Personal Lending, Motor
Finance and Retail Finance had increased lending balances of
GBP22.2 million, GBP23.2 million and GBP41.9 million respectively.
During the year the Retail Finance business increased its portfolio
size by 37% to close at GBP156.3 million, as the group benefits
from the synergistic benefits following the V12 Finance Group
acquisition in 2013 as now all retail finance is administered from
the V12 offices. Personal lending grew by 14% as the business was
able to source new business from online brokers and affinity
partners. Motor finance increased its portfolio size by 20% through
a growing number of dealer relationships.
Customer deposits grew by 39% to close at GBP608.4 million to
fund the increased lending balances. The Group also obtained
GBP15.9 million of wholesale deposits at the year end, following
the sale and repurchase agreement of the FLS Treasury Bills,
however the Group continues with its conservative funding policy,
ending the year with a loan to deposit ratio of 102% (2013:
90%).
Principal risks and uncertainties
The Group regards the monitoring and controlling of risks as a
fundamental part of the management process. Consequently, senior
management are involved in the development of risk management
policies and in monitoring their application. The principal risks
inherent in the Group's business are credit, market, liquidity,
operational and regulatory risks. A detailed description of the
risk management policies in these areas is set out in Note 5 to the
financial statements; however a short description of the risks
faced is described below.
Credit risk is the risk that a counterparty will be unable to
pay amounts in full, when due. This risk is managed through the
Group's internal controls and its credit risk policies as well as
through the Credit Committee, with significant exposures also being
approved by the Group's Risk Committee.
Market risk as it applies to the Secure Trust Bank Group is
primarily limited to interest rate risk. This is managed using
Group resources with support from the treasury function of the
Arbuthnot Banking Group. The policy is not to take significant
unmatched own account positions in any market. The Group and the
Bank have no exposures to currency fluctuations.
Liquidity risk is the risk that the Group cannot meet its
liabilities as they fall due, due to insufficient liquid assets.
The Group takes a conservative approach to managing its liquidity
profile and is primarily funded by retail customer deposits, having
limited exposure to the wholesale lending markets. The loan to
deposit ratio is typically maintained at a prudent level below
100%. The Assets and Liabilities Committee (ALCO), comprising
executive directors and senior executives of the Bank and Group, is
the formal body that has responsibility for liquidity risk
management. The ALCO meets formally on a monthly basis to review
liquidity risk against set thresholds and risk indicators including
early warning indicators, liquidity risk tolerance levels and
Individual Liquidity Adequacy Assessment (ILAA) metrics.
Operational risk is the risk that the Group may be exposed to
financial losses from failures of its systems and processes. The
Group maintains clear compliance guidelines and provides ongoing
training to all staff. The Group's overall approach to managing
internal control and financial reporting is described in the
Corporate Governance Statement in the Annual Report.
Regulatory risk can be split between capital risk and conduct
risk. Capital risk is the risk that the Group will have
insufficient capital resources 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 Arbuthnot Banking Group's ICAAP, of which the Group is
a major component. Stringent stress tests are performed to ensure
that capital resources are adequate over a future three year
horizon. Conduct risk is the risk that the Group does not comply
with regulatory requirements including, for example, the way it
conducts its business or treats its customers. The Group reviews
performance against key customer and conduct risks on a monthly
basis and seeks feedback from its customers in all its product
types.
Funding for Lending Scheme
During the previous year the Bank was admitted to the Funding
for Lending Scheme (FLS). The FLS is a scheme launched by the Bank
of England and HM Treasury, designed initially to incentivise banks
and building societies to boost their lending to UK households and
non-financial companies. The FLS does this by facilitating funding
to banks and building societies for an extended period, at below
current market rates, with both the price and quantity of funding
provided linked to the institutions' performance in lending to the
UK non-financial sector.
The FLS allows participants to borrow UK Treasury Bills from the
Bank of England for a period of up to four years in exchange for
eligible collateral during a defined drawdown period. The value of
the UK Treasury Bills lent by the Bank of England is at a discount
to the market value of the eligible securities which are lent to
the Bank of England in return. The amount of discount or "haircut"
is determined according to the FLS rules, with the level of
"haircut" being greater for those eligible securities which are
perceived as having greater risk.
The price of each institution's borrowing in the FLS will depend
on its volume of lending to the real economy during the reference
period. For banks or building societies maintaining or expanding
their lending over that period, the fee is 0.25% pa on the amount
borrowed. As banks increase lending, their overall funding costs
falls. For banks or building societies whose lending declines, the
fee increases linearly, up to a maximum of 1.5% pa where lending
decreases by 5% or more.
Under the applicable International Accounting Standard, IAS 39,
if a security is lent under an agreement to return it to the
transferor, as is the case for eligible securities lent by
institutions to the Bank of England under the FLS, then the
security is not derecognised because the transferor retains all the
risks and rewards of ownership. If the FLS Treasury Bills are not
subject to a repurchase agreement with another institution the UK
Treasury Bills borrowed from the Bank of England under the FLS are
not recognised on the Statement of Financial Position of an
institution as they will not meet the criteria for de-recognition
by the Bank of England. When the UK Treasury Bills are pledged as
part of a sale and repurchase agreement with a third party, amounts
borrowed from the third party are recognised on the Statement of
Financial Position.
Strategic report Capital, leverage and liquidity
Capital
The Group's capital management policy is focused on optimising
shareholder value over the long-term. Processes exist to ensure
that capital is allocated to achieve targeted risk adjusted returns
whilst ensuring appropriate surpluses are held above the minimum
regulatory requirements. The Board reviews the capital position at
every board meeting. Changes relating to the implementation of
Capital Requirements Directive IV (CRD IV) in 2014 did not have a
material impact on the capital resources of the Group.
In accordance with the EU's Capital Requirements Directive (CRD)
and the required parameters set out in the EU's Capital
Requirements Regulation (CRR), the Arbuthnot Banking Group's
Internal Capital Adequacy Assessment Process (ICAAP), of which the
Group is a major component, is embedded in the risk management
framework of the Group. It is subject to ongoing updates and
revisions where necessary, but as a minimum an annual review is
undertaken as part of the business planning process. The ICAAP is a
process which brings together the risk management framework 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 a "Pillar I plus"
approach to determine the level of capital the Group needs to hold.
This method takes the Pillar I capital formula calculations as a
starting point, and then considers whether each of the calculations
delivers a sufficient capital sum adequate to cover anticipated
risks. Where it is considered that the Pillar I calculations do not
reflect the risk, an additional capital add-on in Pillar 2 is
applied, as per the Individual Capital Guidance (ICG) issued to the
Bank by the Prudential Regulation Authority (PRA).
The Group's regulatory capital is divided into:
-- Common Equity Tier 1 which comprises shareholders' funds,
after deducting intangible assets and deferred tax assets which
have arisen due to losses.
-- Tier 2 comprises the collective allowance for impairment.
The ICAAP includes a summary of the capital required to mitigate
the identified risks in its regulated entities and the amount of
capital that the group has available. All regulated entities within
the Group have complied with all of the externally imposed capital
requirements to which they are subject.
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 CRR.
At the year end the solo-consolidated group had the following
capital resources and risk weighted assets. Risk weighted assets
now reflect both credit risks and operational risks, in accordance
with CRR (shown as Total Risk Exposure in the table below). The
solo-consolidated group includes all entities where a solo
consolidation waiver has been received from the PRA; this excludes
the V12 Finance Group and the Debt Managers Group.
Common Equity Tier 1 (CET 1) capital GBP121.4 million
Tier 2 capital GBP2.0 million
Total capital GBP123.4 million
Total Risk Exposure (TRE) GBP649.8 million
The CET 1 Capital Ratio is the ratio of CET1 divided by the TRE
and was 18.7% at the year end. This compares to 14.2% at the end of
2013. On a like for like basis the Core Tier 1 capital ratio in
2014 would be 22.6% (2013: 19.7%).
The Total capital ratio is the ratio of Total Capital divided by
the TRE. This was 19.0% at the year end, compared to 14.6% at the
end of 2013.
Leverage
An underlying cause of the global financial crisis was the
build-up of excessive on- and off-balance sheet leverage in the
banking system. In many cases, banks built up excessive leverage
while apparently maintaining strong risk-based capital ratios. At
the height of the crisis, financial markets forced the banking
sector to reduce its leverage in a manner that amplified downward
pressures on asset prices.
The Basel III framework introduced a relatively simple,
transparent, non-risk based leverage ratio to act as a
supplementary measure to the risk-based capital requirements. The
leverage ratio is intended to restrict the build-up of leverage in
the banking sector to avoid destabilising deleveraging processes
that can damage the broader financial system and the economy,
whilst reinforcing the risk-based requirements with a complementary
simple, non-risk based "backstop" measure.
The Basel III leverage ratio is defined by the CRR as Tier 1
capital divided by on and off sheet asset exposure values,
expressed as a percentage. The minimum leverage ratio requirement
of 4% (originally proposed to be 3%) will be imposed on the Bank
from 2018, subject to a review in 2017.
The Bank has a leverage ratio at 31 December 2014 of 14.7%,
comfortably ahead of the minimum requirement.
Liquidity
One of the Basel Committee on Banking Supervision's key reforms
to develop a more resilient banking sector is the Liquidity
Coverage Ratio (LCR), which they introduced in 2013. The objective
of the LCR is to promote the short term resilience of the liquidity
risk profile of banks. It does this by ensuring that banks have an
adequate stock of unencumbered high-quality liquid assets that can
be converted easily and immediately in private markets into cash to
meet their liquidity needs for a 30 calendar day liquidity stress
scenario.
On 10 October 2014, The European Commission published a
delegated act to supplement the CRR with regard to the liquidity
coverage requirement for credit institutions. This will be directly
applicable in the United Kingdom from 1 October 2015. The LCR
requirements have been set in the CRR, with a minimum path of 60%
from 1 October 2015, rising to 100% from 1 January 2018. The PRA is
currently consulting on the minimum requirements which will apply
in the United Kingdom; proposals indicate that the PRA's path will
be higher than the CRR's minimum requirements up until 1 January
2018.
The Bank continues to manage its liquidity on a conservative
basis with only limited funding coming from the wholesale markets.
In December 2012, Secure Trust Bank was admitted as a participant
in the Bank of England's Sterling Money Market Operations under the
Sterling Monetary Framework, to participate in the Discount Window
Facility. From July 2013, the Group was permitted to draw down
facilities under the Funding for Lending Scheme (FLS). FLS monies
are maintained as a liquidity buffer, above that required to
support lending.
At 31 December 2014, the Group had significant headroom over the
minimum requirements due to its stock of high quality liquid
assets, in the form of the Bank of England reserve Account and Bank
of England Treasury Bills.
The Net Stable Funding Ratio (NSFR) supplements the LCR and has
a time horizon of one year. It has been developed to provide a
sustainable maturity structure of assets and liabilities. At 31
December 2014, the Group had an NSFR with significant headroom over
the minimum requirement.
Corporate Governance statement
AIM companies are not required to comply with The UK Corporate
Governance Code. Nevertheless, the Board endorses the principles of
openness, integrity and accountability which underlie good
corporate governance and intends to take into account the
provisions of The UK Corporate Governance Code in so far as they
are appropriate to the Group's size and circumstances. The Group
contains subsidiaries authorised to undertake regulated business
under the Financial Services and Markets Act 2000 and regulated by
the Financial Conduct Authority. The Bank is also an authorised
deposit taking business. Accordingly, the Group operates to the
high standards of corporate accountability and regulatory
compliance appropriate for such businesses.
The Board
The Group is led and controlled by an effective Board of
Directors which comprises Henry Angest (Non-Executive Chairman),
Paul Lynam (Chief Executive Officer), Neeraj Kapur (Chief Financial
Officer), and four other non-executive directors. In 2014 Lord
Forsyth was appointed as an independent non-executive director. He
joined the Board that had been established at the time of the AIM
IPO of the Company in November 2011 and which comprised one -third
of directors appointed by Arbuthnot Banking Group PLC ("ABG"),
one-third of whom were full-time executive directors and the final
one-third were independent directors.
The Board meets regularly throughout the year. Substantive
agenda items have briefing papers, which are circulated in a timely
manner before each meeting. The Board will ensure that it is
satisfied that it is supplied with all the information that it
requires and requests, in a form and of a quality to enable it to
fulfil its duties. In addition to ongoing matters concerning the
strategy and management of the Company and of the Group, the Board
has determined certain items which are reserved for decision by
itself. These matters include the acquisition and disposal of other
than minor businesses, the issue of capital by any Group company
and any transaction by a subsidiary company that cannot be made
within its own resources, or that is not in the normal course of
its business.
The Company Secretary is responsible for ensuring that Board
processes and procedures are appropriately followed and support
effective decision making. All directors have access to the Company
Secretary's advice and services and there is an agreed procedure
for directors to obtain independent professional advice in the
course of their duties, if necessary, at the Company's expense.
The Board has delegated certain of its responsibilities to
committees, which are summarised below. Each of these committees
has written terms of reference. The Board keeps the governance
arrangements under review. The development of the Group in 2014 and
in particular the establishment of the new SME lending activities
has resulted in changes to the operational governance of the
Group.
Audit Committee
Membership of the Audit Committee is limited to non-executive
directors and the current Audit Committee comprises Paul Marrow as
Chairman, Andrew Salmon and Carol Sergeant.
The primary responsibilities of the Audit Committee are to
review arrangements established by the directors for compliance
with regulatory and financial reporting requirements, monitor the
integrity of the Group and subsidiary statutory accounts, oversee
the work of the external auditors, monitor and review the scope,
results and effectiveness of the Company's internal audit function
and liaise with the Audit Committee of ABG.
The Audit Committee's responsibilities include reviewing the
Group's system of internal control and the process for evaluating
and monitoring risk. The Committee also considers any other matters
which might have a financial impact on the Company, including the
Group's arrangement by which staff may, in confidence, raise
concerns about possible improprieties in matters of financial
reporting or other matters. The Audit Committee has the authority
to obtain any information it requires from any employee or external
party, and at least once a year will meet with the Company's
external auditors and internal audit function without any executive
directors being present.
The Committee also reviews the appointment, terms of engagement
and objectivity of the external auditors, including the level of
non-audit services provided, and ensures that there is an
appropriate audit relationship. The Audit Committee provides a
forum for discussing with the Group's external auditors their
report on the annual accounts.
Risk Committee
The Risk Committee is chaired by Andrew Salmon and its other
members are Paul Lynam and Paul Marrow.
The primary responsibilities of the Risk Committee are to
approve specific risk policies for the Company and its
subsidiaries; approve trading positions in excess of the limits set
by the management of the Group; oversee the development,
implementation and maintenance of the Group's overall risk
management framework and its risk appetite, strategy, principles
and policies; oversee the Group's risk exposures, risk/return and
proposed improvements to the Group's risk management framework;
oversee adherence to the risk principles, policies and standards
adopted by the wider group; and keep the wider group regularly
informed of any risk issues or breaches faced by the Group which
may affect the wider group.
Assets and Liabilities Committee
The Assets and Liabilities Committee is responsible for
implementing and controlling the liquidity and asset and liability
management risk appetite established by the Board. The committee is
also responsible for ensuring the high level financial control over
the Bank's balance sheet and the associated risks undertaken in the
course of its business. The committee sets and controls capital
deployment, Treasury strategy guidelines and limits focusing on the
effects of the future plans and strategy on STB's assets and
liabilities. The committee is chaired by Paul Lynam and its members
are: Stuart Clarke, James Cobb, Kevin Hayes, Neeraj Kapur, Ashley
King, Robert Lane and Andrew Salmon. The committee meets
monthly.
Remuneration Committee
Information on the Remuneration Committee and details of the
directors' remuneration are set out in the separate Remuneration
Report.
Nomination Committee
The Nomination Committee is chaired by Henry Angest and its
other members are Paul Marrow and Carol Sergeant.
The primary responsibilities of the Nomination Committee are to
review the number of directors and the balance between executive
and independent directors, recommend new independent director and
executive director appointments to the Board and the length of term
for which a non-executive director may be expected to serve. Before
a Board appointment is made the skills, knowledge and experience
required for a particular appointment are evaluated and a
recommendation made to the Board. The Nomination Committee also
follows the ICSA Guidance on Terms of Reference for Nomination
Committees.
Shareholder Communications
The Company maintains a regular dialogue with its shareholders
and makes full use of the Annual General Meeting and any other
General Meetings to communicate with investors.
The Company aims to present a balanced and understandable
assessment in all its reports to shareholders, its regulators and
the wider public. Regulatory announcements and other information
can be found at www.securetrustbank.com.
Internal control and financial reporting
The Board of Directors has overall responsibility for the
Group's system of internal control and for reviewing its
effectiveness. Such a system is designed to manage rather than
eliminate risk of failure to achieve business objectives and can
only provide reasonable but not absolute assurance against the risk
of material misstatement or loss.
The directors and senior management of the Group have adopted a
Group Risk Appetite Statement which sets out the Board's attitude
to risk and internal control. Key risks identified by the directors
are formally reviewed and assessed at least once a year by the
Board. Key business risks are also identified, evaluated and
managed by operating management on an ongoing basis. 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.
The effectiveness of the internal control system is reviewed
regularly by the Board and the Audit Committee, which also receives
reports of reviews undertaken by the internal audit function which
are provided by a combination of internal resources and services
provided by EY. The Audit Committee also receives reports from the
external auditors, KPMG LLP, which include details of internal
control matters that they have identified. Certain aspects of the
system of internal control are also subject to regulatory
supervision, the results of which are monitored closely by the
Board.
From January 2014, the Group established its own Internal Audit
function reflecting the continuing business investment in risk
mitigation and compliance processes. EY has continued to be engaged
in both an audit and advisory capacity and provided support in
areas requiring specific subject matter expertise.
Remuneration report
Remuneration Committee
Membership of the Remuneration Committee is limited to
non-executive directors. The present members of the Committee are
Henry Angest (Chairman), Paul Marrow and Carol Sergeant.
The Committee has responsibility for producing recommendations
on the overall remuneration policy for directors and for setting
the remuneration of individual executive directors, both for review
by the Board. Remuneration is set having regard to any roles that
may be performed by such directors as directors of any other Group
companies. The Committee applies the Company's remuneration policy
and monitors its implementation, reviews the Remuneration Report,
considers and, if thought fit, awards any incentives to be offered
under the Company's Share Option Scheme, other long-term incentive
schemes and pension arrangements, subject to the achievement of
specific criteria. The Remuneration Committee also follows the ICSA
Guidance on Terms of Reference for Remuneration Committees. Members
of the Committee do not vote on their own remuneration.
The Committee also deals with remuneration related issues under
the Prudential Regulation Authority's Remuneration Code applicable
to the Group.
Remuneration Policy
The Remuneration Committee determines the remuneration of
individual directors having regard to the size and nature of the
business; the importance of attracting, retaining and motivating
management of the appropriate calibre without paying more than is
necessary for this purpose; remuneration data for comparable
positions; the need to align the interests of executives with those
of shareholders; and an appropriate balance between current
remuneration and longer term performance-related rewards. The
remuneration package can comprise a combination of basic annual
salary and benefits (including pension), a discretionary annual
bonus award related to the Committee's assessment of the
contribution made by the executive during the year and longer term
incentives, including executive share options and similar awards.
Pension benefits take the form of annual contributions paid by the
Company to individual money purchase schemes. The Remuneration
Committee reviews salary levels each year based on the performance
of the Group during the preceding financial period. This review
does not necessarily lead to increases in salary levels. During
2014 the Group implemented applicable provisions required under the
Prudential Regulation Authority's Remuneration Code having regard
to the treatment of the Group under the Remuneration Code. The
Company and its subsidiaries are all considered to be Tier III
institutions, due to the size of their relevant total assets. At
the Annual General Meeting in 2014 shareholders passed a
resolution, to the extent required by the then anticipated
regulatory rules, authorising the Company to pay a discretionary
bonus up two times annual basic salary. The Company is satisfied
that the so called bonus cap does not currently apply to it.
Nevertheless the authorisation from shareholders remains in force
should the position change.
Directors' Service Contracts
Paul Lynam and Neeraj Kapur both have service contracts
terminable at any time on 12 months' notice in writing by either
party. Michael Forsyth, Paul Marrow and Carol Sergeant have service
contracts terminable at any time on three months' notice in writing
by either party. Henry Angest and Andrew Salmon have service
contracts with Arbuthnot Banking Group PLC and their details are
disclosed in the financial statements of that company.
Share Option Scheme
On 17 October 2011 the Company established The Secure Trust Bank
Share Option Scheme which is administered by the Remuneration
Committee. Details of the options granted to, as well as those
exercised during the year by, directors of the Company can be found
in the Directors' Report on pages 28 to 29.
A detailed description of the Share Option Scheme, including
Scheme Conditions, is contained in Note 27 of the financial
statements.
The market price for each ordinary share at the Company's year
end was 2,835.5p. The highest and lowest market price for each
ordinary share during the year was 2,975p and 2,245p
respectively.
Following the exercise in November 2014 of the first tranche of
share options granted in 2011 under the Share Option Scheme, the
Remuneration Committee has given consideration to the establishment
of a subsequent long-term incentive scheme. Careful consideration
has been given to the type of incentive scheme that would be
appropriate to meet the objectives of the Company. It has been
concluded that a phantom share option scheme would be best suited
to achieve these. Accordingly, the Remuneration Committee has
approved arrangements for the establishment of a four year scheme
under which those granted awards under it would be entitled to a
payment by reference to the increase in the value of an ordinary
share in the Company over an initial value determined by the
Remuneration Committee. For those who are granted awards under the
new scheme who were employed in November 2014 the four years is
expected to run from November 2014 and the initial value is
expected to be set at GBP25 per ordinary share. The price of GBP25
per ordinary share is 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 and along with the start
date of the four year period is intended to provide continuity of
incentivisation to those to whom new phantom options may be granted
who were employed in November 2014. The phantom scheme would not
result in actual shares ever being issued by the Company. The
phantom scheme would, like the Share Option Scheme, be subject to
the achievement of performance conditions. The Remuneration
Committee is satisfied that a long-term incentive scheme of this
nature will operate to motivate, incentivise and assist in the
retention of the services of individuals who are regarded as
important to the success of the business.
Directors' emoluments
This part of the remuneration report is audited information 2014 2013
GBP000 GBP000
------------------------------------------------------------- ------- -------
Salary and fee payments (including bonuses and benefits in
kind) 1,674 1,427
Gains from the exercise of share options 5,659 -
Pension contributions 60 60
------------------------------------------------------------- ------- -------
7,393 1,487
------------------------------------------------------------- ------- -------
Gains
from
the exercise
of Total Total
share
Salary/fees Bonus Benefits Pension options 2014 2013
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------ ------------ ------- --------- -------- ------------- ------- -------
M Forsyth 42 - - - - 42 -
N Kapur 213 150 18 25 629 1,035 328
P Lynam 600 500 21 35 2,515 3,671 1,031
P Marrow 80 - - - - 80 83
A Salmon - - - - 2,515 2,515 -
C Sergeant 50 - - - - 50 45
------------ ------------ ------- --------- -------- ------------- ------- -------
985 650 39 60 5,659 7,393 1,487
------------ ------------ ------- --------- -------- ------------- ------- -------
The salaries of Henry Angest and Andrew Salmon are paid by
Arbuthnot Banking Group PLC and disclosed in the Arbuthnot Banking
Group PLC consolidated financial statements. The cost of the
provision of the services of Henry Angest and Andrew Salmon of
GBP60,000 and GBP45,000 respectively, have been recharged to the
Company in accordance with the Services and Relationship Agreements
created at the time of the IPO in 2011 (2013: GBP60,000 and
GBP45,000 respectively).
The emoluments of the highest paid director were GBP3,671,000
for the year ended 31 December 2014 (2013: GBP1,031,000), including
contributions made to a money purchase scheme of GBP35,000 (2013:
GBP35,000) and a gain from the exercise of share options of
GBP2,514,571.
The benefits in kind include private medical health insurance
and car allowances.
The bonuses awarded to Neeraj Kapur and Paul Lynam by the
Remuneration Committee were made in recognition of both the
performance of the business as well as each individual's
performance during the year.
Retirement benefit contributions are being paid for two
directors who served during 2014 (2013: Two).
Company statement of financial position
At 31 December
2014 2013
Note GBPmillion GBPmillion
--------------------------------------------- ----- ----------- -----------
ASSETS
Cash and balances at central banks 81.2 -
Loans and advances to banks 12 37.9 108.5
Loans and advances to customers 13 500.1 283.9
Debt securities held-to-maturity 15 16.3 -
Property, plant and equipment 18 3.7 0.5
Intangible assets 16 1.3 0.9
Investments 17 3.7 3.7
Deferred tax assets 24 0.3 0.8
Other assets 20 116.2 101.0
--------------------------------------------- ----- ----------- -----------
Total assets 760.7 499.3
--------------------------------------------- ----- ----------- -----------
LIABILITIES AND EQUITY
Liabilities
Due to banks 21 15.9 0.1
Deposits from customers 22 608.4 436.6
Current tax liabilities 1.5 0.2
Other liabilities 23 22.2 15.5
--------------------------------------------- ----- ----------- -----------
Total liabilities 648.0 452.4
--------------------------------------------- ----- ----------- -----------
Equity attributable to owners of the parent
Share capital 26 7.3 6.3
Share premium 79.3 28.2
Retained earnings 26.1 12.8
Cash flow hedging reserve - (0.4)
--------------------------------------------- ----- ----------- -----------
Total equity 112.7 46.9
--------------------------------------------- ----- ----------- -----------
Total liabilities and equity 760.7 499.3
--------------------------------------------- ----- ----------- -----------
Consolidated statement of changes in equity
Cash
flow
Share Share Revaluation hedging Retained
capital premium reserve reserve earnings Total
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at 1 January 2013 6.3 28.2 0.1 (0.4) 21.7 55.9
Total comprehensive income for
the period
Profit for 2013 - - - - 12.3 12.3
Other comprehensive income, net
of income tax
Revaluation reserve
- Amount transferred between reserves - - 0.1 - (0.1) -
Total other comprehensive income - - 0.1 - (0.1) -
--------------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Total comprehensive income for
the period - - 0.1 - 12.2 12.3
--------------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Dividends - - - - (9.1) (9.1)
Charge for share based payments - - - - 2.5 2.5
Total contributions by and
distributions
to owners - - - - (6.6) (6.6)
--------------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at 31 December 2013 6.3 28.2 0.2 (0.4) 27.3 61.6
--------------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Total comprehensive income for
the period
Profit for 2014 - - - - 20.5 20.5
Other comprehensive income, net
of income tax
Cash flow hedging reserve
- Net amount transferred to profit
and loss - - - 0.4 - 0.4
------------------------------------------ ---- ------ ---- ---- ------- -------
Total other comprehensive income - - - 0.4 - 0.4
------------------------------------------ ---- ------ ---- ---- ------- -------
Total comprehensive income for
the period - - - 0.4 20.5 20.9
------------------------------------------ ---- ------ ---- ---- ------- -------
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Dividends - - - - (10.2) (10.2)
Charge for share based payments - - - - 0.5 0.5
Issue of ordinary shares 1.0 52.3 - - - 53.3
Transaction costs on issue of shares - (1.2) - - - (1.2)
------------------------------------------ ---- ------ ---- ---- ------- -------
Total contributions by and distributions
to owners 1.0 51.1 - - (9.7) 42.4
------------------------------------------ ---- ------ ---- ---- ------- -------
Balance at 31 December 2014 7.3 79.3 0.2 - 38.1 124.9
------------------------------------------ ---- ------ ---- ---- ------- -------
Company statement of changes in equity
Cash
flow
Share Share hedging Retained
capital premium reserve earnings Total
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
---------------------------------------------- ----------- ----------- ----------- ----------- -----------
Balance at 1 January 2013 6.3 28.2 (0.4) 9.6 43.7
Total comprehensive income for the period
Profit for 2013 - - - 9.8 9.8
Total comprehensive income for the period - - - 9.8 9.8
---------------------------------------------- ----------- ----------- ----------- ----------- -----------
Transactions with owners, recorded directly
in equity
Contributions by and distributions to owners
Dividends - - - (9.1) (9.1)
Charge for share based payments - - - 2.5 2.5
Total contributions by and distributions
to owners - - - (6.6) (6.6)
---------------------------------------------- ----------- ----------- ----------- ----------- -----------
Balance at 1 January 2014 6.3 28.2 (0.4) 12.8 46.9
---------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total comprehensive income for the period
Profit for 2014 - - - 23.0 23.0
Other comprehensive income, net of income
tax
Cash flow hedging reserve
- Net amount transferred to profit or
loss - - 0.4 - 0.4
---------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total other comprehensive income - - 0.4 - 0.4
---------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total comprehensive income for the period - - 0.4 23.0 23.4
---------------------------------------------- ----------- ----------- ----------- ----------- -----------
Transactions with owners, recorded directly
in equity
Contributions by and distributions to owners
Dividends - - - (10.2) (10.2)
Charge for share based payments - - - 0.5 0.5
Issue of ordinary shares 1.0 52.3 - - 53.3
Transaction costs on issue of shares - (1.2) - - (1.2)
---------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total contributions by and distributions
to owners 1.0 51.1 - (9.7) 42.4
---------------------------------------------- ----------- ----------- ----------- ----------- -----------
Balance at 31 December 2014 7.3 79.3 - 26.1 112.7
---------------------------------------------- ----------- ----------- ----------- ----------- -----------
Consolidated statement of cash flows
Year Year
ended ended
31 December 31 December
2014 2013
Note GBPmillion GBPmillion
------------------------------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Profit for the year 20.5 12.3
Adjustments for:
Income tax expense 10 5.6 4.8
Depreciation of property, plant and equipment 18 0.5 0.6
Amortisation of intangible assets 16 2.5 2.4
Gain from a bargain purchase - (0.4)
Impairment losses on loans and advances to customers 15.3 15.6
Share based compensation 0.5 2.5
------------------------------------------------------------- ----- ------------- -------------
Cash flows from operating profits before changes
in operating assets and liabilities 44.9 37.8
Changes in operating assets and liabilities:
- net (increase)/decrease in loans and advances
to banks (11.3) 41.3
- net increase in loans and advances to customers (246.8) (76.1)
- net decrease/(increase) in other assets 2.9 (0.6)
- net increase in amounts due to banks 15.8 0.1
- net increase in deposits from customers 171.8 37.7
- net increase in other liabilities 4.3 5.5
Income tax paid (3.1) (2.5)
------------------------------------------------------------- ----- ------------- -------------
Net cash (outflow)/inflow from operating activities (21.5) 43.2
------------------------------------------------------------- ----- ------------- -------------
Cash flows from investing activities
Borrowings repaid on acquisition of subsidiary undertakings - (36.9)
Cash acquired on purchase of subsidiary undertakings - 1.6
Purchase of subsidiary undertakings - (3.9)
Purchase of property, plant and equipment 18 (3.6) (0.4)
Purchase of computer software 16 (0.8) (0.7)
Proceeds from sale of property, plant and equipment - 0.3
Proceeds from sale of computer software - 1.9
Net cash flows from investing activities (4.4) (38.1)
------------------------------------------------------------- ----- ------------- -------------
Cash flows from financing activities
Net inflow on issue of share capital 52.1 -
Dividends paid (10.2) (9.1)
------------------------------------------------------------- ----- ------------- -------------
Net cash flows from financing activities 41.9 (9.1)
------------------------------------------------------------- ----- ------------- -------------
Net increase/(decrease) in cash and cash equivalents 16.0 (4.0)
Cash and cash equivalents at 1 January 90.0 94.0
------------------------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at 31 December 28 106.0 90.0
------------------------------------------------------------- ----- ------------- -------------
Company statement of cash flows
Year Year
ended ended
31 December 31 December
2014 2013
Note GBPmillion GBPmillion
------------------------------------------------------------ ----- ------------- -------------
Cash flows from operating activities
Profit for the year 23.0 9.8
Adjustments for:
Income tax expense 4.8 3.0
Depreciation of property, plant and equipment 18 0.2 0.3
Amortisation of intangible assets 16 0.3 0.3
Impairment losses on loans and advances to customers 8.7 9.6
Share based compensation 0.5 2.5
------------------------------------------------------------ ----- ------------- -------------
Cash flows from operating profits before changes
in operating assets and liabilities 37.5 25.5
Changes in operating assets and liabilities:
- net (increase)/decrease in loans and advances
to banks (11.3) 41.3
- net increase in loans and advances to customers (224.9) (96.0)
- net (increase)/decrease in other assets (15.2) 34.0
- net increase in amounts due to banks 15.8 0.1
- net increase in deposits from customers 171.8 37.7
- net increase in other liabilities 7.0 6.0
Income tax paid (2.9) (2.5)
------------------------------------------------------------ ----- ------------- -------------
Net cash (outflow)/inflow from operating activities (22.2) 46.1
------------------------------------------------------------ ----- ------------- -------------
Cash flows from investing activities
Borrowings repaid on acquisition of subsidiary undertaking - (36.9)
Purchase of subsidiary undertakings 17 - (3.7)
Purchase of property, plant and equipment 18 (3.4) (0.2)
Purchase of computer software 16 (0.7) (0.4)
Proceeds from sale of property, plant and equipment - 0.4
------------------------------------------------------------ ----- ------------- -------------
Net cash flows from investing activities (4.1) (40.8)
------------------------------------------------------------ ----- ------------- -------------
Cash flows from financing activities
Net inflow on issue of share capital 52.1 -
Dividends paid (10.2) (9.1)
------------------------------------------------------------ ----- ------------- -------------
Net cash flows from financing activities 41.9 (9.1)
------------------------------------------------------------ ----- ------------- -------------
Net increase/(decrease) in cash and cash equivalents 15.6 (3.8)
Cash and cash equivalents at 1 January 88.5 92.3
------------------------------------------------------------ ----- ------------- -------------
Cash and cash equivalents at 31 December 28 104.1 88.5
------------------------------------------------------------ ----- ------------- -------------
Notes to the consolidated financial statements
1. Accounting policies
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below. These
policies have been consistently applied to all the years presented,
unless otherwise stated.
1.1 Reporting entity
Secure Trust Bank PLC is a company incorporated in the United
Kingdom (referred to as "the Company"). The registered address of
the Company is One Arleston Way, Solihull, West Midlands, B90 4LH.
The consolidated financial statements of the Company as at and for
the year ended 31 December 2014 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 Group's consolidated financial statements and the Company's
financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs as adopted or
early adopted by the Group and endorsed by the EU) and the
Companies Act 2006 applicable to companies reporting under IFRS.
They have been prepared under the historical cost convention, as
modified by the revaluation of land and buildings and financial
instruments at fair value through profit or loss. The consolidated
financial statements are presented in pounds sterling, which is the
Group's functional and presentational currency.
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 2.
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.
The consolidated financial statements were authorised for issue
by the Board of Directors on 18 March 2015.
a) Interpretations and amendments to existing standards
applicable to the Group which are effective for annual periods
beginning on 1 January 2014 or which have been early adopted:
-- IFRS 10 'Consolidated Financial Statements' and IAS 27
(Revised) 'Separate Financial Statements'. IFRS 10 supersedes IAS
27 and SIC-12, and provides a single model to be applied in the
control analysis for all investees. There are some minor
clarifications in IAS27, and the requirements of IAS 28 and IAS 31
have been incorporated into IAS 27. Due to the adoption of IFRS 10
the Group had to change its accounting policy for determining
whether it has control over and consequently whether it
consolidates other investees. According to this standard, control
is now defined as when the investor 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. However, this standard did not have any material impact
on the financial statements as there was no change in the investees
consolidated.
-- IFRS 11, 'Joint Arrangements' (effective 1 January 2013).
This standard replaces the existing accounting for subsidiaries and
joint ventures (now joint arrangements) and removes the choice of
equity or proportionate accounting for jointly controlled entities,
as was the case under IAS 31.
-- IFRS 12, 'Disclosure of Interests in Other Entities'
(effective 1 January 2013). This standard replaces the existing
accounting for subsidiaries and joint ventures (now joint
arrangements) and contains the disclosure requirements for entities
that have interests in subsidiaries, joint arrangements, associates
and/or unconsolidated structured entities.
-- IAS 32 (Revised) 'Offsetting Financial Assets and Financial
Liabilities'. This standard was amended to clarify the offsetting
criteria, specifically when an entity currently has a legal right
of set off and when gross settlement is equivalent to net
settlement.
-- IAS 36 (Revised) 'Impairment of Assets'. The amendment
reverses the unintended requirement in IFRS 13 'Fair Value
Measurement' to disclose the recoverable amount of every
cash-generating unit to which significant goodwill or intangible
assets with indefinite lives have been allocated. Under the
amendments, recoverable amount is required to be disclosed only
when an impairment loss has been recognised or reversed.
-- IFRIC 21 'Levies'. The interpretation defines a levy as an
outflow from an entity imposed by a government in accordance with
legislation. A levy is recognised as a liability when, and only
when, the triggering event specified in the legislation occurs.
The above changes did not have any material impact on the
financial statements.
b) Published standards and amendments to existing standards
applicable to the Group which are not yet effective and which have
not been early adopted:
-- Annual improvements to IFRSs (2010-2012 and 2011-2013 cycles)
(effective for annual periods beginning on 1 February 2015). Sets
out minor improvements to IFRS standards as part of the annual
improvement process.
-- IFRS 15 'Revenue from contracts with customers' (effective
for annual periods beginning on 1 January 2017). The standard
replaces a number of existing standards and interpretations and
applies to contracts with customers, but does not apply to
insurance contracts, financial instruments or lease contracts,
which are in the scope of other IFRSs. It also does not apply if
two companies in the same line of business exchange non-monetary
assets to facilitate sales to other parties. The standard specifies
how and when an IFRS reporter will recognise revenue as well as
requiring such entities to provide users of financial statements
with more informative relevant disclosures. It introduces a new
revenue recognition model that recognises revenue either at a point
in time or over time. The model features a principles-based
five-step model to be applied to all contracts with customers.
(1)
The above standard and amendments to existing standards are
unlikely to have a material impact on the Group.
-- IFRS 9 'Financial instruments' (effective for annual periods
beginning after 1 January 2018). This is the IASB's replacement of
IAS 39 'Financial Instruments: Recognition and Measurement'. Phase
one of this standard deals with the classification and measurement
of financial assets and represents a significant change from the
existing requirements in IAS 39. The standard contains three
primary measurement categories for financial assets: 'amortised
cost', 'fair value through other comprehensive income' and 'fair
value through profit or loss' and eliminates the existing
categories of 'held to maturity', 'available for sale' and 'loans
and receivables'. The potential effect of phase one of this
standard is not expected to have a pervasive impact on the Group's
financial statements, due to the nature of the Group's operations.
Phase two of the standard covers impairment, with a new expected
loss impairment model that will require expected credit losses to
be accounted for from when financial instruments are first
recognised and lowers the threshold for the recognition of full
lifetime expected losses. The impact of this development is
currently being evaluated but is likely to be material to the Group
once it becomes effective. Phase three covers general hedge
accounting and introduces a substantially reformed model for hedge
accounting with enhanced disclosure about risk management activity.
The new model aligns the accounting treatment with risk management
activities. The potential effect of phase three of this standard is
not expected to have a pervasive impact on the Group's financial
statements. (1)
(1) These standards and amendments to existing standards have
not yet been endorsed by the EU.
1.3 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. They are de-consolidated
from the date that control ceases.
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 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 Statement of Comprehensive Income.
The parent company's investments in subsidiaries are recorded at
cost less, where appropriate, provision for impairment in
value.
Inter-company 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.
1.4 Interest income and expense
Interest income and expense are recognised in the Statement of
Comprehensive Income for all instruments measured at amortised cost
and held to maturity using the effective interest method.
The effective interest method calculates the amortised cost of a
financial asset or a financial liability and allocates the interest
income or interest expense over the relevant period. The effective
interest rate is the rate that discounts estimated future cash
payments or receipts through the expected life of the financial
instrument or, when appropriate, a shorter period to the net
carrying amount of the financial asset or financial liability. When
calculating the effective interest rate, the Group takes into
account all contractual terms of the financial instrument but does
not consider future credit losses. The calculation includes all
fees paid or received between parties to the contract that are an
integral part of the effective interest rate, transaction costs and
all other premiums or discounts.
Once a financial asset or a group of similar financial assets
has been written down as a result of an impairment loss, interest
income is recognised using the rate of interest used to discount
the future cash flows for the purpose of measuring the impairment
loss.
1.5 Net fee and commission income
Fees and commissions which are not considered integral to the
effective interest rate are generally recognised on an accruals
basis when the service has been provided. Fees and commissions
income consists principally of weekly and monthly fees from the One
Bill and Current Account products, arrears fees in the Everyday
Loans business along with associated insurance commissions and
commissions earned on debt collection activities in the Debt
Managers business. Fee and commission expenses consist primarily of
fees and commission relating to the Current Account product.
1.6 Financial assets and financial liabilities
The Group classifies its financial assets at fair value through
profit or loss, loans and receivables or held-to-maturity and
classifies its financial liabilities as other financial
liabilities. Management determines the classification of its
investments at initial recognition. A financial asset or financial
liability is measured initially at fair value. A financial asset or
financial liability is measured initially at fair value plus, for
an item not at fair value through profit or loss, transaction costs
that are directly attributable to its acquisition or issue.
(a) Financial assets at fair value through profit or loss
This category comprises derivative financial instruments which
are utilised by the Group for hedging purposes. Financial assets at
fair value through profit or loss are initially recognised on the
date from which the Group becomes a party to the contractual
provisions of the instrument. Subsequent measurement of financial
assets held in the category are carried at fair value through
profit or loss.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They arise when the Group provides money, goods or services
directly to a debtor with no intention of trading the receivable.
Loans are recognised when the funds are advanced to customers.
Loans and receivables are carried at amortised cost using the
effective interest method (see below).
(c) Held-to-maturity
Held-to-maturity investments are non-derivative financial assets
with fixed or determinable payments and fixed maturities that the
Group's management has the positive intention and ability to hold
to maturity. Held-to-maturity investments are carried at amortised
cost using the effective interest method.
(d) Other financial liabilities
Other financial liabilities are non-derivative financial
liabilities with fixed or determinable payments. Other financial
liabilities are recognised when cash is received from the
depositors. Other financial liabilities are carried at amortised
cost using the effective interest method. The fair value of other
liabilities repayable on demand is assumed to be the amount payable
on demand at the Statement of Financial Position date.
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. In transactions in which the Group neither retains nor
transfers substantially all the risks and rewards of ownership of a
financial asset and it retains control over the asset, the Group
continues to recognise the asset to the extent of its continuing
involvement, determined by the extent to which it is exposed to
changes in the value of the transferred asset. 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, minus principal payments, plus
or minus the cumulative amortisation using the effective interest
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.
1.7 Derivative financial instruments and hedge accounting
For the Group, these comprise cash flow hedges. These are
recognised at their fair value and are shown in the Statement of
Financial Position as assets when their face value is positive and
as liabilities when their face value is negative.
Cash flow hedges are used to hedge against fluctuations in
future cash flows from interest rate movements on variable rate
customer deposits. On initial purchase the derivative is valued at
fair value and then the effective portion of the change in the fair
value of the hedging instrument is recognised in equity (cash flow
hedging reserve) until the gain or loss on the hedges items is
realised, when it is amortised; the ineffective portion of the
hedging instrument is recognised immediately in profit or loss.
On initial designation of the hedge, the Group formally
documents the relationship between the hedging instruments and the
hedged items, including the risk management objective and strategy
in undertaking the hedge, together with the method that will be
used to assess the effectiveness of the hedging relationship. The
Group makes an assessment, both at the inception of the hedge
relationship as well as on an ongoing basis, as to whether the
hedging instruments are expected to be highly effective in
offsetting the changes in the fair value or cash flows of the
respective hedged items during the period for which the hedge is
designated, and whether the actual results of each hedge are within
a range of 80-125%. The Group makes an assessment for a cash flow
hedge of a forecast transaction, as to whether the forecast
transaction is highly probable to occur and presents an exposure to
variations in cash flows that could ultimately affect profit or
loss.
If a hedging derivative expires or is sold, terminated, or
exchanged, or the hedge no longer meets the criteria for cash flow
hedge accounting, or the hedge designation is revoked, then hedge
accounting is discontinued prospectively. In a discontinued hedge
of a forecast transaction the cumulative amount recognised in other
comprehensive income from the period when the hedge was effective
is reclassified from equity to profit or loss as a reclassification
adjustment when the forecast transaction occurs and affects profit
or loss. If the forecast transaction is no longer expected to
occur, then the balance in other comprehensive income is
reclassified immediately to profit or loss as a reclassification
adjustment.
1.8 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the Statement of Financial Position when there is a
legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis, or realise the
asset and settle the liability simultaneously.
1.9 Impairment of financial assets
Assets carried at amortised cost
On an ongoing basis the Group assesses whether there is
objective evidence that a financial asset or group of financial
assets is impaired. Objective evidence is the occurrence of a loss
event, after the initial recognition of the asset, that impacts on
the estimated future cash flows of the financial asset or group of
financial assets, and can be reliably estimated.
The criteria that the Group uses to determine that there is
objective evidence of an impairment loss include, but are not
limited to, the following:
-- Delinquency in contractual payments of principal or
interest;
-- Cash flow difficulties experienced by the borrower; and
-- Initiation of bankruptcy proceedings.
If there is objective evidence that an impairment loss on loans
and receivables or held-to-maturity investments carried at
amortised cost has been incurred, the amount of the loss is
measured as the difference between the asset's carrying amount and
the present value of estimated future cash flows discounted at the
financial asset's original effective interest rate. The carrying
amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognised in the Statement
of Comprehensive Income. If a loan or held-to-maturity investment
has a variable interest rate, the discount rate for measuring any
impairment loss is the current effective interest rate determined
under the contract.
The Group considers evidence of impairment for loans and
advances at both a specific asset and collective level. All
individually significant loans and advances are assessed for
specific impairment. Those found not to be specifically impaired
are then collectively assessed for any impairment that has been
incurred but not yet identified. In assessing collective impairment
the Group uses historical trends of the probability of default, the
timing of recoveries and the amount of loss incurred, adjusted for
management's judgement as to whether current economic and credit
conditions are such that the actual losses are likely to be
significantly different to historic trends.
When a loan is uncollectible, it is written off against the
related provision for loan impairment. Such loans are written off
after all the necessary procedures have been completed and the
amount of the loss has been determined. Subsequent recoveries of
amounts previously written off decrease the amount of the provision
for loan impairment in the Statement of Comprehensive Income.
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. Loans that have renegotiated
or deferred terms are no longer considered to be past due but are
treated as new loans, provided the customers comply with the
renegotiated or deferred terms.
1.10 Intangible assets
(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 losses 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. Impairment losses are recognised
in the Statement of Comprehensive Income 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. These costs are amortised on the basis of the expected
useful lives, which are between three to ten years.
Costs associated with developing or maintaining computer
software programs are recognised as an expense as incurred unless
it is probable that the expenditure will enable the asset to
generate future economic benefits in excess of its originally
assessed standard of performance.
(c) Other intangibles
The acquisition of subsidiaries is 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 is
necessary to recognise certain intangible assets which are
separately identifiable and which are not included on the
acquiree's balance sheet.
Other intangible include trademarks, customer relationships,
broker relationships and technology. The intangible assets
recognised as part of the Everyday Loans and V12 Finance Group
acquisitions have been recorded at fair value and are being
amortised over their expected useful lives, which are between five
and ten years, apart from Everyday Loans broker relationships,
which are being amortised over three years.
1.11 Property, plant and equipment
Property is held at historic cost as modified by subsequent
revaluations less depreciation. The Group has elected under IAS
16.31 to measure its property at fair value. Revaluations are kept
up to date such that the carrying amount does not differ materially
from its fair value as required by IAS 16.34. Revaluation of assets
and any subsequent disposal are addressed through the revaluation
reserve and any changes are transferred to retained earnings.
Plant and equipment is stated at historical cost less
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items. 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 7 years
Computer equipment 3 to 5 years
Other equipment 5 to 10 years
Gains and losses on disposals are determined by comparing
proceeds with carrying amounts. These are included in the Statement
of Comprehensive Income.
1.12 Leases
(a) As a lessor
Assets leased to customers under agreements which transfer
substantially all the risks and rewards of ownership, with or
without ultimate legal title, are classified as finance leases.
When assets are held subject to finance leases, the present value
of the lease payments is 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.
(b) As a lessee
Rentals made under operating leases are recognised in the
Statement of Comprehensive Income on a straight-line basis over the
term of the lease.
1.13 Cash and cash equivalents
For the purposes of the Statement of Cash Flows, cash and cash
equivalents comprise cash in hand and demand deposits, and cash
equivalents comprise 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.
1.14 Employee benefits
(a) Post-retirement obligations
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. Prepaid contributions are recognised as
an asset to the extent that a cash refund or a reduction in the
future payments is available. There are no post-retirement benefits
other than pensions.
(b) Share-based compensation
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 as personnel expenses in
profit and loss, with a corresponding increase in equity. The Group
adopts a Black-Scholes valuation model in calculating the fair
value of the share options as adjusted for an attrition rate of
members of the scheme and a probability of pay-out reflecting the
risk of not meeting the terms of the scheme over the vesting
period. The number of share options that are expected to vest are
reviewed at least annually.
The fair value of cash settled share-based payments is
recognised as personnel expenses in the profit or loss with a
corresponding increase in liabilities over the vesting period. The
liability is remeasured at each reporting date and at settlement
date based on the fair value of the options granted, with a
corresponding adjustment to personnel expenses.
When share-based payments are changed from cash settled to
equity settled and there is no change in the fair value of the
replacement award, it is seen as a modification to the terms and
conditions on which the equity instruments were granted and is not
seen as the settlement and replacement of the instruments.
Accordingly, the liability in the Statement of Financial Position
is reclassified to equity and the prospective charge to the profit
or loss from the modification reflects the spreading of the initial
grant date fair value of the award over the remaining vesting
period in line with the policy on equity settled awards.
1.15 Share issue costs
Incremental costs directly attributable to the issue of an
equity instrument are deducted from the initial measurement of the
equity instruments. Costs associated with the listing of shares are
expensed immediately.
1.16 Taxation
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.
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 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.
1.17 Dividends
Dividends on ordinary shares are recognised in equity in the
period in which they are approved.
1.18 Significant items
Items which are material by both size and nature (i.e. outside
of the normal operating activities of the Group) are treated as
significant items and disclosed separately on the face of the
Statement of Comprehensive Income. The separate reporting of these
items helps to provide an indication of the Group's underlying
business performance.
1.19 Funding for Lending Scheme
Under the applicable International Accounting Standard, IAS 39,
if a security is lent under an agreement to return it to the
transferor, as is the case for eligible securities lent by
institutions to the Bank of England under the FLS, then the
security is not derecognised because the transferor retains all the
risks and rewards of ownership. The UK Treasury Bills borrowed from
the Bank of England under the FLS are not recognised on the
Statement of Financial Position of the institution until such time
as they are subject to a repurchase agreement with a third party,
as they will not meet the criteria for derecognition by the Bank of
England. When the UK Treasury Bills are pledged as part of a sale
and repurchase agreement with a third party, amounts borrowed from
the third party are recognised on the Statement of Financial
Position.
2. Critical judgements and estimates
The Group makes certain judgements and estimates which affect
the reported amounts of assets and liabilities. Critical judgements
and the assumptions used in calculating estimates are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances.
2.1 Impairment losses on loans and advances to customers
The Group reviews its loan portfolios to assess impairment at
least on a half-yearly basis. The basis for evaluating impairment
losses is described in accounting policy 1.9. In determining
whether an impairment loss should be recorded in the Statement of
Comprehensive Income, the Group makes judgements as to whether
there is any observable data indicating that there is a measurable
decrease in the estimated future cash flows from a portfolio of
loans before the decrease can be identified with an individual loan
in that portfolio. This evidence may include observable data
indicating that there has been an adverse change in the payment
status of borrowers in a group, or national or local economic
conditions that correlate with defaults on assets in the Group.
Loans and advances are identified as impaired by taking account of
the age of the debt's delinquency and the product type. The
impairment provision is calculated by applying a percentage rate to
the balance of different ages and categories of impaired debt. The
methodology and assumptions used for estimating both the amount and
timing of future cash flows are reviewed regularly to reduce any
differences between loss estimates and recent actual loss
experience.
For any SME lending in arrears the business has performed a
discounted cash flow calculation in order to assess whether an
impairment provision is required.
Where financial assets are individually evaluated for
impairment, management uses their best estimates in calculating the
net present value of future cash flows. Management has to make
judgements on the financial position of the counterparty and the
net realisable value of collateral (where held), in determining the
expected future cash flows.
In assessing collective impairment the Group uses historical
trends of the probability of default, the timing of recoveries and
the amount of loss incurred, adjusted for management's judgement as
to whether current economic and credit conditions are such that the
actual losses are likely to be significantly different to historic
trends.
As described in Note 1.9, certain customers' accounts may be
modified to such an extent that they are no longer considered to be
past due but, rather, are treated as new loans. There is judgement
involved in determining the level of modification that results in
this reassessment and with regard to the fair value at which the
renegotiated loans are recorded. The Group makes these judgements
based on analyses of the loans involved and consideration of market
rates of interest.
To the extent that the default rates differ from those estimated
by 10%, the allowance for impairment on loans and advances would
change by an estimated GBP3.2 million.
2.2 Acquisition accounting
The Group recognises identifiable assets and liabilities at
their acquisition date fair values. The exercise of attributing a
fair value to the balance sheet of the acquired entity requires the
use of a number of assumptions and estimates, which are documented
at the time of the acquisition. These fair value adjustments are
determined from the estimated future cash flows generated by the
assets.
Loans and advances to customers
The methodology of attributing a fair value to loans and
advances to customers involves discounting the estimated future
cash flows using a risk adjusted discount factor. A fair value
adjustment is then applied to the carrying value in the Group's
Statement of Financial Position.
Intangible assets
Identifying the separately identifiable intangible assets of an
acquired company is subjective and based upon discussions with
management and a review of relevant documentation. During prior
years the acquisition of Everyday Loans and the V12 Finance Group
indicated that there were four separately identifiable intangible
assets which met the criteria for separation from goodwill, these
being Trademarks/Tradenames, Customer Relationships, Broker
Relationships and Technology.
Trademarks and Tradenames are valued by estimating the fair
value of the estimated costs savings resulting from the ownership
of trade names as opposed to licensing them. Customer Relationships
are valued through the application of a discounted cash flow
methodology to net anticipated renewal revenues. The valuation of
Broker Relationships is derived from a costs avoided methodology,
by reviewing costs incurred on non-broker platforms versus costs
which are incurred in broker commission. Technology is valued by
the market derived royalty rate applied to the related cash flows
to arrive at estimated savings resulting from the use of the
acquired credit decisioning technology.
2.3 Share Option Scheme valuation
The valuation of the equity-settled share option scheme was
determined at the original grant date of 2 November 2011 using
Black-Scholes valuation models. In the opinion of the directors the
terms of the scheme are such that there remain a number of key
uncertainties to be considered when calculating the probability of
pay out, which are set out below. The directors also considered the
probability of option holder attrition prior to the vesting dates,
details of which are also set out below.
Uncertainties in the regulatory environment continue, with
pressure on the government to further constrain the activities of
banks following the well reported catalogue of recent issues in the
industry. Any tightening of capital requirements will impact on the
ability of the Company to exploit future market opportunities and
furthermore may inhibit its ability to maintain the required growth
in distributions. Taking these into account, the probability of
payout has been judged as 95% for the remaining share options
(SOS2) which vest on 2 November 2016.
Although one participant in the share option scheme left the
Company during 2012 and was consequently withdrawn from the scheme.
The directors consider that there is no further uncertainty
surrounding whether the remaining participants will all still be in
situ and eligible at the vesting date. Therefore the directors have
assumed no attrition rate for the remaining share options over the
scheme period.
2.4 Average life of lending
IAS 39 requires interest earned from lending to be measured
under the effective interest rate method. The effective interest
rate is the rate that exactly discounts estimated future cash
receipts or payments through the expected life of the financial
instrument or, when appropriate, a shorter period to the net
carrying amount of the financial asset.
Management must therefore use judgement to estimate the expected
life of each instrument and hence the expected cash flows relating
to it. The accuracy of these estimates would therefore be affected
by unexpected market movements resulting in altered customer
behaviour, inaccuracies in the models used compared to actual
outcomes and incorrect assumptions.
2.5 Valuation of financial instruments
The Group measures the fair value of a financial instrument
using quoted prices in an active market for that instrument. A
market is regarded as active if quoted prices are readily and
regularly available and represent actual and regularly occurring
market transactions. If a market for a financial instrument is not
active, the Group establishes a fair value using appropriate
valuation techniques. 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. The objective of valuation
techniques is to determine the fair value of the financial
instrument at the reporting date as 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. In the instance that fair values of assets and liabilities
cannot be reliably measured, they are carried at cost.
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).
The consideration of factors such as the magnitude and frequency
of trading activity, the availability of prices and the size of
bid/offer spreads, assist in the judgement as to whether a market
is active. If in the opinion of management, a significant
proportion of the instrument's carrying amount is driven by
unobservable inputs, the instrument in its entirety is classified
as valued using significant unobservable inputs. 'Unobservable' in
this context means that there is little or no current market data
available from which to determine the level at which an arm's
length transaction would be likely to occur. It generally does not
mean that there is no market data available at all upon which to
base a determination of fair value (consensus pricing data may, for
example, be used).
The fair value hierarchy levels and values attributable to the
financial assets and financial liabilities of the Group are
disclosed in note 4.
2.6 PPI Provisioning
The Group provides for its best estimate of redress payable in
respect of historical sales of PPI, by considering the likely
future uphold rate for claims, in the context of confirmed issues
and historical experience. The likelihood of potential new claims
is projected forward for the next 12 months, as management believe
this to be an appropriate time horizon, recognising the significant
decline in recent claims experience and the increasing subjectivity
beyond that. The accuracy of these estimates would be affected,
were there to be a significant change in either the number of
future claims or, the incidence of claims upheld by the Financial
Ombudsman. The amounts are included within accruals.
3. Maturity analysis of consolidated assets and liabilities
The table below shows the contractual maturity analysis of the Group's
assets and liabilities as at 31 December 2014:
Due
after
Due more
within than
one one
year year Total
At 31 December 2014 GBPmillion GBPmillion GBPmillion
------------------------------------------------------------- ----------- ----------- -----------
ASSETS
Cash and balances at central banks 81.2 - 81.2
Loans and advances to banks 39.8 - 39.8
Loans and advances to customers 220.7 401.8 622.5
Debt securities held-to-maturity 16.3 - 16.3
Property, plant and equipment - 8.1 8.1
Intangible assets - 8.2 8.2
Deferred tax assets 1.0 - 1.0
Other assets 5.2 - 5.2
------------------------------------------------------------- ----------- ----------- -----------
Total assets 364.2 418.1 782.3
------------------------------------------------------------- ----------- ----------- -----------
LIABILITIES
Due to banks 15.9 - 15.9
Deposits from customers 342.4 266.0 608.4
Current tax liabilities 3.6 - 3.6
Other liabilities 25.2 4.3 29.5
Total liabilities 387.1 270.3 657.4
------------------------------------------------------------- ----------- ----------- -----------
The table below shows the contractual maturity analysis of the Group's
assets and liabilities as at 31 December 2013:
Due
after
Due more
within than
one one
year year Total
At 31 December 2013 GBPmillion GBPmillion GBPmillion
----------------------------------------- ------------- ------------ ------------
ASSETS
Loans and advances to banks 110.0 - 110.0
Loans and advances to customers 162.0 229.0 391.0
Property, plant and equipment - 5.0 5.0
Intangible assets - 9.9 9.9
Deferred tax assets 1.9 - 1.9
Other assets 8.1 - 8.1
----------------------------------------- ------------- ------------ ------------
Total assets 282.0 243.9 525.9
----------------------------------------- ------------- ------------ ------------
LIABILITIES
Due to banks 0.1 - 0.1
Deposits from customers 269.4 167.2 436.6
Current tax liabilities 1.4 - 1.4
Deferred tax liabilities - 0.4 0.4
Other liabilities 21.5 4.3 25.8
----------------------------------------- ------------- ------------ ------------
Total liabilities 292.4 171.9 464.3
----------------------------------------- ------------- ------------ ------------
The directors do not consider that the behavioural maturity is significantly
different to the contractual maturity.
The table below shows the contractual maturity analysis of the Company's
assets and liabilities as at 31 December 2014:
Due
after
Due more
within than
one one
year year Total
At 31 December 2014 GBPmillion GBPmillion GBPmillion
----------------------------------------- ------------- ------------ ------------
ASSETS
Cash and balances at central banks 81.2 - 81.2
Loans and advances to banks 37.9 - 37.9
Loans and advances to customers 172.8 327.3 500.1
Debt securities held-to-maturity 16.3 - 16.3
Property, plant and equipment - 3.7 3.7
Intangible assets - 1.3 1.3
Investments - 3.7 3.7
Deferred tax assets - 0.3 0.3
Other assets 116.2 - 116.2
----------------------------------------- ------------- ------------ ------------
Total assets 424.4 336.3 760.7
----------------------------------------- ------------- ------------ ------------
LIABILITIES
Due to banks 15.9 - 15.9
Deposits from customers 342.4 266.0 608.4
Current tax liabilities 1.5 - 1.5
Other liabilities 22.2 - 22.2
Total liabilities 382.0 266.0 648.0
----------------------------------------- ------------- ------------ ------------
The table below shows the contractual maturity analysis of the Company's
assets and liabilities as at 31 December 2013:
Due
after
Due more
within than
one one
year year Total
At 31 December 2013 GBPmillion GBPmillion GBPmillion
--------------------------------------- ------------- ------------- -------------
ASSETS
Loans and advances to banks 108.5 - 108.5
Loans and advances to customers 115.9 168.0 283.9
Property, plant and equipment - 0.5 0.5
Intangible assets - 0.9 0.9
Investments - 3.7 3.7
Deferred tax asset - 0.8 0.8
Other assets 101.0 - 101.0
--------------------------------------- ------------- ------------- -------------
Total assets 325.4 173.9 499.3
--------------------------------------- ------------- ------------- -------------
LIABILITIES
Due to banks 0.1 - 0.1
Deposits from customers 269.4 167.2 436.6
Current tax liabilities 0.2 - 0.2
Other liabilities 15.5 - 15.5
Total liabilities 285.2 167.2 452.4
--------------------------------------- ------------- ------------- -------------
The directors do not consider that the behavioural maturity is significantly
different to the contractual maturity.
4. Classification of financial assets and liabilities
The tables below set out the Group's financial assets and financial
liabilities into the respective classifications:
Other Total
Held to Loans financial carrying Fair
maturity and receivables liabilities amount value
-----------
Fair
value
hierarchy
At 31 December 2014 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion level
-------------------------------- ----------- ----------------- ------------- ----------- ----------- -----------
Cash and balances at central Level
banks - 81.2 - 81.2 81.2 1
Level
Loans and advances to banks - 39.8 - 39.8 39.8 2
Level
Loans and advances to customers - 622.5 - 622.5 630.1 3
Debt securities Level
held-to-maturity 16.3 - - 16.3 16.3 2
16.3 743.5 - 759.8 767.4
-------------------------------- ----------- ----------------- ------------- ----------- -----------
Level
Due to banks - - 15.9 15.9 15.9 2
Level
Deposits from customers - - 608.4 608.4 617.7 2
Level
Other financial liabilities - - 17.8 17.8 17.8 3
-------------------------------- ----------- ----------------- ------------- ----------- -----------
- - 642.1 642.1 651.4
-------------------------------- ----------- ----------------- ------------- ----------- -----------
Other Total
Held to Loans financial carrying Fair
maturity and receivables liabilities amount value
-----------
Fair
value
hierarchy
At 31 December 2013 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion level
-------------------------------- ----------- ----------------- ------------- ----------- ----------- -----------
Level
Loans and advances to banks - 110.0 - 110.0 110.0 2
Level
Loans and advances to customers - 391.0 - 391.0 391.0 3
- 501.0 - 501.0 501.0
-------------------------------- ----------- ----------------- ------------- ----------- -----------
Level
Due to banks - - 0.1 0.1 0.1 2
Level
Deposits from customers - - 436.6 436.6 436.6 2
Level
Other financial liabilities - - 17.0 17.0 17.0 3
-------------------------------- ----------- ----------------- ------------- ----------- -----------
- - 453.7 453.7 453.7
-------------------------------- ----------- ----------------- ------------- ----------- -----------
The tables below set out the Company's financial assets and financial
liabilities into the respective classifications:
Other Total
Held to Loans financial carrying Fair
maturity and receivables liabilities amount value
-----------
Fair
value
hierarchy
At 31 December 2014 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion level
-------------------------------- ----------- ----------------- ------------- ----------- ----------- -----------
Cash and balances at central Level
banks - 81.2 - 81.2 81.2 1
Level
Loans and advances to banks - 37.9 - 37.9 37.9 2
Level
Loans and advances to customers - 500.1 - 500.1 507.6 3
Debt securities Level
held-to-maturity 16.3 - - 16.3 16.3 2
16.3 619.2 - 635.5 643.0
-------------------------------- ----------- ----------------- ------------- ----------- -----------
Level
Due to banks - - 15.9 15.9 15.9 2
Level
Deposits from customers - - 608.4 608.4 617.7 2
Level
Other financial liabilities - - 15.5 15.5 15.5 3
-------------------------------- ----------- ----------------- ------------- ----------- -----------
- - 639.8 639.8 649.1
-------------------------------- ----------- ----------------- ------------- ----------- -----------
Other Total
Held to Loans financial carrying Fair
maturity and receivables liabilities amount value
-----------
Fair
value
hierarchy
At 31 December 2013 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion level
-------------------------------- ----------- ----------------- ------------- ----------- ----------- -----------
Level
Loans and advances to banks - 108.5 - 108.5 108.5 2
Level
Loans and advances to customers - 283.9 - 283.9 283.9 3
- 392.4 - 392.4 392.4
-------------------------------- ----------- ----------------- ------------- ----------- -----------
Level
Due to banks - - 0.1 0.1 0.1 2
Level
Deposits from customers - - 436.6 436.6 436.6 2
Level
Other financial liabilities - - 10.5 10.5 10.5 3
-------------------------------- ----------- ----------------- ------------- ----------- -----------
- - 447.2 447.2 447.2
-------------------------------- ----------- ----------------- ------------- ----------- -----------
Fair value classification
The tables above include the fair values and fair value
hierarchies of the Group and Company's financial assets and
liabilities. Details of the measurement of the fair values is
disclosed below:
Cash and balances at central banks
The fair value of was 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.
At the end of December 2014 the fair value of cash and balances
at central banks was calculated to be equivalent to their carrying
value.
Loans and advances to banks
The fair value of loans and advances to banks was 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.
At the end of December 2014 the fair value of loans and advances
to banks was calculated to be equivalent to their carrying
value.
Loans and advances to customers
The fair value of loans and advances to customers was calculated
based upon the present value of the expected future principal and
interest cash flows. Prudent assumptions were applied regarding the
risk of default. The rate used to discount the cash flows was the
credit adjusted market rate of interest at the balance sheet
date.
Debt securities held-to-maturity
The fair value of debt securities held-to-maturity was
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.
At the end of December 2014 the fair value of debt securities
held-to-maturity was calculated to be equivalent to their carrying
value.
Due to banks
The fair value of amounts due to banks was 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.
At the end of December 2014 the fair value of amounts due to
banks was calculated to be equivalent to their carrying value due
to the short maturity term of the amounts due.
Deposits from customers
The fair value of deposits from customers was 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 the
notice deposits and deposit bonds, given that the Group offers
competitive interest rates on its savings products.
Other financial liabilities
The fair value of other financial liabilities was calculated
based upon the present value of the expected future principal cash
flows.
At the end of December 2014 the fair value of other financial
liabilities was calculated to be equivalent to their carrying value
due to the short maturity term of the other liabilities. The other
financial liabilities include all other liabilities other than
non-interest accruals.
5. 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 to which 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 Corporate Governance Statement on pages 32 to
33.
The principal risks inherent in the Group's business are credit,
market, liquidity and operational risk.
(a) Credit risk
The Company and Group take on exposure to credit risk, which is
the risk that a counterparty will be unable to pay amounts in full
when due. A formal Credit Risk Policy has been agreed by the Board
whilst credit risk is monitored on a monthly basis by the Credit
Risk Committee which reviews performance of key portfolios
including new business volumes, collections performance,
provisioning levels and provisioning methodology. A credit risk
department within the Bank ensures that the Credit Risk Policy is
being adhered to, implements risk tools to manage credit risk and
evaluates business opportunities and the risks and opportunities
they present to the Bank whilst ensuring the performance of the
Bank's existing portfolios is in line with expectations.
The Group structures the levels of credit risk it undertakes by
placing limits on the amount of risk accepted in relation to
individual borrowers or groups of borrowers. Such risks are
monitored on a revolving basis and subject to an annual or more
frequent review. The limits on the level of credit risk are
approved periodically by the Board of Directors and actual
exposures against limits monitored daily.
Impairment provisions are provided for losses that have been
incurred 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 its exposures to
credit risk as they consider this to be the most significant risk
to the business.
Exposure to credit risk is managed through regular analysis of
the ability of borrowers and potential borrowers to meet interest
and capital repayment obligations and by changing these lending
limits where appropriate. Exposure to credit risk is also managed
in part by obtaining collateral. The assets undergo a scoring
process to mitigate risk and are monitored by the Board.
Disclosures relating to arrears on loans and advances to customers
are disclosed in Note 13.
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 12. There is no direct exposure
to the Eurozone and peripheral Eurozone countries.
Motor finance loans are secured against motor vehicles. Details
of the collateral held in respect of these loans are detailed in
Note 13. The new SME lending products, Real Estate Finance and
Asset Finance loans, are secured against property and tangible
assets respectively. Details of the collateral held in respect of
these loans are detailed in Note 13.
The maximum exposure to credit risk for the Company and the
Group was as follows:
Group Company
2014 2013 2014 2013
GBPmillion GBPmillion GBPmillion GBPmillion
----------------------------------------------- ----------- ----------- ----------- -----------
Credit risk exposures relating to on-balance
sheet assets are as follows:
Cash and balances at central banks 81.2 - 81.2 -
Loans and advances to banks 39.8 110.0 37.9 108.5
Loan and advances to customers 622.5 391.0 500.1 283.9
Debt securities held-to-maturity 16.3 - 16.3 -
Trade receivables 0.9 0.6 0.6 0.1
Amounts due from related companies 0.8 4.1 114.6 99.9
Credit risk exposures relating to off-balance
sheet assets are as follows:
Loan commitments 96.0 6.6 96.0 6.6
----------------------------------------------- ----------- ----------- ----------- -----------
At 31 December 776.3 512.3 765.5 499.0
----------------------------------------------- ----------- ----------- ----------- -----------
The above table represents the maximum credit risk exposure (net
of impairment) to the Company and Group at 31 December 2014 and
2013 without taking account of any collateral held or other credit
enhancements attached. For on-balance-sheet assets, the exposures
are based on the net carrying amounts as reported in the Statement
of Financial Position.
Concentration risk
Management assesses the potential concentration risk from
geographic, product and individual loan concentration. Due to the
well diversified nature of the Group's lending operations the
directors do not consider there to be a material exposure arising
from concentration risk. The increase in lending balances and loan
commitments in the London region is principally due to the increase
in Real Estate Finance activities during the year. This lending
does not give rise to a material exposure due to the security held
against each individual loan. The concentration by product and
location of the Group and Company's lending to customers and loan
commitments are detailed below:
Group Company
Loans and Loans and
advances to advances to
customers Loan commitments customers Loan commitments
2014 2013 2014 2013 2014 2013 2014 2013
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
---------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Concentration
by product:
Business
lending 143.3 1.8 95.8 5.7 143.3 1.8 95.8 5.7
Residential
mortgages 0.2 0.2 - - 0.2 0.2 - -
Unsecured
lending:
Personal
lending 181.4 159.2 - - 87.6 77.8 - -
Motor 137.9 114.7 0.2 0.9 137.9 114.7 0.2 0.9
Cycle 33.3 23.3 - - 33.3 23.3 - -
Music 13.8 10.6 - - 13.8 10.6 - -
Consumer
Electronics 24.8 7.7 - - 24.8 7.7 - -
Sport and
leisure 6.9 6.8 - - 6.9 6.8 - -
Healthcare 8.8 5.2 - - 8.8 5.2 - -
RentSmart 25.5 25.5 - - - - - -
Pay4later 14.0 18.8 - - 14.0 18.8 - -
Furniture 5.3 3.7 - - 5.3 3.7 - -
Other 27.3 13.5 - - 24.2 13.3 - -
---------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At 31 December 622.5 391.0 96.0 6.6 500.1 283.9 96.0 6.6
---------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Concentration
by region:
East Midlands 36.0 27.8 - - 24.7 17.8 - -
East 41.3 33.1 7.2 - 35.6 28.3 7.2 -
London 177.5 44.1 41.6 - 149.3 19.6 41.6 -
North East 36.4 18.9 17.6 - 17.8 2.7 17.6 -
North West 60.9 48.0 - - 43.5 32.4 - -
Northern
Ireland 8.6 6.1 - - 6.0 4.6 - -
Scotland 42.4 39.1 - - 36.0 33.5 - -
South East 82.2 52.3 17.8 6.6 74.5 46.1 17.8 6.6
South West 34.7 27.0 10.5 - 29.2 22.3 10.5 -
Wales 25.7 24.8 - - 20.6 19.6 - -
West Midlands 44.1 36.1 1.3 - 32.4 25.5 1.3 -
Yorkshire and
the Humber 32.7 33.7 - - 30.5 31.5 - -
---------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At 31 December 622.5 391.0 96.0 6.6 500.1 283.9 96.0 6.6
---------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Forbearance
Secure Trust Bank does not reschedule contractual arrangements
where customers default on their repayments. Under its Treating
Customers Fairly (TCF) policies, however, the Company may offer the
customer the option to reduce or defer payments for a short period.
If the request is granted, the account continues to be monitored in
accordance with the Group's impairment provisioning policy. Such
debts retain the customer's normal contractual payment due dates
and will be treated the same as any other defaulting cases for
impairment purposes. Arrears tracking will continue on the account
with any impairment charge being based on the original contractual
due dates for all products.
In June 2012, the Group acquired Everyday Loans whose policy on
forbearance is that 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. These
may be modified by way of a reschedule or deferment of repayments.
Rescheduling of debts retains the customers' contractual due dates,
whilst the deferment of repayments extends the payment schedule up
to a maximum of four payments in a twelve month period. As at 31
December 2014 the gross balance of rescheduled loans included in
the Consolidated Statement of Financial Position was GBP14.7
million, with an allowance for impairment on these loans of GBP1.0
million. The gross balance of deferred loans was GBP3.0 million
with an allowance for impairment on these of GBP0.4 million. (31
December 2013: the gross balance of rescheduled loans was GBP13.9
million, with an allowance for impairment of GBP1.1 million. The
gross balance of deferred loans was GBP2.8 million with an
allowance for impairment of GBP0.4 million).
(b) Market risk
Market risks arise from open positions in interest rate and
currency products, all of which are exposed to general and specific
market movements. The Group and Company have no significant
exposures to foreign currencies and therefore there is no
significant currency risk.
Interest rate risk
Interest rate risk is the potential adverse impact on the
Company and Group's future cash flows from changes in interest
rates and arises from the differing interest rate risk
characteristics of the Company and Group's assets and liabilities.
In particular, fixed rate savings and borrowing products expose the
Group to the risk that a change in interest rates could cause
either a reduction in interest income or an increase in interest
expense relative to variable rate interest flows. 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 money market deposits of a fixed
rate nature, fixed rate loans and fixed rate savings products. The
Group monitors the interest rate mismatch on a daily basis in
conjunction with liquidity and capital.
The interest rate mismatch is monitored, throughout the maturity
bandings of the book on a parallel scenario for 50 and 200 basis
points movements. The Group consider the 50 and 200 basis points
movement to be appropriate for scenario testing given the current
economic outlook and industry expectations. This typically results
in a pre-tax mismatch of GBP0.8m or less (2013: GBP0.2m or less)
for the Company and Group, with the same impact to equity pre-tax.
In 2011 the Group put an interest rate cap in place primarily to
hedge the exposure to cash flow variability from interest rate
movements on variable rate customer deposits.
Interest rate sensitivity gap
The following tables summarise the re-pricing periods for the
assets and liabilities in the Company and Group, including
derivative financial instruments which are principally used to
hedge exposure to interest rate risk. Items are allocated to time
bands by reference to the earlier of the next contractual interest
rate re-price and the maturity date.
More More More
than than than
3 months 6 months 1 year
but but but
less less less More Non
Within than than than than interest
Group 3 months 6 months 1 year 5 years 5 years bearing Total
As at 31 December 2014 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
ASSETS
Cash and balances at
central
banks 81.2 - - - - - 81.2
Loans and advances to
banks 24.8 15.0 - - - - 39.8
Loans and advances to
customers 102.1 69.9 114.2 366.8 0.2 (30.7) 622.5
Debt securities
held-to-maturity 16.3 - - - - - 16.3
Other assets - - - - - 22.5 22.5
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets 224.4 84.9 114.2 366.8 0.2 (8.2) 782.3
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES
Due to banks 15.9 - - - - - 15.9
Deposits from customers 248.9 18.2 37.3 236.5 29.7 37.8 608.4
Other liabilities - - - - - 33.1 33.1
Equity - - - - - 124.9 124.9
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 264.8 18.2 37.3 236.5 29.7 195.8 782.3
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Impact of derivative
instruments (20.0) 20.0 - - - -
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Interest rate sensitivity
gap (60.4) 86.7 76.9 130.3 (29.5) (204.0)
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Cumulative gap (60.4) 26.3 103.2 233.5 204.0 -
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
More More More
than than than
3 months 6 months 1 year
but but but
less less less More Non
Within than than than than interest
Group 3 months 6 months 1 year 5 years 5 years bearing Total
As at 31 December 2013 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
ASSETS
Loans and advances to
banks 110.0 - - - - - 110.0
Loans and advances to
customers 82.4 56.1 84.4 191.8 0.2 (23.9) 391.0
Other assets - - - - - 24.9 24.9
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets 192.4 56.1 84.4 191.8 0.2 1.0 525.9
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES
Due to banks - - - - - 0.1 0.1
Deposits from customers 105.9 116.0 13.9 163.3 3.9 33.6 436.6
Other liabilities - - - - - 27.6 27.6
Equity - - - - - 61.6 61.6
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 105.9 116.0 13.9 163.3 3.9 122.9 525.9
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Impact of derivative
instruments (20.0) - - 20.0 - -
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Interest rate sensitivity
gap 66.5 (59.9) 70.5 48.5 (3.7) (121.9)
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Cumulative gap 66.5 6.6 77.1 125.6 121.9 -
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
More More More
than than than
3 months 6 months 1 year
but but but
less less less More Non
Within than than than than interest
Company 3 months 6 months 1 year 5 years 5 years bearing Total
As at 31 December 2014 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
ASSETS
Cash and balances at
central
banks 81.2 - - - - - 81.2
Loans and advances to
banks 22.9 15.0 - - - - 37.9
Loans and advances to
customers 59.6 43.9 69.2 345.9 0.3 (18.8) 500.1
Debt securities
held-to-maturity 16.3 - - - - - 16.3
Other assets - - - - - 125.2 125.2
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets 180.0 58.9 69.2 345.9 0.3 106.4 760.7
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES
Due to banks 15.9 - - - - - 15.9
Deposits from customers 248.9 18.2 37.3 236.5 29.7 37.8 608.4
Other liabilities - - - - - 23.7 23.7
Equity - - - - - 112.7 112.7
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 264.8 18.2 37.3 236.5 29.7 174.2 760.7
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Impact of derivative
instruments (20.0) 20.0 - - - -
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Interest rate sensitivity
gap (104.8) 60.7 31.9 109.4 (29.4) (67.8)
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Cumulative gap (104.8) (44.1) (12.2) 97.2 67.8 -
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
More More More
than than than
3 months 6 months 1 year
but but but
less less less More Non
Within than than than than interest
Company 3 months 6 months 1 year 5 years 5 years bearing Total
As at 31 December 2013 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
ASSETS
Loans and advances to
banks 108.5 - - - - - 108.5
Loans and advances to
customers 42.4 32.5 50.1 181.6 0.2 (22.9) 283.9
Other assets 72.6 - - - - 34.3 106.9
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets 223.5 32.5 50.1 181.6 0.2 11.4 499.3
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES
Due to banks - - - - - 0.1 0.1
Deposits from customers 105.9 116.0 13.9 163.3 3.9 33.6 436.6
Other liabilities - - - - - 15.7 15.7
Equity - - - - - 46.9 46.9
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 105.9 116.0 13.9 163.3 3.9 96.3 499.3
--------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Impact of derivative
instruments (20.0) - - 20.0 - -
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Interest rate sensitivity
gap 97.6 (83.5) 36.2 38.3 (3.7) (84.9)
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Cumulative gap 97.6 14.1 50.3 88.6 84.9 -
--------------------------- ----------- ----------- ----------- ----------- ----------- -----------
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset.
The Group's approach to managing liquidity is to ensure, as far
as possible, that it will always have sufficient liquidity to meet
its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage
to the Group's reputation. The liquidity requirements of the Group
are met through recalling funds from its Bank of England Reserve
Account to cover any short term fluctuations and, longer term
funding to address any structural liquidity requirements.
The Company has a formal governance structure in place to manage
and mitigate liquidity risk on a day to day basis. The Board sets
and approves the Company's liquidity risk management strategy. The
Assets and Liabilities Committee ('ALCO'), comprising senior
executives of the Company, monitors liquidity risk. Key liquidity
risk management information is reported by the finance team and
monitored by the Chief Executive Officer and Chief Financial
Officer on a daily basis. The ALCO meets monthly to review
liquidity risk against set thresholds and risk indicators including
early warning indicators, liquidity risk tolerance levels and ILAA
metrics.
The Group relies on deposits from customers. During the current
year the Company issued over GBP160 million of fixed rate deposit
bonds to customers over terms ranging from 2 to 7 years. These were
issued to broadly match the term lending by the Company.
The new Liquidity regime came into force on the 1 October 2010.
The PRA requires a firm to maintain at all times 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. There is also a requirement that a
firm ensures its liquidity resources contain an adequate buffer of
high quality, unencumbered assets (i.e. Government Securities in
the liquidity asset buffer); and it maintains a prudent funding
profile. The liquidity assets buffer is a pool of highly liquid
assets that can be called upon to create sufficient liquidity to
meet liabilities on demand, particularly in a period of liquidity
stress. The liquidity resources outside the buffer must either be
marketable assets with a demonstrable secondary market that the
firm can access, or a credit facility that can be activated in
times of stress.
The Group has a Board approved Individual Liquidity Adequacy
Assessment (ILAA). The liquidity buffer required by the ILAA has
been put in place and maintained since that time. Liquidity
resources outside of the buffer are made up of deposits placed at
the Bank of England. The ILAA is updated annually.
The Group is exposed to daily calls on its available cash
resources from current accounts, maturing deposits and loan
draw-downs. The Group maintains significant cash resources to meet
all of these needs as they fall due.
The matching and controlled mismatching of the maturities and
interest rates of assets and liabilities is fundamental to the
management of the Group. It is unusual for banks to be completely
matched, as transacted business is often of uncertain term and of
different types.
The maturities of assets and liabilities and the ability to
replace, at an acceptable cost, interest-bearing liabilities as
they mature are important factors in assessing the liquidity of the
Group and its exposure to changes in interest rates.
The key measure used by the Group for managing liquidity risk is
the ratio of net liquid assets to deposits from customers. For this
purpose net liquid assets are considered to be loans and advances
to banks and cash and balances at central banks. At the year end
this ratio was 19.9% (2013: 25.2%).
The tables below analyses the contractual undiscounted cash flows for
the Group's financial liabilities into relevant maturity groupings:
More More
than than
3 months 1 year
Gross Not but but
nominal more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2014 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Non-derivative financial liabilities
Due to banks 15.9 (15.9) (15.9) - - -
Deposits from customers 608.4 (635.2) (87.3) (257.6) (255.0) (35.3)
Other financial liabilities 17.8 (17.8) (17.8) - - -
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
642.1 (668.9) (121.0) (257.6) (255.0) (35.3)
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
More More
than than
3 months 1 year
Gross Not but but
nominal more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2013 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Non-derivative financial liabilities
Due to banks 0.1 (0.1) (0.1) - - -
Deposits from customers 436.6 (457.0) (64.3) (208.7) (181.1) (2.9)
Other financial liabilities 17.0 (17.0) (17.0) - - -
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
453.7 (474.1) (81.4) (208.7) (181.1) (2.9)
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
The tables below analyse the contractual undiscounted cash flows for
the Company's financial liabilities into relevant maturity groupings:
More More
than than
Gross 3 months 1 year
nominal Not more but less but less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2014 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Non-derivative financial liabilities
Due to banks 15.9 (15.9) (15.9) - - -
Deposits from customers 608.4 (635.2) (87.3) (257.6) (255.0) (35.3)
Other financial liabilities 15.5 (15.5) (15.5) - - -
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
639.8 (666.6) (118.7) (257.6) (255.0) (35.3)
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
More More
than than
Gross 3 months 1 year
nominal Not more but less but less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2013 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Non-derivative financial liabilities
Due to banks 0.1 (0.1) (0.1) - - -
Deposits from customers 436.6 (457.0) (64.3) (208.7) (181.1) (2.9)
Other financial liabilities 10.5 (10.5) (10.5) - - -
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
447.2 (467.6) (74.9) (208.7) (181.1) (2.9)
-------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
The maturities of assets and liabilities and the ability to
replace, at an acceptable cost, interest-bearing financial
liabilities as they mature are important factors in assessing the
liquidity of the Company and Group and its exposure to changes in
interest rates and exchange rates.
Other financial liabilities, as shown above, do not include
non-interest accruals as these are not classed as financial
liabilities.
(d) Operational risk (unaudited)
Operational risk is the risk of direct or indirect loss arising
from a wide variety of causes associated with the Group's
processes, personnel, technology and infrastructure, and from
external factors other than the risks identified above. Operational
risks arise from all of the Group's operations.
The Group's objective is to manage operational risk so as to
balance the avoidance of financial losses and damage to the Group's
reputation with overall cost effectiveness and innovation. In all
cases, the Group's policy requires compliance with all applicable
legal and regulatory requirements.
The Corporate Governance statement on pages 32 and 33 describes
the Group's system of internal controls which are used to mitigate
against operational risk. An operational risk department within the
Bank also supports and provides assurance to the business in
recognising, assessing and managing risk. Compliance with Group
standards is supported by a programme of periodic reviews
undertaken by an internal audit function. The results of the
internal audit reviews are discussed with the Company's senior
management with summaries submitted to the Group Audit
Committee.
6. Capital management
The Group's capital management policy is focused on optimising
shareholder value, in a safe and sustainable manner. There is a
clear focus on delivering organic growth and ensuring capital
resources are sufficient to support planned levels of growth. The
Board regularly reviews the capital position.
In accordance with the EU's Capital Requirements Directive IV
(CRD IV) and the required parameters set out in the EU's Capital
Requirements Regulation (CRR), the Arbuthnot Banking Group's
Internal Capital Adequacy Assessment Process (ICAAP), of which the
Group is a major component, is embedded in the risk management
framework of the Group and is subject to ongoing updates and
revisions when necessary. However, at a minimum, the ICAAP is
updated annually as part of the business planning process. 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 a "Pillar 1 plus"
approach to determine the level of capital the Group needs 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 adequately to cover
management's anticipated risks. Where it is considered that the
Pillar 1 calculations do not reflect the risk, an additional
capital add-on in Pillar 2 should be applied, as per the Individual
Capital Guidance (ICG) issued by the Prudential Regulation
Authority (PRA).
Pillar 3 complements the minimum capital requirements (Pillar 1)
and the supervisory review process (Pillar 2). Its aim is to
encourage market discipline by developing a set of disclosure
requirements which would allow market participants to assess key
pieces of information on a firm's capital, risk exposures and risk
assessment processes. Pillar 3 disclosures for the Arbuthnot
Banking Group for the year ended 31 December 2014 are published as
a separate document on the Arbuthnot Banking Group website.
The following table shows the regulatory capital resources
as managed by the solo-consolidated Group: 2014 2013
GBPmillion GBPmillion
------------------------------------------------------------ ----------- -----------
Tier 1
Share capital 7.3 6.3
Share premium 79.3 28.2
Retained earnings 38.7 29.0
Revaluation reserve 0.2 0.2
Goodwill (0.3) (0.3)
Intangible assets net of attributable deferred tax (2.8) (3.1)
Deferred tax assets due to losses (1.0) (1.9)
------------------------------------------------------------ ----------- -----------
Common Equity Tier 1 capital 121.4 58.4
------------------------------------------------------------ ----------- -----------
Tier 2
Collective allowance for impairment of loans and advances 2.0 1.6
------------------------------------------------------------ ----------- -----------
Total Tier 2 capital 2.0 1.6
------------------------------------------------------------ ----------- -----------
Own Funds 123.4 60.0
------------------------------------------------------------ ----------- -----------
Reconciliation to total equity:
Goodwill and other intangible assets net of attributable
deferred tax 3.1 3.4
Collective allowance for impairment of loans and advances (2.0) (1.6)
Deferred tax assets due to losses 1.0 1.9
Net cumulative losses of non-solo consolidated entities (0.6) (1.2)
Dividends received from non-solo consolidated entities - (0.5)
Cash flow hedging reserve - (0.4)
------------------------------------------------------------ ----------- -----------
Total equity 124.9 61.6
------------------------------------------------------------ ----------- -----------
The Group forms part of the Arbuthnot Banking Group's ICAAP
which includes a summary of the capital required to mitigate the
identified risks in its regulated entities and the amount of
capital that the Group has available. The PRA sets ICG for each UK
bank calibrated by reference to its Capital Resources Requirement,
broadly equivalent to 8% of risk weighted assets and thus
representing the capital required under Pillar 1 of the Basel III
framework. The ICAAP is a key input into the PRA's ICG setting
process, which addresses the requirements of Pillar 2 of the Basel
III framework. The PRA's approach is to monitor the available
capital resources in relation to the ICG requirement. The Group
maintains an extra internal buffer and capital ratios are reviewed
on a monthly basis to ensure that external and internal
requirements are adhered to.
7. Net interest income
2014 2013
GBPmillion GBPmillion
---------------------------------------- ----------- -----------
Cash and balances at central banks 0.3 -
Loans and advances to banks - 0.2
Loans and advances to customers 93.1 73.6
Debt securities held-to-maturity 0.2 -
---------------------------------------- ----------- -----------
Interest receivable and similar income 93.6 73.8
---------------------------------------- ----------- -----------
Deposits from customers (14.2) (12.9)
---------------------------------------- ----------- -----------
Interest expense and similar charges (14.2) (12.9)
---------------------------------------- ----------- -----------
Net interest income 79.4 60.9
---------------------------------------- ----------- -----------
In the previous year GBP0.2 million of interest income arising
from debt securities held-to-maturity was included as interest
income on loans and advances to banks.
8. Operating expenses
2014 2013
Operating expenses comprise: GBPmillion GBPmillion
--------------------------------------------------------- ----------- -----------
Staff costs, including those of directors:
Wages and salaries 25.7 20.1
Social security costs 2.4 1.9
Pension costs 0.9 0.7
Share based payment transactions 1.5 2.2
Depreciation of property, plant and equipment (Note 18) 0.5 0.7
Amortisation of intangible assets (Note 16) 2.5 2.5
Operating lease rentals 1.6 1.4
Other administrative expenses 21.4 16.3
--------------------------------------------------------- ----------- -----------
Total operating expenses 56.5 45.8
--------------------------------------------------------- ----------- -----------
2014 2013
Remuneration of the auditor and its associates, excluding
VAT, was as follows: GBP'000 GBP'000
------------------------------------------------------------------ -------- --------
Fees payable to the Company's auditor for the audit of
the Company's annual accounts 138 132
Fees payable to the Company's auditor for other services:
The audit of the Company's subsidiaries, pursuant to legislation 115 128
Audit related assurance services 17 30
Tax advisory services 47 53
Corporate finance services 115 -
All other non-audit services 292 64
------------------------------------------------------------------ -------- --------
724 407
------------------------------------------------------------------ -------- --------
Remuneration for corporate finance services in 2014 was GBP115,000 (2013:
GBPnil). All other non-audit services incurred during 2014 included GBP183,000
relating to advice received on the transitioning of consumer credit licencing
from the Office of Fair Trading to the Financial Conduct Authority. The
2013 auditor's remuneration for statutory audit services relate solely
to amounts paid to KPMG Audit Plc, whilst the 2014 amounts relate solely
to amounts paid to KPMG LLP.
9. Average number of employees
2014 2013
-------------------------------- ----- -----
Directors 7 6
Management 69 50
Administration 532 474
-------------------------------- ----- -----
Total 608 530
-------------------------------- ----- -----
10. Income tax expense
2014 2013
Current taxation GBPmillion GBPmillion
------------------------------------------------------------- ----------- -----------
Corporation tax charge - current year 5.2 3.1
Corporation tax charge - adjustments in respect of prior
years - 0.5
------------------------------------------------------------- ----------- -----------
5.2 3.6
------------------------------------------------------------- ----------- -----------
Deferred taxation
------------------------------------------------------------- ----------- -----------
Deferred tax charge - current year 0.2 0.7
Deferred tax charge - adjustments in respect of prior years 0.2 0.5
------------------------------------------------------------- ----------- -----------
0.4 1.2
------------------------------------------------------------- ----------- -----------
Income tax expense 5.6 4.8
------------------------------------------------------------- ----------- -----------
Tax reconciliation
Profit before tax 26.1 17.1
Tax at 21.5% (2013: 23.25%) 5.6 4.0
Permanent differences (0.2) (0.3)
Tax rate change - 0.1
Prior period adjustments 0.2 1.0
------------------------------------------------------------- ----------- -----------
Income tax expense for the year 5.6 4.8
------------------------------------------------------------- ----------- -----------
At 31 December 2014 the Group had accumulated tax losses of
GBP5.0 million (2013: GBP8.2 million). These tax losses will be
recovered within future periods, consequently the Group has
continued to recognise a deferred tax asset of GBP1.0 million
(2013: GBP1.9 million).
On 2 July 2013 the Government substantively enacted a reduction
in the main rate of UK corporation tax from 23% to 21% with effect
from 1 April 2014 and then from 21% to 20% with effect from 1 April
2015. This will reduce the Company's future current tax charge
accordingly.
11. Earnings per ordinary share
Basic
Basic earnings per ordinary share are calculated by dividing the
profit attributable to equity holders of the parent of GBP20.5
million (2013: GBP12.3 million) by the weighted average number of
ordinary shares 16,725,876 (2013: 15,648,149) in issue during the
year.
Diluted
Diluted earnings per ordinary share are calculated by dividing
the profit attributable to equity holders of the parent of GBP20.5
million (2013: GBP12.3 million) 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.
The number of dilutive shares in issue at the year-end was
332,429, being based on the number of options granted of 460,419,
the exercise price of 720 pence per option and the average share
price during the year of 2590 pence.
12. Loans and advances to banks
2014 2013
Group GBPmillion GBPmillion
------------------------------------------------------------- ----------- -----------
Placements with banks included in cash and cash equivalents
(Note 28) 24.8 90.0
Other loans and advances to banks 15.0 20.0
------------------------------------------------------------- ----------- -----------
39.8 110.0
------------------------------------------------------------- ----------- -----------
Included within loans and advances to banks are amounts placed with Arbuthnot
Latham & Co., Limited, a related company, of GBP20.0 million (31 December
2013: GBP31.6 million).
Moody's long term ratings: 2014 2013
Group GBPmillion GBPmillion
------------------------------------------------------------- ----------- -----------
Aa1 - 57.1
A2 19.8 21.3
No rating 20.0 31.6
------------------------------------------------------------- ----------- -----------
39.8 110.0
------------------------------------------------------------- ----------- -----------
2014 2013
Company GBPmillion GBPmillion
------------------------------------------------------------- ----------- -----------
Placements with banks included in cash and cash equivalents
(Note 28) 22.9 88.5
Other loans and advances to banks 15.0 20.0
------------------------------------------------------------- ----------- -----------
37.9 108.5
------------------------------------------------------------- ----------- -----------
Moody's long term ratings: 2014 2013
Company GBPmillion GBPmillion
------------------------------------------------------------- ----------- -----------
Aa1 - 57.1
A2 17.9 19.8
No rating 20.0 31.6
------------------------------------------------------------- ----------- -----------
37.9 108.5
------------------------------------------------------------- ----------- -----------
None of the loans and advances to banks are either past
due or impaired.
13. Loans and advances to customers
2014 2013
Group GBPmillion GBPmillion
------------------------------------------------------------------- ----------- -----------
Gross loans and advances 656.6 418.1
Less: allowances for impairment on loans and advances (Note
14) (34.1) (27.1)
------------------------------------------------------------------- ----------- -----------
622.5 391.0
------------------------------------------------------------------- ----------- -----------
The fair value of loans and advances to customers is shown
in Note 4.
For a maturity profile of loans and advances to customers,
refer to Note 3.
Loans and advances to customers include finance lease receivables
as follows:
2014 2013
Group GBPmillion GBPmillion
------------------------------------------------------------------- ----------- -----------
Gross investment in finance lease receivables:
- No later than 1 year 18.3 16.4
- Later than 1 year and no later than 5 years 13.0 16.0
31.3 32.4
Unearned future finance income on finance leases (5.8) (6.9)
------------------------------------------------------------------- ----------- -----------
Net investment in finance leases 25.5 25.5
------------------------------------------------------------------- ----------- -----------
The net investment in finance leases may be analysed as
follows:
- No later than 1 year 13.9 12.9
- Later than 1 year and no later than 5 years 11.6 12.6
25.5 25.5
------------------------------------------------------------------- ----------- -----------
Loans and advances to customers can be further summarised
as follows:
2014 2013
Group GBPmillion GBPmillion
------------------------------------------------------------------- ----------- -----------
Neither past due nor impaired 581.9 371.3
Past due but not impaired 0.3 0.4
Past due up to 90 days and impaired 30.3 23.4
Past due after 90 days and impaired 44.1 23.0
------------------------------------------------------------------- ----------- -----------
Gross 656.6 418.1
Less: allowance for impairment (34.1) (27.1)
------------------------------------------------------------------- ----------- -----------
Net 622.5 391.0
------------------------------------------------------------------- ----------- -----------
Gross amounts of loans and advances to customers that were
past due up to 90 days were as follows:
2014 2013
Group GBPmillion GBPmillion
------------------------------------------------------------------- ----------- -----------
Past due up to 30 days 22.6 17.0
Past due 30 - 60 days 5.3 4.1
Past due 60 - 90 days 2.7 2.7
Total 30.6 23.8
------------------------------------------------------------------- ----------- -----------
Interest income on loans classified as impaired totalled
GBP3.1 million (31 December 2013: GBP2.6 million).
2014 2013
Company GBPmillion GBPmillion
------------------------------------------------------------- ----------- -----------
Gross loans and advances 518.1 306.8
Less: allowances for impairment on loans and advances (Note
14) (18.0) (22.9)
------------------------------------------------------------- ----------- -----------
500.1 283.9
------------------------------------------------------------- ----------- -----------
The fair value of loans and advances to customers is shown
in Note 4.
For a maturity profile of loans and advances to customers,
refer to Note 3.
Loans and advances to customers can be further summarised
as follows:
2014 2013
Company GBPmillion GBPmillion
------------------------------------------------------------- ----------- -----------
Neither past due nor impaired 461.7 266.7
Past due up to 90 days and impaired 26.2 19.4
Past due after 90 days and impaired 30.2 20.7
------------------------------------------------------------- ----------- -----------
Gross 518.1 306.8
Less: allowance for impairment (18.0) (22.9)
------------------------------------------------------------- ----------- -----------
Net 500.1 283.9
------------------------------------------------------------- ----------- -----------
Gross amounts of loans and advances to customers that were
past up to 90 days were as follows:
2014 2013
Company GBPmillion GBPmillion
------------------------------------------------------------- ----------- -----------
Past due up to 30 days 20.4 15.0
Past due 30 - 60 days 4.0 2.8
Past due 60 - 90 days 1.8 1.6
Total 26.2 19.4
------------------------------------------------------------- ----------- -----------
The majority of the loans are unsecured personal loans with an
average size at inception of GBP5,000; therefore the portfolio does
not have a significant concentration to any individuals, sectors or
geographic locations.
At 31 December 2014 loans and advances to customers of GBP11.5
million were pre-positioned under the Bank of England's Funding for
Lending Scheme and were available for use as collateral within the
scheme (2013: GBP43.9 million).
GBP0.2 million (2013: GBP0.2 million) is a standard mortgage
loan secured upon residential property and this is neither past due
nor impaired. The residential property over which the mortgage loan
is secured has a fair value of GBP0.2 million based on other recent
property sales, giving a loan to value ratio of 76% (2013:73%).
GBP133.7 million (2013: GBP1.8 million) of the loans are secured
upon residential property and these are neither past due nor
impaired. All loans secured are at a loan to value ratio of less
than 80%.
GBP137.9 million (2013: GBP114.7 million) of the loans are
secured against motor vehicles where the security is discharged
when the buyer exercises an option to buy the goods at a
predetermined price at the end of the loan term. Management's
estimate of the fair value of the motor vehicles was GBP109.5
million.
14. Allowances for impairment of loans and advances
A reconciliation of the allowance accounts for losses on
loans and advances is as follows:
Group 2014 2013
Specific allowances for impairment GBPmillion GBPmillion
---------------------------------------------------------- ----------- -----------
At 1 January 25.5 15.8
Provision for impairment losses 15.1 15.5
Loans written off during the year as uncollectible (8.5) (5.8)
---------------------------------------------------------- ----------- -----------
At 31 December 32.1 25.5
---------------------------------------------------------- ----------- -----------
Collective allowances for impairment
---------------------------------------------------------- ----------- -----------
At 1 January 1.6 0.4
Provision for impairment losses 0.4 1.2
At 31 December 2.0 1.6
---------------------------------------------------------- ----------- -----------
Total allowances for impairment 34.1 27.1
---------------------------------------------------------- ----------- -----------
Company 2014 2013
Specific allowances for impairment GBPmillion GBPmillion
--------------------------------------------------------- ----------- -----------
At 1 January 21.9 13.2
Provision for impairment losses 8.5 9.4
Release of allowance for impairment on the sale of debt (12.5) -
Loans written off during the year as uncollectible (1.0) (0.7)
--------------------------------------------------------- ----------- -----------
At 31 December 16.9 21.9
--------------------------------------------------------- ----------- -----------
Collective allowances for impairment
--------------------------------------------------------- ----------- -----------
At 1 January 1.0 0.4
Provision for impairment losses 0.1 0.6
At 31 December 1.1 1.0
--------------------------------------------------------- ----------- -----------
Total allowances for impairment 18.0 22.9
--------------------------------------------------------- ----------- -----------
15. Debt securities held-to-maturity
Debt securities represent Bank of England Treasury Bills. The
Group's intention is to hold them to maturity and, therefore, they
are stated in the Statement of Financial Position at amortised
cost.
All of the debt securities held-to-maturity had a rating agency
designation at 31 December 2014, based on Moody's long-term ratings
of Aa1. None of the debt securities held-to-maturity are either
past due or impaired.
In the previous year GBP57.1 million of debt securities
held-to-maturity were included in loans and advances to banks.
At 31 December 2014 debt securities held-to-maturity of GBP15.0
million were pre-positioned under the Bank of England's Funding for
Lending Scheme and were available for use as collateral within the
scheme (2013:GBP9.9 million).
During the year, the Company's UK Treasury Bills acquired under
the Funding for Lending Scheme were pledged as part of a sale and
repurchase agreement with a third party, with a maturity period of
three months.
16. Intangible assets
Other
Computer intangible
Goodwill software assets Total
Group GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------------ ----------- ----------- ------------ -----------
Cost or valuation
At 1 January 2013 0.3 2.3 5.1 7.7
On acquisition of subsidiary undertaking 0.7 5.4 2.2 8.3
Additions - 0.7 - 0.7
Disposals - (1.9) - (1.9)
------------------------------------------ ----------- ----------- ------------ -----------
At 31 December 2013 1.0 6.5 7.3 14.8
------------------------------------------ ----------- ----------- ------------ -----------
Additions - 0.8 - 0.8
At 31 December 2014 1.0 7.3 7.3 15.6
------------------------------------------ ----------- ----------- ------------ -----------
Accumulated amortisation
At 1 January 2013 - (1.8) (0.7) (2.5)
Amortisation charge - (0.9) (1.5) (2.4)
At 31 December 2013 - (2.7) (2.2) (4.9)
------------------------------------------ ----------- ----------- ------------ -----------
Amortisation charge - (1.1) (1.4) (2.5)
At 31 December 2014 - (3.8) (3.6) (7.4)
------------------------------------------ ----------- ----------- ------------ -----------
Net book amount
------------------------------------------ ----------- ----------- ------------ -----------
At 31 December 2013 1.0 3.8 5.1 9.9
------------------------------------------ ----------- ----------- ------------ -----------
At 31 December 2014 1.0 3.5 3.7 8.2
------------------------------------------ ----------- ----------- ------------ -----------
Computer
Goodwill software Total
Company GBPmillion GBPmillion GBPmillion
-------------------------- ----------- ----------- -----------
Cost or valuation
At 1 January 2013 0.3 2.2 2.5
Additions - 0.4 0.4
At 31 December 2013 0.3 2.6 2.9
-------------------------- ----------- ----------- -----------
Additions - 0.7 0.7
At 31 December 2014 0.3 3.3 3.6
-------------------------- ----------- ----------- -----------
Accumulated amortisation
At 1 January 2013 - (1.7) (1.7)
Amortisation charge - (0.3) (0.3)
At 31 December 2013 - (2.0) (2.0)
-------------------------- ----------- ----------- -----------
Amortisation charge - (0.3) (0.3)
At 31 December 2014 - (2.3) (2.3)
-------------------------- ----------- ----------- -----------
Net book amount
-------------------------- ----------- ----------- -----------
At 31 December 2013 0.3 0.6 0.9
-------------------------- ----------- ----------- -----------
At 31 December 2014 0.3 1.0 1.3
-------------------------- ----------- ----------- -----------
An annual impairment review is undertaken on the carrying value
of the Group's intangible assets to determine whether an impairment
event has occurred.
17. Investments
Shares Impairment
at cost provisions Net investments
Company GBPmillion GBPmillion GBPmillion
------------------------------------------ ----------- ------------ ----------------
At 1 January 2013 1.4 (1.4) -
Acquisition of V12 Finance Group Limited 3.7 - 3.7
On liquidation of subsidiaries (1.4) 1.4 -
------------------------------------------- ----------- ------------ ----------------
At 31 December 2013 3.7 - 3.7
At 31 December 2014 3.7 - 3.7
------------------------------------------- ----------- ------------ ----------------
The principal subsidiary undertakings of Secure Trust Bank PLC
at 31 December 2014 were:
Country Interest
of incorporation % Principal activity
---------------------------- ------------------- --------- --------------------------------------
Debt Managers (Services) UK 100
Limited Debt collection company
Everyday Loans Holdings UK 100
Limited Holding company
Everyday Loans Limited UK 100 Sourcing and servicing of unsecured
* and secured loans
Everyday Lending Limited UK 100 Provider of unsecured and secured
* loans
Secure Homes Services UK 100
Limited Property rental
STB Leasing Limited UK 100 Leasing
V12 Finance Group Limited UK 100 Holding company
V12 Personal Finance UK 100
Limited * Dormant
V12 Retail Finance UK 100 Sourcing and servicing of unsecured
Limited * loans
---------------------------- ------------------- --------- --------------------------------------
Shares in subsidiary undertakings are stated at cost less any provision
for impairment. All subsidiary undertakings are unlisted. None of the
subsidiary undertakings are banking institutions.
All the above subsidiary undertakings are included in the consolidated
financial statements and have an accounting reference date of 31 December.
All the above interests relate wholly
to ordinary shares.
* These companies are owned indirectly by Secure Trust Bank PLC via intermediate
holding companies.
18. Property, plant and equipment
Freehold Computer
land and
and Leasehold other
buildings improvements equipment Total
Group GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------------ ----------- -------------- ----------- -----------
Cost or valuation
At 1 January 2013 4.4 0.3 9.0 13.7
On acquisition of subsidiary undertaking - - 0.1 0.1
Additions - 0.1 0.3 0.4
Disposals - - (0.5) (0.5)
------------------------------------------ ----------- -------------- ----------- -----------
At 31 December 2013 4.4 0.4 8.9 13.7
------------------------------------------ ----------- -------------- ----------- -----------
Additions 2.7 - 0.9 3.6
Disposals - - (0.5) (0.5)
------------------------------------------ ----------- -------------- ----------- -----------
At 31 December 2014 7.1 0.4 9.3 16.8
------------------------------------------ ----------- -------------- ----------- -----------
Accumulated depreciation
At 1 January 2013 (0.3) (0.1) (7.9) (8.3)
Depreciation charge (0.1) (0.1) (0.4) (0.6)
Disposals - - 0.2 0.2
------------------------------------------ ----------- -------------- ----------- -----------
At 31 December 2013 (0.4) (0.2) (8.1) (8.7)
------------------------------------------ ----------- -------------- ----------- -----------
Depreciation charge (0.1) (0.1) (0.3) (0.5)
Disposals - - 0.5 0.5
------------------------------------------ ----------- -------------- ----------- -----------
At 31 December 2014 (0.5) (0.3) (7.9) (8.7)
------------------------------------------ ----------- -------------- ----------- -----------
Net book amount
------------------------------------------ ----------- -------------- ----------- -----------
At 31 December 2013 4.0 0.2 0.8 5.0
------------------------------------------ ----------- -------------- ----------- -----------
At 31 December 2014 6.6 0.1 1.4 8.1
------------------------------------------ ----------- -------------- ----------- -----------
Computer
and
Freehold other
Property equipment Total
Company GBPmillion GBPmillion GBPmillion
-------------------------- ----------- ----------- -----------
Cost
At 1 January 2013 - 8.8 8.8
Additions - 0.2 0.2
Disposals - (0.5) (0.5)
-------------------------- ----------- ----------- -----------
At 31 December 2013 - 8.5 8.5
-------------------------- ----------- ----------- -----------
Additions 2.7 0.7 3.4
Disposals (0.5) (0.5)
-------------------------- ----------- ----------- -----------
At 31 December 2014 2.7 8.7 11.4
-------------------------- ----------- ----------- -----------
Accumulated depreciation
At 1 January 2013 - (7.8) (7.8)
Depreciation charge - (0.3) (0.3)
Disposals - 0.1 0.1
-------------------------- ----------- ----------- -----------
At 31 December 2013 - (8.0) (8.0)
-------------------------- ----------- ----------- -----------
Depreciation charge - (0.2) (0.2)
Disposals 0.5 0.5
-------------------------- ----------- ----------- -----------
At 31 December 2014 - (7.7) (7.7)
-------------------------- ----------- ----------- -----------
Net book amount
-------------------------- ----------- ----------- -----------
At 31 December 2013 - 0.5 0.5
-------------------------- ----------- ----------- -----------
At 31 December 2014 2.7 1.0 3.7
-------------------------- ----------- ----------- -----------
The Group's opening freehold property is the Registered Office
of the Company and is fully utilised for the Group's own purposes.
During the year, the Company acquired a further freehold property,
Secure Trust House, Boston Drive, Bourne End SL8 5YS. The majority
of this property will be used for the Group's own purposes, however
the existing tenant of the property has remained in situ. The cost
of the property was GBP2.7 million.
The directors have assessed the value of the Group's freehold
property at the year end through comparison to current rental
yields on similar properties in the same area and do not believe
that the fair value of freehold property is materially different
from its carrying value.
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 GBP1.7 million (2013: GBP0.5 million).
The historical cost of freehold property included at valuation
is as follows:
2014 2013
GBPmillion GBPmillion
---------------------------------------------------------------- ----------- -----------
Cost 7.5 4.8
Accumulated depreciation (1.2) (1.1)
---------------------------------------------------------------- ----------- -----------
Net book amount 6.3 3.7
---------------------------------------------------------------- ----------- -----------
19. Derivative financial instruments
In order to protect its floating rate deposit book from
increases in Bank of England base rates above 1.5%, the Group
entered into an interest rate cap on 30 June 2011, with a notional
amount of GBP20 million and a maturity date of 30 June 2015. The
losses recognised in other comprehensive income in relation to the
interest rate cap previously are not expected to be recovered in
future periods, therefore they have been transferred to profit or
loss during the year.
2014 2013
--------------------------------------- ---------------------------------------
Contract/ Fair Fair Contract/ Fair Fair
notional value value notional value value
amount assets liabilities amount assets liabilities
Group and Company GBPmillion GBPmillion GBPmillion - GBPmillion GBPmillion GBPmillion
-------------------------------- ----------- ----------- ------------- ----------- ----------- -------------
Interest rate cap held in
qualifying hedge relationships 20.0 - - 20.0 - -
-------------------------------- ----------- ----------- ------------- ----------- ----------- -------------
20.0 - - 20.0 - -
-------------------------------- ----------- ----------- ------------- ----------- ----------- -------------
Moody's long term ratings:
2014 2013
Contract amount: GBPmillion GBPmillion
---------------------------- ----------- -----------
A2 20.0 20.0
20.0 20.0
---------------------------- ----------- -----------
20. Other assets
2014 2013
Group GBPmillion GBPmillion
------------------------------------ ----------- -----------
Trade receivables 0.9 0.6
Amounts due from related companies 0.8 4.1
Prepayments and accrued income 3.5 3.4
------------------------------------ ----------- -----------
5.2 8.1
------------------------------------ ----------- -----------
2014 2013
Company GBPmillion GBPmillion
------------------------------------ ----------- -----------
Trade receivables 0.6 0.1
Amounts due from related companies 114.6 99.9
Prepayments and accrued income 1.0 1.0
------------------------------------ ----------- -----------
116.2 101.0
------------------------------------ ----------- -----------
21. Due to banks
2014 2013
Group and Company GBPmillion GBPmillion
------------------------------------------ ----------- -----------
Amounts due to related companies - 0.1
Amounts due to other credit institutions 15.9 -
------------------------------------------ ----------- -----------
15.9 0.1
------------------------------------------ ----------- -----------
Amounts due to banks for the current year represent monies
arising from the sale and repurchase of drawings under the Funding
for Lending Scheme. These are due for repayment in March 2015.
22. Deposits from customers
2014 2013
Group and Company GBPmillion GBPmillion
----------------------------- ----------- -----------
Current/demand accounts 37.8 36.4
Term deposits 570.6 400.2
----------------------------- ----------- -----------
608.4 436.6
----------------------------- ----------- -----------
For a maturity profile of deposits from customers, refer to Note
3.
23. Other liabilities
2014 2013
Group GBPmillion GBPmillion
---------------------------------- ----------- -----------
Trade payables 10.9 9.8
Amounts due to related companies 0.3 2.2
Accruals and deferred income 18.3 13.8
---------------------------------- ----------- -----------
29.5 25.8
---------------------------------- ----------- -----------
2014 2013
Company GBPmillion GBPmillion
---------------------------------- ----------- -----------
Trade payables 4.2 3.3
Amounts due to related companies 4.6 2.2
Accruals and deferred income 13.4 10.0
---------------------------------- ----------- -----------
22.2 15.5
---------------------------------- ----------- -----------
Within Group trade payables at 31 December 2014 there is GBP4.3
million (2013: GBP4.3 million) collateral held from RentSmart. The
Group buys assets which are then leased to customers of RentSmart
and the Group pays RentSmart a commission, which is recognised
within operating income. In return, RentSmart continues to operate
the agreement, retains the credit risk and provides the Group with
a collateral amount that is based upon the balance of customer
receivables and expected new agreements during the following
month.
Within Group and Company accruals and deferred income there is
GBP6.6 million relating to accrued interest payable (2013: GBP5.1
million).
Financial Services Compensation Scheme Levy
In common with all regulated UK deposit takers, the Company pays
levies to the Financial Services Compensation Scheme ('FSCS') to
enable the FSCS to meet claims against it. The FSCS levy consists
of two parts: a management expenses levy and a more significant
compensation levy. The management expenses levy covers the costs of
running the scheme and the compensation levy covers the amount of
compensation and associated interest the scheme pays, net of any
recoveries it makes using the rights that have been assigned to
it.
During 2008 and 2009 claims were triggered against the FSCS in
relation to Bradford & Bingley plc, Kaupthing Singer and
Friedlander Limited, Heritable Bank Plc, Landsbanki Islands hf,
London Scottish Bank plc and Dunfermline Building Society. The FSCS
meets these current claims by way of loans it received from HM
Treasury. The terms of these loans were interest only for the first
three scheme years, up until March 2013, and the FSCS recovered the
interest cost by way of levies on members over this period.
The Company's FSCS provision reflects market participation up to
the reporting date and the accrual of GBP0.1 million relates to the
interest levy for the scheme year 2014/15 which is payable in
September 2015. This amount was calculated on the basis of the
Company's share of protected deposits and the FSCS's estimate of
total interest levies payable for each scheme year. The loan
repayment relating to the scheme year 2014/15 was paid by the
Company in September 2014.
24. Deferred taxation
2014 2013
Group GBPmillion GBPmillion
-------------------------------------------------------- ----------- -----------
Deferred tax liabilities:
Unrealised surplus on revaluation of freehold property 0.2 0.2
Other short term timing differences (0.2) (0.6)
-------------------------------------------------------- ----------- -----------
Deferred tax liabilities - (0.4)
-------------------------------------------------------- ----------- -----------
Deferred tax assets:
Carried forward losses 1.0 1.9
-------------------------------------------------------- ----------- -----------
Deferred tax assets 1.0 1.9
-------------------------------------------------------- ----------- -----------
Deferred tax liabilities:
At 1 January (0.4) (1.2)
Arising on acquisition of subsidiary undertaking - (1.0)
Profit and loss account 0.4 1.8
-------------------------------------------------------- ----------- -----------
At 31 December - (0.4)
-------------------------------------------------------- ----------- -----------
Deferred tax assets:
At 1 January 1.9 5.1
Profit and loss account (0.8) (3.0)
Losses utilised through group relief during the year - (0.2)
Cash flow hedges (0.1) -
-------------------------------------------------------- ----------- -----------
At 31 December 1.0 1.9
-------------------------------------------------------- ----------- -----------
2014 2013
Company GBPmillion GBPmillion
------------------------------------------------------------ ----------- -----------
Accelerated capital allowances and other short-term timing
differences 0.3 0.7
Cash flow hedges - 0.1
------------------------------------------------------------ ----------- -----------
Deferred tax assets 0.3 0.8
------------------------------------------------------------ ----------- -----------
At 1 January 0.8 0.6
Arising on acquisition of subsidiary undertaking - 0.2
Profit and loss account - accelerated capital allowances
and other short-term timing differences (0.4) -
Cash flow hedges (0.1) -
------------------------------------------------------------ ----------- -----------
Deferred tax assets at 31 December 0.3 0.8
------------------------------------------------------------ ----------- -----------
On 2 July 2013 the Government substantively enacted a reduction
in the main rate of UK corporation tax from 21% to 20% with effect
from 1 April 2015. This will reduce the Group's future current tax
charge accordingly. Deferred tax has been calculated based on the
enacted rates to the extent that the related temporary or timing
differences are expected to reverse in the future periods.
25. Contingent liabilities and commitments
Capital commitments
At 31 December 2014, the Group had GBP0.1 million of capital
commitments relating to the refurbishment of an Everyday Loans
branch. The Company had no capital commitments (2013: GBPnil).
Credit commitments
At 31 December 2014, the Group and Company both had commitments
of GBP96.0 million to extend credit to customers (2013: GBP6.6
million and GBP6.6 million respectively).
Operating lease commitments
The future aggregate lease payments for non-cancellable
operating leases are as follows:
2014 2013
Land Land
and Buildings Other and Buildings Other
Group GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------------------- ------------------- ----------- --------------- -----------
Within 1 year 0.8 0.3 0.8 0.4
Between 1 year and 5 years 1.5 0.2 1.6 0.2
Over 5 years 0.1 - 0.1 -
-------------------------------------- ------------------- ----------- --------------- -----------
2.4 0.5 2.5 0.6
-------------------------------------- ------------------- ----------- --------------- -----------
2014 2013
Land Land
and Buildings Other and Buildings Other
Company GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------------------- ------------------- ----------- --------------- -----------
Within 1 year - 0.3 - 0.4
Between 1 year and 5 years - 0.1 - 0.2
Over 5 years 0.4 - 0.4 -
-------------------------------------- ------------------- ----------- --------------- -----------
0.4 0.4 0.4 0.6
-------------------------------------- ------------------- ----------- --------------- -----------
There are 35 leases classified as land and buildings in the group (2013:
36). Other leases include motor vehicles and computer hardware.
Other commitments
At 31 December 2014 a commitment exists to make further payments
with regard to the Financial Services Compensation Scheme Levy for
2015 and thereafter. Due to uncertainties regarding the elements in
the calculation of the levy and the Group's share thereof, the
directors consider this cost to be unquantifiable.
26. Share capital
Number Ordinary
of shares shares
GBPmillion
--------------------------- ----------- -----------
At 1 January 2013 15,648,149 6.3
At 31 December 2013 15,648,149 6.3
Shares issued during year 2,543,745 1.0
--------------------------- ----------- -----------
At 31 December 2014 18,191,894 7.3
--------------------------- ----------- -----------
On 8 July 2014 an additional 2,083,333 ordinary shares were
issued by the Company, at a price of 2400 pence each, raising gross
proceeds of GBP50 million.
On 3 November 2014 an additional 460,412 ordinary shares were
issued by the Company following the exercise of share options, at a
price of 720 pence each, raising gross proceeds of GBP3.3
million.
27. Share based payments
On 17 October 2011, the Group established the Share Option
Scheme (SOS) entitling three directors and certain senior employees
to purchase shares in the Company.
The performance conditions of the Scheme are that for the
duration of the vesting period, the dividends paid by the Company
must have increased in percentage terms when compared to an assumed
dividend of GBP8 million in respect of the financial year ending 31
December 2012, by a minimum of the higher of the increase in the
Retail Prices Index during that period or 5% per annum.
All dividends paid by the Company each year during the vesting
period must be paid from the Company's earnings referable to that
year. Also from the grant date to the date the Option is exercised,
there must be no public criticism by any regulatory authority on
the operation of the Company or any of its subsidiaries which has a
material impact on the business of the Company.
Options are forfeited if they remain unexercised after a period
of more than 10 years from the date of grant. If the participant
ceases to be employed by the Group by reason of injury, disability,
ill-health or redundancy; or because his employing company ceases
to be a shareholder of the Group; or because his employing business
is being transferred out of the Group, his option may be exercised
within six months after such cessation. In the event of the death
of a participant, the personal representatives of a participant may
exercise an option, to the extent exercisable at the date of death,
within six months after the death of the participant.
On cessation of employment for any other reason (or when a
participant serves, or has been served with, notice of termination
of such employment), the option will lapse although the
Remuneration Committee has discretion to allow the exercise of the
option for a period not exceeding six months from the date of such
cessation.
In such circumstances, the performance conditions may be
modified or waived as the Remuneration Committee, acting fairly and
reasonably and taking due consideration of the circumstances,
thinks fit. The number of Ordinary Shares which can be acquired on
exercise will be pro-rated on a time elapsed basis, unless the
Remuneration Committee, acting fairly and reasonably and taking due
consideration of the circumstances, decides otherwise. In
determining whether to exercise its discretion in these respects,
the Remuneration Committee must satisfy itself that the early
exercise of an option does not constitute a reward for failure.
On 2 November 2011 934,998 share options were granted at an
exercise price of GBP7.20 per share. Approximately half of the
share options were exercised on 2 November 2014 with the remainder
being exercisable on 2 November 2016, being classed as share option
tranches SOS1 and SOS2 respectively. A total of 14,167 share
options have been forfeited since their grant date.
The Share Option Scheme is an equity settled scheme. The
original grant date valuation was determined to be GBP1.69 per
option and this valuation has been used in the calculation. An
attrition rate of option holders has been assumed of nil for the
second tranche of share options. Due to the options being fully
conditional knockout options, a probability of pay-out has been
assigned based on the likelihood of meeting the performance
criteria, which is 95% for SOS2. The Company incurred an expense in
relation to share based payments of GBP1.5 million during 2014, as
disclosed in Note 8.
No. of
option
holders SOS2
-------------------------------------------------------- --------- ---------
Directors 3 318,751
Senior management 5 141,668
---------------------------------------------------------- --------- ---------
Share options in issue 8 460,419
---------------------------------------------------------- --------- ---------
Exercise price (GBP) 7.20
Grant date value per option (GBP) 1.69
---------------------------------------------------------- --------- ---------
Fair value of share options, if all share options were
exercised (GBPmillion) 0.8
---------------------------------------------------------- --------- ---------
Behavioural assumption (attrition) -
Probability of payout 95%
---------------------------------------------------------- --------- ---------
Assumed value of share options on exercise
date (GBPmillion) 0.8
---------------------------------------------------------- --------- ---------
Value of share options at 31 December
2014 (GBPmillion) 0.5
---------------------------------------------------------- --------- ---------
28. Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash
equivalents comprise the following balances with less than three
months maturity from the date of acquisition.
2014 2013
Group GBPmillion GBPmillion
--------------------------------------- ----------- -----------
Cash and balances at central banks 81.2 -
Loans and advances to banks (Note 12) 24.8 90.0
106.0 90.0
--------------------------------------- ----------- -----------
2014 2013
Company GBPmillion GBPmillion
--------------------------------------- ----------- -----------
Cash and balances at central banks 81.2 -
Loans and advances to banks (Note 12) 22.9 88.5
104.1 88.5
--------------------------------------- ----------- -----------
29. 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 are entered into with related
parties in the normal course of business on normal commercial
terms. These include deposits only during 2014 and 2013. Except for
the directors' disclosures, there were no other Key Management
Personnel disclosures, therefore the tables below relate to
directors only.
Directors
2014 2013
GBPmillion GBPmillion
------------------------------------------------- ------------- ------------
Deposits
Deposits outstanding at 1 January 0.3 0.3
Additional deposits made during the year 0.1 -
Deposits outstanding at 31 December 0.4 0.3
------------------------------------------------- ------------- ------------
The above transactions arose during the normal course of business and
are on substantially the same terms as for comparable transactions with
third parties.
The Company undertook the following transactions with other companies
in the Arbuthnot Banking Group:
2014 2013
GBPmillion GBPmillion
--------------------------------------------------------- ----------- -----------
Arbuthnot Latham & Co., Ltd - recharge income of shared
services (0.2) (0.2)
Arbuthnot Latham & Co., Ltd - interest income on call
account - (0.1)
Arbuthnot Banking Group PLC - group recharges 0.4 0.3
Everyday Loans Holdings Limited - dividends received 5.0 -
Everyday Loans Limited - management recharge income (8.7) -
Everyday Lending Limited - interest income on loan
receivable (2.6) (2.5)
Debt Managers (Services) Limited - income from sale
of debt portfolio 3.1 -
Secure Homes Services Limited - building rental paid 0.4 0.4
V12 Finance Group Limited - dividends received - (0.5)
V12 Retail Finance Limited - Financial intermediary
charges - applications proposed 1.5 0.6
V12 Retail Finance Limited - Financial intermediary
charges - applications accepted 0.8 0.3
V12 Retail Finance Limited - Financial intermediary
charges - loan set-up and processing 1.7 0.6
V12 Retail Finance Limited - loan book management
and servicing fees 1.7 0.9
---------------------------------------------------------- ----------- -----------
3.1 (0.2)
--------------------------------------------------------- ----------- -----------
For convenience the loans and advances with, and amounts receivable and
payable to, related companies are noted below:
2014 2013
Group GBPmillion GBPmillion
--------------------------------------------------------- ----------- -----------
Loans and advances to related companies 20.0 31.6
Amounts receivable from ultimate parent undertaking 0.8 4.1
Amounts due to related companies (0.3) (2.3)
20.5 33.4
--------------------------------------------------------- ----------- -----------
2014 2013
Company GBPmillion GBPmillion
--------------------------------------------------------- ----------- -----------
Loans and advances to related companies 20.0 31.6
Amounts receivable from ultimate parent undertaking 0.8 4.1
Amounts receivable from subsidiary undertakings 113.8 95.8
Amounts due to related companies (4.6) (2.3)
130.0 129.2
--------------------------------------------------------- ----------- -----------
Directors' remuneration
The directors' emoluments (including pension contributions and benefits
in kind) for the year are disclosed in the Remuneration Report on pages
34 to 35.
At the year end the ordinary shares held by the directors are
disclosed in the Directors' Report on pages 28 to 29. 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.
The interests of any directors who hold shares in the ultimate
parent company, Arbuthnot Banking Group PLC, are shown in the
Directors' Report of the ultimate parent company.
30. Operating segments
The Group is organised into six main operating segments, which
consist of the different products available, disclosed below:
1) Personal lending - Unsecured consumer loans sold to customers
via brokers and affinity partners.
2) Motor finance - Hire purchase agreements secured against the
vehicle being financed.
3) Retail finance - Point of sale unsecured finance for in-store
and online retailers.
4) Current account and OneBill - The current account comes with
a prepaid card to enable effective control of personal finances,
whilst OneBill is an account designed to aid customers with their
household budgeting and payments process.
5) Business finance - Real estate finance and asset finance,
secured on the properties or assets financed. This segment also
includes the commercial finance activities, the most significant of
which are invoice discounting and invoice factoring.
6) Debt collection - Collection of debts on a contingent
collections basis on behalf of a range of clients as well as
selective investments in purchased debt portfolios.
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.
Consumer finance
Debt
Current collection
Personal Motor Retail account Business and Group
lending finance finance and OneBill finance other total
Year ended 31 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
December 2014
---------------------- ----------- ----------- ----------- ------------- ----------- ------------ -----------
Interest receivable
and similar
income 45.3 27.2 17.6 - 2.5 1.0 93.6
Fee and commission
income 4.1 - 0.8 12.1 0.1 3.1 20.2
---------------------- ----------- ----------- ----------- ------------- ----------- ------------ -----------
Revenue from external
customers 49.4 27.2 18.4 12.1 2.6 4.1 113.8
---------------------- ----------- ----------- ----------- ------------- ----------- ------------ -----------
Net impairment losses
on loans
and advances to
customers 9.9 3.9 1.5 - - - 15.3
Loans and advances to
customers 181.4 137.9 156.3 0.4 143.3 3.2 622.5
---------------------- ----------- ----------- ----------- ------------- ----------- ------------ -----------
Consumer finance
Current Debt
account collection
Personal Motor Retail and Business and Group
lending finance finance OneBill finance other total
Year ended 31 December GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
2013
------------------------ ----------- ----------- ----------- ----------- ----------- ------------ -----------
Interest receivable and
similar
income 36.1 23.0 14.5 - 0.1 0.1 73.8
Fee and commission
income 5.7 - - 12.8 - 4.2 22.7
------------------------ ----------- ----------- ----------- ----------- ----------- ------------ -----------
Revenue from external
customers 41.8 23.0 14.5 12.8 0.1 4.3 96.5
------------------------ ----------- ----------- ----------- ----------- ----------- ------------ -----------
Net impairment losses
on loans
and advances to
customers 10.3 3.6 1.7 - - - 15.6
Loans and advances to
customers 159.2 114.7 114.4 0.5 1.8 0.4 391.0
------------------------ ----------- ----------- ----------- ----------- ----------- ------------ -----------
The "other" segment above includes other segments which are
individually below the quantitative threshold for separate
disclosure and fulfils the requirement of IFRS 8.28 by reconciling
operating segments to the amounts reported in the financial
statements.
As interest, fee and commission and operating expenses are not
aligned to operating segments for day-to-day management of the
business and cannot be allocated on a reliable basis, 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.
31. Immediate and ultimate parent company
The Company regards Arbuthnot Banking Group PLC, a Company
registered in England and Wales, as the immediate and ultimate
parent company. Henry Angest, the Group Chairman and Chief
Executive has a beneficial interest in 53.7% of the issued share
capital of Arbuthnot Banking Group PLC and is regarded by the
Company as the ultimate controlling party. A copy of the
consolidated financial statements of Arbuthnot Banking Group PLC
may be obtained from the Secretary, Arbuthnot Banking Group PLC,
Arbuthnot House, 7 Wilson Street, London, EC2M 2SN.
32. Events after the balance sheet date
There were no material post balance sheet events in the
Group.
Five year summary
2014 2013 2012 2011 2010
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------------------------------- ----------- ----------- ----------- ----------- -----------
Profit for the year
Interest and similar income 93.6 73.8 44.9 22.9 15.9
Interest expense and similar charges (14.2) (12.9) (10.5) (5.6) (3.4)
----------------------------------------- ----------- ----------- ----------- ----------- -----------
Net interest income 79.4 60.9 34.4 17.3 12.5
----------------------------------------- ----------- ----------- ----------- ----------- -----------
Net fee and commission income 18.5 18.1 12.6 11.2 11.7
----------------------------------------- ----------- ----------- ----------- ----------- -----------
Operating income 97.9 79.0 47.0 28.5 24.2
----------------------------------------- ----------- ----------- ----------- ----------- -----------
Impairment losses on loans and advances (15.3) (15.6) (8.9) (4.6) (2.2)
Gain from a bargain purchase - 0.4 9.8 - -
Other income - - 0.1 - 1.0
Exceptional costs - (0.9) (1.4) (0.5) -
Arbuthnot Banking Group recharges (0.2) (0.1) (0.1) (1.8) (0.9)
Operating expenses (56.3) (45.7) (29.3) (14.3) (13.4)
----------------------------------------- ----------- ----------- ----------- ----------- -----------
Profit before income tax 26.1 17.1 17.2 7.3 8.7
----------------------------------------- ----------- ----------- ----------- ----------- -----------
Earnings per share for profit attributable to the equity
holders of the Group during the year
(expressed in pence per share)
- basic 122.3 78.3 108.9 39.6 50.0
Financial position
----------------------------------------- ----------- ----------- ----------- ----------- -----------
Cash and balances at central banks 81.2 - - - -
Loans and advances to banks 39.8 110.0 155.3 139.5 42.6
Loans and advances to customers 622.5 391.0 297.6 154.6 89.5
Debt securities held-to-maturity 16.3 - - - 25.6
Other assets 22.5 24.9 21.7 13.7 23.0
----------------------------------------- ----------- ----------- ----------- ----------- -----------
Total assets 782.3 525.9 474.6 307.8 180.7
----------------------------------------- ----------- ----------- ----------- ----------- -----------
Due to banks 15.9 0.1 - - -
Deposits from customers 608.4 436.6 398.9 272.1 153.8
Other liabilities 33.1 27.6 19.8 11.9 11.1
Total shareholders' equity 124.9 61.6 55.9 23.8 15.8
----------------------------------------- ----------- ----------- ----------- ----------- -----------
Total liabilities and shareholders'
equity 782.3 525.9 474.6 307.8 180.7
----------------------------------------- ----------- ----------- ----------- ----------- -----------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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