Secure Trust BankPLC - Interim results for the six months to 30 June 2021
05/08/2021 07:00
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RNS Number : 6261H Secure Trust Bank PLC 05 August 2021
PRESS RELEASE
Thursday, 5 August 2021
For immediate release
LEI: 213800CXIBLC2TMIGI76
SECURE TRUST BANK PLC
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK domestic
law by virtue of the European Union (Withdrawal) Act 2018.
Interim Results for the six months to 30 June 2021
Record results as economic recovery continues
Secure Trust Bank PLC ("STB") is pleased to announce a record trading
performance for the six months to 30 June 2021 ("H1 2021") with the positive
trends experienced in the first quarter continuing into the second quarter.
STB achieved a statutory profit before tax of £30.7 million in H1 2021 (H1
2020: £5.1 million). STB is announcing a new dividend policy and declaring an
interim dividend of 20 pence per share for 2021 (H1 2020: nil).
New lending volumes across the Group's core businesses have continued the
improvement seen in the second half of 2020, resulting in operating income of
£80.2 million (H1 2020: £84.9 million). The low arrears position that the
Group experienced throughout 2020 has continued into 2021. The majority of
remaining customers on payment holidays have returned to full payment.
As a result, and with a further reduction from applying a modest improvement
in the forward-looking economic assumptions used for IFRS 9 provisioning,
along with an improved quality loan book, and the reduced size of the Motor
Finance book, impairments for H1 2021 fell significantly to a release of £1.1
million, compared with a charge of £31.5 million for H1 2020. Cost of risk
consequently fell year-on-year from 2.9% to (0.2)%. Capital ratios and
liquidity metrics remain very healthy. Costs of £51.3 million grew during the
period (H1 2020: £44.7 million), reflecting continuing investment in our
operations, readiness for growth in our core businesses and recognition of a
one-off credit relating to 2020.
To balance returns to shareholders with investment for future growth, the
Board's dividend policy is to target an annual 25% pay-out ratio. The interim
dividend of 20 pence per share for 2021 is payable on 27 September 2021 to
shareholders on the register at the close of business on 27 August 2021.
FINANCIAL HIGHLIGHTS
6 months to 6 months to Change
30 June 2021 30 June 2020 %
Statutory profit before tax £30.7m £5.1m 502.0
Basic earnings per share 139.5 pence 21.0 pence 564.3
Ordinary dividend per share 20 pence none -
Return on average equity 18.8% 3.0% 526.7
Net interest margin 6.3% 6.4% (1.6)
Cost of Risk (0.2)% 2.9% (106.9)
Cost income ratio 64.0% 52.7% 21.4
30 June 31 Dec Change
2021 2020 %
Loan Book(1) £2,389.9m £2,358.9m 1.3
Deposits £1,939.7m £1,992.5m (2.6)
CET 1 capital ratio 14.2% 14.2% 0.7
Total capital ratio 16.5% 16.4% 0.6
1. Includes assets held for sale of £62.4 million as at 30 June 2021.
OPERATIONAL HIGHLIGHTS
· Total H1 2021 new business lending volumes recovered, increasing
year-on-year by 28.1% to £624.9 million (H1 2020: £487.9 million)
· Core Business Finance balances remained broadly stable over H1
2021 at £1,296.0 million (31 December 2020: £1,282.6 million)
· Core Consumer Finance business returned to growth, with balances
increasing by 4.6% in H1 2021 to £1,029.0 million (31 December 2020: £984.1
million), with growth in Retail Finance and DMS
· Continued management of the mix of the savings book has
contributed to a further improvement in cost of funding, from 1.9% in H1 2020
to 1.4% in H1 2021
· Total customer numbers increased by 0.6% to 1,546,068 (December
2020: 1,536,602)
· Customer satisfaction remains high, with STB's FEEFO score
maintained at 4.7 stars
· Consistent with management's plans to simplify the Group,
post-period end STB sold its remaining SME Asset Finance portfolio to Haydock
Finance Limited, in addition to selling the Consumer Mortgage book to a
financing vehicle established by a global financial institution.
Outlook and Strategy
While STB's diversified business model and short duration balance sheet
continue to provide flexibility, the Board expects balance sheet growth to
accelerate during the second half of 2021.
STB's strategic focus is on its businesses that have the strongest prospects
for delivering sustainable and profitable medium to long-term growth. Within
these businesses, STB plans to extend its product offerings and develop its
product platforms, alongside further enhancing its digital capabilities.
As stated in STB's trading update of 12 July 2021, STB expects profit before
taxation for the full year ending 31 December 2021 to be above the top end of
the range of the then current market expectations*. While the Board is
encouraged by STB's current trading, it is cautious about the near to medium
term UK economic outlook, which remains uncertain. The Board is therefore
maintaining an appropriate provisioning policy in case economic conditions
worsen in the second half. The benefit arising from reduced provisioning
levels is expected to be less marked in the financial year ending 31 December
2022, given the increasing lending activity, expected higher costs and the
IFRS 9 provisioning required on new lending.
Given its strong trading performance for the six months to 30 June 2021, STB
remains well positioned to capitalise on the opportunity to build on its
strong foundations in its attractive, specialist lending markets and to
deliver its medium term targets issued in March 2021 and which are:
H1 2021 Actual Medium Term
Net Interest Margin 6.3% >6.0%
Cost income ratio 64.0% 50% - 55%
Return on Average Equity 18.8% 14% - 16%
CET 1 14.2% >12.0%
Capital Markets Day
STB has scheduled a Capital Markets Day for Wednesday, 3 November 2021, at
which, more detail will be shared on its purpose and strategy, its businesses
and markets, and its long-term growth ambitions.
Lord Forsyth, Chairman, said:
"This is a half year result which reflects the Group's skillful navigation of
the COVID-19 crisis and our agility in our chosen markets. The proposed
dividend of 20 pence per share returns value to shareholders whilst retaining
the capital needed to take advantage of the opportunities that a recovering
economy offers."
David McCreadie, Chief Executive Officer, said:
"The STB Group is in very good shape as the UK continues to move towards more
benign economic conditions and I am proud of the record results that we have
delivered and the contribution of our colleagues. There is strong potential
for all of our businesses to build further growth momentum over the coming
year. As we do so, we will retain the strong risk management focus that has so
far helped us to steer through the crisis.
This focus has helped to hold impairment charges down and this has been a key
driver of the first-half result. It is heartening to see that the great
majority of our customers who took advantage of payment holidays through the
pandemic have now returned to full payment. Helping our customers through
these difficult times has been of paramount importance to us and we will
maintain this ethos as the economy recovers.
We have learned a lot about ourselves, as an organisation and individually, as
we moved through the COVID-19 crisis. The way our colleagues have adapted to
swiftly changing conditions has been exemplary. It will be great for our
employees to be able to reconnect face-to-face, as we evolve our working model
in line with lockdown easing.
We are already moving forward with confidence to take advantage of the
economic recovery with growth ambitions in each of our markets."
*The Board considers current market expectations for the financial year ending
31 December 2021, at the time of its trading update of 12 July 2021, to have
ranged up to £36.8 million.
Results presentation
This announcement together with the associated investors' presentation are
available on:
www.securetrustbank.com/results-reports/results-reports-presentations
(https://protect-eu.mimecast.com/s/4b1ZCmwBzS5qyzGtOvXee?domain=securetrustbank.com)
STB will host a webcast for analysts and investors today, 5 August 2021 at
10.00a.m., which can be accessed by registering at:
webcasting.brrmedia.co.uk/broadcast/60d30f5c55a96337f0d9c198.
For those wishing to ask a question, please dial in to the event by conference
call:
Dial: +44 (0)330 336 9434
Confirmation code: 6308188
Enquiries:
Secure Trust Bank PLC
David McCreadie, Chief Executive Officer
Rachel Lawrence, Chief Financial Officer
Tel: 0121 693 9100
Stifel Nicolaus Europe Limited (Joint Broker)
Robin Mann
Gareth Hunt
Stewart Wallace
Tel: 020 7710 7600
Canaccord Genuity Limited (Joint Broker)
Emma Gabriel
Tel: 020 7523 8000
Tulchan Communications
Tom Murray
Sheebani Chothani
Tel: 020 7353 4200
Forward looking statements
This document contains forward looking statements about the business, strategy
and plans of STB and its current objectives, targets and expectations relating
to its future financial condition and performance. Statements that are not
historical facts, including statements about STB's or management's beliefs and
expectations, are forward looking statements. By their nature, forward looking
statements involve risk and uncertainty because they relate to events and
depend on circumstances that will occur in the future. STB's actual future
results may differ materially from the results expressed or implied in these
forward looking statements as a result of a variety of factors. These include
UK domestic and global economic and business conditions, risks concerning
borrower credit quality, market related risks including interest rate risk,
inherent risks regarding market conditions and similar contingencies outside
STB's control, the COVID-19 pandemic, expected credit losses in certain
scenarios involving forward looking data, any adverse experience in inherent
operational risks, any unexpected developments in regulation or regulatory,
and other factors. The forward looking statements contained in this document
are made as of the date of this document, and (except as required by law or
regulation) STB undertakes no obligation to update any of its forward looking
statements.
Key performance indicators
The following key performance indicators ('KPIs') are the primary measures
used by management to assess the performance of the Group:
The Remuneration Report, starting on page 83 of the Group's 2020 Annual
Report and Accounts, sets out how executive pay is linked to the assessment of
key financial and non-financial performance metrics.
These KPIs represent alternative performance measures that are not defined or
specified under IFRS. Definitions of the financial KPIs, their calculation
and an explanation of the reasons for their use can be found in the Appendix
to the Interim Report. In the narrative of this financial review, KPIs are
identified by being in bold font.
Margin ratios
June 2021 June 2020 Dec 2020
Net interest margin % 6.3 6.4 6.3
Why we measure this
Shows the interest margin earned on the Group's loan books, net of funding
costs
June 2021 June 2020 Dec 2020
Net revenue margin % 6.9 7.0 6.9
Why we measure this
Shows the overall net margin earned on the Group's loan books, including fees
and commissions
June 2021 June 2020 Dec 2020
Gross revenue margin % 8.3 8.9 8.7
Why we measure this
Shows the yield of the Group's loan books, including fee and commission income
Cost ratios
June 2021 June 2020 Dec 2020
Cost of funds % 1.4 1.9 1.8
Why we measure this
Measures the cost of the Group's customer deposits and other funding sources
June 2021 June 2020 Dec 2020
Cost to income ratio % 64.0 52.7 55.1
Why we measure this
Measures how efficiently the Group utilises its cost base to produce income
June 2021 June 2020 Dec 2020
Cost of risk % (0.2) 2.9 2.3
Why we measure this
Measures how effectively the Group manages the credit risk of its lending
portfolios
Loans
June 2021 June 2020 Dec 2020
Loans and advances to customers £m 2,389.9(1) 2,377.5 2,358.9
Why we measure this
Shows the growth in the Group's lending balances, which generate income
1. Includes Assets held for sale
June 2021 June 2020 Dec 2020
Loan to deposit ratio % 123.2 118.9 118.4
Why we measure this
Measures the adequacy of liquidity by comparing loan balances to customer
deposits
June 2021 June 2020 Dec 2020
Total funding ratio % 108.1 108.4 109.7
Why we measure this
Measures the adequacy of liquidity by comparing all funding held by the Group
to loan balances
EPS
June 2021 June 2020 Dec 2020
Basic earnings per share pence 139.5 21.0 87.0
Why we measure this
Demonstrates the earnings attributable to each shareholder
Capital
June 2021 June 2020 Dec 2020
CET 1 Ratio % 14.2 13.5 14.2
Why we measure this
The Common Equity Tier 1 ('CET 1') ratio demonstrates the Group's capital
strength
Return ratios
June 2021 June 2020 Dec 2020
Return on average equity % 18.8 3.0 6.1
Why we measure this
Measures the Group's ability to generate profit from the equity available to
it
June 2021 June 2020 Dec 2020
Return on required equity % 21.6 3.1 6.5
Why we measure this
Relates profitability to the capital that the Group is required to hold
June 2021 June 2020 Dec 2020
Return on average assets % 2.0 0.3 0.6
Why we measure this
Demonstrates how profitable the Group's assets are in generating revenue
Non-financial KPIs
June 2021 June 2020 Dec 2020
Customer FEEFO ratings Stars 4.7 4.7 4.7
(mark out of 5 based on star rating from 594 reviews. (June 2020: 550 reviews,
December 2020: 1,466 reviews))
Why we measure this
Indicator of customer satisfaction with the Group's products and services
June 2021 June 2020 Dec 2020
Employee survey trust index score % N/A N/A 82
Why we measure this
Employee satisfaction: not measured at half year (December 2018 based on 2018
all staff survey)
(June 2021) (June 2020) (Dec 2020)
Environmental intensity indicator N/A N/A 3.1
(tonnes of carbon dioxide per £1 million Group income)
Why we measure this
Indicator of the Group's impact on the environment.
Chairman's statement
I am absolutely delighted to report a profit before tax for the first half of
this year of £30.7 million (30 June 2020: £5.1 million) and to propose an
interim dividend of 20 pence per share payable on 27 September 2021. The
challenges of 2020 are thankfully behind us and STB is determined to take
advantage of the opportunities that economic recovery brings. Our capital
ratios remain strong and we are well placed to drive growth in all of our
businesses.
David McCreadie as Chief Executive Officer has moved quickly to strengthen the
management team and deliver our strategy to focus on the businesses that have
the strongest prospects for delivering sustainable long term growth. We have
wound down our OneBill product and in July we sold our non-core books in SME
Asset Finance and Consumer Mortgages.
We will be holding a Capital Markets day for the first time in November to
enable shareholders to engage with the leaders of each of our businesses. I
think they will be as impressed as I am.
I was pleased to welcome Finlay Williamson to the Board last month. He comes
with a wealth of experience in banking and financial services and has been
appointed to the Risk and Nomination Committees. Charles Mayo too is a great
addition to our team and joined us from Simmons & Simmons as our General
Counsel following the untimely death of Alan Karter.
My thanks go to the whole Board for the tremendous support they have given to
enable us to navigate through this extraordinary period of uncertainty.
As a specialist bank with a diverse portfolio, proven business model and a
strong team, we have performed exceptionally through what sometimes felt like
the worst of times. I am really proud of the way our people met that challenge
and look forward to the future with renewed confidence.
Lord Forsyth
Chairman
4 August 2021
Chief Executive's statement
A positive performance and return to growth
I am delighted to report such a positive set of interim results which
evidences the Group's readiness to take advantage of the improving economic
outlook. The success to date of the vaccination programme and UK Government's
economic interventions provides cause for optimism and allows us to move ahead
with our growth agenda, supported by the record level of interim profits.
We explained in our 2020 Annual Report and Accounts how the COVID-19 pandemic
caused our balance sheet to contract from the second quarter of that year.
With all of our core businesses exhibiting healthy growth potential, customer
lending balances have climbed back to £2,389.9(1) million, which is up 1.3%
on the 2020 year-end position of £2,358.9, despite the continued pandemic
restrictions remaining in place for much of the period. Excluding our non-core
business lines, lending balances increased by 2.6%.
1. Including Assets held for sale.
The growth we have experienced has had an adverse impact on our cost to income
ratio in the short-term, but this ratio will improve as the balance sheet
growth brings additional revenues and we remain committed to the medium term
target for cost to income that we outlined earlier this year.
Throughout the pandemic we supported our Consumer Finance borrowers by
offering payment holidays in line with regulatory guidance. The vast majority
of these arrangements have now concluded, with no material increase in loan
defaults. As the economic outlook has improved, we have also slightly reduced
the severity of the forward-looking scenarios which feed IFRS 9 provision
models. Along with an improved quality loan book, and the reduced size of the
Motor Finance book, impairments are significantly down on the prior period.
Our cost of risk reduced to (0.2%) from 2.9% at the equivalent point in 2020,
driven by the release of provisions. We continue to hold sufficient
provisions, with 3.1% provision cover on the loan book (December 2020: 3.4%).
These factors have contributed to a record profit before tax for the period of
£30.7 million, over six times higher than the profit for the six months to 30
June 2020.
Capital and liquidity remain healthy
The earnings in the year, partially offset by movements in the IFRS 9
transitional relief have resulted in a stable CET 1 ratio, and a modest
improvement in total capital ratio.
We have sufficient levels of capital to fund our growth ambitions over the
coming years. Clearly, we will closely monitor for any changes to capital
requirements as the pandemic eases, particularly the restoration of the
countercyclical capital buffer. We have no current plans to raise additional
capital outside of retained profits.
The suppression of lending growth throughout the pandemic allowed us to manage
liquidity levels down, and to move funding away from higher cost fixed rate
deposits to Access accounts and ISAs. This has continued to have a positive
impact on funding costs in the period. Liquidity levels continue to be
significantly higher than regulatory requirements.
Supporting our customers
I am pleased that our customer service scores reflect the positive ways we
supported our customers during the pandemic. The most recent ratings, measured
through Feefo, show that our average score remains at 4.7 stars out of 5.
In addition to the payment holidays offered to our Consumer Finance customers,
we also offered CBILS and CLBILS (see the Commercial Finance interim business
review for definition) loans to our existing Commercial Finance customers. The
window for providing these has now ended and loan repayments are now being
received. We are also now accredited to support customers through the Recovery
Loan Scheme.
The overall number of customers has increased by 0.6% from 1,536,602 at 31
December 2020 to 1,546,068, despite the closure of our OneBill product, which
I address later in this report.
A changing experience for our employees
Our employees have also been significantly impacted by COVID-19 and the
necessary restrictions imposed upon them. The majority continue to work from
home, and we have closely monitored levels of engagement, motivation and
wellbeing to ensure this way of working can continue to operate effectively.
Employee surveys continue to show very positive results.
We continue to take the issue of wellbeing and mental health extremely
seriously. We recently extended our offer of a "wellbeing hour", where
employees can take time to participate in activities which promote good mental
health and positivity, to being a monthly event. This is in addition to other
initiatives, including our network of mental health first aiders across the
organisation.
Our offices have continued to be open, adjusted to allow full social
distancing. We are planning to move towards a hybrid working arrangement, on a
phased basis, during the third quarter of this year. This will allow us to
re-establish the advantages of an office environment alongside retaining the
benefits that we have learned can arise from home working arrangements. We
have consulted widely with employees over these changes and will be supporting
them closely as we go through this transition.
Benefits of a diverse portfolio
One of the key benefits of our diverse business portfolio is the ability to
shift our business mix to meet conditions, balancing capital, profitability
and market considerations. This served us extremely well throughout the
COVID-19 crisis.
This flexibility is also highly valuable as we move back into our more usual
growth pattern. As restrictions ease, the markets that we operate in are at
different stages of returning to normal. Our diversification allows us to take
advantage of improving market conditions as they occur.
This is particularly evident in our Retail Finance portfolio, where we have
seen growth of 5.5% in customer lending balances over the period to £694.3
million (31 December 2020: £658.4 million). This growth has started to
accelerate, with the reopening of non-essential stores adding to our already
strong online offering. The return of sporting events has also boosted this
business, as we have resumed our funding of the purchase of season tickets.
Motor Finance has seen a slower return to growth. In the second quarter of
2021, we started to relax the additional credit restrictions that we put in
place as the pandemic took hold. This will allow us to push forward in the
prime and near-prime markets, taking advantage of the Motor Transformation
Programme enhancements that were delivered in 2020.
We have also seen strong collections performance across our Consumer
businesses, including in our debt management business, DMS.
Total core Business Finance lending balances have seen growth over the first
half of 2021, closing at £1,296.0 million (31 December 2020: £1,282.6
million). Rebuilding pipelines of new lending for these businesses, as the
pandemic recedes, will take more time than for our Consumer Finance business.
For Real Estate Finance, opportunities in the residential investment market in
Q1 2021 were limited, but the launch of a new product aimed at energy
efficient properties has seen the pipeline grow in Q2 2021.
Commercial Finance is operating in a market where, since the onset of the
crisis, utilisation of agreed facilities has contracted and greater complexity
of deals in the market is causing protracted lead times. It is therefore
taking us longer to build a consistent pipeline, although balances have
started to grow again.
Supporting our lending businesses, our Savings team has continued to bring in
funding in line with our asset growth and has managed the mix of deposits so
as to improve our funding costs. Our ISA product has continued to perform
well, with balances up 34% since the year-end to £173.4 million (31 December
2020: £129.6 million). Sight and Access deposits are also substantially up,
to £109.6 million from £81.4 million at 31 December 2020, providing us with
a more flexible and cost-effective funding base.
Evolving strategy
Following our recent management changes, including my appointment as CEO, work
is now well underway to evolve the articulation of our strategy.
Preparation has started for our Capital Markets Day in November, where we will
share additional detail in respect of our strategy, plans and businesses.
Refined strategic objectives will then form part of our next Annual Report and
Accounts.
We are progressing with plans to focus on our core businesses. Following the
previous closures of our current account and personal lending products, we
took the difficult decision in 2020 to close our OneBill product. This had
been closed to new business since 2009 and had a declining customer base. The
closure of accounts is now completed.
In addition, during the first half of 2021, we made the decision to sell two
of our non-core books: Asset Finance and Consumer Mortgages, both of which
have been in run-off for some time. Disposals of both portfolios were
announced and completed in July 2021 and will have limited impact on STB
operations as both loan books were outsourced to third party providers.
Outlook
We are looking forward with confidence on the back of our first half
performance and the improving economic outlook. At the same time, we do have
to recognise that further challenges may arise before we have seen the end of
the pandemic impacts.
We have demonstrated our strengths and our effectiveness, both through times
of high growth and in the most difficult of circumstances. Our team is strong,
our capital and liquidity positions healthy, and our focus now aligned on our
core businesses which all have clear growth potential. I am very excited about
our prospects and look forward to setting out further details of our ambitions
later in the year.
David McCreadie
Chief Executive Officer
4 August 2021
Interim business review
Business Finance
Focused on returning to growth and establishing a strong pipeline for new
business.
Revenue and lending performance vs prior periods
Real Estate Finance
June 2021 June 2020 Dec 2020
Lending revenue 27.5 26.7 54.0
Lending balance 1,056.6 1,036.8 1,051.9
Impairment charge 1.1 2.0 5.2
Commercial Finance
June 2021 June 2020 Dec 2020
Lending revenue 7.6 6.9 15.2
Lending balance 239.4 191.6 230.7
Impairment charge 0.0 1.1 1.1
In the charts above, lending revenue and the impairment charge for December
2020 are those for the full year.
Real Estate Finance
The division supports SMEs in providing finance principally for residential
development and residential investment.
2021 performance
With the continuation of lockdown into 2021, the business has remained focused
on managing the impact on customers and maintaining strong risk management.
Existing developments have continued to be funded, and the business has been
able to successfully refinance a number of maturing deals. This has enabled
balances to remain steady with the overall loan book being marginally above
year-end balances, closing at £1,056.6 million. Revenue has therefore also
been stable at £27.5 million in H1 2021 (H1 2020: £26.7 million).
Whilst we have seen an increase in credit risk on a small number of cases
within the loan book, resulting in an increased level of balances in Stage 2
and 3 for IFRS 9 purposes, the book has continued to perform well, and, with
the macroeconomic factors looking more favourable, the level of impairment
charges in H1 2021 has been low at £1.1 million (H1 2020: £2.0 million).
Looking forward
With the economy now coming out of lockdown, the focus of the business will
move towards rebuilding new business levels and on growing the business into
the future. We will continue to manage our appetite in respect of new lending
opportunities cautiously, focusing on niche areas of the market where we
believe that returns and leverage are acceptable.
Commercial Finance
Commercial Finance specialises in providing a range of invoice financing
solutions to UK businesses including invoice discounting and factoring.
2021 performance
Government support available for UK businesses during COVID-19 has ensured
that high levels of market liquidity have driven down utilisation rates across
the Asset Based Finance industry. However, the Commercial Finance book has
performed well, with strong collections evidenced and the balance sheet
returning to pre-pandemic levels. This has been largely driven by relatively
low attrition and new business exceeding plan. As a result, revenue increased
by 10% from £6.9 million in H1 2020 to £7.6 million, with loan balances
increasing by £8.7 million since 31 December 2020.
In H1 2021, the British Business Bank approved the Company's application to
offer clients support under the Recovery Loan Scheme ('RLS'); this is the
successor to the Government's Coronavirus Business Interruption Loan Scheme
('CBILS') and Coronavirus Large Business Interruption Loan Scheme ('CLBILS').
As with CBILS and CLBILS, the Government guarantees up to 80% of each RLS
facility.
Looking forward
As the Government support for the SME sector recedes, we expect liquidity
levels in the market will also start to fall. We therefore anticipate that in
H2 2021, clients will move to normal trading conditions and utilisation rates
will then improve. On the back of this we would expect related income and
returns to both increase.
Consumer Finance
Strong consumer new business in the first half of 2021 signals recovery from
pandemic
Revenue and lending performance vs prior periods
Retail Finance
June 2021 June 2020 Dec 2020
Lending revenue 32.7 36.7 70.7
Lending balance 694.3 647.7 658.4
Impairment charge 2.4 12.9 14.5
Motor Finance
June 2021 June 2020 Dec 2020
Lending revenue 19.4 25.6 45.5
Lending balance 244.3 289.0 243.9
Impairment (credit)/charge (3.4) 14.9 20.7
Debt Managers (Services) Limited
June 2021 June 2020 Dec 2020
Lending revenue 7.4 7.1 14.8
Lending balance 90.4 93.1 81.8
Impairment (credit)/charge (0.8) 0.0 8.9
In the charts above, lending revenue and the impairment charge/(credit) for
December 2020 are those for the full year.
Retail Finance
Retail Finance includes lending products for use by in-store and online
retailers to enable consumer purchases.
2021 performance
The Retail Finance business has been less heavily impacted by COVID-19, as its
retailer partners have evolved sales and fulfilment practices to work more
effectively within social distancing requirements. Since mid-April, the
re-opening of stores has led to an increase in sales and loan volumes in Q2
2021 compared to Q1 2021. Online sales performances were less impacted with
sports and leisure sectors showing consistent volumes year on year.
As a result, new lending volumes increased to £353.1 million (an increase of
22% on the equivalent period last year), with new business more heavily skewed
towards Q2 2021. This has led to an increase of 5.5% in closing lending
assets, to £694.3 million at the end of H1 2021 (31 December 2020: £658.4
million).
In terms of the three largest sub-markets, furniture and jewellery saw an
increase in lending, with sports and leisure seeing a decrease. Despite the
increase in volumes, market share (based on Finance & Leasing Association
new business values within retail store and online credit) has remained
relatively stable.
Revenue decreased by 10.9% to £32.7 million in H1 2021, compared to £36.7
million in H1 2020, which is linked to lower average lending balances.
Impairment charges decreased to £2.3 million (H1 2020: £12.9 million) and
are mainly driven by lower provisioning under IFRS 9 for macroeconomic
factors and improved customer credit quality linked to increased mix of
interest free lending. Payment holidays granted to customers have largely
unwound with only 376 customers remaining in a payment holiday at 30 June 2021
(17,056 customers in a payment holiday at 30 June 2020) which represents less
than 0.05% of active customer numbers.
Looking forward
The Group plans to build further growth within its Retail Finance business as
customer demand returns to normal. We will continue to invest in initiatives
to further enhance systems capabilities, to ensure that quality of service to
both retailers and customers is maintained or improved as well as generating
operational efficiencies. This includes enhancements to telephony systems,
customer management systems and increased functionality for customers using
our online portal to help them self-serve their needs.
Motor Finance
Consumer Finance is arranged through motor dealerships, brokers and internet
introducers and involves fixed rate, fixed term hire purchase arrangements,
predominantly on used cars.
2021 performance
The Motor Finance industry proved better able to cope with COVID-19
restrictions in H1 2021 versus H1 2020 with used cars purchased on finance, by
consumers through the point of sale, up 161% in the three months to May 2021
over prior year(1). Motor Finance new business volumes increased from £46.7
million (H1 2020) to £78.4 million in H1 2021. Despite this growth in new
business, total loans and advances to customers remained stable compared to
the end of 2020.
1. Source: Finance and Leasing Association
Revenue declined from £25.6 million in H1 2020 to £19.4 million in H1 2021
as a result of a smaller loan book in comparison to the end of H1 2020.The
impact of payment holidays significantly reduced in H1 2021 and by the end of
June 2021, only 16 Motor Finance customers (0.03%) remained in active COVID-19
payment holidays compared to 1.2% at 31 December 2020.
Impairment charges for the period have reduced significantly from £14.9
million in H1 2020 to a release of £3.4 million in H1 2021; the improvement
is driven by a smaller loan book, lower credit defaults than expected, and an
improving macro-economic outlook.
Looking forward
Restricted lending criteria which were applied in H2 2020 and Q1 2021 have now
been largely returned to pre-COVID-19 levels and the Motor Finance business is
working with introducers and dealers to reinstate its position on lending
panels.
We remain committed to expanding into the prime credit market under the V12
Vehicle Finance brand, to drive long-term receivables growth and sustainable
return outcomes. The requisite system and business capabilities have been
delivered, allowing us to take advantage of the opportunity to deliver prime
and near prime products and services in the motor lending market as an
innovative and technology-led funding provider.
The Motor Transformation Programme, which has seen £10.1 million already
invested since the programme started in 2018, will now focus on further system
enhancements and delivery of a PCP product.
Motor Finance is now well-placed to improve the credit quality of the
portfolio, drive business growth and deliver stable earnings.
Debt Managers (Services) Limited
Debt Managers (Services) Limited ('DMS') is the Bank's debt collection
business.
2021 performance
Revenue increased from £7.1million in H1 2020 to £7.4 million in H1 2021. A
strong collections performance in H1 2021, where collections were 106% of
forecast, led to an impairment credit of £0.8 million in the period. COVID-19
has not adversely impacted customers' ability to pay during the period. Costs
were higher year on year due to higher levels of reconnection and litigation
activity including some activity delayed from 2020.
Looking forward
Despite the strong start to 2021, there continues to be a level of uncertainty
surrounding the customers' ability to pay once the Government support measures
are withdrawn and the related potential impact on future collections
performance. Furthermore, we are seeing UK financial institutions delaying
their debt sales to later in 2021 or into 2022, which may delay the new
business opportunities and revenue growth in 2021. DMS is improving its
digital service to customers with the launch of a new customer portal in H2
2021, which will both improve the customer journey and reduce the cost to
collect.
Non-core lending
Asset Finance
The Asset Finance business provides funding to support SME businesses in
acquiring commercial assets, such as building equipment, commercial vehicles
and manufacturing equipment.
2021 performance
The Group ceased originating loans in 2018, and the portfolio was recorded as
Assets held for sale at the half year (£5.8 million) as we were in advanced
negotiations for the sale of the residual portfolio. The portfolio continued
to reduce in line with expectations during the half year, with income reducing
accordingly. Impairments remained low with the book showing no signs of
distress. During July 2021, the sale concluded, which will result in an
immaterial impact to the income statement in H2 2021.
Consumer Mortgages
Consumer mortgages represents fixed rate mortgages provided to individuals,
to purchase a property or remortgage their current property. We ceased
originating new consumer mortgages in the first quarter of 2019.
2021 performance
The book continues to reduce, with balances at the end of the period of
£56.6 million (31 December 2020: £77.7 million). Revenue for the period
was £1.3 million, reducing in line with the loan book (H1 2020: £1.7
million).
The loan book was recorded as Assets held for sale at 30 June 2021 as we were
in advanced stages of selling the portfolio. During July 2021, the sale
completed, which will result in an immaterial impact to the income statement
in H2 2021.
Looking forward
There are no plans to re-establish either Asset Finance or Consumer Mortgage
products, with the Group's strategy focusing on core products.
Savings
Stable funding base provided at reducing cost of funds, with high customer
experience standards.
Revenue and lending performance vs prior periods
June 2021 June 2020 Dec 2020
Notice deposits 684.1 679.9 705.1
Fixed Term Savings 972.6 1,185.2 1,076.4
Sight/Instant Access 109.6 53.9 81.4
Individual Saving Accounts 173.4 80.2 129.6
The Group attracts funding primarily via retail savings, offering individuals
competitive, simple products, applied for and serviced online backed by the UK
Financial Services Compensation Scheme.
2021 performance
During the first half of the year the Savings business has demonstrated the
ability to attract and retain stable retail deposits in what is again becoming
an increasingly competitive market, while providing support to continue to
grow the business in a cost-effective way.
Throughout the period, we have focused on maintaining our high standards of
customer service while continuing to keep our people safe in the Group's
offices or working from home. Our track record of generating strong customer
review scores has continued in 2021.
Having taken action in 2020, we continued to reduce our cost of retail
deposits through the first six months of this year. We have again sought a
balance of continuing to offer fair and competitive rates of interest to
retain existing customers and stable retail deposits whilst reflecting market
reductions.
New funding has been raised through the retail savings market as required. In
H1 2021, over 9,500 accounts were opened because of new fund raising and
customer retention. This generated £395 million of deposits, with the
majority (£222 million) from new funding to accounts.
Our strategy to diversify our product range through our Fixed Rate ISA and
Access products has continued to successfully lower our cost of new retail
deposits. ISA balances have grown to £173.4 million (31 December 2020:
£129.6 million) evidencing our continued growth in this market. Access
deposits have similarly grown to £109.6 million (31 December 2020: £81.4
million), driven by customers' funds maturing into a competitive product.
Operational cost management is also a continued focus, including simplifying
the operation in the first half of the year with the closure of two historic
products - our OneBill account and a small book of non-personal savings
products.
Looking forward
We anticipate increased competition in the savings market over H2 2021, with
the potential for longer term fixed term savings rates to continue to
increase.
We are well placed through our broad product range to access liquidity as
required while managing the cost of funds. This will involve continuing to
extend our Access and ISA accounts to a wider group of new customers.
In the second half of the year, we intend to continue streamlining our savings
account opening process to improve the customer experience, reduce costs and
further improve application conversion.
Longer term development of our digital proposition alongside our already
strong customer experience will further support our ability to attract and
retain customers, creating a platform to support the cost-effective growth of
retail deposit balances, customers, and transactions. This will include
consideration of the launch of mobile services and the use of Open Banking.
Economic and regulatory environment
Macroeconomic
Recent developments
There are encouraging signs that economic recovery is underway. Although
uncertainty remains, the continuation of Government support alongside a very
successful UK vaccine programme has brought the country closer to a more
normal way of life. This is turn has brought about the beginning of an
improvement in economic conditions.
The year began with the UK entering its third national lockdown, as COVID-19
cases rose sharply towards a significant spike. Hotel quarantine for
travellers arriving into the UK from higher-risk countries came into force in
February, and later that month, the UK Government published its roadmap for
the easing of lockdown restrictions. The first three of the four steps set out
in the roadmap happened on the expected dates, including the reopening of
schools on 8 March.
The final step of the roadmap took place on 19 July. The rise of the delta
variant brought a delay to the original 21 June date for this step. It is this
and future variants, and the ability of current vaccines to mitigate their
effects, that create most of the remaining uncertainty.
Although still well below pre-pandemic levels, UK GDP grew sharply in the
second quarter of 2021, assisted by the reopening of many non-essential shops
and services. This followed a fall of 9.8% in 2020. Certain sectors, such as
hospitality and entertainment, remain subject to restrictions and are yet to
experience an upturn in fortunes. CBI surveys show a significant improvement
in business confidence over the second quarter.
It is too early to assess the long-term impact of the UK's trading arrangement
with the European Union ('EU'), but imports and exports are currently much
lower than previous levels. There is anecdotal evidence of supply chain issues
in some sectors, though the overall impact on the economy has been modest to
date. As the pandemic eases and Government restrictions are fully lifted, it
will be easier to understand and manage the effects of Brexit on the economy.
Outlook
Economic forecasts are now highlighting much more positive outlooks than those
produced in 2020. The June CBI forecast showed an expected 8.2% growth in GDP
in 2021. Both this and the May Monetary Policy Committee ('MPC') report
suggested that GDP would be back to pre-pandemic levels by the end of 2021.
These projected growth levels were biased towards Government consumption in
2021, with business investment bouncing back strongly in 2022.
These forecasts also suggest imports and exports returning to more normal
levels in 2022. The consensus among analysts is that the current disruption
to trade with the EU will be temporary, though they are not clear on how long
it will last.
Most of the Government schemes, including furlough, will come to an end in
September. An increase in unemployment is still expected by many, though most
forecasts show a later and less pronounced spike in unemployment than earlier
views. The removal of furlough may also lead to labour market friction, with
certain industries more impacted than others given the degree to which they
have been affected by COVID-19. We have reflected this sentiment in the
forward-looking assumptions that feed our IFRS 9 impairment models.
With the pandemic reducing consumer confidence, it being more difficult to
purchase goods and services and the provision of support such as payment
holidays, household savings are at a heightened level. It remains to be seen
how much of these savings will be redirected to future expenditure. Survey
results to date suggest that consumers' current intention is to retain these
savings, and it is likely to require a longer period of a more normal
environment before this position changes.
There are therefore strong grounds for optimism and the outlook is more
optimistic than in December 2020 but there is a long way to go before any of
us are able to predict future outcomes with a high degree of confidence.
Uncertainty remains regarding the evolution of COVID-19 and its variants, the
public health response including the ongoing need for restriction, and the
reaction of households and businesses.
Government and regulatory
Recent developments
The March 2021 Budget included an extension to business support schemes, as
well as furlough which as noted above now continues until September 2021.
Other measures introduced included a capital allowance super deduction, aimed
at stimulating business investment.
Since this Budget, with the vaccination programme successful and many of the
lockdown restrictions lifted, the Government has not announced any further
extensions to furlough or payment holidays. With the economy improving and
business sentiment becoming more positive, such extensions are now unlikely.
The MPC has continued to hold interest rates at 0.1% and maintained its bond
purchase programme. Although still a possibility, the likelihood of negative
interest rates being introduced is lower than it was towards the end of 2020.
Inflation is expected to rise in late 2021 and early 2022, driven by rising
energy prices, which would further reduce this likelihood.
Outside of COVID-19 related matters, the PRA published its discussion paper
DP1/21 on "a strong and simple prudential framework for non-systemic banks and
building societies". This paper sets out ways in which the regulatory regime
may be simplified for smaller firms over the coming years. We welcome the
overall aims set out in the paper, as the regulatory burden can be a barrier
to growth for smaller firms and prevent new entrants, thereby harming
competition. We would urge caution that the new approach does not replace a
complex regime with excessive conservatism, leading to higher capital and
liquidity requirements for the firms affected.
Outlook
The longer-term actions of Government and regulators, as attention turns from
the pandemic to rebuilding the economy, remain to be seen. The approaches
taken to monetary, fiscal and regulatory policy as life returns to normal will
shape the competitive environment in which we operate.
One such item is taxation. While planned increases to corporation tax are now
known, the treatment of the banking surcharge going forward is not yet clear.
The final decision made will impact the Group's capital planning and the level
of deferred tax assets carried.
With the transition away from European regulation, the evolution of the
regulatory regime in the UK will be of particular interest. It is expected
that the Basel III reforms due from 1 January 2023 will be introduced in the
UK, albeit modified by the "strong and simple" approach mentioned above. We
are hopeful that these changes will make a genuine difference to competition
in UK banking, by levelling the playing field between the large Internal
Ratings-Based ('IRB') institutions and smaller firms who use the Standardised
Approach.
Interim financial review
Profit and earnings
During the first six months of 2021, the Group saw a recovery back to growth
in its core products. The benign arrears position, the improvement in quality
in our consumer lending books, lower lending balances and a small improvement
in forward looking macroeconomic indicators resulted in impairment charges
falling significantly.
Statutory profit before tax increased from £5.1 million (H1 2020) to £30.7
million (H1 2021). As a result, earnings per share rose to 139.5 pence per
share (H1 2020: 21.0 pence per share). Detailed disclosures of earnings per
ordinary share are shown in Note 6.
Return on average equity increased from 3.0% (H1 2020) to 18.8%, and the
return on average assets increased from 0.3% (H1 2020) to 2.0%. The components
of the Group's profit are analysed in more detail in the sections below.
Operating income
Net interest income of £73.5 million fell 5.6% compared to H1 2020 driven by
a reduction in average lending of 3.8% year on year. Motor Finance continued
to be impacted by lockdowns, the closed books reduced by 45.6%, offset by
growth in Business Finance and Retail Finance of 3.0%.
The Group continued to evolve the mix of the savings portfolio, with further
reductions in more expensive term products resulting in interest expense of
£15.5 million (H1 2020: £22.8 million), a reduction of 32.0% and a cost of
funds of 1.4% (H1 2020: 1.9%).
The Group's net interest margin reduced slightly from 6.4% in H1 2020 to 6.3%,
with the impact of lower levels of higher margin Motor Finance lending being
mostly offset by the lower funding costs.
Net fee and commission income fell by 4.3% to £6.7 million (H1 2020: £7.0
million). This has been primarily driven by the closure of the OneBill product
offset by the increase in Commercial Finance fee income.
Impairment credit
With an improving economic outlook after the peak of the pandemic, as well as
an improving quality loan book and a reduction in the Motor lending book, this
resulted in a significant impact on the levels of impairment provisions
required. The Group released provisions resulting in an impairment credit for
the period of £1.1 million (H1 2020: £31.5 million charge). As a result the
cost of risk was (0.2%) for the period (H1 2020: 2.9%).
The majority of our impairment credit arises from the Consumer Finance
businesses. The actual levels of defaults experienced over the period have
been minimal, with very few customers remaining on payment holidays, and most
of those previously on payment holidays returning to full payment.
Our IFRS 9 models use the correlation between macroeconomic variables, such as
unemployment and house price indices, and historic credit losses to derive
estimated future losses given a range of forecast variables. As described in
more detail in Note 2, we now expect these variables to be more optimistic
than was envisaged at the end of the year. They also reflect the extension of
furlough arrangements announced by the Government earlier in the year.
The impairment credit includes the impact of applying expert credit judgement,
resulting in overlays being adjusted to provision levels estimated using the
Group's models. A breakdown of the (credit)/charge by product is shown in Note
3. Further analysis of the Group's loan book and its credit risk exposures is
provided in Note 19.
Income statement 30 June 2021 £million 30 June 2020 Movement 31 Dec 2020
%
£million £million
Interest income and similar income 89.0 100.7 (11.6) 192.5
Interest expense and similar charges (15.5) (22.8) 32.0 (41.6)
Net interest income 73.5 77.9 (5.6) 150.9
Fee and commission income 7.0 7.5 (6.7) 16.0
Fee and commission expense (0.3) (0.5) 40.0 (0.8)
Net fee and commission income 6.7 7.0 (4.3) 15.2
Operating income 80.2 84.9 (5.5) 166.1
Net impairment credit/(charge) on loans and advances to customers 1.1 (31.5) 103.5 (51.3)
Gain/(losses) on modification of financial assets 0.7 (3.6) 119.4 (3.1)
Operating expenses (51.3) (44.7) (14.8) (91.6)
Profit before income tax 30.7 5.1 502.0 20.1
Income tax expense (4.7) (1.2) (291.7) (3.9)
Profit for the period 26.0 3.9 566.7 16.2
Basic earnings per share (pence) 139.5 21.0 564.3 87.0
Selected Key Performance Indicators
Net interest margin 6.3% 6.4% (1.6) 6.3%
Cost of funds 1.4% 1.9% (26.3) 1.8%
Cost to income ratio 64.0% 52.7% 21.4 55.1%
Cost of risk (0.2)% 2.9% (106.9) 2.3%
Return on average equity 18.8% 3.0% 526.7 6.1%
Return on average assets 2.0% 0.3% 566.7 0.6%
CET 1 ratio 14.2% 13.5% 5.2 14.2%
Total capital ratio 16.5% 15.9% 3.8 16.4%
Certain KPIs represent alternative performance measures that are not defined
or specified under IFRS. Definitions of the financial KPIs, their calculation
and an explanation of the reasons for their use can be found in the Appendix
to the Interim Report. In the narrative of this financial review, KPIs are
identified by being in bold font.
Operating expenses
Costs have grown compared to the same period in 2020, reflecting a one-off VAT
reclaim in 2020 (£1.7 million), continuing investment and readiness for
growth.
These factors have contributed to operating expenses increasing to £51.3
million (H1 2020: £44.7 million). The Group's cost to income ratio declined
from 52.7% (H1 2020) to 64.0%, and this ratio will improve as balance sheet
growth brings additional revenues.
Distributions to shareholders
The Board has recommended an interim dividend of 20 pence per share, noting no
dividend was recommended in June 2020 due to economic uncertainty. A final
dividend for 2020 of 44 pence per share was paid on 21 May 2021.
Taxation
The effective statutory tax rate has reduced to 15.3% (H1 2020: 23.5%). The
effective rate for the current period has decreased due to a deferred tax
credit arising from a reassessment of the rates that the deferred tax asset
would reverse out in future periods. The previous rates had assumed the level
of corporation tax would remain at 19% but legislation has been enacted during
the period so with effect from 1 April 2023 the corporation tax rate will
increase to 25%. Further information is provided in Note 5.
Summarised balance sheet
June June December
2021
2020
2020
£million £million £million
Assets
Cash and balances at central banks 138.4 109.6 181.5
Loans and advances to banks 43.3 42.0 63.3
Debt securities 15.0 35.0 -
Loans and advances to customers(1) 2,389.9 2,377.5 2,358.9
Derivative financial instruments 1.8 5.9 4.8
Other assets 48.7 60.7 55.6
2,637.1 2,630.7 2,664.1
Liabilities
Due to banks 310.4 268.1 276.4
Deposits from customers 1,939.7 1,999.2 1,992.5
Tier 2 subordinated liabilities 50.8 50.7 50.8
Derivative financial instruments 4.0 7.2 6.1
Other liabilities 43.5 46.2 67.8
2,348.4 2,371.4 2,393.6
1. Includes Assets held for sale of £62.4 million as at 30 June 2021.
Balance sheet
The assets of the Group fell slightly from year-end, closing at £2,637.1
million (31 December 2020: £2,664.1 million). The liabilities of the Group
also fell marginally to £2,348.4 million (31 December 2020: £2,393.6
million). Deposits from customers decreased by £52.8 million and other
funding increased by £34.0 million.
Loans and advances to customers
Loans and advances to customers include secured and unsecured loans and
finance lease receivables.
All core divisions returned to growth or remained flat to 31 December 2020
(increase of 2.6%).
Loan origination in the year, increased by 28.1% to £624.9 million (H1 2020:
£487.9 million). A significant proportion of this was generated by the Retail
Finance business (£353.1 million) reflecting the re-opening of stores, and
retailer partners adapting their sales processes as they emerge from the
pandemic.
Further analysis of loans and advances to customers, by business, including a
breakdown of the arrears profile of the Group's loan books, is provided in
Note 19.
Debt securities & Due to banks
Debt Securities consist solely of sterling UK Government Treasury Bills
('T-Bill'). T-Bill holdings increased to £15.0 million (31 December 2020:
nil), which are primarily used as collateral against the Term Funding Scheme
('TFS'), Term Funding Scheme with additional incentives for SMEs ('TFSME'),
and drawings with the Bank of England.
At the end of H1 2021 the amount due to banks consisted primarily of drawings
from the Bank of England TFS and TFSME Scheme. During the period, the Group
repaid £40.0 million of TFS drawings, ahead of contractual maturity, and
replaced this with drawings under TFSME. All TFS drawings are expected to be
replaced with TFSME drawings ahead of contractual maturity in February 2022.
In addition, £10.0 million of short term Indexed Long-Term Repo funding was
repaid.
Deposits from customers
Customer deposits include Fixed Term Cash ISA, Term, Notice and Sight/Access
deposits. During the period the Group closed the OneBill product and a small
book of non-personal savings products.
Customer deposits reduced by 2.6% during the period and closed at £1,939.7
million (31 December 2020: £1,992.5 million). This, combined with the
reduction in lending balances caused the total funding ratio to fall slightly
to 108.1% (31 December 2020: 109.7%). As set out in the liquidity section
below, the mix of the deposit book continues to shift from long-term fixed
rate bonds into ISAs and Sight/Access accounts. This has brought about the
improvement in cost of funds referred to in the operating income section of
the Interim financial review.
Tier 2 subordinated liabilities
Tier 2 subordinated liabilities represent two £25 million tranches of 6.75%
Fixed Rate Callable Subordinated Notes, including interest accrued. Further
details of the note issuances are provided in Note 14. The Notes qualify as
Tier 2 capital.
Management of capital
Our capital management policy is focused on optimising shareholder value over
the long term. Capital is allocated to achieve targeted risk adjusted returns
whilst ensuring appropriate surpluses are held above the minimum regulatory
requirements.
Capital resources
Capital resources increased over the period, from £328.8 million to £340.2
million. This includes the impact of the interim dividend of £3.7 million.
This was due to an increase in CET 1 capital, which was driven by retained
earnings growth, as well as the impact of changes to the pre-COVID 19 IFRS 9
transitional relief as noted below.
Details of the Group's regulatory capital is provided in Note 15.
30 June 30 June 31 December
2021 2020 2020
£million £million £million
Capital
CET 1 capital 293.7 279.3 283.7
Total Tier 2 capital 46.5 50.0 45.1
Total capital 340.2 329.3 328.8
Total risk exposure 2,065.0 2,073.6 2,001.5
30 June 30 June 31 December
2021 2020 2020
% % %
Capital ratios
CET 1 capital ratio 14.2 13.5 14.2
Total capital ratio 16.5 15.9 16.4
Leverage ratio 10.9 10.3 10.4
The Group has elected to adopt the IFRS 9 transitional rules. For 2021, this
allows for 50% (2020: 70%) of the initial IFRS 9 transition adjustment, net of
attributable deferred tax, to be added back to eligible capital. The same
relief is allowed in respect of increases in provisions since 1 January 2018
to 31 December 2019, except where these provisions relate to defaulted
accounts. The same relief is allowed for increases in provisions since 1
January 2020, however this is applied at 100% (2020: 100%), which was
introduced as a response to the COVID-19 pandemic. All transitional relief
will taper off by 31 December 2024.
Capital requirements
The Total Capital Requirement, set by the PRA, includes both the calculated
requirement derived using the standardised approach and the additional capital
derived in conjunction with the Group's Internal Capital Adequacy Assessment
Process ('ICAAP'). In addition, capital is held to cover generic buffers set
at a macroeconomic level by the PRA.
Risk weighted assets have increased slightly since year end, as a consequence
of the growth in Retail Finance and Commercial Finance, and a change in the
mix of business within Real Estate Finance. In addition the operational risk
calculation has been updated resulting in increased risk weighted assets. The
total risk exposure has increased from £2,001.5 million to £2,065.0 million.
The capital conservation buffer and countercyclical buffer remain unchanged
from year end, being 2.5% and 0% respectively.
30 June 30 June 31 December
2021 2020 2020
£million £million £million
Total Capital Requirement 195.6 207.6 191.5
Capital conservation buffer 51.6 51.8 50.0
Countercyclical buffer - - -
Total 247.2 259.4 241.5
Liquidity
We continued to hold significant surplus liquidity over the minimum
requirements throughout the period, managing liquidity by holding High Quality
Liquid Assets ('HQLA') and utilising predominantly retail funding from
customer deposits. Total liquid assets decreased from £232.1 million at 31
December 2020 to £185.9 million, primarily due to increased funding
requirements for Commercial Finance drawdowns in early 2021.
30 June 30 June 31 December
2021
2020
2020
Liquid assets
Aaa - Aa3 152.1 143.0 180.5
A1 - A3 28.7 24.7 46.5
Unrated 5.1 5.1 5.1
185.9 172.8 232.1
We continued to attract customer deposits to support balance sheet growth. We
continue to focus on attracting ISA and Access account funding, with less
emphasis on retaining more expensive fixed term bonds. The composition of
customer deposits is shown in the table below.
30 June 30 June 31 December
2021
2020
2020
Customer Deposits
Fixed term 50% 59% 54%
Notice 35% 34% 35%
Sight/Access 6% 3% 4%
ISA 9% 4% 7%
100% 100% 100%
Secure Trust Bank PLC is a participant in the Bank of England's Sterling Money
Market Operations under the Sterling Monetary Framework and has drawn £303.0
million under these schemes, increasing by £30.0 million since 31 December
2020. The Group has no liquid asset exposures outside of the United Kingdom
and no amounts that are either past due or impaired.
Management of liquidity
The Group uses a number of measures to manage liquidity. These include:
· The Overall Liquidity Adequacy Rule ('OLAR'), which is the Board's view
of the Group's liquidity needs as set out in the Board approved Internal
Liquidity Adequacy Assessment Process ('ILAAP')
· The Liquidity Coverage Ratio ('LCR'), which is a regulatory measure that
assesses net 30-day cash outflows as a proportion of HQLA
· Total funding ratio, as defined in the Appendix to the Interim report.
· High Quality Liquid Assets ('HQLA') are held in the Bank of England
Reserve Account and UK Treasury Bills. For LCR purposes the HQLA excludes UK
Treasury Bills which are encumbered to provide collateral as part of the
Group's TFS and TFSME drawings with the Bank of England. On this basis, the
HQLA at the end of H1 2021 was £128.3 million (31 December 2020: £172.8
million).
Risk management and principal risks
Risk overview
The Group operates an Enterprise-wide Risk Management Framework which governs
the process for identifying and managing risk across its business. The key
risks facing the Group, which it defines as principal risks, are detailed
below, alongside an up-to-date assessment. Climate Change Risk and Financial
Crime have been added as these are key areas of focus for the Group in 2021.
Further details of the Group's risk management frameworks, including risk
appetite statements and governance can be found on the Group's website:
www.securetrustbank.com.
Risk Description
Credit Risk The risk that a counterparty will be unable to pay amounts in full when they
fall due
Operational Risk 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 in
this table
Conduct Risk The potential for customers (and the business) to suffer financial loss or
other detriment through the actions and decisions made by the business and
its staff
Regulatory Risk The risk that the Group fails to be compliant with all relevant regulatory
requirements
Financial Crime Risk The risk that the Group fails to prevent the facilitation of financial crime
by not having effective systems and controls and does not meet regulatory
requirements
Capital Risk The risk that the Group will have insufficient capital resources to support
the business
Liquidity and Funding Risk 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
Market Risk The risk that the value of, or revenue generated from, the Group's assets and
liabilities is impacted as a result of market movements, predominantly
interest rates
Climate Change Risk The risks arising through climate change impacting the Group and our strategy
Changes to the Group's risk profile
Changes to the Group's risk profile since the position set out in the 2020
Annual Report and Accounts are set out below.
Update on impact of COVID-19 and UK withdrawal from European Union
The economic impact of COVID-19 on the UK economy has been lessened by the
high levels of Government support and the direct impact on the Group's lending
portfolio has been low from a credit risk perspective. Whilst, there is a high
level of uncertainty around the UK economy's exit from lockdown controls and
winding down of Government support packages, the credit portfolio remains well
positioned entering into this period of uncertainty.
Further context in respect of the COVID-19 pandemic can be found in the
economic and regulatory environment section.
The direct impact to the Group in relation to the withdrawal from the European
Union remains limited. The Group is exposed to any wider macroeconomic
impacts, although at this stage these appear limited and expectations remain
that there will be limited impact on the Group from the UK's withdrawal from
European Union.
Credit Risk
Consumer Finance Credit Risk: Improving
The Group is looking forward with cautious optimism, with the forecast views
on unemployment being far less severe than feared at this point last year.
Credit tightening implemented during the early stages of the pandemic have
been relaxed in a phased manner through the period. The small number of
remaining payment holidays are due to expire by the end of July in line with
expectation and regulatory guidance. No material impact on arrears has been
experienced in either consumer business as a result of payment holidays and
both businesses have seen lower than expected IFRS 9 provision charges for the
period.
New business volumes have increased significantly for the point of sale Retail
Finance portfolio in the first half of 2021, particularly in the second
quarter driven in part by the reopening of non-essential retail outlets on 12
April 2021.
Business Finance Credit Risk: Stable
The Business Finance portfolio has seen lending balances increase slightly
during the period, reflecting a continuation of the selective approach to new
business acquisition with limited redemptions occurring. In keeping with the
trend of declining forbearance requests seen during Q4 2020, the Real Estate
Finance business received negligible volumes of new forbearance requests
during H1 2021, with the few received generally seeking a short-term variation
from capital and interest payments to interest only. As was the case at the
end of the year, we have not seen any material change to the average
loan-to-value profile of the portfolio, at circa 60%.
Having become an accredited provider of CBILS and CLBILS in 2020, our
Commercial Finance business also became an accredited RLS lender during the
period as the CBILS and CLBILS application windows drew to a close. The
existing CBIL/CLBIL portfolio has performed in line with expectations and has
already seen a number of early redemptions. To date, only one RLS facility
application has been approved and drawn, and discussions with other potential
recipients remain ongoing.
Operational Risk: Stable
The Group's operational risk process and standards are defined in a formal
Operational Risk Policy and Framework, which is aligned to the Basel
Committee on Banking Supervision criteria for the sound management of
operational risk.
Key risk themes of operational risk focus in 2021 include:
· COVID-19 - in response to the COVID-19 crisis, the Group instigated its
crisis management processes and has been closely managing and monitoring the
operational impacts and risks over 2020 and 2021. A number of key changes to
our operating practices have been introduced to enable the Group to continue
to serve our customers across all our business units, protect our staff and
ensure the continued success and resilience of our business. These have been
closely monitored to ensure our control framework remains robust in managing
all operational risks. This will continue to be a key area of focus as the
implications of this pandemic evolves, including how we transition to more
established working practices as restrictions are lifted.
· Operational Resilience - The Group is progressing well with the
implementation of the recently published Operational Resilience requirements
and this will remain a priority for the Group.
· Regulatory Reporting - The Group has identified a number of improvements
that are required to be made to the controls over the production of some of
our Regulatory Reports. Delivery of these enhancements is being closely
monitored and managed under a formal project.
· Information Communications Technology (ICT) and Security Risks - The
Group recognises that threats to our ICT services and security are
continuously evolving and can result in significant adverse risk to any
financial institution's customers, operational capability and prudential
viability. The Group continues to invest in and improve its robust framework
of controls to identify, protect, respond to and recover from emerging cyber,
supply chain and technology threats, adapting its strategy in response to
observable changes in the threat landscape. As a result we are confident our
risk continues to be managed within appetite.
· Supplier Management - The Group recognises the need to effectively manage
and monitor its third-party suppliers and has invested in additional resource
to strengthen our supplier governance capabilities and develop an enhanced
control framework.
Conduct Risk: Stable
In response to the pandemic COVID-19, the Group responded quickly to enable us
to continue to serve customers across all business units, this included
implementing regulatory guidance on consumer credit and mortgages, for example
regarding forbearance.
The Group continued to operate within overall risk appetite, however, some
pressure was seen on some individual conduct risk metrics for example contact
centre service levels.
There continues to be monthly review and challenge of Key Risk Indicators
across the business, with the Group Executive Committee having oversight of
the first line activities for assurance to senior management that the first
line of defence is identifying conduct risks when they arise and taking
appropriate actions to mitigate them.
Training on Conduct Risk is provided to new starters, with an eLearning module
completed by all other employees during the period.
Regulatory Risk: Stable
In the period, there was an increased level of engagement with the regulators,
applications were submitted for changes to senior management functions, we
continued to provide regulatory reporting related to COVID-19, a number of
information requests were received from the Financial Conduct Authority
portfolio teams and notifications were submitted regarding material
outsourcing.
We delivered changes to implement new regulations for breathing space and
regulatory guidance on consumer credit and mortgages resulting from the
pandemic in Retail Finance, Motor Finance, Debt Management Services and
Consumer Mortgages.
The Group will continue to work on new and revised regulations and legislation
that will come into force over the next 18 months and beyond, including
operational resilience and outsourcing.
Financial Crime: Stable
The inherent risk of the Group has not materially changed over the period and
investment continues to be made in enhancing controls. This remains an
important area of focus for the Group and as such has now been separately
reflected as risk in its own right rather than being within operational risk.
Capital Risk: Stable
The Group's balance sheet and total risk exposure has increased since the
beginning of the year as the Group returns to growth post COVID-19
restrictions. The Group continues to benefit from the capital relief that has
been provided by the PRA in respect of IFRS 9 provisions.
The Group continues to meet its capital ratio measures. Details of the CET 1,
total capital ratio and leverage ratio are included in the capital sections of
the financial review. The Group continues to explore options to raise
additional forms of capital as and when required.
Liquidity and Funding Risk: Stable
The Group has maintained its liquidity and funding ratios in excess of
regulatory and internal risk appetite requirements throughout the first half
of the year. The Group continues to hold significant levels of high-quality
liquid assets and there is no material risk that liabilities cannot be met as
they fall due.
As at 31 December 2020, the Group had drawn £263.0 million of borrowing under
the Bank of England's Term Funding Scheme. In the first half of 2021 £40.0
million of TFS drawings had been repaid, ahead of contractual maturity, and
replaced with drawings under the Bank of England's TFSME. All TFS drawings are
expected to be replaced with TFSME drawings ahead of contractual maturity in
February 2022.
Market Risk: Stable
The Group maintains a broadly matched asset and liability profile. Any
significant residual interest rate risk positions are hedged using interest
rate swaps, all variable rate legs are linked to SONIA. The hedges are hedge
accounted for through fair value or cash flow hedge relationships and are
highly effective.
The Group has remained within risk appetite throughout the year and continues
to enhance its risk identification, measurement, and mitigation for Interest
Rate Risk in the Banking Book (IRRBB). IRRBB is monitored by reference to the
following Board Risk Appetite measures under numerous interest rate scenarios:
· Earnings at Risk ('EaR')
· Market Value Sensitivity ('MVS'); and
· Economic Value of Equity ('EVE')
The Group has a small exposure to foreign exchange risk through its Commercial
Finance lending, all exposures are appropriately hedged.
The Group does not operate a trading book.
Climate Change Risk: Stable
A detailed report on the key risks the Group faces in relation to climate
change was included in the 2020 year-end report. Since then, the Group has
made good progress in a number of areas outlined below and remains on-track to
meet the regulatory requirements in relation to Climate Change Risk and
associated Task Force on Climate-related Financial Disclosures ('TCFD'):
· Established key data sources and undertaken focused stress test scenarios
to enable us to accurately assess the key risks.
· Embedded onboarding and ongoing controls to mitigate key risks.
· Developed a risk appetite framework with supporting metrics and
reporting.
· Improved awareness across the organisation and with executive teams.
Whilst our overall current assessment is that the associated risks are not
material, we recognise the significance of this area of risk and will continue
to improve our responses in 2021 and beyond.
Condensed consolidated statement of comprehensive income
Note June June December
2021 2020 2020
Unaudited Unaudited Audited
£million £million £million
Income statement
Interest income and similar income 3 89.0 100.7 192.5
Interest expense and similar charges (15.5) (22.8) (41.6)
Net interest income 73.5 77.9 150.9
Fee and commission income 3 7.0 7.5 16.0
Fee and commission expense (0.3) (0.5) (0.8)
Net fee and commission income 6.7 7.0 15.2
Operating income 80.2 84.9 166.1
Impairment credit/(charge) on loans and advances to customers 8 1.1 (31.5) (51.3)
Gains/(losses) on modification of financial assets 4 0.7 (3.6) (3.1)
Operating expenses (51.3) (44.7) (91.6)
Profit before income tax 30.7 5.1 20.1
Income tax expense 5 (4.7) (1.2) (3.9)
Profit for the period 26.0 3.9 16.2
Other comprehensive income
Items that will not be reclassified to the income statement
Revaluation reserve - - (0.2)
Items that may be reclassified to the income statement
Cash flow hedges:
Fair value movements taken to reserves (0.1) - -
Other comprehensive income for the period, net of income tax (0.1) - (0.2)
Total comprehensive income for the period 25.9 3.9 16.0
Profit attributable to:
Equity holders of the Company 26.0 3.9 16.2
Total comprehensive income attributable to:
Equity holders of the Company 25.9 3.9 16.0
Earnings per share for profit attributable to the equity holders of the
Company during the period (pence per share)
Basic earnings per share 6 139.5 21.0 87.0
Diluted earnings per share 6 136.8 20.8 85.2
Condensed consolidated statement of financial position
Note June June December
2021 2020 2020
Unaudited Unaudited Audited
£million £million £million
ASSETS
Cash and balances at central banks 138.4 109.6 181.5
Loans and advances to banks 43.3 42.0 63.3
Debt securities 15.0 35.0 -
Loans and advances to customers 7 2,327.5 2,377.5 2,358.9
Fair value adjustment for portfolio hedged risk 2.4 7.3 5.7
Derivative financial instruments 1.8 5.9 4.8
Assets held for sale 7, 8, 9 62.4 - -
Investment properties 4.3 4.8 4.3
Property, plant and equipment 9.4 11.2 9.9
Leasing right-of-use assets 2.5 3.4 2.9
Intangible assets 7.0 8.5 7.7
Current tax asset - 1.0 -
Deferred tax assets 6.5 6.6 5.9
Other assets 16.6 17.9 19.2
Total assets 2,637.1 2,630.7 2,664.1
LIABILITIES AND EQUITY
Liabilities
Due to banks 10 310.4 268.1 276.4
Deposits from customers 11 1,939.7 1,999.2 1,992.5
Fair value adjustment for portfolio hedged risk 0.6 6.5 4.7
Derivative financial instruments 4.0 7.2 6.1
Current tax liabilities 2.5 - 1.0
Lease liabilities 3.6 4.3 3.9
Other liabilities 34.8 34.5 56.3
Provisions for liabilities and charges 12 2.0 0.9 1.9
Subordinated liabilities 14 50.8 50.7 50.8
Total liabilities 2,348.4 2,371.4 2,393.6
Equity attributable to owners of the parent
Share capital 20 7.5 7.4 7.5
Share premium 20 82.2 82.2 82.2
Cash flow hedge reserve (0.1) - -
Revaluation reserve 0.9 1.1 0.9
Retained earnings 198.2 168.6 179.9
Total equity 288.7 259.3 270.5
Total liabilities and equity 2,637.1 2,630.7 2,664.1
Condensed consolidated statement of changes in equity
Unaudited Share capital Share Cash flow Revaluation reserve Retained Total
premium
hedge
earnings
£million
£million
£million
£million reserve £million
£million
Balance at 1 January 2021 7.5 82.2 - 0.9 179.9 270.5
Total comprehensive income for the period
Profit for the six months ended 30 June 2021 - - - - 26.0 26.0
Other comprehensive income, net of income tax
Net movement in cash flow hedge reserve - - (0.1) - - (0.1)
Total other comprehensive income - - (0.1) - - (0.1)
Total comprehensive income for the period - - (0.1) - 26.0 25.9
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends - - - - (8.2) (8.2)
Share-based payments - - - - 0.5 0.5
Total contributions by and distributions to owners - - - - (7.7) (7.7)
Balance at 30 June 2021 7.5 82.2 (0.1) 0.9 198.2 288.7
Unaudited
Balance at 1 January 2020 7.4 81.2 - 1.1 164.4 254.1
Total comprehensive income for the period
Profit for the six months ended 30 June 2020 - - - - 3.9 3.9
Total comprehensive income for the period - - - - 3.9 3.9
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issue of ordinary shares - 1.0 - - - 1.0
Share-based payments - - - - 0.5 0.5
Tax on share-based payments - - - - (0.2) (0.2)
Total contributions by and distributions to owners - 1.0 - - 0.3 1.3
Balance at 30 June 2020 7.4 82.2 - 1.1 168.6 259.3
Audited Share capital Share Revaluation reserve Retained Total
premium
earnings
£million
£million
£million
£million £million
Balance at 1 January 2020 7.4 81.2 1.1 164.4 254.1
Total comprehensive income for the period
Profit for the 12 months ended 31 December 2020 - - - 16.2 16.2
Other comprehensive income, net of income tax
Revaluation reserve - - (0.4) - (0.4)
Tax on revaluation reserve - - 0.2 - 0.2
Total other comprehensive income - - (0.2) - (0.2)
Total comprehensive income for the period - - (0.2) 16.2 16.0
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issue of ordinary shares 0.1 1.0 - - 1.1
Share-based payments - - - (0.3) (0.3)
Tax on share-based payments - - - (0.4) (0.4)
Total contributions by and distributions to owners 0.1 1.0 - (0.7) 0.4
Balance at 31 December 2020 7.5 82.2 0.9 179.9 270.5
Condensed consolidated statement of cash flows
Note June Restated December
2021 June 2020
Unaudited 2020 Audited
£million Unaudited £million
£million
Cash flows from operating activities
Profit for the period 26.0 3.9 16.2
Adjustments for:
Income tax expense 4.7 1.2 3.9
Depreciation of property, plant and equipment 0.7 0.7 1.4
Depreciation of right-of-use assets 0.4 0.5 0.7
Loss on disposal of intangible assets - - 0.5
Amortisation of intangible assets 0.8 1.0 2.0
Impairment (credit)/charge on loans and advances to customers (1.1) 31.5 51.3
(Gains)/losses on modification of financial assets (0.7) 3.6 3.1
Share-based compensation 0.5 0.5 (0.3)
Revaluation loss and impairment - - 1.1
Lease interest charged - 0.1 0.1
Amortisation of subordinated liabilities issue costs - 0.1 0.2
Provisions for liabilities and charges 0.2 0.2 1.2
Cash flows from operating profits before changes in operating assets and 31.5 43.3 81.4
liabilities
Changes in operating assets and liabilities:
- loans and advances to customers (29.2) 37.5 37.5
- loans and advances to banks and balances at central banks 1.9 (4.6) (3.5)
- other assets 2.9 (0.4) (1.9)
- deposits from customers (52.8) (34.4) (27.8)
- provisions for liabilities and charges (0.1) - (0.7)
- other liabilities (21.5) 6.9 15.4
Income tax paid (3.8) (4.8) (4.8)
Net cash (outflow)/inflow from operating activities (71.1) 43.5 95.6
Cash flows from investing activities
Redemption of debt securities 20.0 80.1 130.0
Purchase of debt securities (35.0) (90.1) (105.0)
Purchase of property, plant and equipment (0.2) (0.6) (0.8)
Purchase of intangible assets (0.4) (0.5) (1.1)
Net cash (outflow)/inflow from investing activities (15.6) (11.1) 23.1
Cash flows from financing activities
Drawdown/(repayment) of amounts due to banks 34.0 (40.0) (31.7)
Issue of shares 20 - 1.0 1.1
Dividends paid (8.2) - -
Repayments of lease liabilities (0.3) (0.6) (1.0)
Net cash inflow/(outflow) from financing activities 25.5 (39.6) (31.6)
Net (decrease)/increase in cash and cash equivalents (61.2) (7.2) 87.1
Cash and cash equivalents at start of period 232.1 145.0 145.0
Cash and cash equivalents at end of period 20 170.9 137.8 232.1
Consistent with the December 2020 Annual Report and Accounts, the June 2020
cash flow statement above has been restated to include provisions for
liabilities and charges as a separate item to movements in other liabilities,
and June 2020 loans and advances to banks and balances at central banks and
other assets have also been restated to include movements in restricted cash
(see Note 20). This has reduced the net decrease in cash and cash equivalents
at June 2020 by £3.0 million, and cash and cash equivalents at end of period
by £12.2 million.
Notes to the interim report
1. Accounting policies
The principal accounting policies applied in the preparation of this interim
report are set out below. These policies have been consistently applied to all
the periods presented, unless otherwise stated.
1.1 Reporting entity
Secure Trust Bank PLC is a public limited company incorporated in England and
Wales in the United Kingdom (referred to as 'the Company') and is limited by
shares. The Company is registered in England and Wales and has the registered
number 00541132. The registered address of the Company is One Arleston Way,
Solihull, West Midlands, B90 4LH. The interim report as at and for the period
ended 30 June 2021 comprise Secure Trust Bank PLC and its subsidiaries
(together referred to as 'the Group' and individually as 'subsidiaries'). The
Group is primarily involved in banking and financial services.
1.2 Basis of presentation
The interim report does not constitute statutory accounts as defined in
Section 434 of the Companies Act 2006, and has been prepared in accordance
with International Accounting Standards in conformity with the requirements of
the Companies Act 2006 and United Kingdom adopted International Financial
Reporting Standards and IAS 34 Interim Financial Reporting.
A copy of the statutory accounts for the year ended 31 December 2020 has been
delivered to the Registrar of Companies. The auditor's report on those
accounts was not qualified and did not contain statements under Section 498(2)
or (3) of the Companies Act 2006. The results for the periods ending 30 June
2021 and 30 June 2020 are unaudited. The results for the year ending 31
December 2020 are audited.
The interim report has been prepared under the historical cost convention, as
modified by the valuation of derivative financial instruments, investment
properties and land and buildings at fair value. The interim report is
presented in pounds sterling, which is the functional and presentational
currency of the entities within the Group.
The preparation of the interim report 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 interim report
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 Group has adequate resources to continue
in business for the foreseeable future. For this reason, they continue to
adopt the 'going concern' basis for preparing the accounts.
In assessing the Group as a going concern, the Directors have given
consideration to the factors likely to affect its future performance and
development, the Group's financial position and the principal risks and
uncertainties facing the Group, as set out in the interim business report. The
Group uses various short and medium-term forecasts to monitor future capital
and liquidity requirements and these include stress testing assumptions to
identify the headroom on regulatory compliance measures. A range of scenarios
were applied to assess capital and liquidity positions in adverse conditions
in order to demonstrate the continued adoption of the 'going concern' basis.
This work has demonstrated that the Group continues to meet its capital and
liquidity requirements in the stress scenarios considered.
1.3 Accounting policies
The accounting policies applied in preparing the unaudited condensed interim
report are consistent with those used in preparing the audited statutory
financial statements for the year ended 31 December 2020, other than as stated
below.
Following a recent agenda decision by the IFRS Interpretations Committee
'Configuration or Customisation Costs in a Cloud Computing Arrangement', which
clarified the requirements of IAS 38 Intangible Assets, only the costs of
configuration and customisation services incurred by the Software-as-a-Service
('SaaS') provider or an agent of the SaaS provider, which are not distinct
from the SaaS access, should be treated as a prepayment and expensed to the
income statement on a straight-line basis over the term of the underlying
hosting contract. All other configuration and customisation costs should be
expensed to the income statement as incurred. Previously, all configuration
and customisation costs relating to SaaS contracts, which did not meet the
capitalisation requirements of IAS 38 Intangible assets, were prepaid.
As this is a clarification of existing requirements this will result in a
change in accounting policy to be applied retrospectively with restatement of
the comparative period(s) in accordance with IAS 8. This is effective
immediately, but an entity is entitled to sufficient time to make that
determination and implement any necessary accounting policy change.
Accordingly, no adjustments have been made to the results for the period ended
30 June 2021, but it is expected that as at 31 December 2021, prepayments and
opening retained earnings at 1 January 2021 will be reduced approximately by
between £3 million to £4 million. It is not expected to have a material
impact on the income statement for the year ended 31 December 2021.
1.3.1 Taxation
Taxes on profits in interim periods are accrued using the tax rate that will
be applicable to expected total annual profits.
1.3.2 Standards in issue but not yet effective
There are no new standards in issue but not yet effective that have a material
effect on the Group.
2. Critical judgements and estimates
2.1 Judgements
No critical judgements have been identified.
2.2 Key sources of estimation uncertainty
Estimations which could have a material impact on the Group's financial
results and are therefore considered to be key sources of estimation
uncertainty are outlined below. The potential impact of COVID-19 has been
considered in determining reasonably possible changes in key sources of
estimation uncertainty which may occur in the next 12 months.
2.2.1 Impairment charge on loans and advances to customers
As discussed in Note 1.8 of the Group's Annual Report for the year ended 31
December 2020, expected credit losses ('ECLs') are calculated by multiplying
three main components: the probability of default ('PD'), exposure at default
('EAD') and loss given default ('LGD'). These variables are derived from
internally developed statistical models and historical data, adjusted
to reflect forward-looking information. The determination of both the PD and
LGD require estimation which is discussed further below.
2.2.2 Probability of default ('PD')
As set out in Note 1.8 of the Group's Annual Report for the year ended 31
December 2020, Exogenous, Maturity, Vintage ('EMV') modelling is used in the
production of forward-looking lifetime PDs in the calculation of ECLs. As the
Group's performance data does not go back far enough to capture a full
economic cycle, the proxy series of the quarterly rates of write offs for UK
unsecured lending data is used to build an economic response model ('ERM') to
incorporate the effects of recession. Even using proxy series data,
the potentially extreme economic impact brought about by COVID-19 cannot be
accurately correlated to historic data, requiring the use of model overlays.
The portfolios for which external benchmark information represents a
significant input into the measurement of ECLs are Real Estate Finance, Asset
Finance and Commercial Finance. The benchmarks used for all three portfolios
are Standard & Poor's Ratings and Bank of England UK Possessions as proxy
data for ERM.
With the exception of the Motor Finance and Retail Finance portfolios,
sensitivity to reasonably possible changes in PD is not considered to result
in material changes in the ECL allowance. A 10% change in the PD for Motor
Finance would immediately impact the ECL allowance by £1.4 million (June
2020: 10%, £1.7 million, December 2020: 10%, £2.2 million) and a 20% change
in the PD for Retail Finance would immediately impact the ECL allowance by
£3.8 million (June 2020: 10%, £2.2 million, December 2020: 20%, £5.0
million). During the year, there was a 11% (December 2020: 3%) change in PD
for Motor Finance, and a 14% (December 2020: 20%) change in PD for Retail
Finance.
The ECL allowance held for the Business Finance, Consumer Mortgages and Other
portfolios remains low. Reasonably possible changes in the PD for these
portfolios are not considered to result in a material change in the ECL
allowance.
2.2.3 Loss given default ('LGD')
The Group's policy for the determination of LGD is outlined in Note 1.8 of the
Group's Annual Report for the year ended 31 December 2020.
With the exception of the Motor Finance portfolio, the sensitivity of the ECL
allowance to reasonably possible changes in the
LGD is not considered material. For the Motor Finance portfolio a 20% change
in the LGD is considered reasonably possible due to potential difficulties in
the vehicle collection process brought about by COVID-19. A 20% change in the
vehicle recovery rate assumption element of the LGD for Motor Finance would
impact the ECL allowance by £4.2 million (June 2020: £2.5 million, December
2020: £1.9 million).
2.2.4 Incorporation of forward-looking data
The Group incorporates forward-looking information into both its assessment of
whether the credit risk of a financial asset has increased significantly since
initial recognition and its measurement of expected credit loss by developing
a number of potential economic scenarios and modelling expected credit losses
for each scenario. Further detail on this process is provided in Note 1.8
of the Group's Annual Report for the year ended 31 December 2020.
The macroeconomic scenarios used at 30 June 2021 were internally developed,
having regard to externally published scenarios. The scenarios and weightings
applied are summarised below:
UK Unemployment Rate - Annual Average UK HPI - movement from H2 2021
Scenario Weightings Year 1 Year 2 Year 3 5 Yr Average Year 1 Year 2 Year 3 5 Yr Average
% % % % % % % %
June 2021
Low 20% 5.1 4.8 4.4 4.4 (0.5) (0.2) 2.8 3.9
Medium 50% 6.9 7.0 5.9 5.6 (2.4) (3.0) - 1.3
Hard 25% 7.5 7.7 6.6 6.1 (3.6) (5.9) (2.9) (1.3)
Severe 5% 9.3 10.2 8.4 7.8 (13.0) (22.4) (19.4) (16.3)
Scenario Key assumptions Weighting
June 2020
Low case Peak unemployment of 6.9%. Peak to trough HPI reduction of 11% 20%
Medium case Peak unemployment of 9.0%. Peak to trough HPI reduction of 11% 45%
Hard case Peak unemployment of 10.7%. Peak to trough HPI reduction of 16% 25%
Severe stress case Peak unemployment of 12.0%. Peak to trough HPI reduction of 20% 10%
The annual averages of the key assumptions in the June 2020 scenarios for each
of the next two years are shown below:
Low case Medium case Hard case Severe case
Scenario Year one Year two Year one Year two Year one Year two Year one Year two
%
%
%
%
%
% % %
Average unemployment 6.2 4.9 8.0 5.6 9.4 6.0 11.0 6.8
HPI movement (6.0) (2.0) (6.0) (6.0) (12.0) (12.0) (9.0) (13.0)
UK Unemployment Rate - Annual Average UK HPI - movement from Q420
Scenario Weightings 2021 2022 2023 5 Yr Average 2021 2022 2023 5 Yr Average
% % % % % % % %
December 2020
Low 20% 5.9 5.9 5.2 5.1 (2.2) (2.9) 1.9 3.7
Medium 45% 7.5 8.2 7.0 6.6 (4.1) (7.4) (2.8) (0.3)
Hard 25% 7.7 8.4 7.2 6.7 (4.4) (7.0) (2.2) (0.0)
Severe 10% 8.4 10.1 8.3 7.5 (16.4) (24.4) (20.4) (16.3)
The sensitivity of the ECL allowance to reasonably possible changes in
macroeconomic scenario weighting is presented below:
Increase in hard case by 10% Increase in severe stress case by 5%
(June 2020: 5%, December 2020 10%)
(June 2020: 5%, December 2020: 5%)
and reduction in low case
and reduction in medium case
June June December June June December
2021 2020 2020 2021 2020 2020
£million £million £million £million £million £million
Motor Finance 0.2 0.2 0.4 0.1 0.1 0.2
Retail Finance 0.3 0.2 0.5 0.2 0.2 0.2
The sensitivity is immaterial for other lending products.
The Group recognised an ECL credit of £1.1 million (June 2020: charge of
£31.5 million, December 2020: charge of £51.3 million). Were each of the
macroeconomic scenarios to be applied 100%, rather than using the weightings
set out above, the impact on ECL would be as follows:
Scenario Motor Finance Retail Finance Business Finance Total Group
£million £million £million £million
June 2021
Low (1.7) (2.2) (1.3) (5.2)
Medium 0.1 0.1 (0.4) (0.2)
Hard 0.7 0.9 0.3 1.9
Severe 2.6 3.4 7.1 13.1
Scenario Motor Finance Retail Finance Total Group
£million £million £million
June 2020
Low (3.6) (3.5) (9.0)
Severe 3.3 4.3 15.6
Scenario Motor Finance Retail Finance Business Finance Total Group
£million £million £million £million
December 2020
Low (3.0) (3.8) (2.1) (8.9)
Medium 0.1 0.1 0.4 0.6
Hard 1.0 1.2 - 2.2
Severe 3.2 4.1 8.4 15.7
2.2.5. Debt Management forecast collections
A +/-8.0% change in Debt Management forecast collections, which the Directors
consider to be a reasonably possible change, would increase or decrease Loans
and advances to customers by £7.2 million (June 2020: 5%, £4.4 million,
December 2020: 8%, £6.5 million) respectively, resulting in a corresponding
£7.2 million (June 2020: £4.4 million, December 2020: £6.5 million)
increase or decrease in profit or loss. During six months to 30 June 2021, the
Group collected 106% versus forecast (December 2020: 92% versus forecast
during the year).
3. Operating segments
The Group is organised into seven main operating segments, which consist of
the different products available, disclosed below:
Business Finance
1) Real Estate Finance: residential and commercial investment and development
loans secured by UK real estate.
2) Asset Finance: loans to small and medium-sized enterprises to acquire
commercial assets.
3) Commercial Finance: invoice discounting, invoice factoring and Coronavirus
Business Interruption Loan Scheme finance, for existing Commercial Finance
customers.
Consumer Finance
4) Motor Finance: Hire purchase agreements secured against the vehicle being
financed.
5) Retail Finance: Point of sale unsecured finance for in-store and online
retailers.
6) Debt Management: Debt collection.
7) Consumer Mortgages: Residential mortgages for the self-employed, contract
workers, those with complex income and those with a recently restored credit
history, sold via select mortgage intermediaries.
For June 2021, loans and advances to customers include Assets held for sale.
See Notes 7, 8 and 9 for further details. This relates to Asset Finance and
Consumer Mortgages.
Other
The 'Other' segment includes other products 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
interim report.
Other includes principally RentSmart (principally the funding and operation of
finance leases through a disclosed agency agreement with RentSmart Limited),
and prior to 30 June 2021, OneBill (the Group's consumer bill management
service, which is now closed).
Currently, the Debt Management, Consumer Mortgages and Asset Finance segments
all fall below the quantitative threshold for separate disclosure, but the
Directors consider that they represent sufficiently distinct types of business
to merit separate disclosure.
Management reviews 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.
Funding costs and operating expenses are not aligned to operating segments for
day-to-day management of the business, so they cannot be allocated on a
reliable basis. Accordingly, profit by operating segment has not been
disclosed.
All of the Group's operations relate to continuing operations, and are
conducted wholly within the United Kingdom and geographical information is
therefore not presented.
Interest Fee and commission income Revenue Impairment charge/(credit) on loans and advances to customers Loans and advances to customers Loan
income
from
commitments
and similar £million
external customers £million £million
income
£million
£million
£million
June 2021
Real Estate Finance 27.2 0.3 27.5 1.1 1,056.6 56.3
Asset Finance 0.3 - 0.3 0.1 5.8 -
Commercial Finance 3.8 3.8 7.6 - 239.4 120.7
Business Finance 31.3 4.1 35.4 1.2 1,301.8 177.0
Retail Finance 31.5 1.2 32.7 2.4 694.3 91.1
Motor Finance 18.7 0.7 19.4 (3.4) 244.3 0.5
Debt Management 7.3 0.1 7.4 (0.8) 90.4 -
Consumer Mortgages 1.3 - 1.3 - 56.6 -
Consumer Finance 58.8 2.0 60.8 (1.8) 1,085.6 91.6
Other (1.1) 0.9 (0.2) (0.5) 2.5 -
89.0 7.0 96.0 (1.1) 2,389.9 268.6
Interest income and similar income Fee and commission income Revenue Impairment charge on loans and advances to customers Loans and advances to customers Loan
from
commitments
£million £million
external customers £million £million
£million
£million
June 2020
Real Estate Finance 26.7 - 26.7 2.0 1,036.8 107.7
Asset Finance 0.8 - 0.8 0.6 19.4 -
Commercial Finance 3.8 3.1 6.9 1.1 191.6 65.1
Business Finance 31.3 3.1 34.4 3.7 1,247.8 172.8
Retail Finance 35.5 1.2 36.7 12.9 647.7 54.9
Motor Finance 25.2 0.4 25.6 14.9 289.0 -
Debt Management 6.8 0.3 7.1 - 93.1 -
Consumer Mortgages 1.7 - 1.7 - 94.6 -
Consumer Finance 69.2 1.9 71.1 27.8 1,124.4 54.9
Other 0.2 2.5 2.7 - 5.3 -
100.7 7.5 108.2 31.5 2,377.5 227.7
Interest income and similar income Fee and commission income Revenue Impairment charge/(credit) on loans and advances to customers Loans and advances to customers Loan
from
commitments
£million £million
external customers £million £million
£million
£million
December 2020
Real Estate Finance 54.0 - 54.0 5.2 1,051.9 63.5
Asset Finance 1.5 - 1.5 0.9 10.4 -
Commercial Finance 7.3 7.9 15.2 1.1 230.7 128.5
Business Finance 62.8 7.9 70.7 7.2 1,293.0 192.0
Retail Finance 68.5 2.2 70.7 14.5 658.4 69.3
Motor Finance 44.6 0.9 45.5 20.7 243.9 0.2
Debt Management 14.2 0.6 14.8 8.9 81.8 -
Consumer Mortgages 3.3 0.1 3.4 (0.1) 77.7 -
Consumer Finance 130.6 3.8 134.4 44.0 1,061.8 69.5
Other (0.9) 4.3 3.4 0.1 4.1 -
192.5 16.0 208.5 51.3 2,358.9 261.5
4. Gains/(losses) on modifications of financial assets
Although not included as an option within customer contracts, following
regulatory guidance and in response to COVID-19, the Group offered payment
holidays to Consumer Finance and Asset Finance customers. This is considered
under IFRS 9 as a modification to contractual cash flows, which requires the
carrying value of these loans to be adjusted to the net present value of
future cash flows.
An immaterial number of payment holidays were granted during the first six
months of the year, resulting in no further loan modification loss being
recognised. During the period the Group recognised a gain on the unwind of the
loan modification loss recognised in 2020, amounting to £0.7 million.
As at 30 June 2021, the remaining impact of this is a £1.9 million (30 June
2020: £3.1 million, 31 December 2020: £2.5 million) reduction in the net
present value of Motor Finance loans and a further £0.5 million (30 June
2020: £0.5 million, 31 December 2020: £0.6 million) reduction in the net
present value of Retail Finance loans.
Financial assets (with loss allowance based on lifetime ECL) modified during June June December
the period
2021 2020 2020
£million £million £million
Gross loans and advances before modification - 426.3 527.2
Less: allowances for impairments on loans and advances - (49.6) (55.6)
- 376.7 471.6
Loan modification loss relating to financial assets with a loss allowance - (1.1) (0.9)
based on lifetime ECL
Net amortised cost after modification - 375.6 470.7
5. Income tax expense
June June December
2021 2020 2020
£million £million £million
Current taxation
Corporation tax charge - current period 5.5 0.4 3.0
Corporation tax credit - adjustments in respect of prior periods (0.2) - (0.5)
5.3 0.4 2.5
Deferred taxation
Deferred tax (credit)/charge - current period (0.8) 0.8 0.9
Deferred tax charge - adjustments in respect of prior periods 0.2 - 0.5
(0.6) 0.8 1.4
Income tax expense 4.7 1.2 3.9
The tax for all the periods above has been calculated at the current effective
rate, which is 19%.
The Government legislated on 10 June 2021 to increase the main corporation tax
rate to 25% from 1 April 2023. The Government intends to review the bank
surcharge in Autumn 2021, to ensure the UK's banking tax regime remains
competitive. Deferred tax is based on the combined effect of corporation tax
and banking surcharge as enacted at the balance sheet date, so we expect
changes legislated in the Finance Bill 2021-22 to partially offset the impact
of the corporation tax rate change which has resulted in an increase of
deferred tax assets of £1.0 million.
The main component of the deferred tax asset is deferred tax on the IFRS 9
transition adjustment, which reverses on a straight-line basis over 10 years
commencing in 2018. The Company has assumed it will incur the 8% corporation
tax surcharge on banking company profits in excess of £25.0 million during
this period, but the quantum of this is uncertain in light of the Government
review. Any changes in the forecast tax rate of the Company over this period
could significantly affect the future tax charge.
6. Earnings per ordinary share
6.1 Basic
Basic earnings per ordinary share are calculated by dividing the profit
attributable to equity holders of the parent by the weighted average number of
ordinary shares as follows:
June June December
2021 2020 2020
Profit attributable to equity holders of the parent (£ millions) 26.0 3.9 16.2
Weighted average number of ordinary shares (number) 18,634,320 18,603,521 18,615,480
Earnings per share (pence) 139.5 21.0 87.0
6.2 Diluted
Diluted earnings per ordinary share are calculated by dividing the profit
attributable to equity holders of the parent by the weighted average number of
ordinary shares in issue during the period, as noted above, as well as the
number of dilutive share options in issue during the period, as follows:
June June December
2021 2020 2020
Weighted average number of ordinary shares 18,634,320 18,603,521 18,615,480
Number of dilutive shares in issue at the period end 367,546 140,026 399,713
Fully diluted weighted average number of ordinary shares 19,001,866 18,743,547 19,015,195
Dilutive shares being based on:
Number of options outstanding at the period end 1,087,539 454,265 789,854
Exercise price (pence) 357 472 477
Average share price during the period (pence) 966 1,162 1,238
Diluted earnings per share (pence) 136.8 20.8 85.2
7. Loans and advances to customers
June June June June December
2021 2021 2021 2020 2020
Loans and advances to customers Assets held for sale £million Total £million £million
£million £million
Gross loans and advances 2,401.1 64.0 2,465.1 2,456.3 2,441.6
Less: allowances for impairment on loans and advances (Note 8) (73.6) (1.6) (75.2) (78.8) (82.7)
2,327.5 62.4 2,389.9 2,377.5 2,358.9
The fair value of loans and advances to customers is shown in Note 16.
8. Allowances for impairment of loans and advances
Not credit impaired Credit impaired
Stage 1: Stage 2: Stage 3: Total Gross Provision
Subject to
Subject to
Subject to
provision
loans and advances to customers
cover
12 month ECL
lifetime ECL
lifetime ECL
£million £million %
£million £million £million
June 2021
Business Finance:
Real Estate Finance 0.5 1.8 3.7 6.0 1,062.6 0.6%
Asset Finance 0.6 0.1 0.8 1.5 7.3 20.5%
Commercial Finance 0.8 0.3 0.2 1.3 240.7 0.5%
Consumer Finance:
Retail Finance 13.1 5.8 3.9 22.8 717.1 3.2%
Motor Finance:
Voluntary termination provision 4.0 - - 4.0
Other impairment 5.7 10.5 17.0 33.2
9.7 10.5 17.0 37.2 281.5 13.2%
Debt Management - - 6.3 6.3 96.7 6.5%
Consumer Mortgages 0.1 - - 0.1 56.7 0.2%
Other - - - - 2.5
24.8 18.5 31.9 75.2 2,465.1 3.1%
Less Assets held for sale (0.7) (0.1) (0.8) (1.6) (64.0) 2.5%
24.1 18.4 31.1 73.6 2,401.1 3.1%
Not credit impaired Credit impaired
Stage 1: Stage 2: Stage 3: Total Gross Provision
loans and advances to customers
Subject to Subject to Subject to provision
cover
£million
12 month ECL lifetime ECL lifetime ECL £million %
£million £million £million
June 2020
Business Finance:
Real Estate Finance 2.2 0.1 0.3 2.6 1,039.4 0.3%
Asset Finance 0.3 0.3 1.5 2.1 21.5 9.8%
Commercial Finance 0.9 0.6 - 1.5 193.1 0.8%
Consumer Finance:
Retail Finance 13.2 11.0 4.5 28.7 676.4 4.2%
Motor Finance:
Voluntary termination provision 5.8 - - 5.8
Other impairment 6.6 16.0 17.3 39.9
12.4 16.0 17.3 45.7 334.7 13.7%
Debt Management - - (2.1) (2.1) 91.0 (2.3%)
Consumer Mortgages 0.2 - 0.1 0.3 94.9 0.3%
Other - - - - 5.3 0.0%
29.2 28.0 21.6 78.8 2,456.3 3.2%
Not credit impaired Credit impaired
Stage 1: Stage 2: Stage 3: Total Gross Provision
Subject to
Subject to
Subject to
provision
loans and advances to customers
cover
12 month ECL
lifetime ECL
lifetime ECL
£million £million %
£million £million £million
December 2020
Business Finance:
Real Estate Finance 1.4 2.7 1.3 5.4 1,057.3 0.5%
Asset Finance 0.6 0.1 1.3 2.0 12.4 16.1%
Commercial Finance 0.7 0.5 0.1 1.3 232.0 0.6%
Consumer Finance:
Retail Finance 13.2 7.9 3.5 24.6 683.0 3.6%
Motor Finance:
Voluntary termination provision 4.8 - - 4.8
Other impairment 6.2 16.0 15.2 37.4
11.0 16.0 15.2 42.2 286.1 14.8%
Debt Management - - 7.0 7.0 88.8 7.9%
Consumer Mortgages 0.2 - - 0.2 77.9 0.3%
Other - - - - 4.1 0.0%
27.1 27.2 28.4 82.7 2,441.6 3.4%
Total provisions above include expert credit judgements as follows:
June June December
2021 2020 2020
£million £million £million
Specific overlays held against secured assets held within the Business Finance (6.9) (1.2) (3.4)
portfolio
Future macroeconomic scenario overlay in respect of Motor Finance - 6.6 -
Future macroeconomic scenario overlay in respect of Retail Finance - 4.2 -
Management judgement in respect of LGD elements of the IFRS 9 models 0.6 - 0.6
Management judgement in respect of PD elements of the IFRS 9 models 3.8 - 2.8
POCI adjustment (see below) 6.0 (2.1) 6.7
Other 1.4 - 1.5
Expert credit judgements over the Group's IFRS 9 model results 4.9 7.5 8.2
At 30 June 2020, the future macroeconomic scenario overlays were in respect of
the application of forward looking data, as included in Note 2.2.4, for the
Consumer Finance portfolios where the macroeconomic variables had not been
input directly to the models. The specific overlays had been estimated on an
individual basis by assessing the recoverability and condition of the secured
asset, along with any other recoveries that may be made.
POCI adjustment
The Group's debt management business purchases credit-impaired loans from the
Company and other unrelated third parties. Under IFRS 9, these are classified
as Purchased and Originated Credit Impaired ('POCI') loans. Income on POCI
loans is initially recognised by applying the original credit-adjusted
effective interest rate ('EIR') to the expected future cash flows arising from
the POCI assets. The Group's accounting policy is to recognise POCI income by
applying the original credit-adjusted EIR to the amortised cost of the assets.
Expected changes in cash flows since the date of purchase are recognised as an
impairment gain or loss in the income statement. As at 30 June 2021, a
provision of £6.0 million (June 2020: negative provision of £2.1 million,
December 2020: provision of £6.7 million) was held in respect of POCI assets.
Provisions included in 'Other' are in respect of various legacy products. This
segment also includes loans of £2.4 million (June 2020: £5.2 million,
December 2020: £3.9 million) held in STB Leasing Limited. The credit risk
associated with those loans is retained by its partner, RentSmart.
Accordingly, no provision is held against the RentSmart loans.
The impairment (credit)/charge disclosed in the income statement can be
analysed as follows:
June June December
2021 2020 2020
£million £million £million
Impairment charge in respect of loans and advances to customers 0.7 30.1 50.3
Impairment charges in respect of off balance sheet loan commitments 0.2 0.3 0.7
Loans written off, net of amounts utilised (1.9) 1.3 0.6
Recoveries of loans written off (0.1) (0.2) (0.3)
(1.1) 31.5 51.3
Reconciliations of the opening to closing allowances for impairment of loans
and advances are presented below:
Not credit impaired Credit impaired
Stage 1: Stage 2: Stage 3: Total
Subject to
Subject to
Subject to
provision
12 month ECL
lifetime ECL
lifetime ECL
£million
£million £million £million
June 2021
At start of period 27.1 27.3 28.3 82.7
Increase/(decrease) due to change in credit risk
- Transfer to stage 2 (2.6) 11.4 - 8.8
- Transfer to stage 3 - (8.6) 10.8 2.2
- Transfer to stage 1 1.6 (2.8) - (1.2)
Passage of time (6.3) (6.3) (0.2) (12.8)
New loans originated 8.9 - - 8.9
Matured and derecognised loans (2.0) (1.8) - (3.8)
Changes to model - (0.4) - (0.4)
Changes to credit risk parameters (1.2) (0.3) 0.2 (1.3)
Other adjustments 0.3 - - 0.3
Charge to income statement (1.3) (8.8) 10.8 0.7
Allowance utilised in respect of write offs (1.0) - (7.2) (8.2)
At end of period 24.8 18.5 31.9 75.2
Not credit impaired Credit impaired
Stage 1: Stage 2: Stage 3: Total
Subject to
Subject to
Subject to
provision
12 month ECL
lifetime ECL
lifetime ECL
£million
£million £million £million
June 2020
At start of period 21.6 24.1 14.9 60.6
Increase/(decrease) due to change in credit risk
- Transfer to stage 2 (6.6) 21.3 - 14.7
- Transfer to stage 3 - (12.2) 16.8 4.6
- Transfer to stage 1 1.5 (3.2) - (1.7)
Passage of time (1.5) (2.4) 1.1 (2.8)
New loans originated 6.1 - - 6.1
Matured and derecognised loans (1.2) (1.4) - (2.6)
Changes to credit risk parameters 10.4 1.8 (0.4) 11.8
Other adjustments - - - -
Charge to income statement 8.7 3.9 17.5 30.1
Allowance utilised in respect of write offs (1.1) - (10.8) (11.9)
At end of period 29.2 28.0 21.6 78.8
Not credit impaired Credit impaired
Stage 1: Stage 2: Stage 3: Total
Subject to
Subject to
Subject to
provision
12 month ECL
lifetime ECL
lifetime ECL
£million
£million £million £million
December 2020
At start of year 21.6 24.1 14.9 60.6
Increase/(decrease) due to change in credit risk
- Transfer to stage 2 (5.4) 33.8 - 28.4
- Transfer to stage 3 - (20.7) 28.3 7.6
- Transfer to stage 1 3.1 (6.6) - (3.5)
Passage of time (10.9) (10.5) 3.7 (17.7)
New loans originated 11.9 - - 11.9
Matured and derecognised loans (2.5) (2.9) - (5.4)
Changes to credit risk parameters 11.4 10.1 7.4 28.9
Other adjustments 0.1 - - 0.1
Charge to income statement 7.7 3.2 39.4 50.3
Allowance utilised in respect of write offs (2.2) - (26.0) (28.2)
At end of year 27.1 27.3 28.3 82.7
The table above has been prepared based on the monthly movements in ECL.
Passage of time represents the impact of accounts being paid down through
their contractual life and the associated reduction in PDs. For stage 3 assets
it represents the unwind of the discount applied in calculating the ECL.
Changes to model methodology represents movements that have occurred due to
enhancements made to the models during the year.
Changes to credit risk parameters represents movements that have occurred due
to the Group updating model inputs. This would include the impact of, for
example, updating the macroeconomic scenarios applied to the models.
Other adjustments represents the movement in the Motor voluntary termination
provision.
Stage 1 write offs arise on the Motor accounts that have exercised their right
to voluntarily terminate their agreements.
9. Assets held for sale
As at 30 June 2021, the Asset Finance and Consumer Mortgages loan books were
both in advanced stages of a sales process. During July the sale of both books
were completed. Under IFRS 5, Non-current Assets Held for Sale and
Discontinued Operations, the assets are required to be reclassified as 'Held
for sale' on the face of the statement of financial position (£62.4 million).
Neither of the businesses are significant enough to be classified as
discontinued operations.
Further information on the contribution of each business to the Group can be
found in Note 3. Details of impairment allowances for each business can be
found in Note 8.
10. Due to banks
June June December
2021 2020 2020
£million £million £million
Borrowings under the Bank of England's liquidity support operations, 303.0 263.0 263.0
Term Funding Scheme and Term Funding Scheme with additional incentives for
SMEs
Amounts due to other credit institutions 7.3 - 3.3
Indexed long-term repos - 5.0 10.0
Accrued interest 0.1 0.1 0.1
310.4 268.1 276.4
These are due for repayment between July 2021 and June 2025.
11. Deposits from customers
June June December
2021 2020 2020
£million £million £million
Access accounts 109.6 53.9 81.4
Term deposits and Notice accounts 1,656.7 1,865.1 1,781.5
Individual Savings Accounts 173.4 80.2 129.6
1,939.7 1,999.2 1,992.5
The fair value of deposits from customers is shown in Note 16.
12. Provisions for liabilities and charges
Other ECL allowance on loan commitment Total
£million £million £million
June 2021
At start of period 0.8 1.1 1.9
Charge to income statement 0.1 0.2 0.3
Utilised (0.2) - (0.2)
At end of period 0.7 1.3 2.0
Customer Other ECL allowance on loan commitment Total
redress £million £million £million
£million
June 2020
At start of period 0.2 0.1 0.4 0.7
(Release)/charge to income statement (0.2) 0.1 0.3 0.2
At end of period - 0.2 0.7 0.9
Customer Other ECL allowance on loan commitment Total
redress
£million £million £million
£million
December 2020
At start of period 0.2 0.1 0.4 0.7
(Release)/charge to income statement (0.2) 1.4 0.7 1.9
Utilised - (0.7) - (0.7)
At end of period - 0.8 1.1 1.9
Customer redress provision
The Group provided for its best estimate of redress payable in respect of
outstanding claims relating to historical sales of accident, sickness and
unemployment insurance, by considering the likely future uphold rate for
claims, in the context of confirmed issues and historical experience.
The Financial Conduct Authority announced a deadline for making these customer
redress claims, which gave consumers until 29 August 2019 to make a claim, so
no further claims were accepted after this date. At 31 December 2020, all such
claims had been settled and therefore no further customer redress provision
was required.
ECL allowance on loan commitments
In accordance with the requirements of IFRS 9, the Group holds an ECL
allowance against loans it has committed to lend but that have not yet been
drawn. For the Real Estate Finance and Commercial Finance portfolios, where a
loan facility is agreed that includes both drawn and undrawn elements and the
Group cannot identify the ECL on the loan commitment separately, a combined
loss allowance for both drawn and undrawn components of the loan is presented
as a deduction from the gross carrying amount of the drawn component, with any
excess of the loss allowance over the gross drawn amount presented as a
provision. At 30 June 2021, 30 June 2020 and 31 December 2020, no provision
was held for losses in excess of drawn amounts.
Other
Other includes provision for fraud, which relates to cases where the Bank has
reasonable evidence of suspected fraud, but further investigation is required
before the cases can be dealt with appropriately, restructuring provision and
s75 Consumer Credit Act 1974 provision.
The Directors expect all provisions to be fully utilised within the next 12
months.
13. Contingent liabilities and commitments
13.1 Contingent liabilities
As a financial services business, the Group must comply with numerous laws and
regulations, which significantly affect the way it does business. Whilst the
Group believes there are no material unidentified areas of failure to comply
with these laws and regulations, there can be no guarantee that all issues
have been identified.
13.2 Commitments
The Group's off balance sheet exposure to undrawn loan commitments at June
2021 was £268.6 million (June 2020: £227.7 million, December 2020: £261.5
million). Details of the split by business is given in Note 3.
14. Subordinated liabilities
June June December
2021 2020 2020
£million £million £million
Tier 2 capital 50.0 50.0 50.0
Unamortised issue costs (0.4) (0.5) (0.4)
Accrued interest 1.2 1.2 1.2
50.8 50.7 50.8
15. Capital
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.
The following table shows the regulatory capital resources as managed by the
Group:
June June December
2021 2020 2020
£million £million £million
Unaudited Unaudited Unaudited
Tier 1
Share capital 7.5 7.4 7.5
Share premium 82.2 82.2 82.2
Retained earnings 198.2 168.6 179.9
Revaluation reserve 0.9 1.1 0.9
IFRS 9 transition adjustment 13.9 28.4 26.9
Goodwill (1.0) (1.0) (1.0)
Intangible assets net of attributable deferred tax (4.3) (7.4) (4.5)
Proposed dividend (3.7) - (8.2)
CET 1 Capital 293.7 279.3 283.7
Tier 2
Subordinated liabilities 50.8 50.7 50.8
Less ineligible portion (4.3) (0.7) (5.7)
Total Tier 2 capital 46.5 50.0 45.1
Own funds 340.2 329.3 328.8
Reconciliation to total equity:
Own funds 340.2 329.3 328.8
IFRS 9 transition adjustment (13.9) (28.4) (26.9)
Eligible subordinated liabilities (46.5) (50.0) (45.1)
Goodwill and other intangible assets net of attributable deferred tax 5.3 8.4 5.5
Cash flow hedge reserve (0.1) - -
Proposed dividend 3.7 - 8.2
Total equity 288.7 259.3 270.5
16. Fair value of loans and advances to customers and deposits from customers
The fair value of loans and advances to customers and deposits from customers
is set out below:
Total carrying amount Fair value Total carrying amount Fair value Total carrying amount Fair value
December
December
June June June June
2020 2020
2021 2021 2020 2020
£million £million
£million £million £million £million
Loans and advances to customers 2,327.5 2,356.6 2,377.5 2,383.7 2,358.9 2,420.6
Deposits from customers 1,939.7 1,957.7 1,999.2 2,002.3 1,992.5 2,010.2
Freehold land and buildings are carried at fair value. All other assets and
liabilities are carried at amortised cost.
17. Share-based payments
The Group has five share-based payment schemes in operation:
· Share Option Scheme
· 2017 Long term incentive plan
· 2017 Sharesave plan
· 2017 Deferred bonus plan
· 'Phantom' share option scheme
During the period, the Group granted the following:
· 1,702 options under the Deferred bonus plan, which vest in three equal
instalments in 2022, 2023 and 2024, and are not subject to any performance
conditions. The fair values at the date of grant were £10.85, £10.39 and
£9.94 respectively calculated using a Black Scholes model and the option
exercise price is £0.40p.
· 187,527 options under the Long term incentive plan, which vest in 2024,
and are subject to risk management and total shareholder return performance
conditions. The fair value at the date of grant was £7.58 calculated using a
Monte Carlo simulation model and the option exercise price is £0.40p.
· 54,026 options under the Long term incentive plan, which vest in 2024,
and are not subject to any performance conditions. The fair value at the date
of grant was £9.94 calculated using a Black Scholes model and the option
exercise price is £0.40p.
18. Related party transactions
There were no changes to the nature of the related party transactions during
the period to June 2021 that would materially affect the position or
performance of the Group. The nature and relative quantum of related party
transactions has not changed in the six months ended 30 June 2021 in
comparison to the year ended 31 December 2020. Details of the transactions for
the year ended December 2020 can be found in the 2020 Annual Report and
Accounts.
19. Management of credit risk
The Group takes on exposure to credit risk, which is the risk that a
counterparty will be unable to pay amounts in full when due. Details of the
management of credit risk can be found in the 2020 Annual Report and Accounts.
Stage 1 Stage 2 Stage 3 Total
£million
June 2021 £million <= 30 days past due > 30 days past due Total Excl. purchased credit impaired Purchased Total
£million
£million
£million
£million
credit impaired
£million
£million
Business Finance
Real Estate Finance 780.8 231.3 4.1 235.4 46.4 - 46.4 1,062.6
Asset Finance 5.4 1.1 - 1.1 0.8 - 0.8 7.3
Commercial Finance 227.6 12.8 - 12.8 0.3 - 0.3 240.7
Consumer Finance
Retail Finance 642.7 67.9 2.2 70.1 4.3 - 4.3 717.1
Motor Finance 177.3 79.3 1.1 80.4 23.8 - 23.8 281.5
Debt Management - - - - 11.0 85.7 96.7 96.7
Consumer Mortgages 53.1 - 2.1 2.1 1.5 - 1.5 56.7
Other 2.5 - - - - - - 2.5
Total drawn exposure 1,889.4 392.4 9.5 401.9 88.1 85.7 173.8 2,465.1
Off balance sheet
Loan commitments 268.6 - - - - - - 268.6
Total gross exposure 2,158.0 392.4 9.5 401.9 88.1 85.7 173.8 2,733.7
Less:
Impairment allowance (24.8) (16.2) (2.3) (18.5) (25.9) (6.0) (31.9) (75.2)
Provision for loan commitments (1.3) - - - - - - (1.3)
Total net exposure 2,131.9 376.2 7.2 383.4 62.2 79.7 141.9 2,657.2
Stage 1 Stage 2 Stage 3 Total
£million
June 2020 £million <= 30 days past due > 30 days past due Total Excl. purchased credit impaired Purchased Total
£million
£million
£million
£million
credit impaired
£million
£million
Business Finance
Real Estate Finance 959.8 41.3 13.1 54.4 25.2 - 25.2 1,039.4
Asset Finance 15.3 4.5 - 4.5 1.7 - 1.7 21.5
Commercial Finance 184.8 8.3 - 8.3 - - - 193.1
Consumer Finance
Retail Finance 580.6 88.0 2.5 90.5 5.3 - 5.3 676.4
Motor Finance 192.3 114.4 3.0 117.4 25.0 - 25.0 334.7
Debt Management 93.0 - 0.3 0.3 1.6 - 1.6 94.9
Consumer Mortgages - - - - 12.0 79.0 91.0 91.0
Other 5.3 - - - - - - 5.3
Total drawn exposure 2,031.1 256.5 18.9 275.4 70.8 79.0 149.8 2,456.3
Off balance sheet
Loan commitments 227.7 - - - - - - 227.7
Total gross exposure 2,258.8 256.5 18.9 275.4 70.8 79.0 149.8 2,684.0
Less:
Impairment allowance (29.2) (24.8) (3.2) (28.0) (23.7) 2.1 (21.6) (78.8)
Provision for loan commitments (0.7) - - - - - - (0.7)
Total net exposure 2,228.9 231.7 15.7 247.4 47.1 81.1 128.2 2,604.5
Stage 1 Stage 2 Stage 3
December 2020 £million <= 30 days > 30 days Total Excl. purchased credit impaired Purchased Total Total
past due
past due
£million
£million
credit impaired
£million
£million
£million
£million
£million
Business Finance
Real Estate Finance 858.9 136.5 37.9 174.4 24.0 - 24.0 1,057.3
Asset Finance 9.5 1.4 - 1.4 1.5 - 1.5 12.4
Commercial Finance 205.1 26.6 - 26.6 0.3 - 0.3 232.0
Consumer Finance
Retail Finance 589.1 86.8 3.3 90.1 3.8 - 3.8 683.0
Motor Finance 173.7 87.2 2.6 89.8 22.6 - 22.6 286.1
Debt Management - - - - 11.7 77.1 88.8 88.8
Consumer Mortgages 74.9 - 1.8 1.8 1.2 - 1.2 77.9
Other 4.1 - - - - - - 4.1
Total drawn exposure 1,915.3 338.5 45.6 384.1 65.1 77.1 142.2 2,441.6
Off balance sheet
Loan commitments 261.5 - - - - - - 261.5
Total gross exposure 2,176.8 338.5 45.6 384.1 65.1 77.1 142.2 2,703.1
Less:
Impairment allowance (27.1) (22.7) (4.5) (27.2) (21.7) (6.7) (28.4) (82.7)
Provision for loan commitments (1.1) - - - - - - (1.1)
Total net exposure 2,148.6 315.8 41.1 356.9 43.4 70.4 113.8 2,619.3
19.1 Concentration risk
Management assesses the potential concentration risk from geographic, product
and individual loan concentration. Due to the nature of the Group's lending
operations the Directors consider the lending operations of the Group as a
whole to be well diversified. Details of the Group's loan and advances to
customers and loan commitments by product is provided in Note 3.
The Group's Real Estate Finance and Consumer Mortgages are secured against UK
property only. The geographical concentration of these business loans and
advances to customers, by location of the security, is set out below:
June June December
2021 2020 2020
£million £million £million
Real Estate Finance
Central England 151.8 52.1 139.7
Greater London 650.1 628.0 638.4
Northern England 60.0 62.6 65.8
South East England (excl. Greater London) 145.3 264.1 171.3
South West England 28.1 14.8 18.1
Scotland, Wales and Northern Ireland 27.3 17.8 24.0
Gross loans and receivables 1,062.6 1,039.4 1,057.3
Allowance for impairment (6.0) (2.6) (5.4)
Total 1,056.6 1,036.8 1,051.9
Loan-to-value 57% 57% 56%
June June December
2021 2020 2020
£million £million £million
Consumer mortgages
Central England 10.6 18.3 14.6
Greater London 7.4 11.5 10.2
Northern England 12.5 18.9 16.2
South East England (excl. Greater London) 16.8 31.9 25.6
South West England 5.8 9.5 7.3
Scotland, Wales and Northern Ireland 3.6 4.8 4.0
Gross loans and receivables 56.7 94.9 77.9
Allowance for impairment (0.1) (0.3) (0.2)
Total 56.6 94.6 77.7
Loan-to-value 47% 55% 51%
Under its credit policy, the Real Estate Finance business lends to a maximum
loan-to-value of 70% for investment loans and 60% for residential development
loans and up to 65% for pre-let commercial development loans (based on gross
development value), and the Consumer Mortgages business lent to a maximum of
90%.
20. Cash flow statement
20.1 Cash and cash equivalents
June Restated December
2021 June 2020
£million 2020 £million
£million
Cash and balances at central banks 138.4 109.6 181.5
Loans and advances to banks 43.3 42.0 63.3
Less restricted cash (10.8) (13.8) (12.7)
170.9 137.8 232.1
At June 2020, £12.2 million was presented as cash and cash equivalents, which
was restricted. To ensure that the information above is consistent with that
given in the 2020 Annual Report and Accounts, the June 2020 information in the
table above and the cash flow statement have been restated.
20.2 Issue of ordinary shares
On 10 May 2021, as a result of the exercise of share options, the Company
issued 4,710 ordinary shares with a par value of £1,884 at par. Accordingly,
at June 2021 the Company had a total of 18,638,372 ordinary shares in issue
(December 2020: 18,633,662, June 2020: 18,622,664).
Appendix to the interim report:
Alternative performance measures
Key performance indicators
(i) Margin ratios
Net interest margin is calculated as interest income and similar income less
interest expense and similar charges for the financial period as a percentage
of the average loan book, net revenue margin is calculated as operating income
for the financial period as a percentage of the average loan book and gross
revenue margin is calculated as interest receivable and similar income plus
fee and commission income for the financial period as a percentage of the
average loan book. The calculation of the average loan book is the average of
the monthly balance of loans and advances to customers, net of provisions,
over seven or 13 months as appropriate for the financial period. The resulting
margins for June 2021 are multiplied by 365/181 and margins for June 2020 are
multiplied by 366/182 to give an annual equivalent comparable to the annual
results:
June June December
2021 2020 2020
£million £million £million
Net interest margin
Interest receivable and similar income 89.0 100.7 192.5
Interest expense and similar charges (15.5) (22.8) (41.6)
Net interest income 73.5 77.9 150.9
Net revenue margin
Net interest income 73.5 77.9 150.9
Net fee and commission income 6.7 7.0 15.2
Operating income 80.2 84.9 166.1
Gross revenue margin
Interest receivable and similar income 89.0 100.7 192.5
Fee and commission income 7.0 7.5 16.0
Gross revenue 96.0 108.2 208.5
Opening loan book 2,358.9 2,450.1 2,450.1
Closing loan book 2,389.9 2,377.5 2,358.9
Average loan book 2,346.3 2,439.5 2,406.0
Net interest margin 6.3% 6.4% 6.3%
Net revenue margin 6.9% 7.0% 6.9%
Gross revenue margin 8.3% 8.9% 8.7%
In order to measure margins on a like-for-like basis, closing loan book above
includes Assets held for sale.
The margin ratios all measure the yield of the loan book.
(ii) Cost ratios
Cost of risk is calculated as the impairment charge on loans and advances to
customers for the financial period as a percentage of the average loan book,
cost of funds is calculated as interest expense (excluding interest on
liability swaps) for the financial period as a percentage of average loan book
and cost to income ratio is calculated as operating expenses for the financial
period as a percentage of operating income for the financial period. The
resulting ratios for June 2021 are multiplied by 365/181 and margins for June
2020 are multiplied by 366/182 to give an annual equivalent comparable to the
annual results:
June June December
2021 2020 2020
£million £million £million
Impairment (credit)/charge on loans and advances to customers (1.1) 31.5 51.3
(Gains)/losses on modification of financial assets (0.7) 3.6 3.1
(1.8) 35.1 54.4
Average loan book 2,346.3 2,439.5 2,406.0
Cost of risk (0.2)% 2.9% 2.3%
Interest expense and similar charges 15.5 22.8 41.6
Interest on liability swaps 0.9 0.7 1.9
16.4 23.5 43.5
Average loan book 2,346.3 2,439.5 2,406.0
Cost of funds 1.4% 1.9% 1.8%
Operating expenses 51.3 44.7 91.6
Operating income 80.2 84.9 166.1
Cost to income ratio 64.0% 52.7% 55.1%
The cost of risk measures how effective the Group has been in managing the
credit risk of its lending portfolios. The cost of funds measures the cost of
money being lent to customers. The cost to income ratio measures how
efficiently the Group is utilising its cost base in producing income.
(iii) Return ratios
Annualised return on average assets is calculated as the profit after tax for
the financial period as a percentage of average assets, annualised return on
average equity is calculated as the profit after tax for the financial period
as a percentage of average equity and annualised return on required equity is
calculated as the profit after tax for the financial period as a percentage
of average required equity.
Average assets is calculated as the average of the monthly assets balances,
over seven or 13 months as appropriate for the financial period, average
equity is calculated as the average of the monthly equity balances over seven
or 13 months as appropriate for the financial period and average required
equity is calculated as the average of the monthly balances of total required
equity over seven or 13 months as appropriate for the financial period. Total
required equity is calculated as the equity required to achieve a CET 1 ratio
of 12%. The resulting returns for June 2021 are multiplied by 365/181 and
margins for June 2020 are multiplied by 366/182 to give an annual equivalent
comparable to the annual results:
June June December
2021 2020 2020
£million £million £million
Profit after tax 26.0 3.9 16.2
Opening assets 2,664.1 2,682.8 2,682.8
Closing assets 2,637.1 2,630.7 2,664.1
Average assets 2,631.1 2,728.4 2,692.5
Opening equity 270.5 254.1 254.1
Closing equity 288.7 259.3 270.5
Average equity 278.9 260.1 263.6
Opening required equity 240.2 251.8 251.8
Closing required equity 247.8 246.6 240.2
Average required equity 242.6 253.2 250.2
Annualised return on average assets 2.0% 0.3% 0.6%
Annualised return on average equity 18.8% 3.0% 6.1%
Annualised return on required equity 21.6% 3.1% 6.5%
Return on average assets demonstrates how profitable the Group's assets are in
generating revenue. Return on average equity is a measure of the Group's
ability to generate profit from the equity available to it. Return on required
equity relates profitability to the capital that the Group is required to
hold.
(iv) Funding ratios
The loan to deposit ratio is calculated as the loan book, at the period end,
divided by deposits from customers at the period end, and the total funding
ratio is calculated as the total funding at the period end, being the sum of
deposits from customers, borrowings under the TFS and TFSME, Tier 2 capital
and equity, divided by the loan book at the period end:
June June December
2021 2020 2020
£million £million £million
Loan book 2,389.9 2,377.5 2,358.9
Deposits from customers 1,939.7 1,999.2 1,992.5
Amounts due to banks 310.4 268.1 276.4
Less amounts due to other credit institutions (7.3) - (3.3)
Tier 2 capital (including accrued interest) 50.8 50.7 50.8
Equity 288.7 259.3 270.5
Total funding 2,582.3 2,577.3 2,586.9
Loan to deposit ratio 123.2% 118.9% 118.4%
Total funding ratio 108.1% 108.4% 109.7%
The funding ratios measure the Group's liquidity.
(v) Adjusted profit
No adjustments to profit have been made for the current period, and
adjustments to profit as previously disclosed have been removed from June
2020. Details of these adjustments can be found in the 2020 Interim Report
(page 64).
Directors' responsibility statement
The Directors confirm that, to the best of their knowledge:
· the condensed financial statements have been prepared in accordance with
United Kingdom adopted International Accounting Standard 34 - 'Interim
Financial Reporting', issued by the IASB and give a true and fair view of the
assets, liabilities, financial position and profit of the undertakings
included in the consolidation as a whole;
· the interim business review includes a fair review of the information
required by Section 4.2.7R of the Disclosure Guidance and Transparency Rules,
issued by the UK Listing Authority (that being an indication of important
events that have occurred during the first six months of the current financial
year and their impact on the condensed financial statements and a description
of the principal risks and uncertainties for the remaining six months of the
financial year); and
· the interim business review includes a fair review of the information
required by Section 4.2.8R of the Disclosure Guidance and Transparency Rules,
issued by the UK Listing Authority (that being disclosure of related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or the
performance of the enterprise during that period; and any changes in the
related party transactions described in the last annual report which could do
so).
Approved by the Board of Directors and signed on behalf of the Board.
David McCreadie Lord Forsyth
Chief Executive Officer Chairman
4 August 2021
Independent review report to Secure Trust Bank PLC
We have been engaged by the Company to review the condensed set of financial
statements in the interim financial report for the six months ended 30 June
2021 which comprises the condensed consolidated statement of comprehensive
income statement, the condensed consolidated statement of financial position,
the condensed consolidated statement of changes in equity, the condensed
consolidated statement of cash flows and related notes 1 to 20. We have read
the other information contained in the interim financial report and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial statements.
Directors' responsibilities
The interim financial report is the responsibility of, and has been approved
by, the Directors. The Directors are responsible for preparing the interim
financial report in accordance with the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority. As disclosed in
Note 2, the annual financial statements of the Group will be prepared in
accordance with United Kingdom adopted International Financial Reporting
Standards. The condensed set of financial statements included in this interim
financial report has been prepared in accordance with United Kingdom adopted
International Accounting Standard 34, "Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the interim financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Financial
Reporting Council for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the interim
financial report for the six months ended 30 June 2021 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Financial Reporting Council. Our work has been undertaken so
that we might state to the Company those matters we are required to state to
it in an independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
Birmingham
4 August 2021
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