REG - Secure Trust BankArbuthnot Banking - Final Results for the year to 31 December 2015 <Origin Href="QuoteRef">ARBB.L</Origin> <Origin Href="QuoteRef">STBS.L</Origin> - Part 4
17/03/2016 07:06
- Part 4: For the preceding part double click ID:nRSQ3659Sc
- 0.6 0.6
Other assets 146.0 - 146.0
Total assets 714.0 521.2 1,235.2
LIABILITIES
Due to banks 36.4 - 36.4
Deposits from customers 563.3 469.8 1,033.1
Current tax liabilities 0.3 - 0.3
Other liabilities 30.2 - 30.2
Total liabilities 630.2 469.8 1,100.0
The table below shows the contractual maturity analysis of the Company's assets and liabilities as at 31 December 2014:
Due within one year Due after more than one year Total
At 31 December 2014 £million £million £million
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 asset - 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 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:
Held to maturity Loans and receivables Other financial assets and liabilities Total carrying amount Fair value Fair value hierarchy level
At 31 December 2015 £million £million £million £million £million
Cash and balances at central banks - 131.8 - 131.8 131.8 Level 1
Loans and advances to banks - 9.8 - 9.8 9.8 Level 2
Loans and advances to customers - 960.6 - 960.6 960.6 Level 3
Debt securities held-to-maturity 3.8 - - 3.8 3.8 Level 1
Other financial assets - - 2.9 2.9 2.9 Level 3
Assets held for sale - - 118.5 118.5 118.5 Level 3
3.8 1,102.2 121.4 1,227.4 1,227.4
Due to banks - - 35.0 35.0 35.0 Level 2
Deposits from customers - - 1,033.1 1,033.1 1,033.1 Level 3
Other financial liabilities - - 13.8 13.8 13.8 Level 3
Liabilities held for sale - - 8.7 8.7 8.7 Level 3
- - 1,090.6 1,090.6 1,090.6
Held to maturity Loans and receivables Other financial assets and liabilities Total carrying amount Fair value Fair value hierarchy level
At 31 December 2014 £million £million £million £million £million
Cash - 81.2 - 81.2 81.2 Level 1
Loans and advances to banks - 39.8 - 39.8 39.8 Level 2
Loans and advances to customers - 622.5 - 622.5 630.1 Level 3
Debt securities held-to-maturity 16.3 - - 16.3 16.3 Level 1
16.3 743.5 - 759.8 767.4
Due to banks - - 15.9 15.9 15.9 Level 2
Deposits from customers - - 608.4 608.4 617.7 Level 3
Other financial liabilities - - 17.8 17.8 17.8 Level 3
- - 642.1 642.1 651.4
All assets and liabilities are carried at amortised cost. Therefore the fair value hierarchy noted above relates to the disclosure in this note only.
The directors consider that the fair value of financial assets and liabilities is not materially different to their carrying value, with the exception of assets and liabilities held for sale, which are disclosed in note 33.
The tables below set out the Company's financial assets and financial liabilities into the respective classifications:
Held to maturity Loans and receivables Other financial assets and liabilities Total carrying amount Fair value Fair value hierarchy level
At 31 December 2015 £million £million £million £million £million
Cash and balances at central banks - 131.8 - 131.8 131.8 Level 1
Loans and advances to banks - 9.2 - 9.2 9.2 Level 2
Loans and advances to customers - 932.7 - 932.7 932.7 Level 3
Debt securities held-to-maturity 3.8 - - 3.8 3.8 Level 1
Other financial assets - - 142.7 142.7 142.7 Level 3
3.8 1,073.7 142.7 1,220.2 1,220.2
Due to banks - - 36.4 36.4 36.4 Level 2
Deposits from customers - - 1,033.1 1,033.1 1,033.1 Level 3
Other financial liabilities - - 8.3 8.3 8.3 Level 3
- - 1,077.8 1,077.8 1,077.8
Held to maturity Loans and receivables Other financial assets and liabilities Total carrying amount Fair value Fair value hierarchy level
At 31 December 2014 £million £million £million £million £million
Cash and balances at central banks - 81.2 - 81.2 81.2 Level 1
Loans and advances to banks - 37.9 - 37.9 37.9 Level 2
Loans and advances to customers - 500.1 - 500.1 507.6 Level 3
Debt securities held-to-maturity 16.3 - - 16.3 16.3 Level 1
16.3 619.2 - 635.5 643.0
Due to banks - - 15.9 15.9 15.9 Level 2
Deposits from customers - - 608.4 608.4 617.7 Level 3
Other financial liabilities - - 15.5 15.5 15.5 Level 3
- - 639.8 639.8 649.1
All assets and liabilities are carried at amortised cost. Therefore the fair value hierarchy noted above relates to the disclosure in this note only
The directors consider that the fair value of assets and liabilities is not materially different to their carrying value.
Fair value classification
The tables above include the fair values and fair value hierarchies of the Group and Company's financial assets and
liabilities. The Group measures fair value using the following fair value hierarchy that reflects the significance of the
inputs used in making measurements:
• Level 1: Quoted prices in active markets for identical assets or liabilities
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices).
• Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Details of the measurement of the fair values is disclosed below:
Cash and balances at central banks
The fair value of cash and balances at central 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 2015 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 2015 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 2015 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 2015 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 2015 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.
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. 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
2015 2014 2015 2014
£million £million £million £million
Credit risk exposures relating to on-balance sheet assets are as follows:
Cash and balances at central banks 131.8 81.2 131.8 81.2
Loans and advances to banks 9.8 39.8 9.2 37.9
Loan and advances to customers 960.6 622.5 932.7 500.1
Debt securities held-to-maturity 3.8 16.3 3.8 16.3
Trade receivables 1.5 0.9 1.4 0.6
Amounts due from related companies 1.3 0.8 142.0 114.6
Assets held for sale 118.5 - - -
Credit risk exposures relating to off-balance sheet assets are as follows:
Loan commitments 138.6 96.0 138.6 96.0
At 31 December 1,365.9 857.5 1,359.5 846.7
The above table represents the maximum credit risk exposure (net of impairment) to the Company and Group at 31 December
2015 and 2014 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
Loans and advances to customers
Loan commitments
2015 2015 2015 2014 2015 2014
Continuing operations Discontinued operations Total Total Continuing operations and Total Total
£million £million £million £million £million £million
Concentration by product:
Business lending
Real estate finance 368.0 - 368.0 133.8 109.0 95.8
Asset finance 70.7 - 70.7 4.5 20.1 -
Commercial finance 29.3 - 29.3 5.0 9.3 -
Unsecured lending:
Personal lending 74.3 114.3 188.6 181.4 - -
Motor 165.7 - 165.7 137.9 0.2 0.2
Retail 220.4 - 220.4 116.7 - -
Other 32.2 - 32.2 43.2 - -
At 31 December 960.6 114.3 1,074.9 622.5 138.6 96.0
Concentration by region:
East Anglia 89.4 10.4 99.8 41.3 28.1 7.2
East Midlands 41.4 11.3 52.7 36.0 1.1 -
London 300.6 17.0 317.6 177.5 55.0 41.6
North East 24.5 - 24.5 36.4 0.6 17.6
North West 73.4 7.6 81.0 60.9 4.9 -
Northern Ireland 8.3 15.6 23.9 8.6 - -
Scotland 62.7 3.0 65.7 42.4 2.0 -
South East 125.5 5.8 131.3 82.2 28.4 17.8
South West 44.2 8.4 52.6 34.7 4.4 10.5
Wales 35.1 5.3 40.4 25.7 1.4 -
West Midlands 59.0 4.9 63.9 44.1 4.0 1.3
Yorkshire and the Humber 52.4 13.5 65.9 32.7 3.0 -
Overseas 44.1 11.5 55.6 - 5.7 -
At 31 December 960.6 114.3 1,074.9 622.5 138.6 96.0
The above table relates to the location of the borrower. The majority of the overseas borrowers are Real Estate Finance clients. All of the property secured against Real Estate Finance loans is based in the United Kingdom.
Company
Loans and advances to customers
Loan commitments
2015 2014 2015 2014
£million £million £million £million
Concentration by product:
Business lending
Real estate finance 368.0 133.7 109.0 95.8
Asset finance 70.7 4.5 20.1 -
Commercial finance 29.3 5.0 9.3 -
Unsecured lending:
Personal lending 74.3 87.6 - -
Motor 165.7 137.9 0.2 0.2
Retail 220.4 116.7 - -
Other 4.3 14.7 - -
At 31 December 932.7 500.1 138.6 96.0
Concentration by region:
East Anglia 87.0 35.6 28.1 7.2
East Midlands 39.4 24.7 1.1 -
London 297.5 149.3 55.0 41.6
North East 23.2 17.8 0.6 17.6
North West 69.9 43.5 4.9 -
Northern Ireland 7.8 6.0 - -
Scotland 59.5 36.0 2.0 -
South East 122.2 74.5 28.4 17.8
South West 42.6 29.2 4.4 10.5
Wales 33.5 20.6 1.4 -
West Midlands 56.4 32.4 4.0 1.3
Yorkshire and the Humber 50.0 30.5 3.0 -
Overseas 43.7 - 5.7 -
At 31 December 932.7 500.1 138.6 96.0
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.
The Everyday Loans 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 2015 the gross balance of rescheduled
loans included in the Consolidated Statement of Financial Position was £14.9 million, with an allowance for impairment on
these loans of £1.0 million. The gross balance of deferred loans was £3.4 million with an allowance for impairment on these
of £0.6 million. (31 December 2014: the gross balance of rescheduled loans was £14.7 million, with an allowance for
impairment of £1.0 million. The gross balance of deferred loans was £3.0 million with an allowance for impairment of £0.4
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 considers 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 £1.0m or less
(2014: £0.8m or less) for the Company and Group, with the same impact to equity pre-tax.
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.
Group Within 3 months More than 3 months but less than 6 months More than 6 months but less than 1 year More than 1 year but less than 5 years More than 5 years Non interest bearing Total
As at 31 December 2015 £million £million £million £million £million £million £million
ASSETS
Cash and balances at central banks 131.8 - - - - - 131.8
Loans and advances to banks 9.8 - - - - - 9.8
Debt securities held-to-maturity 3.8 - - - - - 3.8
Loans and advances to customers 163.4 138.4 172.2 520.9 - (34.3) 960.6
Other assets - - - - - 22.9 22.9
Assets held for sale 118.5 - - - - - 118.5
Total assets 427.3 138.4 172.2 520.9 - (11.4) 1,247.4
LIABILITIES AND EQUITY
Due to banks - 35.0 - - - - 35.0
Deposits from customers 97.9 371.0
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