TIDMSTB
RNS Number : 8403U
Secure Trust Bank PLC
04 August 2022
PRESS RELEASE
Thursday 4 August 2022
For immediate release
LEI: 213800CXIBLC2TMIGI76
SECURE TRUST BANK PLC
Interim Results for the six months to 30 June 2022
This announcement contains inside information 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.
Continued growth and significant strategic progress
Secure Trust Bank PLC ("STB" or the "Group"), a leading
specialist lender, is pleased to announce a positive trading
performance for the six months to 30 June 2022. STB continued to
build momentum, delivered strong income growth, managed costs
effectively and delivered a significant increase in core(1) profit
before tax pre impairments. As expected, STB delivered a lower
statutory profit before tax of GBP24.7 million in H1 2022 (H1 2021:
GBP30.7 million) as impairment levels normalised and lending growth
accelerated. STB is declaring an interim dividend of 16 pence per
share for 2022 (H1 2021: 20 pence per share).
The Group achieved record new business lending in its core(1)
businesses during the period, increasing 85.8% compared to the
first six months of 2021. The core(1) net lending book has grown
12.2% in the period. In line with the Group strategy, core(1) cost
income ratio improved to 57.0% from 60.3%.
In Consumer Finance, core(1) net lending balances grew to GBP1.2
billion (31 December 2021 GBP1.0 billion) following record new
business lending of GBP743.4 million in the 6 months to June 2022
(H1 2021: GBP431.5 million). In Business Finance, core(1) net
lending balances grew to GBP1.5 billion (31 December 2021 GBP1.4
billion) with record new business lending of GBP377.6 million in
the 6 months to June 2022 (H1 2021: GBP171.7 million).
Pursuant to our strategy to simplify the business and focus on
attractive market segments, the Group completed the sale of Debt
Managers (Services) Limited's ('DMS') loan portfolio. The disposal
resulted in the recognition of an initial profit of GBP8.1 million.
Additional wind-down costs are expected in the second half of the
year when the activities of the business will be closed down after
the portfolio is migrated to the purchaser. The Group also
completed the acquisition of AppToPay Limited to support the
planned entry, through its Retail Finance business, into the
regulated digital Buy Now Pay Later market.
On a core(1) basis the Group achieved a statutory profit before
tax of GBP17.1 million (H1 2021: GBP29.3 million).
The core(1) impairment charge of GBP17.9 million (H1 2021:
GBP0.4 million credit) reflects a more normalised core(1) cost of
risk of 1.3% (H1 2021: (0.1)%) and growth in new business.
Impairment charges per the Group's IFRS 9 models reflect improved
macroeconomic scenarios compared to December 2021, albeit the Group
is aware of the uncertain outlook. Arrears within our Vehicle
Finance business moved back towards pre-pandemic levels from the
low level experienced through the COVID-19 pandemic.
Although the Group has successfully navigated the challenges of
COVID-19, the country continues to face economic uncertainty, due
to high levels of inflation, supply chain disruption and the global
impacts of the war in the Ukraine. The Group is proactively
managing the impacts of these events on its business and remains
committed to supporting its consumer and business customers.
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 16 pence per share for 2022
is payable on 26 September 2022 to shareholders on the register at
the close of business on 26 August 2022.
The Group achieved a total return on average equity of 12.5% (H1
2021: 19.0%) and maintained strong capital ratios.
FINANCIAL HIGHLIGHTS
Six months Six months
to 30 June 2022 to 30 June 2021 Change(4) %
Statutory profit before tax GBP24.7m GBP30.7m (19.5)
----------------- ----------------- ------------
Core(1) profit before tax GBP17.1m GBP29.3m (41.6)
----------------- ----------------- ------------
Core(1) profit before tax pre impairments GBP34.3m GBP28.2m 21.6
----------------- ----------------- ------------
Basic earnings per share 102.4 pence 139.5 pence (26.6)
----------------- ----------------- ------------
Core(1) basic earnings per share 69.1 pence 133.1 pence (48.1)
----------------- ----------------- ------------
Ordinary dividend per share 16 pence 20 pence (20.0)
----------------- ----------------- ------------
Total return on average equity(2) 12.5% 19.0% (6.5)pp
----------------- ----------------- ------------
Core(1) net interest margin 5.7% 6.0% (0.3)pp
----------------- ----------------- ------------
Core(1) cost of risk 1.3% (0.1)% 1.4pp
----------------- ----------------- ------------
Core(1) cost income ratio 57.0% 60.3% (3.3)pp
----------------- ----------------- ------------
30 June 31 December Change(4) %
2022 2021
----------------- ----------------- ------------
Loan Book(3) GBP2,751.2m GBP2,531.9m 8.7
----------------- ----------------- ------------
Core(1) Loan Book GBP2,751.2m GBP2,451.0m 12.2
----------------- ----------------- ------------
Deposits GBP2,290.9m GBP2,103.2m 8.9
----------------- ----------------- ------------
CET 1 capital ratio 14.0% 14.5% (0.5)pp
----------------- ----------------- ------------
Total capital ratio 16.3% 16.8% (0.5)pp
----------------- ----------------- ------------
OPERATIONAL HIGHLIGHTS
-- Total new business lending volumes increased by 85.8% to
GBP1,121.0 million (H1 2021: GBP603.2 million)
-- Total lending balances increased by 8.7% to GBP2,751.2
million (31 December 2021: GBP2,531.9 million)
-- Core(1) lending balances increased by 12.2% to GBP2,751.2
million (31 December 2021: GBP2,451.0 million)
-- Total Consumer Finance core(1) lending balances grew by 21.5%
to GBP1,248.8 million (31 December 2021: GBP1,028.1 million),
primarily with growth in prime interest free products through
strong retailer partnerships and new products launched in 2021
within Vehicle Finance.
-- Total Business Finance core(1) lending balances grew by 5.6%
to GBP1,502.4 million (31 December 2021: GBP1,422.9 million),
driven by higher utilisation levels in Commercial Finance. Real
Estate Finance growth was lower, at 3.0% due to large loan
repayments in the first six months of the year.
-- Customer deposits grew to GBP2,290.9 million (31 December
2021: GBP2,103.2 million) with a move towards fixed term funds.
Bank of England Base Rate increases were passed onto managed rate
products, resulting in a core(1) cost of funds of 1.4% (H1 2021:
1.4%), though with the continued increase in Base Rate our funding
costs will increase for the full year.
-- The disposal of the DMS loan portfolio which completed in May
2022 resulted in the recognition of an initial total profit of
GBP8.1 million(5) , with additional costs to arise in H2 2022 as
the business is wound down.
-- Customer satisfaction remains high, as measured by Feefo, 4.5 stars (2021: 4.6 stars)
-- Listed as an official UK Best Workplace(TM) for the fourth
year running, ranking 29 out of 67 companies.
OUTLOOK AND STRATEGY
The Group has firmly embedded its strategy of focusing on its
core markets where it has depth of expertise and opportunity to
grow, and is determined to become the UK's most trusted specialist
lender. We continue to invest in new products and consider
strategic acquisitions to complement our four core businesses. We
are conscious of the economic headwinds impacting our customers. We
will continue to support them as we did through the pandemic and
will ensure the Group continues to operate within risk appetite,
lending responsibly during these challenging times. Our diversified
and resilient business model, agility and strong capital and
liquidity positions make us well placed to both weather uncertain
market conditions and deliver sustainable long-term growth.
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 which were
updated in March 2022.
30 June 2022
Medium-term targets Actual Target
Core(1) net interest margin 5.7% >5.5%
---------------------------------------- ----------
Core(1) cost income ratio 57.0% <50%
---------------------------------------- ----------
Total return on average equity 12.5% 14% - 16%
---------------------------------------- ----------
CET 1 ratio 14.0% >12.0%
---------------------------------------- ----------
Core(1) Compound Annual Growth Rate(6) 16.7% >15.0%
---------------------------------------- ----------
Footnotes:
1. Core businesses include the Retail Finance, Vehicle Finance,
Real Estate Finance and Commercial Finance businesses only, and are
equivalent to continuing operations. It excludes the Debt
Management, Consumer Mortgages and Asset Finance businesses. The
associated loan portfolios for all non-core businesses were sold in
2022 or 2021 and have been treated as discontinued operations for
statutory purposes.
2. June 2021 restated in relation to reflect the IFRS
Interpretations Committee's clarification on the accounting
treatment of Software-as-a-Service arrangement. Further details are
provided Note 1.3.1 to the Interim Financial Statements.
3. 31 December 2021 includes GBP1.3 million of assets held for
sale.
4. pp represents the percentage point movement
5. Includes selling costs of GBP1.2 million, and GBP0.8 million
of associated costs to wind down the debt management business. See
Note 6 to the Interim Financial Statements for further details.
6. CAGR is the annual growth rate calculated as the annualised
compound growth in 'core' loans and advances to customers since 31
December 2020.
Lord Forsyth, Chairman, said:
"Our new vision is fully embedded and being driven forward by
the Board. We have a well-established and diversified business, an
excellent management team and can look forward to the future with
confidence. The Board is mindful of current uncertainty and how
high levels of inflation, the war in Ukraine and the impending
changes in the UK government will affect our customers. We will
continue to support them during these challenging times and manage
our business responsibly."
David McCreadie, Chief Executive, said:
"I am pleased with our positive operational performance during
the first six months of the year. The Group has grown lending
balances beyond pre-pandemic levels in all our core businesses and
achieved record new business volumes. We have completed the
simplification of the Group, delivered strong income growth and
become more efficient. We are committed to navigating our
businesses carefully through these uncertain times and will
continue to be flexible in how we react during this period of
economic uncertainty. Our new purpose- to help consumers and
businesses fulfil their ambitions - will guide us and we remain
committed to supporting our customers and business partners.
We have significant growth potential in our attractive markets
and will capture opportunities with our usual focus on disciplined
risk management. We are well placed to realise our ambitions and
have shown resilience through the challenges of the last few years.
We will also continue to consider potential M&A opportunities
which can complement our core markets. We remain confident about
the future despite near term uncertainties."
Results presentation
This announcement together with the associated investors'
presentation are available on:
http://www.securetrustbank.com/results-reports/results-reports-presentations
Secure Trust Bank will host a webcast for analysts and investors
today, 4 August 2022 at 10.00 am, which can be accessed by
registering at:
https://stream.brrmedia.co.uk/broadcast/62d550420485375c36e3fa32
For those wishing to ask a question, please dial in to the event
by conference call:
Dial +44 (0)330 165 4012
Confirmation code: 8618986
Enquiries:
Secure Trust Bank PLC
David McCreadie, Chief Executive Officer
Rachel Lawrence, Chief Financial Officer
Tel: 0121 693 9100
Stifel Nicolaus Europe Limited (Joint Broker)
Robin Mann
Gareth Hunt
Stewart Wallace
Tel: 020 7710 7600
Canaccord Genuity Limited (Joint Broker)
Andrew Potts
Tel: 020 7523 8000
Tulchan Communications
Tom Murray
Misha Bayliss
Tel: 020 7353 4200
The person responsible for the release of this information on
behalf of STB is Mark Stevens, Company Secretary.
Forward looking statements
This announcement contains forward looking statements about the
business, strategy and plans of STB and its current objectives,
targets and expectations relating to its future financial condition
and performance. Statements that are not historical facts,
including statements about STB's or management's beliefs and
expectations, are forward looking statements. By their nature,
forward looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that will occur
in the future. STB's actual future results may differ materially
from the results expressed or implied in these forward looking
statements as a result of a variety of factors. These include UK
domestic and global economic and business conditions, risks
concerning borrower credit quality, market related risks including
interest rate risk, inherent risks regarding market conditions and
similar contingencies outside STB's control, the COVID-19 pandemic,
expected credit losses in certain scenarios involving forward
looking data, any adverse experience in inherent operational risks,
any unexpected developments in regulation, or regulatory and other
factors. The forward looking statements contained in this
announcement are made as of the date of this announcement, and
(except as required by law or regulation) STB undertakes no
obligation to update any of its forward looking statements.
Contents
Interim Business Report
Measuring Performance: Key Performance Indicators
Chairman's statement
Chief Executive's statement
Financial review
Business review
Economic and regulatory environment
Principal risks and uncertainties
Interim Financial Statements
Condensed consolidated statement of comprehensive income
Condensed consolidated statement of financial position
Condensed consolidated statement of changes in equity
Condensed consolidated statement of cash flows
Notes to the financial statements
Appendix to the Interim Report (unaudited)
Governance
Directors' responsibility statement
Independent review report to Secure Trust Bank PLC
Alternative performance measures
Certain key performance indicators and performance metrics
represent alternative performance measures that are not defined or
specified under IFRS. Definitions of these alternative performance
measures, their calculation and an explanation of the reasons for
their use can be found in the Appendix to the Interim Report.
Prior year results and key performance indicators have been
restated to reflect the IFRS Interpretations Committee's
clarification on the accounting treatment of Software-as-a-Service
arrangement. Further details are provided in the 2021 Annual Report
and Account within Note 1 to the Financial Statements (page 115)
and Note 1.3.1 to the Interim Financial statements.
Interim Business Report
Measuring performance: Key Performance Indicators
The following key performance indicators are the primary
measures used by management to assess the performance of the Group.
During 2021 the number of key performance indicators was reduced
and realigned to the Group's published medium-term guidance
measures.
30June 30 June 31 December
2022 2021 2021
Grow
-------- -------- ------------
Core loans and advances to customers (GBPmillion) 2,751.2 2,234.6 2,451.0
-------- -------- ------------
Why we measure this: Shows the growth in the Group's lending balances,
which generate income
Core compound annual growth rate(1) (%) 16.7 4.6 12.2
-------- -------- ------------
Why we measure this: Shows the rate of growth in the Group's lending
balances
Core net interest margin (%) 5.7 6.0 6.1
-------- -------- ------------
Why we measure this: Shows the interest margin earned on the Group's
lending balances, net of funding costs
Total return on average equity (%) 12.5 19.0(5) 15.9
-------- -------- ------------
Why we measure this: Measures the Group's ability to generate
profit from the equity available to it
Sustain
-------- -------- ------------
Core cost to income ratio(2) (%) 57.0 60.3 60.0
-------- -------- ------------
Why we measure this: Measures how efficiently the Group utilises
its cost base to produce income
Core cost of risk(3) (%) 1.3 (0.1) 0.2
-------- -------- ------------
Why we measure this: Measures how effectively the Group manages
the credit risk of its lending portfolios
Common Equity Tier 1 ('CET 1') ratio (%) 14.0 14.1(5) 14.5
-------- -------- ------------
Why we measure this: The CET 1 ratio demonstrates the Group's
capital strength
Care
-------- -------- ------------
Customer Feefo ratings (Stars)
(mark out of 5 based on star rating from
496 reviews (30 June 2021: 594 reviews,
31 December 2021: 937 reviews) 4.5 4.7 4.6
-------- -------- ------------
Why we measure this: Indicator of customer satisfaction with the
Group's products and services
Employee survey trust index score (%)(4)
(based on 2021 all employee survey) N/A N/A 80
-------- -------- ------------
Why we measure this: Indicator of employee engagement and satisfaction
Environmental intensity indicator(4)
(tonnes of carbon dioxide equivalent per
GBP1 million Group income) N/A N/A 3.0
-------- -------- ------------
Why we measure this: Indicator of the Group's impact on the environment
Certain key performance indicators represent alternative
performance measures that are not defined or specified under
International Financial Reporting Standards ('IFRS'). Definitions
of the financial key performance indicators, their calculation and
an explanation of the reasons for their use can be found in the
Appendix to the Interim Report.
Core businesses include the Retail Finance, Vehicle Finance,
Real Estate Finance and Commercial Finance businesses only, and are
equivalent to continuing operations. It excludes the Debt
Management, Consumer Mortgages and Asset Finance businesses. As a
result, certain ratios have been restated on a 'Core' basis.
Further details can be found in Note 3 to the Interim Financial
Statements. Further explanation of the financial key performance
indicators is discussed in the narrative of the Financial review,
where they are identified by being in bold font. Further
explanation of the non-financial key performance indicators is
provided in the Managing our business responsibly and
Climate-related financial disclosures sections on pages 38 and 49
of the 2021 Annual Report and Accounts.
1. CAGR is the annual growth rate calculated as the annualised
compound growth in 'core' loans and advances to customers since 31
December 2020.
2. The decrease in the cost to income ratio reflects an
improving trend.
3. The increase in the cost of risk reflects a declining
trend.
4. Data is only collated on an annual basis.
5. KPIs have also been restated in relation to reflect the IFRS
Interpretations Committee's clarification on the accounting
treatment of Software-as-a-Service arrangement. Further details are
provided Note 1.3.1 to the Interim Financial statements.
Chairman's statement
I am pleased to report that the Group has continued to capture
the growth opportunities that were outlined at the Capital Markets
Day in November 2021. The team has completed the simplification of
the Group's business activities and has a clear plan to achieve
further lending in each of our specialist lending businesses.
As expected, the Group delivered a lower total statutory profit
before tax of GBP24.7 million (30 June 2021: GBP30.7 million) for
the first half of 2022 as impairment levels normalised and lending
accelerated. The Board is proposing an interim dividend of 16.0
pence per share (30 June 2021: 20 pence per share). The challenges
of COVID-19 have been successfully navigated and there is strong
growth in our businesses. The Board is mindful of current
uncertainty and how high levels of inflation, the war in Ukraine
and the impending changes in the Government will affect our
customers. We will continue to support them during these
challenging times and manage our business responsibly. The Group is
maintaining a cautious approach to loan loss provisioning and has
set an overall impairment charge of GBP18.6 million (30 June 2021:
GBP1.1 million credit).
Our new vision is fully embedded and being driven forward by the
management team. The focus on our core(1) businesses saw the sale
of Debt Manager (Services) Limited's loan portfolio completed in
May 2022 generating an initial profit of GBP8.1 million(2) . In the
same month we received approval from the FCA to complete the
purchase of AppToPay Limited. This technology will enable Retail
Finance to offer a new regulated digital 'Buy Now Pay Later'
product which applies affordability assessments and appropriate
consumer protections.
We are determined to be the UK's most trusted specialist lender
and will continue to consider strategic acquisitions which
complement our business.
I would like to thank the Board for their strong support during
this eventful period, as well as our fantastic employees, whose
resilience and dedication has achieved success despite
unprecedented challenges.
We have a well-established and diversified business, an
excellent management team and can look forward to the future with
confidence.
Lord Forsyth
Chairman
3 August 2022
1. Core businesses include the Retail Finance, Vehicle Finance,
Real Estate Finance and Commercial Finance businesses only, and are
equivalent to continuing operations. It excludes the Debt
Management, Consumer Mortgages and Asset Finance businesses. The
associated loan portfolios for all non-core businesses were sold in
2022 or 2021 and have been treated as discontinued operations for
statutory purposes.
2. Includes selling costs of GBP1.2 million, and GBP0.8 million
of associated costs to wind down the debt management business. See
Note 6 to the Interim Financial Statements for further details.
Chief Executive's statement
Positive performance and sustained growth
I am delighted with our positive operational performance during
the first six months of the year. We have continued to build
momentum, delivered strong income growth, been disciplined in
managing our cost base and delivered a significant increase in
core(1) profit before tax pre impairments. The Group's impairment
provisions are normalising, as expected.
The Group has grown lending beyond pre-pandemic levels in all
our core(1) businesses and achieved record new business volumes of
GBP1,121.0 million in the six months to June 2022 (H1 2021:
GBP603.2 million).
At the end of the first six months, we delivered core(1) net
lending growth of 12.2% (GBP300.2 million). Our Consumer Finance
businesses contributed significantly to this growth, increasing by
21.5%, with Business Finance lending increasing by 5.6%. Total loan
balances including non-core lending grew 8.7% during the
period.
Across our core(1) businesses, net interest margin was 5.7% in
the six months to June 2022 (H1 2021: 6.0%). Total net interest
margin decreased to 5.9% compared to 6.3% in the first half of
2021. These decreases were primarily driven by the growth of lower
risk lending in Retail Finance, with average balances increasing by
24.5%.
In March we announced our exit from the debt purchase market and
in May we completed the sale of Debt Manager (Services) Limited's
('DMS's') portfolio of loans, which generated an initial profit of
GBP8.1 million(2) . We expect further closure related costs to be
incurred in the second half of the year. As a consequence of
exiting this business, we have previously reset our medium-term
market guidance for net interest margin to be >5.5% and cost
income ratio to <50%. The exit from the debt purchase market
completes the simplification of our lending activities.
We have raised record levels of deposits (including retained
funds on maturing products), and supported customers by increasing
rates on managed rate products as the Bank of England Base Rate
increased. However, we are mindful of the risks a rapidly changing
rate environment can have on the Group's cost of funds and new
business pricing and continue to manage this challenge as
effectively as possible, noting it may take time to fully pass
through funding cost increases to the various business lines.
Operating income in our core(1) businesses increased by 14.1%
and with a greater focus on cost discipline we contained cost
growth at 7.9%. Our performance is reflected in the improved
core(1) cost income ratio, which reduced from 60.3% in H1 2021 to
57.0%.
Group impairment provisions are normalising and returning
towards pre-pandemic levels. That combined with the growth of our
lending book, has resulted in the recognition of a core(1)
impairment charge of GBP17.9 million (30 June 2021: GBP0.4 million
credit). Including non-core businesses, the impairment charge was
GBP18.6 million (30 June 2021: GBP1.1 million credit). We are also
mindful of the high levels of inflation, the impact on
cost-of-living, household incomes and potential consequences for
customers' ability to service their debts. We have therefore
maintained management overlays in our loan loss provisioning to
reflect these risks. The Business Finance businesses are more
resilient to these impacts due to the secured nature of
lending.
Following a normalisation of impairment charges in the Consumer
Finance businesses, we have observed arrears within our Vehicle
Finance business returning towards pre-pandemic levels as
Government support though COVID-19 has tapered off, however these
remain below pre-pandemic levels. As a result, we have achieved a
total profit before tax of GBP24.7 million (30 June 2021: GBP30.7
million). On a core(1) basis profit before tax was GBP17.1 million
(30 June 2021: GBP29.3 million).
Capital and liquidity strength
We have maintained strong capital ratios during the period with
a Common Equity Tier 1 ratio of 14.0% as at 30 June 2022 (30 June
2021: 14.1%), where we continue to utilise the transitional IFRS 9
provisions, albeit with the benefit tapering down as we entered the
year. The sale of the DMS loan portfolio released approximately
GBP72 million of risk weighted assets, and the associated capital
has been deployed to support growth in our remaining core(1)
businesses.
The Financial Policy Committee ('FPC') have announced plans to
increase the Countercyclical Buffer ('CCyB') from 0% to 1% in
December 2022. Alongside this, the PRA announced the removal of
temporary firm specific PRA buffers to take effect at the same
time. Furthermore, in July the FPC announced a further increase to
the CCyB to 2% to take effect in July 2023. Our capital planning
considers these changes, and we are positioned well to manage the
impact of the adjustments. We will continue to consider options to
optimise and increase our capital resources to support the
continued growth of our balance sheet.
We have maintained liquidity metrics above the regulatory
thresholds throughout the period.
Vision and purpose
We have firmly embedded our strategy of focusing on our core
markets where we have depth of expertise and opportunity to grow.
We are determined to become the UK's most trusted specialist
lender. As part of our communication strategy, we held a 'Mega
Teambrief' event in June 2022 for all colleagues to attend, which
focussed on how each of our diverse, specialist businesses support
the Group's vision, purpose and strategy.
As noted above, our focus on delivering against our strategic
objectives saw the completion of the sale of DMS's portfolio of
loans. We are now working with the purchaser to migrate customers
and employees to their business operations and this will complete
later in the year. This will allow us to focus on the remaining
four core(1) lending businesses which each have significant growth
opportunities. We also completed the purchase of AppToPay Limited,
which will provide the proprietary technology platform to enable
the Retail Finance business to enter the digital 'Buy Now Pay
Later' market.
We will continue to consider potential M&A opportunities
which can complement our core markets.
Supporting our customers
In the first six months of the year, we received awards from
Moneyfacts and Feefo. Moneyfacts recognised the strength of our
Savings proposition and awarded us 'Best Notice Account Provider',
and Feefo awarded us the Platinum Trusted Service award for Vehicle
Finance and Retail Finance, and the Feefo Trusted Service Award for
our Savings proposition. The Feefo Platinum award is awarded to
those companies who have achieved the Gold service award for three
consecutive years, and recognises our consistent support for
customers during the challenging period of these last few years.
Feefo scores continue to rate highly at 4.5 stars out of 5 (31
December 2021: 4.6 stars out of 5).
We have continued to support our customer needs by growing
volumes in the new products that were introduced in 2021. Within
our Vehicle Finance business, Prime Hire Purchase lending and Prime
Personal Contract Purchase ('PCP') lending grew GBP42.3 million
since 31 December 2021. In addition, Stock Funding has been
supporting the dealer network, with new business more than doubling
compared to H1 2021. We also continue to support Commercial Finance
clients through the UK Government Coronavirus Business Interruption
Loan Schemes and Recovery Loan Schemes ('RLS') and have recently
been accredited by the British Business Bank to offer the
forthcoming RLS Phase 3 product.
As the country faces high levels of inflation, we are aware of
the stress it will have on household and business finances. We are
committed to supporting our customers and business partners through
these challenging times.
Our people
I am hugely appreciative of the support from colleagues across
the Group, and the first six months brought about a number of
reasons to celebrate.
We were listed as an official UK Best Workplace(TM) for the
fourth year running. We were ranked 29 out of 67 companies and we
have now been awarded a trio of accolades from Great Place to
Work(R): UK Best Workplace(TM), UK Best Workplace for Women(TM) and
more recently for UK Best Workplace for Wellbeing(TM). We were also
able to finally celebrate and recognise our Outstanding Achievers
from the last three years at a celebratory event held in April.
We undertook an external employee 'pulse' survey, where 85% of
colleagues continue to say that this is a great place to work and
our Trust Outcome increased by 1% to 87% from H1 2021. We also
signed up to the HM Treasury's Women in Finance Charter which
underlines our commitment to equality, diversity and inclusion.
We have introduced a range of resources and information on
financial wellbeing for our colleagues in recent times. Although
rising prices impact everyone, we know that those who earn less are
most affected. Recognising this, we announced that we will pay an
exceptional, one-off payment in October of GBP1,000 to colleagues
who earn GBP35,000 or below.
I would like to take this opportunity to thank all colleagues
across the Group for their continued hard work and commitment
during the first half of the year.
Expertise and technology
We have deep expertise and strengths in our businesses, and
diversity across the Group as a whole. Our core businesses are
scalable and supported by established management teams with the
underlying technology to support and deliver further growth.
Outlook
We are committed to carefully navigating our businesses during
these uncertain times and will continue to be flexible in how we
react during this period of economic uncertainty. Our new purpose
will guide us - to help consumers and businesses fulfil their
ambitions - and we are committed to supporting our customers and
business partners.
We will continue to monitor inflation and the impact it will
have on the cost-of-living. Further increases in the Bank of
England Base Rate are predicted and this will have a direct impact
on customer pricing. Despite these challenges, we have significant
growth potential and will capture opportunities with our usual
focus on disciplined risk management. We are well placed to realise
our ambitions and have shown resilience through the challenges of
the last few years. We remain confident about the future despite
near term uncertainties.
David McCreadie
Chief Executive Officer
3 August 2022
1. Core businesses include the Retail Finance, Vehicle Finance,
Real Estate Finance and Commercial Finance businesses only, and are
equivalent to continuing operations. It excludes the Debt
Management, Consumer Mortgages and Asset Finance businesses. The
associated loan portfolios for all non-core businesses were sold in
2022 or 2021 and have been treated as discontinued operations for
statutory purposes.
2. Includes selling costs of GBP1.2 million, and GBP0.8 million
of associated costs to wind down the debt management business. See
Note 6 to the Interim Financial Statements for further details.
Financial review
"Positive growth in core operating income combined with cost
discipline have produced a solid first half result"
30 June 30 June 31 December
2022 2021 Movement 2021
Income statement GBPmillion GBPmillion % GBPmillion
---------------------------------------------- ------------ ------------ ----------- ------------
Continuing/Core
Interest income and similar income 90.6 80.0 13.3 163.9
Interest expense and similar charges (17.5) (14.8) 18.2 (27.7)
---------------------------------------------- ------------ ------------ ----------- ------------
Net interest income 73.1 65.2 12.1 136.2
Fee and commission income 8.1 6.1 32.8 13.3
Fee and commission expense (0.2) (0.3) (33.3) (0.6)
---------------------------------------------- ------------ ------------ ----------- ------------
Net fee and commission income 7.9 5.8 36.2 12.7
---------------------------------------------- ------------ ------------ ----------- ------------
Operating income 81.0 71.0 14.1 148.9
Net impairment (charge)/credit on loans
and advances to customers (17.9) 0.4 (4,575.0) (5.0)
Gains on modification of financial
assets 0.7 0.7 - 1.5
Losses from derivatives and hedge accounting (0.5) - - (0.1)
Operating expenses (46.2) (42.8) 7.9 (89.4)
---------------------------------------------- ------------ ------------ ----------- ------------
Profit before income tax from continuing
operations 17.1 29.3 (41.6) 55.9
Income tax expense (4.2) (4.5) (6.7) (10.4)
---------------------------------------------- ------------ ------------ ----------- ------------
Profit for the period from continuing
operations 12.9 24.8 (48.0) 45.5
---------------------------------------------- ------------ ------------ ----------- ------------
Discontinued operations:
Profit before income tax from discontinued
operations 7.6 1.4 442.9 0.1
Income tax expense (1.4) (0.2) 600.0 -
---------------------------------------------- ------------ ------------ ----------- ------------
Profit for the period from discontinued
operations 6.2 1.2 416.7 0.1
---------------------------------------------- ------------ ------------ ----------- ------------
Profit for the period 19.1 26.0 (26.5) 45.6
---------------------------------------------- ------------ ------------ ----------- ------------
Basic earnings per share (pence) -
Total 102.4 139.5 (26.6) 244.7
Basic earnings per share (pence) -
Continuing 69.1 133.1 (48.1) 244.1
---------------------------------------------- ------------ ------------ ----------- ------------
Selected Key Performance Indicators Movement
and performance metrics GBPmillion GBPmillion % GBPmillion
---------------------------------------------- ------------ ------------ ----------- ------------
Total profit before tax 24.7 30.7 (19.5) 56.0
---------------------------------------------- ------------ ------------ ----------- ------------
Percentage
point
% % movement %
---------------------------------------------- ------------ ------------ ----------- ------------
Core net interest margin 5.7 6.0 (0.3)pp 6.1
Core cost of funds 1.4 1.4 - 1.2
Core cost to income ratio 57.0 60.3 (3.3)pp 60.0
Core cost of risk 1.3 (0.1) 1.4pp 0.2
Total return on average equity(1) 12.5 19.0 (6.5)pp 15.9
Common Equity Tier 1 ('CET 1') ratio(1) 14.0 14.1 (0.1)pp 14.5
Total capital ratio(1) 16.3 16.3 - 16.8
---------------------------------------------- ------------ ------------ ----------- ------------
1. June 2021 KPIs have been restated in relation to reflect the
IFRS Interpretations Committee's clarification on the accounting
treatment of Software-as-a-Service arrangement. Further details are
provided Note 1.3.1 to the Interim Financial statements.
Certain key performance indicators and performance metrics represent
alternative performance measures that are not defined or specified
under IFRS. Definitions of these alternative performance measures,
their calculation and an explanation of the reasons for their
use can be found in the Appendix to the Interim Report. In the
narrative of this Financial review, key performance indicators
are identified by being in bold font.
'Core' key performance indicators and performance metrics have
been presented above. Core businesses include the Retail Finance,
Vehicle Finance, Real Estate Finance and Commercial Finance businesses
only, and are equivalent to continuing operations. It excludes
the Debt Management, Consumer Mortgages and Asset Finance businesses.
The associated loan portfolios for all non-core businesses were
sold in 2022 or 2021 and have been treated as discontinued operations
for statutory purposes. As a result, certain ratios have been
restated on a 'Core' basis. Further details of core business can
be found in the Appendix to the Interim Report.
Profit and earnings
The Group achieved strong growth in its balance sheet, exceeding
pre-pandemic levels. Profit before tax was affected by a number of
factors. Whilst growth in the Group's lending balances increased
operating income, this combined with a normalisation of impairment
rates led to an increase in impairment charges compared with H1
2021, primarily driven by the Vehicle Finance business. In
addition, profit before tax benefited from the recognition of the
profit on disposal of the Debt Manager (Services) Limited ('DMS')
loan portfolio.
As a result of the above, total statutory profit before tax
decreased by 19.5% to GBP24.7 million (H1 2021: GBP30.7 million).
On a core basis (continuing operations), statutory profit before
tax decreased by 41.6% to GBP17.1 million (H1 2021: GBP29.3
million). As a result, total earnings per share decreased from
139.5 pence per share to 102.4 pence per share, and core earnings
per share decreased from 133.1 pence per share to 69.1 pence per
share. Total return on average equity decreased from 19.0% to
12.5%. Detailed disclosures of earnings per ordinary share are
shown in Note 7 to the Interim Financial Statements. The components
of the Group's profit are analysed in more detail in the sections
below.
Net interest income
Core net interest income of GBP73.1 million was 12.1% higher
than the prior year. This was driven by a change in mix business
towards Consumer Finance off-set by interest expense. Core loans
and advances to customers increased by 12.2% from GBP2,451.0
million to GBP2,751.2 million.
On a total basis, net interest income was GBP77.6 million, 5.6%
higher than the prior period. Total loans and advances to customers
increased by 8.7% from GBP2,531.9 million(1) to GBP2,751.2, average
lending balances over 2022 were 12.5% higher than the average over
the first six months of 2021.
Interest income increased over the period and was attributed to
the Consumer Finance and Commercial Finance business. A reduction
in Real Estate Finance interest income has been a consequence of
the move from higher margin development lending to lower margin,
lower risk, residential investment lending.
The Group has passed on Bank of England Base Rate increases on
to our managed rate products and has refocussed funding sources to
fixed term bonds. As a result of this core interest expense was
GBP17.5 million (H1 2021: GBP14.8 million), an increase of 18.2%.
The cost of funds remained at 1.4% (H1 2021: 1.4%), however with
the continued increase in Base Rate our funding cost will increase
for the full year.
The Group's core net interest margin decreased to 5.7% (H1 2021:
6.0%). On a total basis net interest margin was 5.9% (H1 2021:
6.3%). The decrease has primarily been driven by the continued
shift towards prime interest free lending in Retail Finance, which
has a lower gross yield and cost of risk as well as the reduction
in higher yielding development loans in Real Estate Finance.
1. Including assets held for sale of GBP1.3 million relating to
a small leasing book.
Net fee and commission income
Core net fee and commission income increased by 36.2% to GBP7.9
million (H1 2021: GBP5.8 million). This was predominantly driven by
growth in Commercial Finance fee income.
Impairment charge
In H1 2022 the core cost of risk increased from (0.1)% to 1.3%
The core impairment charge for the year was a GBP17.9 million
charge (H1 2021: GBP0.4 million credit, which reflected a release
of COVID-19 driven provisions). Total cost of risk including
non-core businesses increased from (0.2)% to 1.4%.
During the year the Group enhanced its IFRS 9 process by
engaging the use of external economic advisors to inform its
macroeconomic variables model assumption inputs. 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 economic forecast
scenarios.
As in previous years, the majority of our impairment charge
arises from growth in the Consumer Finance businesses. Although the
economic inputs, compared to last year's pandemic impacted period,
have given rise to a GBP2.6 million release of loan loss
provisions, a number of other factors have impacted the IFRS 9
charge for the period. The core Consumer Finance loan book has
grown 21.5% and we have observed an increase in customer arrears
within the Vehicle Finance business which returned to pre-pandemic
credit criteria for its lending at the end of 2021. This resulted
in Vehicle Finance contributing GBP12.4 million to the overall
charge, with the majority of the remainder of the charge relating
to Retail Finance.
The impairment provision also included GBP2.0 million of
management overlays which adjusted the loan loss provision levels
estimated using the Group's IFRS 9 models as at 30 June 2022. In
the ongoing response to the rising cost-of-living, the overlay for
customer affordability was increased by GBP0.7 million to GBP5.3
million. An underlay of GBP2.2 million was established to adjust
the elevated probability of default assumptions within the IFRS 9
model within the Vehicle Finance business. Further details of
management overlays are included in Note 10 to the Interim
Financial Statements.
Overall, the impairment provision as a proportion of the gross
loans and advances to customers reduced from 2.6% as at 31 December
2021 to 2.4% as at 30 June 2022, however on a core basis was
maintained at 2.4%. A breakdown of the charge by product is shown
in Note 3 to the Interim Financial Statements. Further analysis of
the Group's loan book and its credit risk exposures is provided in
Notes 9 and 20 to the Interim Financial Statements.
Operating expenses
In H1 2022 the Group's core cost base increased by GBP3.4
million to GBP46.2 million (H1 2021: GBP42.8 million), however the
Group's core cost to income ratio decreased from 60.3% to 57.0%.
The Group's total cost to income ratio decreased from 64.0% in H1
2021 to 59.6%. Included within costs were GBP1.1 million relating
to non-recurring corporate projects (H1 2021: GBPnil), which if
excluded would have reduced the core cost income ratio and the
total cost income ratio to 55.7% and 58.3% respectively.
Taxation
The effective statutory tax rate has increased to 22.7% (H1
2021: 15.3%). On a continuing basis this is 24.6% (H1 2021:
15.4%).
The effective rate for 2022 has increased above the Corporation
Tax rate of 19% as there is a deferred tax charge arising from a
reassessment of the rates at which the deferred tax asset would
reverse out in future periods, mainly arising from changes to the
banking surcharge. Further information is provided in Note 5 to the
Interim Financial Statements.
Discontinued business
In May 2022, the Group disposed of the loan portfolio of DMS,
realising an overall initial profit on disposal of GBP8.1 million.
Further costs are expected to be incurred during the remainder of
the year. DMS will operate as a servicer for the purchaser whilst
the loan book is migrated over to its operating platform. Further
details of the impact of the closure of the business are provided
in Note 6 to the Interim Financial Statements.
During 2021 the Group disposed of the Asset Finance and Consumer
Mortgage portfolios. The loss on disposal primarily related to the
sale of the Consumer Mortgage book (loss of GBP1.3 million). GBP1.3
million of interest income was recognised within net interest
income, resulting in an overall nil profit impact. The Asset
Finance sale resulted in a GBP0.1 million loss. Both had limited
impact on Group's operations as the service delivery of both
portfolios were outsourced to third party providers.
The profits and losses of all the business above, including the
profit/loss on disposal, have been included within discontinued
operations in the Interim Report. Further details of the
contribution of each business unit can be found in Note 3 to the
Interim Financial Statements.
Distributions to shareholders
The Group's policy is to pay total dividends representing 25% of
annual earnings. The Board recommend the payment of an interim
dividend for 2022 of 16.0 pence per share (H1 2021: 20.0 pence per
share).
Balance sheet
Restated(1)
30 June 30 June
31 December
2022 2021 2021
Summarised balance sheet GBPmillion GBPmillion GBPmillion
-------------------------------------------- ------------- ------------- -------------
Assets
Cash and balances at central banks 253.0 138.4 235.7
Loans and advances to banks 54.2 43.3 50.3
Debt securities 34.9 15.0 25.0
Loans and advances to customers(2) 2,751.2 2,389.9 2,531.9
Fair value adjustment for portfolio hedged
risk (17.0) 2.4 (3.5)
Derivative financial instruments 17.7 1.8 3.8
Other assets 41.1 43.4 42.7
-------------------------------------------- ------------- ------------- -------------
3,135.1 2,634.2 2,885.9
-------------------------------------------- ------------- ------------- -------------
Liabilities
-------------------------------------------- ------------- ------------- -------------
Due to banks 400.3 310.4 390.8
Deposits from customers 2,290.9 1,939.7 2,103.2
Fair value adjustment for portfolio hedged
risk (15.2) 0.6 (5.3)
Tier 2 subordinated liabilities 51.0 50.8 50.9
Derivative financial instruments 17.3 4.0 6.2
Other liabilities 76.4 42.9 37.7
-------------------------------------------- ------------- ------------- -------------
2,820.7 2,348.4 2,583.5
-------------------------------------------- ------------- ------------- -------------
1. Restated in relation to reflect the IFRS Interpretations
Committee's clarification on the accounting treatment of
Software-as-a-Service arrangement. Further details are provided
Note 1.3.1 to the Interim Financial statements.
2. Loans and Advances to customers include loan portfolios
classified as Assets held for sale (30 June 2021: GBP62.4 million,
31 December 2021: GBP1.3 million).
The assets of the Group increased by 8.6% to GBP3,135.1 million
as at 30 June 2021 (31 December 2021 GBP2,885.9 million). The
liabilities of the Group increased by 9.2% to GBP2,820.7 million
(31 December 2021: GBP2,583.5 million).
Loans and advances to customers
Loans and advances to customers (which include secured and
unsecured loans and finance lease receivables) increased by 8.7% to
GBP2,751.2 million as at 30 June 2021 (31 December 2021: GBP2,531.9
million(1) ). Excluding non-core portfolios(2) ,which were sold
during 2022 and 2021 the growth was stronger at 12.2%.
Loan originations in the year, being the total of new loans and
advances to customers entered into during the period, increased by
79.4% to GBP1,121.0 million (H1 2021: GBP624.8 million).
30 June 30 June
New business volumes 2022 2021
---------------------- -------- --------
Consumer Finance
Retail Finance 535.0 353.1
Vehicle Finance 208.4 78.4
Debt Management - 21.6
Business Finance
Real Estate Finance 241.8 129.5
Commercial Finance 135.8 42.2
Total 1,121.0 624.8
---------------------- -------- --------
Further analysis of loans and advances to customers, including a
breakdown of the arrears profile of the Group's loan books, is
provided in Note 10 and 20.
1. Including assets held for sale of GBP1.3 million at 31
December 2021
2. See Appendix for excluded businesses which were disposed of
during 2021 and 2022.
Debt securities and Due to banks
Debt securities consist solely of sterling UK Government
Treasury Bills ('T-Bills'). As at 30 June 2022 the Group held
GBP34.9 million of T-Bills (31 December 2021: GBP25.0 million)
which were temporarily required to be utilised as collateral
against Term Funding Scheme with additional incentives for SMEs
('TFSME').
Amounts due to banks consisted primarily of drawings from the
Bank of England TFSME facility.
Deposits from customers
Customer deposits include Fixed term bonds, ISAs, Notice and
Access accounts. Customer deposits increased by 8.9% during the
period and closed at GBP2,290.9 million (31 December 2021:
GBP2,103.2 million). Total funding ratio of 110.8% reducing
slightly from the end of 2021 (31 December 2021: 112.4%). As set
out in the liquidity section of the Financial review, the mix of
the deposit book has continued to change as the Group has adapted
to the recent Base Rate changes, with a focus on retaining stable
funds, which is reflected in the increase in fixed term bonds.
Tier 2 subordinated liabilities
Tier 2 subordinated liabilities represent two GBP25.0 million
tranches of 6.75% Fixed Rate Callable Subordinated Notes, including
interest accrued. Further details of the note issuances are
provided in Note 15 to the Interim Financial Statements. The Notes
qualify as Tier 2 capital.
Capital
Management of capital
Our capital management policy is focused on optimising
shareholder value over the long term. Capital is allocated to
achieve targeted risk adjusted returns whilst ensuring appropriate
surpluses are held above the minimum regulatory requirements.
Key factors influencing the management of capital include:
-- The level of buffers and the capital requirement set by the
Prudential Regulation Authority ('PRA');
-- Estimated credit losses calculated using IFRS 9 methodology,
and the applicable transitional rules;
-- New business volumes; and
-- The product mix of new business.
Capital resources
Capital resources increased over the period from GBP350.6
million to GBP363.6 million. This includes the proposed interim
dividend of GBP3.0 million (H1 2021: GBP3.7 million, 31 December
2021: GBP7.7 million). The increase was primarily due to CET 1
capital and was driven by retained earnings growth, offset by the
impact of changes to the IFRS 9 adjustment as set out below.
Restated(1)
30 June 30 June
31 December
2022 2021 2021
Capital GBPmillion GBPmillion GBPmillion
--------------------- ------------- ------------- -------------
CET 1 capital 313.8 290.8 303.6
Tier 2 capital 49.8 46.5 47.0
--------------------- ------------- ------------- -------------
Total capital 363.6 337.3 350.6
--------------------- ------------- ------------- -------------
Total risk exposure 2,237.1 2,063.2 2,087.4
--------------------- ------------- ------------- -------------
Capital ratios
--------------------- ------------- ------------- -------------
CET 1 capital ratio 14.0 14.1 14.5
Total capital ratio 16.3 16.3 16.8
Leverage ratio 10.6 10.9 10.3
--------------------- ------------- ------------- -------------
1. Restated in relation to reflect the IFRS Interpretations
Committee's clarification on the accounting treatment of
Software-as-a-Service arrangement. Further details are provided
Note 1.3.1 to the Interim Financial statements.
The Group has elected to adopt the IFRS 9 transitional rules.
For 2022, this allows for 25% (2021: 50%) of the initial IFRS
9 transition adjustment, net of attributable deferred tax, to
be added back to eligible capital. The same relief is allowed
for increases in provisions between 1 January 2018 to 31 December
2019, except where these provisions relate to defaulted accounts.
The same relief is allowed for increases in provisions since 1
January 2020, however as a response to the COVID-19 pandemic,
this is applied at 75% in 2022 (2021: 100%). All transitional
relief will taper off by 31 December 2024.
The Group's regulatory capital is divided into:
* CET 1 capital, which comprises shareholders' funds,
after adding back the IFRS 9 transition adjustment
and deducting qualifying intangible assets, both of
which are net of attributable deferred tax.
* Tier 2 capital, which is solely subordinated debt net
of unamortised issue costs, capped at 25% of the
capital requirement.
The Group operates the standardised approach to credit risk, whereby
risk weightings are applied to the Group's on and off balance
sheet exposures. The weightings applied are those stipulated in
the Capital Requirements Regulation.
Excluding the impact of the IFRS 9 transitional rules, the
Group's CET 1 capital ratio and total capital ratio would reduce to
13.7% and 15.9% respectively.
Capital requirements
The Total Capital Requirement, set by the PRA, includes both the
calculated requirement derived using the standardised approach and
the additional capital derived in conjunction with the Internal
Capital Adequacy Assessment Process ('ICAAP'). In addition, capital
is held to cover generic buffers set at a macroeconomic level by
the PRA.
Restated(1)
30 June 30 June
31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
----------------------------- ------------- ------------- -------------
Total Capital Requirement 211.9 195.4 196.7
Capital conservation buffer 55.9 51.6 51.9
Countercyclical buffer - - -
----------------------------- ------------- ------------- -------------
Total 267.8 247.0 248.6
----------------------------- ------------- ------------- -------------
1. Restated in relation to reflect the IFRS Interpretations
Committee's clarification on the accounting treatment of
Software-as-a-Service arrangement. Further details are provided
Note 1.3.1 to the Interim Financial statements.
The increase in lending balances through the first six months of
the year resulted in an increase in risk weighted assets over 2022,
bringing the total risk exposure up from GBP2,087.4 million to
GBP2,237.1 million.
The capital conservation buffer has been held at 2.5% of total
risk exposure since 1 January 2019. The countercyclical capital
buffer was 0% throughout 2021 as part of the PRA's response to
COVID-19 however the Financial Policy Committee have announced that
the rate will increase to 1% of relevant risk exposures from 13
December 2022 and subsequently to 2% on 5 July 2023. In addition,
the PRA confirmed the removal of firm specific temporary PRA
buffers from December 2022.
Liquidity
Liquidity resources
We continued to hold significant surplus liquidity over the
minimum requirements throughout the first six months of the year,
managing liquidity by holding High Quality Liquid Assets ('HQLA')
and utilising predominantly retail funding balances from customer
deposits over 2022. Liquidity remained high at the end of the
period due to a number of factors, including prefunding Notice
account withdrawals and lending growth expected in July. Total
liquid assets increased to GBP338.3 million as at 30 June 2022 (31
December 2021: GBP303.0 million).
The Group is a participant in the Bank of England's Sterling
Money Market Operations under the Sterling Monetary Framework and
has drawn GBP390.0 million under the TFSME. The Group has no liquid
asset exposures outside of the United Kingdom and no amounts that
are either past due or impaired.
30 June 30 June 31 December
2022 2021 2021
Liquid assets GBPmillion GBPmillion GBPmillion
--------------- ------------ ------------ ------------
Aaa - Aa3 285.6 152.1 259.0
A1 - A3 47.6 28.7 38.9
Unrated 5.1 5.1 5.1
--------------- ------------ ------------ ------------
Total 338.3 185.9 303.0
--------------- ------------ ------------ ------------
We continue to attract customer deposits to support balance
sheet growth. Although we have continued to focus on attracting ISA
account funding, we have increased acquisition levels of fixed term
bonds which are a more stable form of funding. The composition of
customer deposits is shown in the table below.
30 June 30 June
31 December
2022 2021 2021
Customer deposits % % %
------------------- -------- -------- ------------
Fixed term bonds 52 50 46
Notice accounts 30 35 37
ISA 14 6 12
Access accounts 4 9 5
------------------- -------- -------- ------------
Total 100 100 100
------------------- -------- -------- ------------
Management of liquidity
The Group uses a number of measures to manage liquidity. These
include:
-- The Overall Liquidity Adequacy Requirement ('OLAR'), which is
the Board's view of the Group's liquidity needs as set out in the
Board approved Internal Liquidity Adequacy Assessment Process
('ILAAP').
-- The Liquidity Coverage Ratio ('LCR'), which is a regulatory
measure that assesses net 30-day cash outflows as a proportion of
HQLA.
-- Total funding ratio, as defined in the Appendix to the 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 TFSME drawings with the Bank of
England.
The Group met the LCR minimum threshold throughout the year and,
with the Group's LCR (based on a rolling 12 month-end average) was
363.0%.
Business review
Consumer Finance
Retail Finance
Retail Finance includes lending products for in-store and online
retailers to enable consumer purchases.
30 June 30 June 31 December
2022 2021 Movement Movement 2021
GBPmillion GBPmillion GBPmillion % GBPmillion
------------------- ------------ ------------ ------------ --------- ------------
Lending balance 916.2 694.3 221.9 32.0 764.8
Total revenue 35.9 32.7 3.2 9.8 67.7
Impairment charge 5.6 2.4 3.2 133.3 5.0
------------------- ------------ ------------ ------------ --------- ------------
H1 2022 performance
The Retail Finance business has reported strong lending growth
in the first half of the year, with new lending volumes increasing
to GBP535.0 million (an increase of 51.5% on the equivalent period
last year). This has led to an increase of 19.8% in closing lending
balances, to GBP916.2 million at the end of H1 2022 (31 December
2021: GBP764.8 million).
The growth in the first half of the year has come primarily from
the furniture, jewellery and healthcare sub-markets. As such the
mix of new business has continued to shift towards prime interest
free lending, which has a lower gross yield and cost of risk.
Market share of new business increased by 3.2%(1) to 11.7% linked
to lending growth.
Total revenue increased by 9.8% to GBP35.9 million in H1 2022,
compared to GBP32.7 million in H1 2021, driven by higher average
lending balances.
Impairment charges increased to GBP5.6 million (H1 2021: GBP2.4
million) which is mainly linked to higher average lending balances,
H1 2021 also benefited from lower provisioning under IFRS 9 due to
improvements in macroeconomic factors. The shift in mix towards
interest free has improved customer credit quality and resulted in
a lower cost of risk.
We anticipate further lending growth from our existing retail
partners and our operational plans are focused on digitalising all
key processes to improve the customer and retail partners
experience. The acquisition of AppToPay will promote additional
lending in the new digital Buy Now Pay Later markets using mobile
application-based technology.
1. Source: Finance & Leasing Association ('FLA'): New
business values within retail store and online credit. 2022 based
on January to May, FLA total and Retail Finance new business of
GBP3,661.0 million and GBP430.1 million respectively. 2021 based on
January to December, FLA total and Retail Finance new business of
GBP8,981.0 million and GBP771.5 million respectively.
Vehicle Finance
Finance is arranged through motor dealerships, brokers and
internet introducers and involves fixed rate, fixed term hire
purchase and personal contract purchase arrangements on used
cars.
30 June 30 June 31 December
2022 2021 Movement Movement 2021
GBPmillion GBPmillion GBPmillion % GBPmillion
---------------------------- ------------ ------------ ------------ --------- ------------
Lending balance 332.6 244.3 88.3 36.1 263.3
Total revenue 22.3 19.4 2.9 14.9 39.3
Impairment charge/(credit) 12.4 (3.4) 15.8 (464.7) 0.1
---------------------------- ------------ ------------ ------------ --------- ------------
H1 2022 performance
In the five months to May 2022 the consumer used car finance
market reported new business up 36% by value(1) , and 15% by volume
compared with the same month in 2021(2) . The Vehicle Finance
business saw its consumer market share increase over the same
period from 0.6% to 1.1%(1) .
The Vehicle Finance business has reported strong lending growth
in the first half of the year, with new lending volumes increasing
to GBP208.5 million (an increase of 165.8% on the equivalent period
last year). This has led to an increase of 26.3% in closing lending
balances, to GBP332.6 million at the end of H1 2022 (31 December
2021: GBP263.3 million).
Total revenues increased by 14.9% to GBP22.3 million in H1 2022
compared to GBP19.4 million in H1 2021, driven by higher average
lending balances.
Impairments have increased from a credit of GBP3.4 million in H1
2021 to a GBP12.4 million charge in H1 2022. This was impacted by
increased new business volumes and arrears returning towards
pre-pandemic levels after a relatively benign period. Credit
criteria have been tightened to proactively manage the overall risk
profile of the lending book, where the impact will be observed from
the second half of 2022.
We will continue to drive returns on the technology investment
and enhanced customer journeys delivered by our Motor
Transformation Programme across all our products to improve growth
and enhance earnings.
1. Source Finance and Leasing Association. Cars bought on
finance by consumers through the point of sale: New business
values. Used cars January to May 2022, FLA total and Vehicle
Finance total of GBP10,159 million and GBP116.3 million
respectively. Used cars January to May 2021, FLA total and Vehicle
Finance total of GBP7,474 million and GBP42.6 million
respectively.
2. Source Finance and Leasing Association. Cars bought on
finance by consumers through the point of sale: New business
volumes. Used cars. January to May 2022, FLA total of 624,894 and
January to May 2021, FLA total of 561,411
Business Finance
Real Estate Finance
Supports SMEs in providing finance principally for residential
development and residential investment.
30 June 30 June 31 December
2022 2021 Movement Movement 2021
GBPmillion GBPmillion GBPmillion % GBPmillion
---------------------------- ------------ ------------ ------------ --------- ------------
Lending balance 1,142.6 1,056.6 86.0 8.1 1,109.6
Total revenue 27.0 27.5 (0.5) (1.8) 54.8
Impairment (credit)/charge (0.2) 1.1 (1.3) (118.2) 0.1
---------------------------- ------------ ------------ ------------ --------- ------------
H1 2022 performance
Real Estate Finance's lending balances increased to GBP1,142.6
million at 30 June 2022, which represented 3.0% growth since
December 2021 (31 December 2021: GBP1,109.6 million). New Business
has been very strong in H1 2022 with GBP241.8 million of new
lending, but the lending balances have been affected by some
larger, early repayments.
Total revenue in H1 2022 was GBP27.0 million (H1 2021: GBP27.5
million), which was 1.8% down on H1 2021 as the mix in lending
balances moved towards investment loans from higher margin
development loans. The mix of investment loans increased from 75%
to 88% between H1 2021 and H1 2022, reflecting the maturity of a
number of larger development loans, but has been stable since
December 2021. The Bank of England Base Rate increases have not had
a material impact on the existing portfolio.
The business recognised an impairment credit in H1 2022 of
GBP0.2 million (H1 2021: GBP1.1 million charge) due to improved
credit quality on stage 2 and 3 cases and continued strong
portfolio management.
The outlook for new business is challenging in the second half
of the year. The development market activity is slowing down due to
the inflationary pressures and supply side constraints and the
Residential Investment market is very competitive at a time of
rising cost of funds.
Commercial Finance
Provision of invoice discounting and factoring to SME
businesses.
30 June 30 June 31 December
2022 2021 Movement Movement 2021
GBPmillion GBPmillion GBPmillion % GBPmillion
---------------------------- ------------ ------------ ------------ --------- ------------
Lending balance 359.8 239.4 120.4 50.3 313.3
Total revenue 12.5 7.6 4.9 64.5 17.4
Impairment charge/(credit) 0.1 - 0.1 - (0.2)
---------------------------- ------------ ------------ ------------ --------- ------------
H1 2022 performance
Commercial Finance has continued its strong 2021 performance
into the first half of 2022. At 30 June 2022, lending balances have
grown by 14.8% to GBP359.8 million over the last 6 months (31
December 2021: GBP313.3 million). In the first half of 2022,
average lending balances have increased by 51.8% compared to H1
2021 and by 35.7% since December 2021. As a result, total revenues
grew strongly by 64.5% to GBP12.5 million over the corresponding
period last year (H1 2021: GBP7.6 million).
This performance was driven by healthy levels of new business,
low client attrition and a growth in funds in use with clients.
There was a small impairment charge of GBP0.1 million in 2021 (H1
2021: GBPnil million) reflecting our continued strong and effective
credit risk practices and the strength of our lending security,
notably our client's receivables.
The Group continues to administer UK Government Coronavirus
Business Interruption Schemes and Recovery Loan Schemes ('RLS') and
has been accredited by the British Business Bank to offer the
forthcoming RLS Phase 3 product. At 30 June 2022, the outstanding
lending balances under these schemes totalled GBP36.2 million (31
December 2021: GBP42.7 million). Commercial Finance took the
conscious decision not to participate in the UK Government's Bounce
Bank Loan Scheme, which closed in March 2021.
Our clients are experiencing economic headwinds through factors
such as cost inflation, supply chain disruption and the
availability of people in a tight labour market. In response, we
have increased portfolio diligence and continued to focus our
people on providing support to our clients.
Savings
The Group attracts funding primarily via retail savings,
offering individuals competitive, simple products, applied for and
serviced online and backed by the UK Financial Services
Compensation Scheme.
30 June 30 June 31 December
2022 2021 Movement Movement 2021
GBPmillion GBPmillion GBPmillion % GBPmillion
------------------ ------------ ------------ ------------ --------- ------------
Fixed term bonds 1,182.4 972.6 209.8 21.6 974.6
Notice accounts 696.8 684.1 12.7 1.9 771.9
ISAs 310.8 173.4 137.4 79.2 255.0
Access accounts 100.9 109.6 (8.7) (7.9) 101.7
------------------ ------------ ------------ ------------ --------- ------------
2,290.9 1,939.7 351.2 18.1 2,103.2
------------------ ------------ ------------ ------------ --------- ------------
H1 2022 performance
During the first half of the year, the Savings business has
continued to generate and retain deposits by offering a
competitive, diversified range of products backed by supportive
customer service.
The cost of retail deposits rose during H1 2022, driven by
successive increases in the Bank of England Base Rate and a more
competitive savings market. We continue to support our customers
and have passed through recent Base Rate changes on our managed
rate products. Our diversified product range and pricing agility
has positioned us well to respond to these changes, while
continuing to support growth. Retail deposits have increased to
GBP2.3 billion (31 December 2021: GBP2.1 billion).
We launched our first access account to new customers this year
and expect continued growth of balances during H2 2022, mirroring
customer interest in easy access products in the current economic
and rising rate environment. In addition, we increased ISA deposits
to GBP310.8 million (31 December 2021: GBP255.0 million) and target
further growth during H2 2022 through new and existing
customers.
Our variable savings rates for existing customers have been
aligned to increases in market rates during the first half of 2022
and we continue to retain a significant proportion of maturing term
balances through competitive products. This approach supports the
retention of customers and deposits, providing a stable foundation
to support the growth of our lending businesses.
We expect a continuation of the recent increases in cost of
retail deposits during H2 2022. Our ability to raise deposits
across our product range provides the flexibility to manage costs
while meeting the needs of Savings customers in a changing economic
environment.
We have continued to develop our capacity to support growth
through increasing the flexibility of our savings operation. Our
move towards wider use of digital channels saw account and interest
statements move online during H1 2022. Hybrid working has been
embedded into the operation and during H2 2022 we will continue to
develop our ability to support deposits growth through the
development of third-party administration and distribution
channels.
Economic and regulatory environment
Economic review
Recent developments
As we move into the second half of 2022 the UK and global
economy faces significant headwinds despite COVID-19 pandemic risks
receding due to the widespread vaccination programme and Government
economic intervention.
UK GDP has shown modest growth of circa 1% in the five months to
May 2022 and 3.5% in the 12 months to May 2022 as the country
continues its emergence from the COVID-19 pandemic. Employment
levels are encouraging at 75.9%(1) but still below pre COVID-19
levels. Unemployment remains at a low level of 3.8%, and vacancies
in the labour market remain at high levels of circa 1.3
million.
Downside risks to the economy are driven by high levels of
inflation, with CPI reaching 9.1% in May 2022, and geopolitical
uncertainty due to the ongoing war in Ukraine. Inflation is being
largely driven by tradeable goods and global energy prices with
service price inflation driven by wage growth as employers seek to
recruit and retain staff having a lesser impact. Wage growth is not
expected to keep pace with inflation putting extreme pressures on
UK household incomes. The Bank of England has used its powers to
control inflation by moving the Base Rate of interest to 1.25% with
further rate rises expected in the second half of 2022.
The first rounds of Government measures to support the
cost-of-living crisis have provided GBP37 billion so far this year
to the most vulnerable households. However, there is clear conflict
in Westminster over whether further Government intervention could
only drive inflation up further. Tackling inflation will be the
priority of the next UK Prime Minister following Boris Johnson's
decision to stand down as leader of the governing Conservative
Party.
House prices have continued to rise as they did throughout the
pandemic. However, house price growth is expected to soften as we
enter 2023, due to higher costs of borrowing and household
outgoings.
Outlook
In May 2022, the Monetary Policy Committee ('MPC') estimated
inflation would peak at slightly over 10% in Q4 2022 before falling
towards its 2% target in two years' time as tightened monetary
policy and energy price caps begin to take effect. The increased
cost-of-living is expected to slow GDP growth in the second half
off 2022 with annual growth of 3% to 3.6% (7.4%: GDP 2021)
predicted by economists.
Rising inflation and the higher costs of living will stretch
consumers' incomes during the coming year increasing the risk of
customer default.
1. Source: Office of National Statistics ('ONS'), March to May
2022 UK employment rate age 16 to 64.
Government and regulatory
Recent developments
This has been another busy period for Government and regulatory
announcements impacting the Group. The key announcements in the
first half of the year are set out below:
The Group became subject to revised regulatory requirements from
1 January 2022, as set out in the policy statements PS21/21 'The UK
Leverage Ratio Framework' and PS22/21 'Implementation of Basel
Standards: Final Rules'. The policy statements broadly align with
the EU's Capital Requirements Regulation II and impact the Group's
regulatory requirements, including capital, large exposures, net
stable funding and leverage. In addition, the new requirements will
enable the Group to reduce the scope of Pillar 3 reporting
requirements which is primarily due to its size and simple
structure.
In May 2022, the Government issued the paper 'Audit Reporting
and Governance Authority: proposals for a new regulatory audit
regulator' giving more detail of the audit reforms announced in the
Queen's speech. The proposals include the replacement of the
Financial Reporting Council with a new stronger regulator, the
Audit, Reporting and Governance Authority. The proposals also
include a stronger sanctions regime for directors who breach their
legal duties to be open with auditors and a requirement for FTSE
350 firms to conduct part of their audit using a challenger firm,
in order to reduce the dominance of the 'Big Four' audit firms.
During 2021, the PRA consulted on proposals for a strong and
simple prudential framework for non-systemic banks and building
societies. The discussion paper set out several proposals for ways
in which the regulatory regime could be simplified for smaller
firms over the coming years. Subsequently, during April 2022,
consultation paper CP5/22: 'The Strong and Simple Framework: a
definition of a Simpler-regime Firm' was issued setting out the
proposed eligibility requirements to qualify for reporting under
the new regime. Further consultation papers are expected in 2023
and 2024 setting out the proposed reporting requirements for the
new regime. The date upon which the new regime would come into
force is still to be announced.
The MPC announced a 0.25% increase in the UK Base Rate to 0.5%
on 3 February 2022 and a second increase of 0.25% to 0.75% on 17
March 2022, followed by further increases of 0.25% each on 5 May
2022 and 16 June 2022 taking the rate to 1.25% at the half year.
The MPC's updated central projections in its May 2022 report are
conditioned on a market implied path for the UK Base Rate that
rises to 2.5% by the middle of 2023.
In December 2021, the Financial Policy Committee ('FPC')
announced that the UK Countercyclical Capital Buffer ('CCyB') rate
would be increased to 1% from 13 December 2022. having been reduced
to 0% in March 2020 because of the pandemic. In July 2022, the FPC
confirmed a further increase in the UK CCyB rate to 2% from 5 July
2023. The FPC stated that they would continue to monitor the rate
due to the current uncertainty around the economic outlook.
The PRA plan to issue a consultation paper on the implementation
of Basel 3.1 in the final quarter of 2022. The PRA intends to
consult on a proposal that these changes will become effective on 1
January 2025, which is in line with other major jurisdictions.
The FCA has also published a number of papers. The FCA Business
Plan was published in April 2022 which sets out the areas of focus
for the FCA over the next 12 months and how they will measure
progress. The Group has completed an impact assessment against the
activities outlined within the business plan. It also finalised
rules in April 2022, which require listed companies to report
information against targets on the representation of women and
ethnic minorities on their boards and executive management and
additional disclosures in annual reports.
In June 2022 the FCA published a Dear CEO letter telling lenders
to support consumers who are struggling with the rising
cost-of-living and material on vulnerable customers and borrowers
in financial difficulty alongside a number of industry wide
speeches which highlight the current regulatory focus in this area.
We are in the process of completing an impact assessment, however
there are no new requirements or themes that we are not already
aware of, and the Group already has established processes for
supporting customers who are in financial difficulty.
Finally, in July 2022, the FCA issued their policy statement on
the new Consumer Duty that will set higher expectations for the
standard of care that firms provide to consumers. The
implementation date for these changes is 31 July 2023.
We expect the high level of Government and regulatory change,
which directly impacts the Group, to continue. Our horizon scanning
processes should ensure that we are able to assess this change on a
timely basis. We are well placed to deal with the impact of these
changes.
Principal risks and uncertainties
Risk overview
The effective management of risk is a crucial component within
the Group's strategy and one of its core values, supporting
sustainable growth whilst keeping the Group and its customers safe
and secure.
The Group operates an Enterprise-wide Risk Management Framework
which governs the process for identifying and managing risk across
its business. This framework provides a consistent taxonomy and
overarching framework across all risk disciplines and is reviewed
annually to ensure full coverage of new and emerging risks.
The key risks facing the Group, which it defines as principal
risks, are detailed below, alongside an up-to-date assessment.
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.
Principal risk Description
Credit risk is the risk that a counterparty will be unable to satisfy their debt
servicing
Credit risk commitments when due.
-----------------------------------------------------------------------------------------
The risk that the Group is unable to meet its obligations as they fall due or can only
do
Liquidity and Funding risk so at excessive cost.
-----------------------------------------------------------------------------------------
Capital risk Capital risk is the risk that the Group will have insufficient capital resources to meet
minimum
regulatory requirements and to support the business.
-----------------------------------------------------------------------------------------
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.
-----------------------------------------------------------------------------------------
Operational risk Operational risk is the risk that the Group may be exposed to direct or indirect loss
arising
from inadequate or failed internal processes, personnel and succession, technology or
infrastructure,
or from external factors.
-----------------------------------------------------------------------------------------
Conduct risk The risk that the Group's products and services, and the way they are delivered, result
in
poor outcomes for customers, or harm to the Group.
-----------------------------------------------------------------------------------------
Regulatory risk 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.
-----------------------------------------------------------------------------------------
Climate Change risk The risk of the potential 'physical' effects of climate change and the 'transitional'
risks
from the UK's adjustment towards a carbon neutral economy on the Group's strategy,
performance
and operational resilience.
-----------------------------------------------------------------------------------------
Changes to the Group's risk profile since the position set out
in the 2021 Annual Report and Accounts are set out below.
Credit risk
Consumer Finance credit risk: Stable
Overall credit performance across the Consumer Finance
businesses has been robust in the first half of the year. The
Retail Finance business has shown continued improvement in arrears
and impairments as it has continued its move towards better credit
performing sectors and products. The Vehicle Finance business has
seen further growth in Prime Hire Purchase ('HP') and Personal
Contract Purchase ('PCP'), the latter being subject to a carefully
managed roll out. This has led to an overall improvement in
business mix in the period. Higher than expected impairment charges
were seen in Vehicle Finance due to increased new business volumes
and arrears returning towards pre-pandemic levels after a
relatively benign period. Significant management action has already
been taken to tighten lending parameters.
Both Consumer Finance businesses have revised affordability
calculations in the period to reflect higher inflation and
increased cost-of-living. Notwithstanding this, a close continued
monitoring is being maintained on both portfolios, with a view to
continuing to support our customers during the second half of
2022.
Business Finance credit risk: Stable
The Business Finance credit portfolios have also seen robust
performance in the first half of 2022, with both maintaining their
selective approach to new business acquisition. Within the Real
Estate Finance business, no material adverse trends or early
warning triggers were evident in the period and new business was
subject to enhanced stress testing against rising inflation
affordability and interest rates. The Commercial Finance business
continues to perform well, benefitting from close working
relationships with customers and tailored lending facilities. It
continues to be an accredited lender under the COVID-19 Government
lending guarantee schemes ('CBILS'/'CLBILS'/'RLS'), with exposure
under these schemes performing well with zero claims made on the
underlying guarantees and almost half of initial lending balances
repaid.
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 30 June 2022, the Group had drawn GBP390.0 million of
borrowing under the Bank of England's Term Funding Scheme with
additional incentives for SMEs. The Group continued to maintain an
active presence in the retail deposits market throughout 2022 to
generate funding for new lending primarily through a range of fixed
term Bonds and ISA products.
Capital risk: Stable
The Group's balance sheet and total risk exposure has increased
since the beginning of the year as the Group continues to grow its
core businesses organically. The sale of Debt Manager (Services)
Limited's ('DMS') loan portfolio resulted in a release of around
GBP72 million of risk weighted assets, with the associated capital
release being deployed to support the growth in the Group's
remaining specialist lending businesses.
The Group continues to benefit from the capital relief that has
been provided by the PRA in respect of IFRS 9 transitional
provisions and the COVID-19 related 'quick-fix' that tapers off to
31 December 2024.
The recent announcement by the Bank of England to further
increase the Countercyclical Capital Buffer ('CCyB') to 2% from
July 2023, following its previous announcement to increase the CCyB
to 1% from December 2022, will require the Group to hold increased
levels of minimum regulatory capital. The Group manages its capital
requirements on a forward-looking basis against minimum regulatory
requirements and Board risk appetites. It assesses the adequacy of
the quantum and quality of capital held under stress through the
annual Internal Capital Adequacy Assessment Process ('ICAAP'). The
Group will take opportunities to increase overall levels of capital
and to optimise its capital stack as and when appropriate.
The Group continues to meet its capital ratio measures. Details
of the Common Equity Tier 1 ratio, total capital ratio and leverage
ratio are included in the Financial review.
Market risk: Stable
The Group where possible aims to match its asset and liability
profiles and hedges any significant residual fixed rate positions
using Sterling Overnight Index Average ('SONIA') interest rate
derivatives. These derivatives are hedge accounted for through fair
value or cash flow hedge relationships which are highly
effective.
Interest Rate Risk in the Banking Book ('IRRBB') is monitored by
a range of Board Risk Appetite measures including Earnings at Risk
('EAR'), Market Value Sensitivity ('MVS') and Economic Value of
Equity ('EVE').
The Group has remained within these risk appetite thresholds
throughout the year and continues to enhance its risk
identification, measurement, and mitigation for IRRBB.
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.
Operational risk: Improving
The Group's operational risk processes and standards are defined
in a formal Operational Risk Management Framework, which is aligned
to the Basel Committee on Banking Supervision criteria for the
sound management of operational risk.
The Group responded well to the COVID-19 pandemic, proving its
resilience and ability to adapt to the external environment. The
Group has developed and successfully implemented a hybrid working
model, ensuring it remains agile in its operational capability
whilst ensuring operational risk is effectively managed. Having met
the 2022 regulatory deadline, the Group continues to enhance and
further embed its approach to achieving Operational Resilience for
all its Important Business Services
The Group has made strong progress in managing and monitoring
its third-party suppliers and has invested in additional resource
to strengthen supplier governance capabilities and develop an
enhanced control framework. Significant progress has also been made
in improving regulatory reporting, resulting in an overall
'improving' assessment.
No material operational losses were recorded in the period.
Conduct risk: Stable
The Group continued to operate within overall risk appetite.
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, with escalation to the Risk Committee where
appropriate.
A gap analysis was completed against the consultation paper for
the Consumer Duty and the four outcomes. The policy statement on
the Consumer Duty has now been published with the deadline for
implementation of July 2023. The Group will review the gap analysis
against the policy statement to validate its plans. It considers
that implementation of the appropriate changes and enhanced
processes necessary to evidence adherence to the Duty is achievable
by the deadline.
Regulatory risk: Stable
In the period, engagement with the regulators related to the
acquisition and change in control of AppToPay Limited and the sale
of the DMS loan portfolio. Additionally, the Group responded to
information requests and questions, received new SMF18 approvals
and submitted notifications regarding material outsourcing.
The Group will continue to work on new regulations and
legislation that will come into force over the next 18 months and
beyond.
Financial Crime risk: Stable
The inherent risk to the Group has not materially changed over
the period and investment continues to be made in enhancing
controls. Economic Crime is a key focus for regulators and
particularly so since the recent passing of the Economic Crime
Bill. The Group continues to engage with industry bodies as it
considers the impact of these changes for the Group.
Climate Change risk: Stable
The 2021 Annual Report and Accounts included a summary of the
key risks the Group faces in relation to climate change, in line
with the guidance from the 'Task Force on Climate-Related Financial
Disclosures'. Since then, the Group has made good progress with
developing stress test scenarios aligned to the Network for
Greening the Financial System ('NGFS') Climate Change Pathways and
an emissions reduction target for our scope 1 and 2 Greenhouse Gas
emissions. The results of this work will be published in our next
Annual Report and Accounts.
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 2022 and
beyond.
Interim Financial Statements
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
For the period ended Note GBPmillion GBPmillion GBPmillion
---------------------------------------------- ----- ------------ ------------ -------------
Continuing operations:
Income statement
Interest income and similar income 3 90.6 80.0 163.9
Interest expense and similar charges (17.5) (14.8) (27.7)
---------------------------------------------- ----- ------------ ------------ -------------
Net interest income 73.1 65.2 136.2
---------------------------------------------- ----- ------------ ------------ -------------
Fee and commission income 3 8.1 6.1 13.3
Fee and commission expense (0.2) (0.3) (0.6)
---------------------------------------------- ----- ------------ ------------ -------------
Net fee and commission income 7.9 5.8 12.7
---------------------------------------------- ----- ------------ ------------ -------------
Operating income 81.0 71.0 148.9
---------------------------------------------- ----- ------------ ------------ -------------
Net impairment (charge)/credit on loans
and advances to customers 10 (17.9) 0.4 (5.0)
Gains on modification of financial
assets 4 0.7 0.7 1.5
Losses from derivatives and hedge accounting (0.5) - (0.1)
Operating expenses (46.2) (42.8) (89.4)
---------------------------------------------- ----- ------------ ------------ -------------
Profit before income tax from continuing
operations 17.1 29.3 55.9
Income tax expense 5 (4.2) (4.5) (10.4)
---------------------------------------------- ----- ------------ ------------ -------------
Profit for the period from continuing
operations 12.9 24.8 45.5
---------------------------------------------- ----- ------------ ------------ -------------
Discontinued operations:
Profit before income tax from discontinued
operations 6 7.6 1.4 0.1
Income tax expense 6 (1.4) (0.2) -
---------------------------------------------- ----- ------------ ------------ -------------
Profit for the period from discontinued
operations 6 6.2 1.2 0.1
---------------------------------------------- ----- ------------ ------------ -------------
Profit for the period 19.1 26.0 45.6
---------------------------------------------- ----- ------------ ------------ -------------
Other comprehensive income
Items that will not be reclassified
to the income statement
Revaluation - fair value gain taken
to reserves 0.1 - 0.5
Taxation - - (0.1)
---------------------------------------------- ----- ------------ ------------ -------------
0.1 - 0.4
---------------------------------------------- ----- ------------ ------------ -------------
Items that will be reclassified to
the income statement
Cash flow hedge - fair value loss taken
to reserves (0.5) (0.1) (0.4)
Taxation - - 0.1
---------------------------------------------- ----- ------------ ------------ -------------
(0.5) (0.1) (0.3)
---------------------------------------------- ----- ------------ ------------ -------------
Other comprehensive income for the
period, net of income tax (0.4) (0.1) 0.1
---------------------------------------------- ----- ------------ ------------ -------------
Total comprehensive income for the
period 18.7 25.9 45.7
---------------------------------------------- ----- ------------ ------------ -------------
Profit attributable to:
---------------------------------------------- ----- ------------ ------------ -------------
Equity holders of the Company 19.1 26.0 45.6
---------------------------------------------- ----- ------------ ------------ -------------
Total comprehensive income attributable
to:
---------------------------------------------- ----- ------------ ------------ -------------
Equity holders of the Company 18.7 25.9 45.7
---------------------------------------------- ----- ------------ ------------ -------------
Earnings per share for profit attributable to the equity holders
of the Company during the year (pence per share)
------------------------------------------------------------------------------------------------
Basic earnings per ordinary share 7 102.4 139.5 244.7
Diluted earnings per ordinary share 7 99.1 136.8 239.4
---------------------------------------------- ----- ------------ ------------ -------------
Basic earnings per ordinary share -
continuing operations 69.1 133.1 244.1
Diluted earnings per ordinary share
- continuing operations 67.0 130.5 238.9
---------------------------------------------- ----- ------------ ------------ -------------
The condensed consolidated statement of comprehensive income has
been represented to reflect the disclosure of discontinued
operations in prior periods. See Note 6 for further details.
Condensed consolidated statement of financial position
Restated
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
As at the period ended Note GBPmillion GBPmillion GBPmillion
---------------------------------------- ----- ------------ ------------ -------------
ASSETS
Cash and balances at central banks 253.0 138.4 235.7
Loans and advances to banks 54.2 43.3 50.3
Debt securities 34.9 15.0 25.0
Loans and advances to customers 9 2,751.2 2,327.5 2,530.6
Fair value adjustment for portfolio
hedged risk (17.0) 2.4 (3.5)
Derivative financial instruments 17.7 1.8 3.8
Assets held for sale 11 3.3 62.4 1.3
Investment property 1.4 4.3 4.7
Property, plant and equipment 9.0 9.4 9.3
Right-of-use assets 1.7 2.5 2.2
Intangible assets 6.9 7.0 6.9
Current tax assets 0.5 - 0.8
Deferred tax assets 5.9 7.2 6.9
Other assets 12.4 13.0 11.9
---------------------------------------- ----- ------------ ------------ -------------
Total assets 3,135.1 2,634.2 2,885.9
---------------------------------------- ----- ------------ ------------ -------------
LIABILITIES AND EQUITY
Liabilities
Due to banks 12 400.3 310.4 390.8
Deposits from customers 13 2,290.9 1,939.7 2,103.2
Fair value adjustment for portfolio
hedged risk (15.2) 0.6 (5.3)
Derivative financial instruments 17.3 4.0 6.2
Liabilities directly associated with
assets held for sale - - 2.0
Current tax liabilities - 2.5 -
Lease liabilities 2.5 3.6 3.1
Other liabilities 72.4 34.8 31.3
Provisions for liabilities and charges 14 1.5 2.0 1.3
Subordinated liabilities 15 51.0 50.8 50.9
---------------------------------------- ----- ------------ ------------ -------------
Total liabilities 2,820.7 2,348.4 2,583.5
---------------------------------------- ----- ------------ ------------ -------------
Equity attributable to owners of the
parent
Share capital 7.5 7.5 7.5
Share premium 82.2 82.2 82.2
Cash flow hedge reserve (0.8) (0.1) (0.3)
Revaluation reserve 1.4 0.9 1.3
Retained earnings 224.1 195.3 211.7
---------------------------------------- ----- ------------ ------------ -------------
Total equity 314.4 285.8 302.4
---------------------------------------- ----- ------------ ------------ -------------
Total liabilities and equity 3,135.1 2,634.2 2,885.9
---------------------------------------- ----- ------------ ------------ -------------
The condensed consolidated statement of financial position and
condensed consolidated statement of cash flows have been restated
to reflect the IFRS Interpretations Committee's clarification on
the accounting treatment of Software-as-a-Service arrangement. See
Note 1.3.1 for further details.
Condensed consolidated statement of changes in equity
Cash
flow
Share Share hedge Revaluation Retained
capital premium reserve reserve earnings Total
Unaudited GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at 1 January
2022 7.5 82.2 (0.3) 1.3 211.7 302.4
Total comprehensive income
for the period
Profit for the six months
to 30 June 2022 - - - - 19.1 19.1
--
Other comprehensive income, net of
income tax
Cash flow hedge losses - - (0.5) - - (0.5)
Revaluation gains - - - 0.1 - 0.1
Total other comprehensive
income - - (0.5) 0.1 - (0.4)
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total comprehensive income
for the period - - (0.5) 0.1 19.1 18.7
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Dividends - - - - (7.7) (7.7)
Share-based payments - - - - 1.0 1.0
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total contributions by
and distributions to
owners - - - - (6.7) (6.7)
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at 30 June 2022 7.5 82.2 (0.8) 1.4 224.1 314.4
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Cash
flow
Share Share hedge Revaluation Retained
capital premium reserve reserve earnings Total
Unaudited GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 1 January
2021 (as previously stated) 7.5 82.2 - 0.9 179.9 270.5
Software-as-a-Service
adjustment net of tax
(see Note 1.3.1) - - - - (2.9) (2.9)
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 1 January
2021 (restated) 7.5 82.2 - 0.9 177.0 267.6
Total comprehensive income
for the period
Profit for the six months
to 30 June 2021 - - - - 26.0 26.0
Other comprehensive income,
net of income tax
Cash flow hedge losses - - (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) 0.9 195.3 285.8
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Cash
flow
Share Share hedge Revaluation Retained
capital premium reserve reserve earnings Total
Audited GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 1 January
2021 (as previously stated) 7.5 82.2 - 0.9 179.9 270.5
Software-as-a-Service
adjustment net of tax
(see Note 1.3.1) - - - - (2.9) (2.9)
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 1 January
2021 (restated) 7.5 82.2 - 0.9 177.0 267.6
Total comprehensive income
for the period
Profit for the year ended
31 December 2021 - - - - 45.6 45.6
Other comprehensive income, net of
income tax
Cash flow hedge losses - - (0.3) - - (0.3)
Revaluation gains - - - 0.4 - 0.4
Total other comprehensive
income - - (0.3) 0.4 - 0.1
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Total comprehensive income
for the period - - (0.3) 0.4 45.6 45.7
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Dividends - - - - (11.9) (11.9)
Share-based payments - - - - 1.0 1.0
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Total contributions by
and distributions to
owners - - - - (10.9) (10.9)
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 31 December
2021 7.5 82.2 (0.3) 1.3 211.7 302.4
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Condensed consolidated statement of cash flows
Restated
Unaudited Unaudited Unaudited
30 June 30 June 31 December
2022 2021 2021
For the period ended Note GBPmillion GBPmillion GBPmillion
----------------------------------------------- ----- ------------ ------------ -------------
Cash flows from operating activities
Profit for the year 19.1 26.0 45.6
Adjustments for:
Income tax expense 5.6 4.7 10.4
Depreciation of property, plant and equipment 0.6 0.7 1.3
Depreciation of right-of-use assets 0.3 0.4 0.7
Amortisation of intangible assets 0.8 0.8 1.5
Impairment charge/(credit) on loans and
advances to customers 18.6 (1.1) 4.5
Gains on modification of financial assets (0.7) (0.7) (1.5)
Share-based compensation 1.0 0.5 1.0
Revaluation gain - - (0.4)
(Gain)/loss on disposal of loan books (8.1) - 1.4
Other non-cash items included in profit
before tax 1.0 0.2 0.4
----------------------------------------------- ----- ------------ ------------ -------------
Cash flows from operating
profits before changes in operating assets
and liabilities 38.2 31.5 64.9
Changes in operating assets and liabilities:
- loans and advances to customers (308.8) (29.2) (238.4)
- loans and advances to banks and balances
at central banks 4.2 1.9 4.7
- other assets (0.5) 2.9 6.0
- deposits from customers 187.7 (52.8) 110.7
- provisions for liabilities and charges (0.3) (0.1) (0.7)
- other liabilities 38.9 (21.5) (24.4)
Income tax paid (4.3) (3.8) (12.6)
----------------------------------------------- ----- ------------ ------------ -------------
Net cash outflow from operating activities (44.9) (71.1) (89.8)
----------------------------------------------- ----- ------------ ------------ -------------
Cash flows from investing activities
Consideration on sale of loan books 81.9 - 60.4
Selling costs relating to the sale of - -
loan books (1.2)
Redemption of debt securities 45.0 20.0 90.0
Purchase of debt securities (45.0) (35.0) (90.0)
Purchase of property, plant and equipment (0.2) (0.2) (0.2)
Purchase of intangible assets (0.8) (0.4) (1.1)
----------------------------------------------- ----- ------------ ------------ -------------
Net cash inflow/(outflow) from investing
activities 79.7 (15.6) 59.1
----------------------------------------------- ----- ------------ ------------ -------------
Cash flows from financing activities
Drawdown of amounts Due to banks 8.7 34.0 114.4
Dividends paid (7.7) (8.2) (11.9)
Repayment of lease liabilities (0.5) (0.3) (0.9)
----------------------------------------------- ----- ------------ ------------ -------------
Net cash inflow from financing activities 0.5 25.5 101.6
----------------------------------------------- ----- ------------ ------------ -------------
Net increase/(decrease) in cash and cash
equivalents 35.3 (61.2) 70.9
Cash and cash equivalents at 1 January 303.0 232.1 232.1
----------------------------------------------- ----- ------------ ------------ -------------
Cash and cash equivalents at end of period 18 338.3 170.9 303.0
----------------------------------------------- ----- ------------ ------------ -------------
Notes to the financial statements
1. Accounting policies
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below. These
policies have been consistently applied to all the years presented,
unless otherwise stated.
1.1. Reporting entity
Secure Trust Bank PLC is a public limited company incorporated
in England and Wales in the United Kingdom (referred to as 'the
Company') and is limited by shares. The Company is registered in
England and Wales and has the registered number 00541132. The
registered address of the Company is One Arleston Way, Shirley,
Solihull, West Midlands B90 4LH. The Interim Report as at and for
the period ended 30 June 2022 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.
During the period the Group completed the acquisition of 100% of
the issued share capital of AppToPay Limited for GBP1.0 million.
AppToPay Limited is the owner of a proprietary technology platform,
and the acquisition is complementary to the Group's existing retail
finance proposition, which supports our planned entry into the
Digital Buy Now Pay Later market. In addition to this, an earn-out
of a maximum of GBP0.2 million is payable in 2023, subject to
certain performance conditions.
The Group has elected to use the optional practical expedient
within IFRS 3 Business Combinations which allows a simplified
assessment that a purchase is accounted for as an asset purchase as
opposed to a business combination if substantially all the fair
value of the gross assets acquired is concentrated in a single
identifiable asset. AppToPay Limited's principal asset is a
software development intangible asset. The resulting impact on the
Group is an increase in intangible assets of GBP1.0 million.
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
2021 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 2022 and 30 June
2021 are unaudited. The results for the year ending 31 December
2021 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.
1.2.1 Going concern
The Directors have assessed the Group's ability to continue to
adopt the going concern basis of accounting, as required by
accounting standards.
As disclosed in the 2021 Annual Report and Accounts (pages 36
and 37), the Group considers a number of factors in making this
assessment. This includes reviewing current performance, past
performance, changes in the economic and regulatory environment,
the risk profile of the business, operational resilience and
possible future events that will impact the business. The Group
also undertakes stress testing to ensure the adequacy of capital
and liquidity under a severe but plausible stress. The Board sets
risk appetites to enable the Group to withstand stress and tail
risk events.
Since the year-end the Group has reviewed its principal risks to
ensure they remain appropriate and relevant (for further details
see Principal Risks and uncertainties). There has been no
significant deterioration in the risk profile of the Group and no
new principal risks have arisen in the six-month period.
In addition, the Group has reviewed its five-year profit and
loss, net assets, and capital forecasts to reflect actual
performance in the year to date, strategic changes in the business
plan, and the impact of changes in the macroeconomic environment on
its loan loss provisioning and business activities (the
'Reforecast'). The most notable change to the business plan was the
disposal of Debt Manager (Services) Limited's ('DMS') loan
portfolio. Macroeconomic inputs to the Reforecast reflect increases
in Base Rates, which impact customer pricing and funding costs, and
revised forecast economic variables which impact IFRS 9 loan loss
provisioning. The Reforecast also reflected future changes in the
Countercyclical Capital Buffer as announced and contemplated by the
Bank of England. Under the Reforecast, the Board is satisfied that
the Group can continue to operate within its capital and liquidity
risk appetites.
The 2022 Internal Capital Adequacy Assessment Process ('ICAAP')
is in progress and will be presented to the Board in Q3 2022.
Details of the Group's 2021 ICAAP are included in the 2021 Annual
Report and Accounts. The Group will be refreshing the scenarios
used for stress testing in the 2022 ICAAP to reflect a post
COVID-19 macroeconomic outlook and downside scenarios that reflect
a more typical prolonged economic recession. This approach follows
direction from the PRA who have not published a 2022 macro stress
scenario for smaller banks to use in their ICAAP work.
The Board approved the Internal Liquidity Adequacy Assessment
Process ('ILAAP') in June 2022. This provides assurance that the
Group can maintain liquidity resources which are adequate, both as
to amount and quality, to ensure that there is no significant risk
that its liabilities cannot be met as they fall due. As part of the
ILAAP, the Group reviews the liquidity risks to which it is exposed
and assesses the quantum of liquid resources required to survive,
and remain viable, under a severe but plausible combined
idiosyncratic and whole of market 90 day stress. The Group
maintained liquidity levels in excess of its liquidity risk
appetite and regulatory requirements throughout the year and is
forecast to continue to do so over the ILAAP planning horizon and
going concern period.
Taking the updates noted above, 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.
1.3. Accounting policies
The accounting policies applied in preparing the unaudited
Condensed Interim Financial Statements are consistent with those
used in preparing the audited statutory financial statements for
the year ended 31 December 2021.
1.3.1 Software-as-a-Service agreements prior year adjustment
The Group's previous accounting policy was to treat all
configuration and customisation work carried out by the
Software-as-a-Service ('SaaS') provider, third parties and
contractors as part of a SaaS contract as a prepayment, which was
amortised over the underlying hosting contract.
However, during 2021, the IFRS Interpretations Committee
published an agenda decision clarifying how arrangements in respect
of SaaS cloud technology arrangements should be accounted for. Only
configuration and customisation work carried out by the SaaS
provider or a subcontractor (agent) of the SaaS provider, which is
distinct from SaaS access, should be treated as a prepayment, with
the prepayment being amortised over the underlying hosting
contract. Configuration and customisation work carried out by third
parties or employees or in-house contractors that do not meet the
definition of an intangible asset should be expensed as
incurred.
Therefore, the Group was required to change its accounting
policy, to remove costs incurred by third parties and contractors
from the SaaS prepayment and expense these amounts, and to adjust
the amortisation charge accordingly.
Due to the change in accounting policy, the Group is required to
restate its comparatives in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors. The prior
year adjustment reduces opening retained earnings at 1 January 2021
by GBP2.9 million (being a GBP3.6 million restatement of
prepayments less deferred tax of GBP0.7 million) and has no impact
on the income statement for the six months ended 30 June 2021. This
prior year adjustment has already been disclosed in the results for
the year ended 31 December 2021 included in the 2021 Annual Report
and Accounts.
A summary of the impact on the primary statements is as
follows:
Prior
As originally year
stated adjustment Restated
Unaudited Unaudited Unaudited
30 June 30 June 30 June
2021 2021 2021
Statement of financial position Note GBPmillion GBPmillion GBPmillion
--------------------------------------- ------ -------------- ------------ ------------
Cloud software development prepayment 8.4 (3.6) 4.8
Deferred tax assets 6.5 0.7 7.2
Other assets 2,622.2 - 2,622.2
----------------------------------------------- -------------- ------------ ------------
Total assets 2,637.1 (2.9) 2,634.2
----------------------------------------------- -------------- ------------ ------------
Total liabilities 2,348.4 - 2,348.4
----------------------------------------------- -------------- ------------ ------------
Total equity 288.7 (2.9) 285.8
----------------------------------------------- -------------- ------------ ------------
Total liabilities and equity 2,637.1 (2.9) 2,634.2
----------------------------------------------- -------------- ------------ ------------
1.3.2 Bank accounts with restriction on use
During the period, the International Financial Reporting
Interpretations Committee concluded that restrictions on use of a
demand deposit arising from a contract with a third party do not
result in the deposit no longer being cash. This will result in a
prior year adjustment to cash and cash equivalents. 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 will be made to the
results for the period ended 30 June 2022, but will be implemented
at 31 December 2022. The amount of this prior year adjustment has
not yet been quantified, but it will only impact cash and cash
equivalents, which has a resulting impact on the cash flow
statement.
1.3.3 Taxation
Taxes on profits in interim periods are accrued using the tax
rate that will be applicable to expected total annual profits.
1.3.4 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 accounting judgements and key sources of estimation uncertainty
2.1 Judgements
No critical judgements have been identified.
2.2. Key sources of estimation uncertainty
Estimations which could have a material impact on the Group's
financial results and are therefore considered to be key sources of
estimation uncertainty all relate to allowances for impairment of
loans and advances and are therefore set out in Note 10.
3. Operating segments
The Group was organised into seven operating segments, which
consisted of the different products available, as disclosed
below.
The Asset Finance and Consumer Mortgages loan books were sold
during 2021. Although Asset Finance and Consumer Mortgages were
disclosed in continuing operations in the prior year, the Directors
have reassessed this judgement and concluded that on the basis they
have been previously presented as separate business segments, and
discussed as part of the Strategic Report, it has been deemed
appropriate to include these as discontinued operations, and as
such comparatives have been re-presented on this basis.
During the current period, the Group disposed of the Debt
Management operating segment. Accordingly, the results of all of
the above businesses are now included in discontinued
operations.
As a result, the Group is now organised into four operating
segments: Real Estate Finance, Commercial Finance, Vehicle Finance
and Retail Finance.
Business Finance
1) Real Estate Finance: lending on portfolios of residential
property as well as the development of new build property.
2) Asset Finance: lending to small and medium sized enterprises
to acquire commercial assets, which was sold during 2021.
3) Commercial Finance: lending is predominantly against
receivables, typically releasing 90% of qualifying invoices under
invoice discounting and factoring services. Unsecured lending to
existing customers through the Government guaranteed Coronavirus
Business Interruption Loan Scheme, Coronavirus Large Business
Interruption Loan Scheme and Recovery Loan Scheme is also
provided.
Consumer Finance
4) Vehicle Finance: hire purchase lending for used cars
primarily to prime and near-prime customers and Personal Contract
Purchase lending into the consumer prime credit market, both
secured against the vehicle financed. In addition, a Stock Funding
product is also offered to allow dealers to finance vehicles on
their forecourt as part exchanges, from auction partners or from
other trade sources.
5) Retail Finance: a market leading online service to retailers,
providing unsecured prime lending products to the UK customers of
its retail partners to facilitate the purchase of a wide range of
consumer products.
6) Debt Management: a credit management services business which
primarily invests in purchased debt portfolios from third parties,
as well as fellow group undertakings. In addition, it collects debt
on behalf of a range of clients. The Debt Management loan book was
sold during 2022.
7) Consumer mortgages for the self-employed, contract workers,
those with complex income and those with a recently restored credit
history, sold via select mortgage intermediaries, which was sold
during 2021.
Other
The 'Other' segment includes other products, which are
individually below the quantitative threshold for separate
disclosure and fulfil the requirement of IFRS 8.28 by reconciling
operating segments to the amounts in the financial statements.
Other included principally OneBill (the Group's consumer bill
management service), which was closed during 2021 and RentSmart
(principally the funding and operation of finance leases through a
disclosed agency agreement with RentSmart Limited). The RentSmart
loan book was also sold during 2022. Assets and liabilities in
respect of the RentSmart business were included in Assets and
liabilities held for sale as at 31 December 2021 (see Note 11 for
further details).
The Asset Finance, Debt Management and Consumer Mortgages
segments all fell below the quantitative threshold for separate
disclosure, but the Directors considered that they represented
sufficiently distinct types of business to merit separate
disclosure. All of these segments are included in discontinuing
operations.
Management review these segments by looking at the income, size
and growth rate of the loan books, impairments and customer
numbers. Except for these items no costs or balance sheet items are
allocated to the segments.
Net impairment
(credit)/
Interest Revenue charge
income Fee and from on loans Loans
and similar commission external and advances and advances
Unaudited income income customers to customers to customers
30 June 2022 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
---------------------- ------------- ------------ ------------ --------------- --------------
Real Estate Finance 26.9 0.1 27.0 (0.2) 1,142.6
Commercial Finance 7.1 5.4 12.5 0.1 359.8
---------------------- ------------- ------------ ------------ --------------- --------------
Business Finance 34.0 5.5 39.5 (0.1) 1,502.4
---------------------- ------------- ------------ ------------ --------------- --------------
Retail Finance 34.2 1.7 35.9 5.6 916.2
Vehicle Finance 21.6 0.7 22.3 12.4 332.6
Debt Management 5.3 1.1 6.4 0.7 -
Consumer Finance 61.1 3.5 64.6 18.7 1,248.8
---------------------- ------------- ------------ ------------ --------------- --------------
Other 0.8 0.2 1.0 - -
---------------------- ------------- ------------ ------------ --------------- --------------
95.9 9.2 105.1 18.6 2,751.2
---------------------- ------------- ------------ ------------ --------------- --------------
Of which:
Continuing 90.6 8.1 98.7 17.9 N/A
Discontinued 5.3 1.1 6.4 0.7 N/A
---------------------- ------------- ------------ ------------ --------------- --------------
Net impairment
charge/
Interest Revenue (credit)
income Fee and from on loans Loans
and similar commission external and advances and advances
Unaudited income income customers to customers to customers(1)
30 June 2021 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
---------------------- ------------- ------------ ------------ --------------- -----------------
Real Estate Finance 27.2 0.3 27.5 1.1 1,056.6
Asset Finance 0.3 - 0.3 0.1 5.8
Commercial Finance 3.8 3.8 7.6 - 239.4
---------------------- ------------- ------------ ------------ --------------- -----------------
Business Finance 31.3 4.1 35.4 1.2 1,301.8
---------------------- ------------- ------------ ------------ --------------- -----------------
Retail Finance 31.5 1.2 32.7 2.4 694.3
Vehicle Finance 18.7 0.7 19.4 (3.4) 244.3
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
---------------------- ------------- ------------ ------------ --------------- -----------------
Other (1.1) 0.9 (0.2) (0.5) 2.5
---------------------- ------------- ------------ ------------ --------------- -----------------
89.0 7.0 96.0 (1.1) 2,389.9
---------------------- ------------- ------------ ------------ --------------- -----------------
Of which:
Continuing 80.0 6.1 86.1 (0.4) N/A
Discontinued 9.0 0.9 9.9 (0.7) N/A
---------------------- ------------- ------------ ------------ --------------- -----------------
1. Total loans and advances to customer includes assets held for
sale of GBP62.4 million.
Net impairment
charge/
Interest Revenue (credit)
income Fee and from on loans Loans
and similar commission external and advances and advances
Audited income income customers to customers to customers(1)
31 December 2021 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
---------------------- ------------- ------------ ------------ --------------- -----------------
Real Estate Finance 54.5 0.3 54.8 0.1 1,109.6
Asset Finance 0.3 - 0.3 0.1 -
Commercial Finance 8.8 8.6 17.4 (0.2) 313.3
---------------------- ------------- ------------ ------------ --------------- -----------------
Business Finance 63.6 8.9 72.5 - 1,422.9
---------------------- ------------- ------------ ------------ --------------- -----------------
Retail Finance 65.0 2.7 67.7 5.0 764.8
Vehicle Finance 38.0 1.3 39.3 0.1 263.3
Debt Management 14.3 0.3 14.6 (0.6) 79.6
Consumer Mortgages 1.3 - 1.3 - -
---------------------- ------------- ------------ ------------ --------------- -----------------
Consumer Finance 118.6 4.3 122.9 4.5 1,107.7
---------------------- ------------- ------------ ------------ --------------- -----------------
Other (2.2) 1.1 (1.1) - 1.3
---------------------- ------------- ------------ ------------ --------------- -----------------
180.0 14.3 194.3 4.5 2,531.9
---------------------- ------------- ------------ ------------ --------------- -----------------
Of which:
Continuing 163.9 13.3 177.2 5.0 N/A
Discontinued 16.1 1.0 17.1 (0.5) N/A
---------------------- ------------- ------------ ------------ --------------- -----------------
1. Total loans and advances to customer includes assets held for
sale of GBP1.3 million.
Interest expense and similar charges, fee and commission expense
and operating expenses are not aligned to operating segments for
day-to-day management of the business, so they cannot be allocated
on a reliable basis. Accordingly, profit by operating segment has
not been disclosed.
All of the Group's operations are conducted wholly within the
United Kingdom and geographical information is therefore not
presented.
4. Gains on modification of financial assets
Although not included as an option within customer contracts,
following regulatory guidance the Group offered payment holidays to
its Consumer Finance and Asset Finance customers during 2020 due to
the COVID-19 pandemic, which were not considered to be substantial.
This is considered under IFRS 9 as a modification to contractual
cash flows, which requires the carrying value of these loans to be
adjusted to the net present value of future cash flows.
A small number of payment holidays were granted during 2021,
resulting in no further loan modification losses being recognised.
The movement during the year in the net present value of the loans
remaining to be unwound as a result of the modification was as
follows:
Vehicle Retail
Finance Finance Total
Reduction in net present value GBPmillion GBPmillion GBPmillion
------------------------------------------------ ------------ ------------ ------------
At 1 January 2021 2.5 0.6 3.1
Credit to the income statement (0.6) (0.1) (0.7)
------------------------------------------------ ------------ ------------ ------------
Balance remaining to be unwound at 30 June
2021 (unaudited) 1.9 0.5 2.4
Credit to the income statement (0.5) (0.3) (0.8)
------------------------------------------------ ------------ ------------ ------------
Balance remaining to be unwound at 31 December
2021 (audited) 1.4 0.2 1.6
Credit to the income statement (0.6) (0.1) (0.7)
------------------------------------------------ ------------ ------------ ------------
Balance remaining to be unwound at 30 June
2022 (unaudited) 0.8 0.1 0.9
------------------------------------------------ ------------ ------------ ------------
5. Income tax expense
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
------------------------------------------------- ------------ ------------ -------------
Current taxation
Corporation tax charge - current year 4.6 5.5 11.2
Corporation tax credit - adjustments in respect
of prior years - (0.2) (0.5)
------------------------------------------------- ------------ ------------ -------------
4.6 5.3 10.7
------------------------------------------------- ------------ ------------ -------------
Deferred taxation
Deferred tax charge/(credit) - current year 1.0 (0.8) (0.7)
Deferred tax charge - adjustments in respect
of prior years - 0.2 0.4
------------------------------------------------- ------------ ------------ -------------
1.0 (0.6) (0.3)
------------------------------------------------- ------------ ------------ -------------
Income tax expense 5.6 4.7 10.4
------------------------------------------------- ------------ ------------ -------------
Of which:
Continuing 4.2 4.5 10.4
Discontinued (Note 6) 1.4 0.2 -
------------------------------------------------- ------------ ------------ -------------
Total 5.6 4.7 10.4
------------------------------------------------- ------------ ------------ -------------
The tax for all the periods above has been calculated at the
current effective rate, which is 19%.
The current period includes a deferred tax charge arising from a
reassessment of the rates at which the deferred tax asset would
reverse out in future periods, mainly arising from changes to the
banking surcharge. 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 future tax rates used in 2021 had reflected the increase in
Corporation Tax from 19% to 25% with effect from 1 April 2023
legislated in June 2021. The rates had continued to assume banking
surcharge of 8% on any taxable profits of Secure Trust Bank PLC in
excess of GBP25 million in an accounting period. The Finance Act
2022, enacted on 24 February 2022, included legislation to reduce
the banking surcharge to 3% on bank tax profits in excess of GBP100
million with effect from 1 April 2023. The resulting reduction in
the deferred tax asset is just less than GBP0.9 million.
6. Discontinued operations
Discontinued businesses include Debt Management, Consumer
Mortgages and Asset Finance. The Asset Finance and Consumer
Mortgages loan books were sold during 2021. Although Asset Finance
and Consumer Mortgages were disclosed in continuing operations in
the prior year, the directors have reassessed this judgement and
concluded that on the basis they have been previously presented as
separate business segments, and discussed as part of the Strategic
Report, it has been deemed appropriate to include these as
discontinued operations, and as such comparatives have been
re-presented on this basis.
On 11 March 2022 the Group announced that it had agreed to sell
Debt Managers (Services) Limited's ('DMS') portfolio of loans to
Intrum UK Finance Limited. The sale completed on 30 May 2022. As
the Group has exited this market, the results have presented this
as a discontinued business. DMS will continue to service the loan
book on behalf of Intrum UK Finance Limited until all loans are
migrated to the purchaser, which is expected to complete by the end
of 2022. As per the terms of the contract, the Group received
GBP81.9 million, for the loan book of GBP71.8 million. Direct and
indirect costs incurred in relation to the sale to 30 June 2022
amounted to GBP2.0 million. Further costs are expected to be
incurred during the remainder of the year.
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
Income statement GBPmillion GBPmillion GBPmillion
-------------------------------------------- ------------ ------------ -------------
Interest income and similar income 5.3 9.0 16.1
Interest expense and similar charges (0.8) (0.7) (1.5)
--------------------------------------------- ------------ ------------ -------------
Net interest income 4.5 8.3 14.6
--------------------------------------------- ------------ ------------ -------------
Fee and commission income 1.1 0.9 1.0
Net fee and commission income 1.1 0.9 1.0
--------------------------------------------- ------------ ------------ -------------
Operating income 5.6 9.2 15.6
Net impairment (charge)/credit on loans
and advances to customers (0.7) 0.7 0.5
Profit/(loss) on disposal of loan book 8.9 - (0.6)
Other closure costs (0.8) - (0.8)
Operating expenses (5.4) (8.5) (14.6)
--------------------------------------------- ------------ ------------ -------------
Profit before income tax from discontinued
operations 7.6 1.4 0.1
Income tax expense (1.4) (0.2) -
--------------------------------------------- ------------ ------------ -------------
Profit for the period from discontinued
operations 6.2 1.2 0.1
--------------------------------------------- ------------ ------------ -------------
Basic earnings per ordinary share -
discontinued operations 33.2 6.4 0.5
--------------------------------------------- ------------ ------------ -------------
Diluted earnings per ordinary share
- discontinued operations 32.2 6.3 0.5
--------------------------------------------- ------------ ------------ -------------
Audited Audited
Unaudited Consumer Asset Audited
DMS Mortgages Finance Total
30 June 31 December 31 December 31 December
2022 2021 2021 2021
GBPmillion GBPmillion GBPmillion GBPmillion
---------------------------------------- ------------ ------------- ------------- -------------
Consideration received 81.9 54.6 5.8 60.4
Carrying value of loan books disposed (71.8) (54.5) (5.8) (60.3)
Selling costs (1.2) (0.6) (0.1) (0.7)
---------------------------------------- ------------ ------------- ------------- -------------
Profit/(loss) on disposal of loan book
(including selling costs) 8.9 (0.5) (0.1) (0.6)
Other closure costs (0.8) (0.8) - (0.8)
---------------------------------------- ------------ ------------- ------------- -------------
Overall profit/(loss) on disposal of
loan portfolio(s) 8.1 (1.3) (0.1) (1.4)
---------------------------------------- ------------ ------------- ------------- -------------
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
Net cash flows GBPmillion GBPmillion GBPmillion
--------------------------- ------------ ------------ -------------
Operating (81.2) 2.0 (58.3)
Investing 80.7 (0.2) 60.4
Financing - - -
--------------------------- ------------ ------------ -------------
Net cash (outflow)/inflow (0.5) 1.8 2.1
---------------------------- ------------ ------------ -------------
7. Earnings per ordinary share
7.1 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:
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
--------------------------------------- ----------- ----------- -------------
Profit attributable to equity holders
of the parent (GBPmillion) 19.1 26.0 45.6
Weighted average number of ordinary
shares (number) 18,658,851 18,634,320 18,637,444
---------------------------------------- ----------- ----------- -------------
Earnings per share (pence) 102.4 139.5 244.7
---------------------------------------- ----------- ----------- -------------
7.2 Diluted
Diluted earnings per ordinary share are calculated by dividing
the profit attributable to equity holders of the parent by the
weighted average number of ordinary shares in issue during the
year, as noted above, as well as the number of dilutive share
options in issue during the year, as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
----------------------------------------- ----------- ----------- -------------
Weighted average number of ordinary
shares 18,658,851 18,634,320 18,637,444
Number of dilutive shares in issue
at the period-end 609,051 367,546 407,729
------------------------------------------ ----------- ----------- -------------
Fully diluted weighted average number
of ordinary shares 19,267,902 19,001,866 19,045,173
------------------------------------------ ----------- ----------- -------------
Dilutive shares being based on:
Number of options outstanding at the
period-end 1,205,610 1,087,539 949,193
Weighted average exercise price (pence) 297 357 370
Average share price during the period
(pence) 1,205 966 1,103
------------------------------------------ ----------- ----------- -------------
Diluted earnings per share (pence) 99.1 136.8 239.4
------------------------------------------ ----------- ----------- -------------
8. Dividends
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
-------------------------------------- ------------ ------------ -------------
2020 final dividend - 44.0 pence per
share (paid May 2021) - 8.2 8.2
2021 interim dividend - 20.0 pence
per share (paid September 2021) - - 3.7
2021 final dividend - 41.1 pence per 7.7 -
share (paid May 2022) -
7.7 8.2 11.9
-------------------------------------- ------------ ------------ -------------
The Directors recommend the payment of a interim dividend of
16.0 pence per share (2021: 20.0 pence per share). This will be
paid on 26 September 2022 with an associated record date of 26
August 2022.
9. Loans and advances to customers
Loans Assets
and advances held
Unaudited to customers for sale Total
30 June 2022 GBPmillion GBPmillion GBPmillion
------------------------------------ -------------- ------------ ------------
Gross loans and advances 2,818.2 - 2,818.2
Less: allowances for impairment of
loans and advances (67.0) - (67.0)
2,751.2 - 2,751.2
------------------------------------ -------------- ------------ ------------
Loans Assets
and advances held
Unaudited to customers for sale Total
30 June 2021 GBPmillion GBPmillion GBPmillion
------------------------------------ -------------- ------------ ------------
Gross loans and advances 2,401.1 64.0 2,465.1
Less: allowances for impairment of
loans and advances (73.6) (1.6) (75.2)
2,327.5 62.4 2,389.9
------------------------------------ -------------- ------------ ------------
Loans Assets
and advances held
Audited to customers for sale Total
31 December 2021 GBPmillion GBPmillion GBPmillion
------------------------------------ -------------- ------------ ------------
Gross loans and advances 2,598.1 1.3 2,599.4
Less: allowances for impairment of
loans and advances (67.5) - (67.5)
2,530.6 1.3 2,531.9
------------------------------------ -------------- ------------ ------------
10. Allowances for impairment of loans and advances
Expected Credit Losses (ECL) by stage by business are disclosed
below:
Not credit-impaired Credit-impaired
--------------------------- ----------------
Stage
1: Stage Stage
Subject 2: 3: Gross
to Subject Subject loans
12-month to lifetime to lifetime Total and advance Provision
Unaudited ECL ECL ECL provision to customers cover
30 June 2022 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion %
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
Business Finance:
Real Estate Finance 0.1 0.1 2.0 2.2 1,144.8 0.2
Commercial Finance 0.7 0.1 0.4 1.2 361.0 0.3
Consumer Finance:
Retail Finance 11.3 7.8 5.4 24.5 940.7 2.6
Vehicle Finance:
------------ ------------- ---------------- ------------ -------------- ----------
Voluntary termination
provision 4.9 - - 4.9
Other impairment 5.0 17.6 11.6 34.2
------------ ------------- ---------------- ------------ -------------- ----------
9.9 17.6 11.6 39.1 371.7 10.5
22.0 25.6 19.4 67.0 2,818.2 2.4
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
Not credit-impaired Credit-impaired
--------------------------- ----------------
Stage
1: Stage Stage
Subject 2: 3: Gross
to Subject Subject loans
12-month to lifetime to lifetime Total and advances Provision
Unaudited ECL ECL ECL provision to customers cover
30 June 2021 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion %
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
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
Vehicle 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 Stage
Subject 2: 3: Gross
to Subject Subject loans
12-month to lifetime to lifetime Total and advances Provision
Audited ECL ECL ECL provision to customers cover
31 December 2021 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion %
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
Business Finance:
Real Estate Finance 0.1 0.4 2.7 3.2 1,112.8 0.3
Commercial Finance 0.5 0.1 0.5 1.1 314.4 0.3
Consumer Finance:
Retail Finance 10.0 7.6 4.1 21.7 786.5 2.8
Vehicle Finance:
------------ ------------- ---------------- ------------ -------------- ----------
Voluntary termination
provision 4.2 - - 4.2
Other impairment 3.7 11.9 14.4 30.0
------------ ------------- ---------------- ------------ -------------- ----------
7.9 11.9 14.4 34.2 297.5 11.5
Debt Management - - 7.3 7.3 86.9 8.4
Other - - - - 1.3 -
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
18.5 20.0 29.0 67.5 2,599.4 2.6
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
Less Assets held for
sale - - - - (1.3) -
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
18.5 20.0 29.0 67.5 2,598.1 2.6
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
The impairment charge/(credit) disclosed in the income statement
can be analysed as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
------------------------------------------- ------------ ------------ -------------
Expected credit losses: impairment
charge 18.4 0.7 4.9
Charge in respect of off balance sheet
loan commitments 0.2 0.2 (0.2)
Loans written off net of amounts utilised - (1.9) -
Recoveries of loans written off - (0.1) (0.2)
18.6 (1.1) 4.5
------------------------------------------- ------------ ------------ -------------
Of which:
Continuing 17.9 (0.4) 5.0
Discontinued (Note 6) 0.7 (0.7) (0.5)
-------------------------------------------- ------------ ------------ -------------
Total 18.6 (1.1) 4.5
-------------------------------------------- ------------ ------------ -------------
Total provisions above include expert credit judgements
(management overlays) as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
------------------------------------------------ ------------ ------------ -------------
Specific overlays held against credit-impaired
secured assets held within the Business
Finance portfolio (1.7) (6.9) (0.4)
Management judgement in respect of:
Consumer Finance affordability 5.3 - 4.6
Vehicle Finance used car valuations 1.6 1.4 1.5
Uncertainty over the future impact
of COVID-19 impact - 3.8 0.4
Adjustment of model over-extrapolation - -
of observed defaults (2.2)
POCI adjustment - 6.0 7.3
Other (1.0) 0.6 (0.1)
Expert credit judgements over the IFRS
9 model results 2.0 4.9 13.3
------------------------------------------------- ------------ ------------ -------------
The specific overlays for Business Finance have been estimated
on an individual basis by assessing the recoverability and
condition of the secured asset, along with any other recoveries
that may be made. For further details on Consumer Finance
affordability and Vehicle Finance used car valuations, see Notes
10.1.2 and 10.1.5 respectively.
Reconciliations of the opening to closing allowance for
impairment of loans and advances are presented below:
Not credit-impaired Credit-impaired
--------------------------- ----------------
Stage
1: Stage Stage
Subject 2: 3:
to Subject Subject
12-month to lifetime to lifetime
ECL ECL ECL Total
Unaudited GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------------------------- ------------ ------------- ---------------- ------------
At 1 January 2022 18.5 20.0 29.0 67.5
Increase due to change in credit risk
------------ ------------- ----------------
- Transfer to stage 2 (3.3) 19.9 - 16.6
- Transfer to stage 3 (0.4) (8.9) 13.1 3.8
- Transfer to stage 1 1.3 (2.4) - (1.1)
Passage of time (2.2) 0.1 (4.1) (6.2)
New loans originated 11.2 - - 11.2
Matured and derecognised loans (1.6) (1.6) - (3.2)
Changes to credit risk parameters (2.2) (1.5) - (3.7)
Other adjustments 1.0 - - 1.0
------------ ------------- ----------------
Charge to income statement 3.8 5.6 9.0 18.4
Allowance utilised in respect of write-offs (0.3) - (18.6) (18.9)
--------------------------------------------- ------------ ------------- ---------------- ------------
30 June 2022 22.0 25.6 19.4 67.0
--------------------------------------------- ------------ ------------- ---------------- ------------
Not credit-impaired Credit-impaired
--------------------------- ----------------
Stage
1: Stage Stage
Subject 2: 3:
to Subject Subject
12-month to lifetime to lifetime
ECL ECL ECL Total
Unaudited GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------------------------- ------------ ------------- ---------------- ------------
At 1 January 2021 27.1 27.3 28.3 82.7
(Decrease)/increase due to change
in credit risk
------------ ------------- ----------------
- Transfer to stage 2 (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 methodology - (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)
--------------------------------------------- ------------ ------------- ---------------- ------------
30 June 2021 24.8 18.5 31.9 75.2
--------------------------------------------- ------------ ------------- ---------------- ------------
Not credit-impaired Credit-impaired
--------------------------- ----------------
Stage
1: Stage Stage
Subject 2: 3:
to Subject Subject
12-month to lifetime to lifetime
ECL ECL ECL Total
Audited GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------------------------- ------------ ------------- ---------------- ------------
At 1 January 2021 27.1 27.3 28.3 82.7
(Decrease)/increase due to change in
credit risk
------------ ------------- ----------------
- Transfer to stage 2 (5.3) 27.1 (0.2) 21.6
- Transfer to stage 3 (0.1) (15.7) 20.6 4.8
- Transfer to stage 1 2.9 (5.3) - (2.4)
Passage of time (10.9) (6.7) (3.0) (20.6)
New loans originated 18.2 - - 18.2
Matured and derecognised loans (4.1) (4.1) - (8.2)
Changes to model methodology (0.1) (0.2) 0.9 0.6
Changes to credit risk parameters (8.0) (2.3) 0.7 (9.6)
Other adjustments 0.5 - - 0.5
------------ ------------- ----------------
Charge to income statement (6.9) (7.2) 19.0 4.9
Allowance utilised in respect of write-offs (1.7) (0.1) (18.3) (20.1)
--------------------------------------------- ------------ ------------- ---------------- ------------
31 December 2021 18.5 20.0 29.0 67.5
--------------------------------------------- ------------ ------------- ---------------- ------------
The tables above have been prepared based on monthly movements
in the ECL.
Passage of time represents the impact of accounts maturing
through their contractual life and the associated reduction in PDs.
For stage 3 assets it represents the unwind of the discount applied
in calculating the ECL.
Changes to model methodology represent movements that have
occurred due to enhancements made to the models during the
year.
Changes to credit risk parameters represent movements that have
occurred due to the Group updating model inputs. This would include
the impact of, for example, updating the macroeconomic scenarios
applied to the models.
Other adjustments represent the movement in the Vehicle Finance
voluntary termination provision.
Stage 1 write-offs arise on Vehicle Finance accounts where
borrowers have exercised their right to voluntarily terminate their
agreements.
10.1 Key sources of estimation uncertainty
Estimations which could have a material impact on the Group's
financial results and are therefore considered to be key sources of
estimation uncertainty all relate to the impairment charge on loans
and advances to customers and are therefore set out below.
The current macroeconomic environment (see the Regulatory
section for further details) has been considered in determining
reasonably possible changes in key sources of estimation
uncertainty which may occur in the next 12 months.
The impairment charge comprises of two principal elements:
-- modelled ECLs, and
-- expert credit judgements, which are overlaid onto the output from the models.
Modelled ECLs are calculated by multiplying three main
components: the probability of default ('PD'), exposure at default
and loss given default ('LGD'). These variables are derived from
internally developed statistical models and historical data,
adjusted to reflect forward-looking information.
Exogenous, Maturity, Vintage modelling is used in the production
of forward-looking lifetime PDs in the calculation of ECLs. As the
Group's performance data does not go back far enough to capture a
full economic cycle, the proxy series of the quarterly rates of
write offs for UK unsecured lending data is used to build an
economic response model to incorporate the effects of
recession.
The determination of both the PD and LGD require estimation
which is discussed further below.
10.1.1 Estimation of PDs
Sensitivity to reasonably possible changes in PD could
potentially result in material changes in the ECL allowance for
Vehicle Finance and Retail Finance.
A 50% change in the PD for Vehicle Finance would immediately
impact the ECL allowance by GBP7.2 million (30 June 2021:10% change
impacted ECL allowance by GBP1.4 million, 31 December 2021: a 15%
change impacted the ECL allowance by GBP2.3 million).
A 10% change in the PD for Retail Finance would immediately
impact the ECL allowance by GBP1.3 million (30 June 2021: 20%
change impacted ECL allowance by GBP3.8 million, 31 December 2021:
a 30% change impacted the ECL allowance by GBP4.6 million).
During the period, there was a 47% (30 June 2021: 11%, 31
December 2021: 14%) change in PD for Vehicle Finance, and a 10% (30
June 2021: 14%, 31 December 2021: 27%) change in PD for Retail
Finance.
Due to collateral protection on the Business Finance books,
sensitivity to reasonably possible changes in PD are not considered
material.
10.1.2. Consumer Finance customer affordability
A new PD judgement was applied at 31 December 2021 to reflect
the heightened risk of lower customer affordability in the Consumer
Finance businesses due to the increased cost-of-living. A 15%
uplift was applied to the ECL on loans identified as most likely to
be impacted by increases in cost-of-living, which impacted the ECL
by GBP5.3 million (31 December 2021: GBP4.6 million). If the uplift
factor was increased to 20%, the ECL would have been impacted by a
further GBP1.1 million (31 December 2021: GBP0.9 million).
10.1.3. Vehicle Finance cure rates
Where loans are in stage 3 and return to less than 90 days past
due, expected future cure rates are an element of the LGD
calculation. Cure rates are currently above the assumption used in
the model of 6.3%, but management are expecting that cure rates
will return to their pre-COVID-19 pandemic levels. An increase in
the cure rate to 12% would decrease the ECL by GBP1.6 million (31
December 2021: GBP2.0 million).
10.1.4. Vehicle Finance recovery rates
With the exception of the Vehicle Finance portfolio, the
sensitivity of the ECL allowance to reasonably possible changes in
the LGD is not considered material. The Vehicle Finance portfolio
is particularly sensitive to changes in LGD due to the range of
outcomes which could crystallise depending on whether the Group is
able to recover the vehicle as security. For the Vehicle Finance
portfolio a 20% change in the LGD is considered reasonably possible
due to delays in the vehicle collection process. A 20% reduction in
the vehicle recovery rate assumption element of the LGD for Vehicle
Finance would increase the ECL by GBP1.4 million (30 June 2021:
GBP4.2 million, 31 December 2021 GBP2.0 million). During the year,
there was a 0% (30 June 2021: 0%, 31 December 2021: 0%) change in
the vehicle recovery rate assumption.
10.1.5 Vehicle Finance used car values
Since the onset of the COVID-19 pandemic, we have observed an
increase in used car prices of 26%. This increase in used car
prices has been incorporated into the modelled LGD reducing the ECL
provision by GBP2.1 million (31 December 2021: GBP3.0 million),
however, the Directors believe that only 14% of the increase in
used car prices will be permanent and have applied an overlay for
lower recoveries with an increased provision of GBP1.6 million (31
December 2021: GBP1.5 million).
10.1.6 LGD on Real Estate Finance loans in stage 3
The ECL on Real Estate Finance loans in stage 3 is calculated
using a probability weighted expected outcome for each loan, with
the scenarios ranging from best case to downside case(s) to worst
case. If the base cases were removed, with a corresponding increase
in downside case(s) and no movement in worst case, which management
considers to be a reasonably possible outcome, the ECL would
increase by GBP1.2 million (31 December 2021: GBP2.2 million). The
average actual weighting given to the base cases at 30 June 2022
was 82.5% (31 December 2021: 62.5%).
10.1.7 Adjustment of model over-extrapolation of observed
defaults
The Vehicle Finance ECL model was adjusted for an
over-extrapolation of recent observed defaults, which resulted in a
management overlay reducing the ECL by GBP2.2 million. The overlay
was quantified as 50% of the reduction in ECL charge that would
occur if using average Vehicle Finance PDs, which the Directors
consider to be reasonable until further corroborative data is
available. If defaults do continue to increase at the rate
predicted by the ECL model, an additional GBP2.2 million charge
would be recognised.
10.1.8 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.
The macroeconomic scenarios used were provided by external
economic advisors, having previously being internally developed,
which had regard to externally published scenarios. The scenarios
and weightings applied are summarised below:
Unaudited
30 June UK Unemployment Rate - UK HPI - movement from
2022 Annual Average H1 2022
------------------------------ ------------------------------------
Year Year Year 5 Yr Year Year Year 5 Yr
1 2 3 Average 1 2 3 Average
Scenario Weightings % % % % % % % %
----------- ----------- ----- ----- ----- --------- ------- ------- ------- ---------
Upside 20% 3.6 3.6 3.6 3.6 4.2 5.5 8.4 7.3
Base 50% 3.8 3.8 3.7 3.8 1.3 0.3 1.0 2.0
Downside 25% 6.0 6.2 6.3 6.1 (6.9) (17.1) (23.0) (15.0)
Severe 5% 6.3 6.5 6.6 6.4 (11.0) (25.7) (34.8) (23.4)
----------- ----------- ----- ----- ----- --------- ------- ------- ------- ---------
Unaudited
30 June UK Unemployment Rate - UK HPI - movement from
2021 Annual Average H1 2021
------------------------------ ------------------------------------
Year Year Year 5 Yr Year Year Year 5 Yr
1 2 3 Average 1 2 3 Average
Scenario Weightings % % % % % % % %
----------- ----------- ----- ----- ----- --------- ------- ------- ------- ---------
Upside 20% 5.1 4.8 4.4 4.4 (0.5) (0.2) 2.8 3.9
Base 50% 6.9 7.0 5.9 5.6 (2.4) (3.0) - 1.3
Downside 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)
----------- ----------- ----- ----- ----- --------- ------- ------- ------- ---------
Audited
31 December UK Unemployment Rate - UK HPI - movement from
2021 Annual Average December 2021
------------------------------ -----------------------------------
5 Yr 5 Yr
2022 2023 2024 Average 2022 2023 2024 Average
Scenario Weightings % % % % % % % %
-------------- ----------- ----- ----- ----- --------- ------- ------- ------ ---------
Upside 20% 4.1 4.0 4.0 4.0 0.8 3.9 8.1 8.3
Base 50% 4.9 4.4 4.2 4.3 1.0 1.9 3.9 4.9
Downside 25% 5.7 5.6 4.8 4.9 (3.0) (1.9) 2.1 2.7
Severe 5% 6.8 8.3 6.8 6.3 (10.7) (11.2) (7.2) (6.2)
-------------- ----------- ----- ----- ----- --------- ------- ------- ------ ---------
The sensitivity of the ECL allowance to reasonably possible
changes in macroeconomic scenario weighting is presented below:
Increase in
Increase in severe stress
downside case case
weighting by weighting by
10% and reduction 5%and reduction
in upside case in base case
------------ -------------------------- ------------ --------------------------
Unaudited Unaudited Audited Unaudited Unaudited Audited
June June December June June December
2022 2021 2021 2022 2021 2021
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------- ------------ ------------ ------------ ------------ ------------ ------------
Vehicle Finance 1.1 0.2 0.2 0.8 0.1 0.2
Retail Finance 1.6 0.3 0.3 1.2 0.2 0.2
----------------- ------------ ------------ ------------ ------------ ------------ ------------
The sensitivity is immaterial for other lending products.
The Group recognised an impairment charge of GBP18.6 million (30
June 2021: GBP1.1 million credit, December 2021: GBP4.5 million
charge). Were each of the macroeconomic scenarios to be applied
100%, rather than using the weightings set out above, the
increase/(decrease) on ECL provisions would be as follows:
Unaudited Vehicle Retail Business Total
30 June 2022 Finance Finance Finance Group
Scenario GBPmillion GBPmillion GBPmillion GBPmillion
--------------- ------------ ------------ ------------ ------------
Upside (1.7) (2.6) (0.3) (4.6)
Base (1.2) (1.8) (0.2) (3.2)
Downside 3.0 4.6 0.5 8.1
Severe 3.7 5.7 1.1 10.5
--------------- ------------ ------------ ------------ ------------
Unaudited Vehicle Retail Business Total
30 June 2021 Finance Finance Finance Group
Scenario GBPmillion GBPmillion GBPmillion GBPmillion
------------------- ------------ ------------ ------------ ------------
Upside (1.7) (2.2) (1.3) (5.2)
Base 0.1 0.1 (0.4) (0.2)
Downside 0.7 0.9 0.3 1.9
Severe 2.6 3.4 7.1 13.1
------------------- ------------ ------------ ------------ ------------
Audited Vehicle Retail Business Total
31 December 2021 Finance Finance Finance Group
Scenario GBPmillion GBPmillion GBPmillion GBPmillion
------------------- ------------ ------------ ------------ ------------
Upside (1.2) (2.0) (2.5) (5.7)
Base (0.4) (0.4) (1.9) (2.7)
Downside 1.0 1.5 0.5 3.0
Severe 3.3 4.6 8.4 16.3
------------------- ------------ ------------ ------------ ------------
10.1.8 Climate-risk impact
The Group has considered the impact of climate-related risks on
the financial statements, in particular the impact on impairment
within the Vehicle Finance business. While the effects of climate
change represent a source of uncertainty (in respect of potential
transitional risks such as those that may arise from changes in
future Government policy), the Group does not consider there to be
a material impact on its judgements and estimates from the
physical, transition and other climate-related risks in the
short-term.
11. Assets and liabilities held for sale
Under IFRS 5, Non-current Assets Held for Sale and Discontinued
Operations, assets and liabilities are required to be reclassified
as 'Held for sale' on the face of the statement of financial
position if they are expected to be sold within 12 months of the
balance sheet date.
As at 30 June 2022, the Group's office property in Bourne End
was available for immediate sale in its present condition and its
sale was highly probable. Accordingly, it was reclassified in the
June 2022 Condensed consolidated statement of financial position at
its carrying amount of GBP3.3 million from Investment properties to
Assets held for sale. During July 2022, the sale completed, and the
property was sold for GBP3.4 million.
As at 30 June 2021, the Asset Finance and Consumer Mortgages
loan books were both in advanced stages of a sales process.
Accordingly, it was reclassified in the June 2021 Condensed
consolidated statement of financial position at its carrying value
of GBP62.4 million from Loans and advances to customers to Assets
held for sale. The sale of both books completed during July
2021.
As at 31 December 2021, assets of GBP1.3 million relating to a
loan book and a liability of GBP2.0 million relating to collateral
held, were in the process of being sold to its partner, RentSmart
Limited. The assets and liabilities were sold for their carrying
amount on 31 January 2022. There is no provision held against the
RentSmart loans, as the credit risk associated with those loans is
retained by RentSmart Limited.
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 10.
12. Due to banks
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
------------------------------------------ ------------ ------------ -------------
Amounts due under the Bank of England's
liquidity support operations, Term
Funding Scheme and Term Funding Scheme
with additional incentives for SMEs 390.0 303.0 390.0
Amounts due to other credit institutions 9.4 7.3 0.7
Accrued interest 0.9 0.1 0.1
400.3 310.4 390.8
------------------------------------------ ------------ ------------ -------------
Amounts due under the Bank of England's liquidity support
operations Term Funding Scheme with additional incentives for SMEs
are due for repayment between March 2025 and October 2025.
13. Deposits from customers
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
------------------ ------------ ------------ -------------
Fixed term bonds 1,182.4 972.6 974.6
Notice accounts 696.8 684.1 771.9
ISAs 310.8 173.4 255.0
Access accounts 100.9 109.6 101.7
------------------- ------------ ------------ -------------
2,290.9 1,939.7 2,103.2
------------------ ------------ ------------ -------------
14. Provisions for liabilities and charges
ECL allowance
on loan
commitments Other Total
GBPmillion GBPmillion GBPmillion
--------------------------------------- -------------- ------------ ------------
Balance at 1 January 2021 1.1 0.8 1.9
Charge to income statement 0.2 0.1 0.3
Utilised - (0.2) (0.2)
---------------------------------------- -------------- ------------ ------------
Balance at 30 June 2021 (Unaudited) 1.3 0.7 2.0
(Release)/charge to income statement (0.4) 0.2 (0.2)
Utilised - (0.5) (0.5)
---------------------------------------- -------------- ------------ ------------
Balance at 31 December 2021 (Audited) 0.9 0.4 1.3
Charge to income statement 0.2 0.3 0.5
Utilised - (0.3) (0.3)
Balance at 30 June 2022 (Unaudited) 1.1 0.4 1.5
---------------------------------------- -------------- ------------ ------------
ECL allowance on loan commitments
In accordance with the requirements of IFRS 9 the Group holds an
ECL allowance against loans it has committed to lend but have not
yet been drawn. For the Real Estate Finance and Commercial Finance
portfolios, where a loan facility is agreed that includes both
drawn and undrawn elements and the Group cannot identify the ECL on
the loan commitment separately, a combined loss allowance for both
drawn and undrawn components of the loan is presented as a
deduction from the gross carrying amount of the drawn component,
with any excess of the loss allowance over the gross drawn amount
presented as a provision. At 30 June 2022, 30 June 2021, 31
December 2021 no provision was held for losses in excess of drawn
amounts.
Other
Other includes
-- provision for fraud, which relates to cases where the Group
has reasonable evidence of suspected fraud, but further
investigation is required before the cases can be dealt with
appropriately
-- s75 Consumer Credit Act 1974 provision; and
-- restructuring provision (June 2021 only).
The Directors expect all provisions to be fully utilised within
the next 12 months.
15. Subordinated liabilities
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
------------------------- ------------ ------------ -------------
Notes at par value 50.0 50.0 50.0
Unamortised issue costs (0.2) (0.4) (0.3)
Accrued interest 1.2 1.2 1.2
51.0 50.8 50.9
------------------------- ------------ ------------ -------------
16. Contingent liabilities and commitments
16.1 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.
16.2 Credit commitments
Commitments to extend credit to customers were as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
---------------------- ------------ ------------ -------------
Business Finance
Real Estate Finance 77.3 56.3 68.9
Commercial Finance 152.6 120.7 120.9
Consumer Finance
Retail Finance 100.8 91.1 83.6
Vehicle Finance 1.6 0.5 0.5
----------------------- ------------ ------------ -------------
332.3 268.6 273.9
---------------------- ------------ ------------ -------------
17. Share-based payments
Movements in the share options outstanding during the period are
set out below:
Outstanding Outstanding
at 1 at 30
January June
2022 Granted Exercised 2022
Number Number Number Number
-------------------------- ------------ -------- ---------- ------------
Long term incentive plan 401,800 230,789 (17,565) 615,024
Deferred bonus plan 19,686 38,344 (4,316) 53,714
Sharesave plan 542,446 - (5,574) 536,872
963,932 269,133 (27,455) 1,205,610
-------------------------- ------------ -------- ---------- ------------
Outstanding Outstanding
at 1 at 30
January June
2021 Granted Exercised 2021
Number Number Number Number
-------------------------- ------------ -------- ---------- ------------
Long term incentive plan 473,096 243,550 (3,884) 712,762
Deferred bonus plan 51,319 1,702 (826) 52,195
Sharesave plan 572,464 - - 572,464
1,096,879 245,252 (4,710) 1,337,421
-------------------------- ------------ -------- ---------- ------------
Outstanding Outstanding
at 1 Forfeited, at 31
January lapsed December
2021 Granted and cancelled Exercised 2021
Number Number Number Number Number
-------------------------- ------------ -------- --------------- ---------- ------------
Long term incentive plan 473,096 243,550 (300,999) (13,847) 401,800
Deferred bonus plan 51,319 13,023 (43,830) (826) 19,686
Sharesave plan 572,464 57,645 (87,663) - 542,446
1,096,879 314,218 (432,492) (14,673) 963,932
-------------------------- ------------ -------- --------------- ---------- ------------
The weighted average of the original grant date valuation of the
options granted in the period is GBP7.69. 12,779 of the options
granted in the period will vest in April 2023, 12,779 will vest in
2024, with the remainder vesting in 2025.
18. Cash flow statement
18.1 Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash
equivalents comprise the following balances with less than three
months' maturity from the date of acquisition.
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
---------------------------------------------- ------------ ------------ -------------
Cash and balances at central banks 253.0 138.4 235.7
Loans and advances to banks 54.2 43.3 50.3
Debt securities 34.9 - 25.0
Less restricted cash
Included in cash and balances at central
banks (2.3) (1.3) (1.7)
Included in loans and advances to central
banks (1.5) (9.5) (6.3)
----------------------------------------------- ------------ ------------ -------------
Total restricted cash (3.8) (10.8) (8.0)
----------------------------------------------- ------------ ------------ -------------
338.3 170.9 303.0
---------------------------------------------- ------------ ------------ -------------
18.2 Changes in liabilities arising from financing
activities
All changes in liabilities arising from financing activities
arise from changes in cash flows, apart from GBP0.1 million (June
2021: GBP0.1 million, December 2021: GBP0.1 million) of lease
liabilities interest expense, and GBP0.1 million (June 2021: GBP0.1
million, December 2021: GBP0.1 million) amortisation of issue costs
on subordinated liabilities.
19. Related party transactions
There were no changes to the nature of the related party
transactions during the period to June 2022 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 2022 in comparison to the year ended
31 December 2021. Details of the transactions for the year ended
December 2021 can be found in the 2021 Annual Report and
Accounts.
20. 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 2021
Annual Report and Accounts.
Stage
1 Stage 2 Stage 3 Total
----------- ------------------------------------- ------------------------------------------ -----------
<= 30 > 30
days days Excl. Purchased
past past purchased credit--
Unaudited due due Total credit-impaired impaired Total
30 June 2022 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Business Finance
Real Estate
Finance 969.7 143.7 - 143.7 31.4 - 31.4 1,144.8
Commercial
Finance 344.5 14.5 - 14.5 2.0 - 2.0 361.0
Consumer Finance
Retail
Finance 827.2 105.0 2.7 107.7 5.8 - 5.8 940.7
Vehicle Finance 253.6 97.6 2.8 100.4 17.7 - 17.7 371.7
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Total drawn
exposure 2,395.0 360.8 5.5 366.3 56.9 - 56.9 2,818.2
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Off balance
sheet
Loan
commitments 332.3 - - - - - 332.3
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Total gross
exposure 2,727.3 360.8 5.5 366.3 56.9 - 56.9 3,150.5
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Less:
Impairment
allowance (22.0) (21.7) (3.9) (25.6) (19.4) - (19.4) (67.0)
Provision for
loan
commitments (1.1) - - - - - - (1.1)
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Total net
exposure 2,704.2 339.1 1.6 340.7 37.5 - 37.5 3,082.4
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Stage
1 Stage 2 Stage 3 Total
----------- ------------------------------------- ------------------------------------------ -----------
<= 30 > 30
days days Excl. Purchased
past past purchased credit--
Unaudited due due Total credit-impaired impaired Total
30 June 2021 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
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
Vehicle
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
----------- ------------------------------------- ------------------------------------------ -----------
<= 30 > 30
days days Excl. Purchased
past past purchased credit--
Unaudited due due Total credit-impaired impaired Total
31 December 2021 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Business Finance
Real Estate
Finance 911.4 161.4 - 161.4 40.0 - 40.0 1,112.8
Commercial
Finance 291.7 17.5 - 17.5 5.2 - 5.2 314.4
Consumer Finance
Retail
Finance 659.4 120.1 2.6 122.7 4.4 - 4.4 786.5
Vehicle
Finance 207.0 68.9 2.2 71.1 19.4 - 19.4 297.5
Debt
Management - - - - 10.8 76.1 86.9 86.9
Total drawn
exposure 2,069.5 367.9 4.8 372.7 79.8 76.1 155.9 2,598.1
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Off balance
sheet
Loan
commitments 271.0 2.9 - 2.9 - - - 273.9
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Total gross
exposure 2,340.5 370.8 4.8 375.6 79.8 76.1 155.9 2,872.0
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Less:
Impairment
allowance (18.5) (16.6) (3.4) (20.0) (23.1) (5.9) (29.0) (67.5)
Provision for
loan
commitments (0.9) - - - - - - (0.9)
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
Total net
exposure 2,321.1 354.2 1.4 355.6 56.7 70.2 126.9 2,803.6
----------------- ----------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
20.1 Concentration risk
Management assesses the potential concentration risk from
geographic, product and individual loan concentration. Due to the
nature of the Group's lending operations the Directors consider the
lending operations of the Group as a whole to be well diversified.
Details of the Group's loans and advances to customers and loan
commitments by product is provided in Notes 3 and 16.2.
The Group's Real Estate Finance loan book is secured against UK
property only. The geographical concentration of these business
loans and advances to customers, by location of the security is as
follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
------------------------------------------- ------------ ------------ -------------
Central England 95.1 151.8 90.1
Greater London 696.7 650.1 619.7
Northern England 61.5 60.0 66.2
South East England (excl. Greater London) 225.7 145.3 258.7
South West England 22.2 28.1 30.7
Scotland, Wales and Northern Ireland 43.6 27.3 47.4
-------------------------------------------- ------------ ------------ -------------
Gross loans and advances to customers 1,144.8 1,062.6 1,112.8
Allowance for impairment (2.2) (6.0) (3.2)
-------------------------------------------- ------------ ------------ -------------
Total 1,142.6 1,056.6 1,109.6
-------------------------------------------- ------------ ------------ -------------
Loan-to-value 57% 57% 56%
-------------------------------------------- ------------ ------------ -------------
Under its credit policy, the Real Estate Finance business lends
to a maximum loan-to-value of 70% for investment loans and up to
65% for residential development loans and pre-let commercial
development loans (based on gross development value).
21. Capital risk
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:
Unaudited Unaudited Unaudited
30 June 30 June 31 December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
------------------------------------------------ ------------ ------------ -------------
Tier 1
Share capital 7.5 7.5 7.5
Share premium 82.2 82.2 82.2
Retained earnings 224.1 198.2 211.7
Revaluation reserve 1.4 0.9 1.3
IFRS 9 transition adjustment 8.5 13.9 13.9
Goodwill (1.0) (1.0) (1.0)
Intangible assets net of attributable deferred
tax (5.9) (4.3) (4.3)
------------------------------------------------- ------------ ------------ -------------
Common Equity Tier 1 ('CET 1') capital
before foreseeable dividend 316.8 297.4 311.3
Foreseeable dividend (3.0) (3.7) (7.7)
------------------------------------------------- ------------ ------------ -------------
CET 1 capital 313.8 293.7 303.6
------------------------------------------------- ------------ ------------ -------------
Tier 2
Subordinated liabilities 49.8 50.8 50.9
Less ineligible portion - (4.3) (3.9)
------------------------------------------------- ------------ ------------ -------------
Total Tier 2 capital 49.8 46.5 47.0
------------------------------------------------- ------------ ------------ -------------
Total own funds/Total capital 363.6 340.2 350.6
------------------------------------------------- ------------ ------------ -------------
Reconciliation to total equity:
IFRS 9 transition adjustment (8.5) (13.9) (13.9)
Eligible subordinated liabilities (49.8) (46.5) (47.0)
Cash flow hedge reserve (0.8) (0.1) (0.3)
Goodwill and other intangible assets net
of attributable deferred tax 6.9 5.3 5.3
Foreseeable dividend 3.0 3.7 7.7
------------------------------------------------- ------------ ------------ -------------
Total equity 314.4 288.7 302.4
------------------------------------------------- ------------ ------------ -------------
The Group is subject to capital requirements imposed by the PRA
on all financial services firms. During the periods, the Group
complied with these requirements.
22. 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:
Unaudited Unaudited Unaudited Unaudited Audited Audited
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
30 June 30 June 30 June 30 June 31 December 31 December
2022 2022 2021 2021 2021 2021
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------- ------------ ------------ ------------ ------------ ------------- -------------
Total loans and advances
to customers 2,751.2 2,771.7 2,389.9 2,419.0 2,531.9 2,569.9
Deposits from customers 2,290.9 2,297.3 1,939.7 1,957.7 2,103.2 2,106.9
-------------------------- ------------ ------------ ------------ ------------ ------------- -------------
Freehold land and buildings, investment properties and
derivatives are carried at fair value. All other assets and
liabilities are carried at amortised cost.
Appendix to the Interim Report
Key performance indicators and other alternative performance
measures
(i) Net interest margin ratio
Net interest margin is calculated as interest income and similar
income less interest expense and similar charges for the financial
period as a percentage of the average loan book. The calculation of
the average loan book is the average of the monthly balance of
loans and advances to customers, net of provisions, over seven or
13 months. The resulting ratios for June 2022 and June 2021 are
multiplied by 365/181 to give an annual equivalent comparable to
the annual results:
June June December
2022 2021 2021
Total GBPmillion GBPmillion GBPmillion
--------------------------------------------------- ------------ ------------ ------------
Interest income and similar income (continuing
and discontinued) 95.9 89.0 180.0
Interest expense and similar charges (continuing
and discontinued) (18.3) (15.5) (29.2)
--------------------------------------------------- ------------ ------------ ------------
Net interest income (continuing and discontinued) 77.6 73.5 150.8
--------------------------------------------------- ------------ ------------ ------------
Opening loan book
(including loans included in assets held for
sale of: GBP1.3 million as at 1 January 2022). 2,531.9 2,358.9 2,358.9
Closing loan book
(including loans included in assets held
for sale of (30: June 2021: GBP62.4 million,
31 December 2021: GBP1.3 million). 2,751.2 2,389.9 2,531.9
--------------------------------------------------- ------------ ------------ ------------
Average loan book 2,639.7 2,346.3 2,374.0
--------------------------------------------------- ------------ ------------ ------------
Total net interest margin 5.9% 6.3% 6.4%
--------------------------------------------------- ------------ ------------ ------------
June June December
2022 2021 2021
Core GBPmillion GBPmillion GBPmillion
--------------------------------------------------- ------------ ------------ ------------
Interest income and similar income (continuing) 90.6 80.0 163.9
Interest expense and similar charges (continuing) (17.5) (14.8) (27.7)
--------------------------------------------------- ------------ ------------ ------------
Net interest income (continuing) 73.1 65.2 136.2
--------------------------------------------------- ------------ ------------ ------------
Core opening loan book 2,451.0 2,184.9 2,184.9
Core closing loan book 2,751.2 2,234.6 2,451.0
--------------------------------------------------- ------------ ------------ ------------
Core average loan book 2,584.2 2,174.2 2,240.5
--------------------------------------------------- ------------ ------------ ------------
Core net interest margin 5.7% 6.0% 6.1%
--------------------------------------------------- ------------ ------------ ------------
The net interest margin ratio measures the yield net of funding
costs of the loan book.
A reconciliation of total loan book to core loan book is set out
below:
June June December December
2022 2021 2021 2020
GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------------------- ------------ ------------ ------------ ------------
Loan and advances to customers 2,751.2 2327.5 2,530.6 2,358.9
Assets held for sale - loan portfolios - 62.4 1.3 -
------------------------------------------- ------------ ------------ ------------ ------------
Total loan book 2,751.2 2,389.9 2,531.9 2,358.9
Less non-core loan portfolios:
Asset Finance (sold during 2021) - (5.8) - (10.4)
DMS (sold during 2022) - (90.4) (79.6) (81.8)
Consumer Mortgages (sold during 2021) - (56.6) - (77.7)
Other - (2.5) (1.3) (4.1)
------------------------------------------- ------------ ------------ ------------ ------------
Total non-core portfolios - (155.3) (80.9) (174.0)
------------------------------------------- ------------ ------------ ------------ ------------
Core loans and advances to customers/loan
book 2,751.2 2,234.6 2,451.0 2,184.9
------------------------------------------- ------------ ------------ ------------ ------------
(ii) Core loans and advances to customers and compound annual
growth rate
Annual growth rate is calculated as the annualised growth in
'core' loans and advances to customers based on the number of days
in the period since 31 December 2020:
June June December
2022 2021 2021
GBPmillion GBPmillion GBPmillion
------------------------------------------------ ------------ ------------ ------------
Core loans and advances to customers 2,751.2 2,234.6 2,451.0
------------------------------------------------ ------------ ------------ ------------
Compound annual growth rate (since 31 December
2020) 16.7% 4.6% 12.2%
------------------------------------------------ ------------ ------------ ------------
(iii) Return on average equity
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. The resulting
ratios for June 2022 and June 2021 are multiplied by 365/181 to
give an annual equivalent comparable to the annual results:
June June December
2022 2021 2021
Total GBPmillion GBPmillion GBPmillion
---------------------------------------- ------------ ------------ ------------
Profit for the period/Profit after tax 19.1 26.0 45.6
---------------------------------------- ------------ ------------ ------------
Opening equity 302.4 267.6 267.6
Closing equity 314.4 285.8 302.4
---------------------------------------- ------------ ------------ ------------
Average equity 308.2 276.3 287.0
---------------------------------------- ------------ ------------ ------------
Total return on average equity 12.5% 19.0% 15.9%
---------------------------------------- ------------ ------------ ------------
Return on average equity is a measure of the Group's ability to
generate profit from the equity available to it.
(iv) Cost to income ratio
Cost to income ratio is calculated as operating expenses for the
financial period as a percentage of operating income for the
financial period.
June June December
2022 2021 2021
Total GBPmillion GBPmillion GBPmillion
-------------------------------------------------- ------------ ------------ ------------
Operating expenses (continuing and discontinued) 51.6 51.3 104.0
Operating income (continuing and discontinued) 86.6 80.2 164.5
-------------------------------------------------- ------------ ------------ ------------
Total cost to income ratio 59.6% 64.0% 63.2%
-------------------------------------------------- ------------ ------------ ------------
June June December
2022 2021 2021
Core GBPmillion GBPmillion GBPmillion
--------------------------------- ------------ ------------ ------------
Operating expenses (continuing) 46.2 42.8 89.4
Operating income (continuing) 81.0 71.0 148.9
--------------------------------- ------------ ------------ ------------
Core cost to income ratio 57.0% 60.3% 60.0%
--------------------------------- ------------ ------------ ------------
The cost to income ratio measures how efficiently the Group is
utilising its cost base in producing income.
(v) Cost of risk
Cost of risk is calculated as the total of the net impairment
charge on loans and advances to customers and gains and losses on
modification of financial assets for the financial period as a
percentage of the average loan book. The resulting ratios for June
2022 and June 2021 are multiplied by 365/181 to give an annual
equivalent comparable to the annual results:
June June December
2022 2021 2021
Total GBPmillion GBPmillion GBPmillion
--------------------------------------------- ------------ ------------ ------------
Net impairment charge/(credit) on loans and
advances to customers
(continuing and discontinued) 18.6 (1.1) 4.5
Gains on modification of financial assets
(continuing and discontinued) (0.7) (0.7) (1.5)
--------------------------------------------- ------------ ------------ ------------
Total 17.9 (1.8) 3.0
--------------------------------------------- ------------ ------------ ------------
Average loan book 2,639.7 2,346.3 2,374.0
--------------------------------------------- ------------ ------------ ------------
Total cost of risk 1.4% (0.2)% 0.1%
--------------------------------------------- ------------ ------------ ------------
June June December
2022 2021 2021
Core GBPmillion GBPmillion GBPmillion
--------------------------------------------- ------------ ------------ ------------
Net impairment charge/(credit) on loans and
advances to customers (continuing) 17.9 (0.4) 5.0
Gains on modification of financial assets
(continuing) (0.7) (0.7) (1.5)
--------------------------------------------- ------------ ------------ ------------
Total 17.2 (1.1) 3.5
--------------------------------------------- ------------ ------------ ------------
Core average loan book 2,584.2 2,174.2 2,240.5
--------------------------------------------- ------------ ------------ ------------
Core cost of risk 1.3% (0.1)% 0.2%
--------------------------------------------- ------------ ------------ ------------
The cost of risk measures how effective the Group has been in
managing its credit losses.
(vi) Cost of funds
Cost of funds is calculated as the interest expense for the
financial period expressed as a percentage of average loan book.
The resulting ratios for June 2022 and June 2021 are multiplied by
365/181 to give an annual equivalent comparable to the annual
results:
June June December
2022 2021 2021
Total GBPmillion GBPmillion GBPmillion
-------------------------------------------------- ------------ ------------ ------------
Interest expense and similar charges (continuing
and discontinued) 18.3 15.5 29.2
Average loan book 2,639.7 2,346.3 2,374.0
-------------------------------------------------- ------------ ------------ ------------
Total cost of funds 1.4% 1.3% 1.2%
-------------------------------------------------- ------------ ------------ ------------
June June December
2022 2021 2021
Core GBPmillion GBPmillion GBPmillion
--------------------------------------------------- ------------ ------------ ------------
Interest expense and similar charges (continuing) 17.5 14.8 27.7
Core average loan book 2,584.2 2,174.2 2,240.5
--------------------------------------------------- ------------ ------------ ------------
Core cost of funds 1.4% 1.4% 1.2%
--------------------------------------------------- ------------ ------------ ------------
The cost of funds measures the cost of money being lent to
customers.
(vii) Funding ratio
The funding ratio is calculated as the total funding at the
year-end, being the sum of deposits from customers, borrowings
under the Bank of England's liquidity support operations, Term
Funding Scheme and the Term Funding Scheme with additional
incentives for SMEs, Tier 2 capital and equity, divided by the loan
book at the year-end:
June June December
2022 2021 2021
Total GBPmillion GBPmillion GBPmillion
----------------------------------------------------- ------------ ------------ ------------
Deposits from customers 2,290.9 1,939.7 2,103.2
Borrowings under the Bank of England's liquidity
support operations, Term Funding Scheme and
the Term Funding Scheme with additional incentives
for SMEs (including accrued interest) 390.9 303.1 390.1
Tier 2 capital (including accrued interest) 51.0 50.8 50.9
Equity 314.4 285.8 302.4
----------------------------------------------------- ------------ ------------ ------------
Total funding 3,047.2 2,579.4 2,846.6
----------------------------------------------------- ------------ ------------ ------------
Total loan book 2,751.2 2,389.9 2,531.9
----------------------------------------------------- ------------ ------------ ------------
Funding ratio 110.8% 107.9% 112.4%
----------------------------------------------------- ------------ ------------ ------------
The funding ratio measure the Group's liquidity.
(vii) Core profit before tax pre impairments
Core profit before tax pre impairments is profit before tax,
excluding impairment charges/(credits) and gains on modification of
financial assets.
June June December
2022 2021 2021
Core GBPmillion GBPmillion GBPmillion
----------------------------------------------------- ------------ ------------ ------------
Profit before income tax from continuing operations 17.1 29.3 55.9
Exclude:
Net impairment charge/(credit) on loans and
advances to customers 17.9 (0.4) 5.0
----------------------------------------------------- ------------ ------------ ------------
Gains on modification of financial assets (0.7) (0.7) (1.5)
----------------------------------------------------- ------------ ------------ ------------
Core profit before tax pre impairments 34.3 28.2 59.4
----------------------------------------------------- ------------ ------------ ------------
Governance
Directors' responsibility statement
The Directors confirm that, to the best of their knowledge:
-- the Interim 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 Report 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 Report 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.
Lord Forsyth David McCreadie
Chairman Chief Executive Officer
3 August 2022
Independent review report to Secure Trust Bank PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the Interim Financial Statements for the
six months ended 30 June 2022 which comprises the condensed
consolidated statement of comprehensive income, 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 22.
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 Statements for the six months ended 30
June 2022 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.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 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.
As disclosed in Note 1.2, the annual financial statements of the
Group will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this Interim Financial Statements has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the Directors have inappropriately
adopted the going concern basis of accounting or that the Directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK), however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the Interim
Financial Statements in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the Interim Financial Statements, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the Interim Financial Statements, we are
responsible for expressing to the Group a conclusion on the
condensed set of financial statement in the Interim Financial
Statements. Our conclusion, including our Conclusions Relating to
going concern, are based on procedures that are less extensive than
audit procedures, as described in the Basis for conclusion
paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK) 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
3 August 2022
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END
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