TIDMMFX
RNS Number : 2541E
Manx Financial Group PLC
10 March 2022
FOR IMMEDIATE RELEASE 10th March 2022
Manx Financial Group PLC (the 'Company')
Report and accounts for the year ended 31 December 2021
Manx Financial Group PLC (LSE: MFX), the financial services
group which includes Conister Bank Limited, Conister Finance &
Leasing Ltd, Blue Star Business Solutions Limited, Edgewater
Associates Limited and Manx FX Limited presents its audited final
results for the year ended 31 December 2021.
Jim Mellon, Executive Chairman, commented: " The year's
financial performance is pleasing with profit before tax payable
increasing by GBP1 million to GBP3 million despite two further
lockdowns and continued economic uncertainty. As a result, the
dividend recommended for shareholder approval will be 0.2443 pence
per share - a 42% uplift from last year."
The 2021 Audited Annual Report and Accounts will be posted to
Shareholders and will be available from the Company's website
www.mfg.im shortly.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation No. 596/2014 on market abuse. Upon
the publication of this announcement via a Regulatory Information
Service, this inside information is now considered to be in the
public domain.
For further information, please contact:
Manx Financial Group PLC Beaumont Cornish Limited Greentarget Limited
Denham Eke, Roland Cornish/James Biddle Dafina Grapci-Penney
Executive Vice Chairman Tel +44 (0) 20 7628 3396 Tel +44 (0) 203 963
Tel +44 (0)1624 694694 1887
Dear Shareholders
Introduction
The current uncertainties in global markets, fuelled firstly by
the effects of the COVID pandemic, and now the Ukraine crisis, look
to dominate the economic environment for the foreseeable future as
our previous world order is challenged. It seems clear that
inflationary pressures will continue for some considerable time.
Interest rates will increase as central banks attempt to address
these issues in their efforts to stabilise money supply and
maintain the availability of credit. The United Kingdom, however,
is better placed than some as it does not suffer from certain of
the structural weaknesses of its competitors. Notwithstanding,
there is no doubt that the operating expense of doing business,
especially wage inflation, will increase, driven by the mounting
cost of living, coupled with a very tight labour market.
With uncertainty comes opportunity and, whilst the pandemic has
undoubtedly had a negative impact on our income statement, we have
managed to strengthen our balance sheet during the last two years.
In this time, our lending has increased by GBP50 million from
GBP179 million to GBP229 million; our total assets by GBP56 million
from GBP253 million to GBP309 million; and funds available to
shareholders by GBP3 million from GBP22 million to GBP25 million.
All this positions us well for the future.
Our enhanced balance sheet has allowed the Group to start paying
dividends again after a 16-year hiatus. The Board's commitment is
to return 10% of the Group's profit available to shareholders each
year in the form of cash or shares. This year, the total dividend
recommended for shareholder approval will be 0.2443 pence per share
(2020: 0.1724 pence per share) - a 42% uplift, as we continue to
reward our loyal shareholders in a manner that will not impede the
development of the Group.
Financial Performance
The year's financial performance is pleasing despite two further
lockdowns and continued economic uncertainty. Profit before tax
payable increased by GBP1.0 million to GBP3.0 million (2020: GBP2.0
million), a growth of 50%. Of particular note is Conister Bank's
record lending of GBP212.6 million (2020: GBP167.2 million). This,
along with our strategy of reducing onerous commission payments,
has led to net trading income growing by GBP3.6 million to GBP19.0
million (2020: GBP15.4 million) and operating income by GBP3.6
million to GBP20.0 million (2020: GBP16.4 million).
Operating expenses, excluding provisions and recovered VAT,
increased by GBP1.2 million to GBP11.7 million (2020: GBP10.5
million) with GBP0.3 million of this relating to headcount as we
bolster our UK establishment, both organically and through our
acquisitions. The balance, GBP0.8 million, relates to higher IT,
operational, and legal costs as we continued to improve our
technology and grow our loan book. Total costs, excluding the
one-off VAT credits, increased by GBP1.8 million to GBP17.1 million
(2020: GBP15.3 million), with additional provisions of GBP0.4
million to GBP4.4 million (2020: GBP4.0 million), together with
depreciation and amortisation of intangibles increasing by GBP0.2
million to GBP1.1 million (2020: GBP0.9 million). Our operating
income ratio, measured as operating income less impairment
provisions on loans and advances to customers as a percentage of
interest income, improved by 7.8% to 68.0% (2020: 60.2%),
reflecting the development of a more efficient operating
environment.
Turning to the balance sheet, our total assets showed a GBP40.8
million improvement to GBP308.8 million (2020: GBP268.0 million),
driven mainly by a loan book increase of GBP36.1 million. Our loyal
Isle of Man depositor base continued to support our growth with
deposits increasing by GBP35.2 million to GBP253.5 million (2020:
GBP218.3 million). Over the year, our loan to deposit ratio
improved by 1.9% to 90.4% (2020: 88.5%) - a key measure of
operational efficiency. Total liabilities increased by GBP38.5
million to GBP284.0 million (2020: GBP245.5 million), leading to an
increase in total equity of GBP2.6 million to GBP25.0 million
(2020: GBP22.4 million).
Key Objectives
In this uncertain economic environment, our fundamental focus
continued to be the protection of shareholder value. Thus, our
strategic concentration remained as previously reported, namely
to:
-- Provide the highest quality of service throughout our
operations to all customers, ensuring that their treatment is both
fair and appropriate;
-- Adopt a pro-active strategy to managing risk within a structured and compliant regime;
-- Concentrate on developing our core business by considered
acquisitions, increasing prudential lending, and augmenting the
range of financial services we offer;
-- Maintain the implementation of an enhanced and scalable IT
infrastructure to better service the operational requirements of a
growing Group without the requirement for a disproportionate
increase in headcount and other associated operational costs;
-- Continue to develop our Treasury management to improve the
return on the liabilities side of our balance sheet; and
-- Manage our balance sheet to exceed the regulatory requirements for capital adequacy.
Environmental, Social and Corporate Governance
We recognise the value and contribution that businesses such as
the Group can make to society, in protecting the environment, being
responsible and ensuring good practice through the services and
support it provides. We have witnessed a rapid growth in the
international focus on sustainability, tackling dangerous climate
change and, in particular, the part that the finance sector is
being asked to play in meeting these challenges.
We now integrate ESG across our business, in our decision making
and in what we do. Through our stewardship and engagement with
those whom we work, we encourage and finance others to be more
sustainable. We do this by understanding and responding to the ESG
issues that are material to both us and to our stakeholders. We
have incorporated this philosophy in our strategy, risk management
and governance as described in greater detail later in this
Report.
Conister Bank Limited
The Bank continued to progress a prudent lending strategy with
the loan book increasing by GBP41.0 million to GBP234.4 million
(2020: GBP193.4 million). We recorded growth in both of our
markets, namely, our home market, the Isle of Man, and in the
UK.
The Isle of Man market demand for loan finance has virtually
returned to its pre-pandemic levels and the Bank has improved its
market share through flexible online offerings and being accredited
to the Isle of Man Government's Business Support Schemes. On
Island, the Bank lent a record GBP42.9 million (2020: GBP34.9
million) to consumers and Small and Medium Sized Enterprises
("SMEs") with over 60% of this originating from our online
portal.
In the UK, the Bank lent GBP40.9 million in conjunction with the
British Business Bank to support SMEs through its accreditation to
the UK Government Loan Schemes. These schemes indemnified the Bank
for between 80% to 100% of any loss. Since the year-end, the Bank
has been accredited to provide a further GBP20.0 million of
liquidity through the new Recovery Loan Scheme ("RLS") which came
into effect on 1 January 2022. With the tapering of Government
guarantee support, the RLS will provide the Bank with a guaranteed
70% of any loss incurred. These guarantee schemes are important to
the Bank as the government support, whether from the Isle of Man or
the UK, provide a considerable level of insulation against loss.
These are a safer form of lending during these difficult times and
allow the Bank the opportunity to re-build its pipeline as
businesses adapt to the new economic environment.
The Bank continues to seek acquisitions that provide access to
niche lending markets in the UK. By owning the customer, the Bank
continued its strategy to reduce its reliance on other introducers
and their expensive commissions. In the last five years, I am
pleased to say, commissions have decreased by 58%, or GBP4.9
million, from GBP8.4 million in 2017 to a more normalised
commission level of GBP3.5 million in 2021 (2020: GBP3.6 million).
Over the same five-year period, interest income has increased by
GBP1.3 million to GBP22.0 million (2020: GBP20.7 million).
The Bank's Isle of Man depositor base remains very loyal with a
retention rate in excess of 70%. Whilst we continue to consider new
products for this market, it remains our intention to reduce our
on-Island reliance. I expect to announce more on this topic in the
coming months.
During the year, the Bank continued to attract deposits at
historically low rates to fund lending with cash and cash
equivalents and debt securities totalling GBP58.5 million (2020:
GBP57.4 million). We continued to apply our liquidity in our
preferred markets: the Isle of Man; the UK Government backed
schemes; the UK Structured Finance markets; and the UK credit
broker market. We have been building our Structured Finance team
over the last three years, and this year the Bank lent GBP114.1
million (2020: GBP96.9 million) through this distribution channel.
Structured Finance is an area we expect to grow our presence in
further in the coming years.
Turning to the overheads, personnel expenses increased by GBP0.3
million reflecting the additional staff cost associated with our UK
growth strategy with overheads overall increasing to GBP8.3 million
(2020: GBP7.4 million). We continued to focus on favourable
customer outcomes and with the pandemic this has necessitated a
level of forbearance which runs in tandem with lending through the
Government support schemes. The Bank's forbearance agreements
reduced by 43% during the year. This, along with loan book growth
of GBP41.0 million, allowed our provisioning to only increase by
GBP0.3 million to GBP4.3 million (2020: GBP4.0 million), reflecting
the continued prudent approach we have taken during the pandemic.
Depreciation and amortisation remained constant at GBP0.6 million.
In total, the Bank's cost base increased by GBP1.1 million to
GBP13.2 million (2020: GBP12.1 million) but, driven by the increase
in turnover, the Bank's profit before tax margin increased by 1.8%
to 5.0% (2020: 3.2%).
Total assets increased by GBP36.6 million to GBP296.8 million
(2020: GBP260.2 million), a growth of 14%. Shareholder funds
increased by GBP1.1 million to GBP31.2 million (2020: GBP30.1
million). The balance sheet has strengthened over the two years of
the pandemic by 24% or GBP6.2 million, to GBP31.2 million from
GBP25.0 million in 2020.
Edgewater Associates Limited
We have re-focused and resourced this business to meet the
demands of legislation relating to the provision of regulated
financial advice on the Isle of Man. In addition, through a project
to improve our technology, our customer segmentation will allow an
improved customer focused journey which will also deliver
operational efficiencies. Despite progressing the above projects
and the negative impact of two extensive Isle of Man lockdowns
preventing client meetings, the business achieved income growth of
9.5% to GBP2.3 million (2020: GBP2.1 million), with recurring
income increasing by 9.1% to GBP1.2 million (2020: GBP1.1 million).
Encouragingly, with the markets improving, the assets under advice
grew by GBP7 million to GBP368 million (2020: GBP361 million).
Operations incurred one-off costs mainly relating to the above
projects and professional fees, which after adjustment, generated
an implied underlying profit of GBP0.2 million (2020 adjusted:
nil). We expect, assuming no further Covid related lockdowns, a
further improved financial performance in 2022.
Manx FX Limited
Our foreign exchange advisory continued to perform positively
and recorded a record profit for the year of GBP1.2 million (2020:
GBP1.1 million), with a marginal increase in the cost to income
ratio to 19.0% (2020: 17.3%) as we build resilience. This is a
highly cash generative business which contributed GBP1.0 million
(2020: GBP0.6 million) to the Group's treasury.
We were successful in seeking ways to increase market share, and
showed a growth of 26% in 2021, further reducing any reliance on
certain market sectors. The expansion strategy will require the
business to be re-branded as MFX Limited in the coming months.
Blue Star Business Solutions Limited
With two UK lockdowns in the year, the business's traditional
markets were badly impacted. However, through the Bank's
accreditation to the UK Government guaranteed loan schemes, the
business was able to grow its brokered lending to GBP14.3 million
(2020: GBP7.5 million). Of the total advanced, the Bank wrote
GBP8.8 million (2020: GBP3.7 million) with the balance being passed
to other funders - providing the business with a second income
stream.
The business was profitable in its own right and contributed
GBP0.5 million (2020: GBP0.4 million) to the Group's income this
year.
We acquired this business in April 2019 and we will incur our
final contractual deferred consideration payment in April 2022. So
far this has been a very successful acquisition.
Ninkasi Rentals & Finance Limited
The business changed its name from Beer Swaps Limited to Ninkasi
Rentals & Finance Limited on 16 November 2021 to more
accurately reflect its core business.
The business continued to be the largest tank lessor in the UK
brewing market with a fleet size 261 (2020: 185) providing 1.2
million litres of brewing capacity (2020: 0.7 million litres).
A key measure of performance is the deployment of its fleet
which, despite the 41% increase in fleet size and the resulting 72%
increase in brewing capacity, is currently 89% (2020: 88%). The
business, in addition to being profitable in its own right,
generated GBP1.4 million (2020: GBP0.6 million) to the Group's
income this year.
The Business Lending Exchange Limited
On 11 October 2021, we announced the purchase of the remaining
shareholding in this business by exercising the option we
negotiated in October 2016. The enterprise value of the business at
acquisition was GBP2.2 million for which we paid GBP1.3 million
including a significant deferred element.
This business specialises in prudent lending through their
experienced management team to the profitable sub-prime SME market,
a sector in which the Bank lacked meaningful access. In addition to
being profitable in its own right, the business generated GBP0.4
million (2020: GBPnil) to the Group's income.
Outlook
Against a backdrop of inflation, increasing interest rates and
the tapering of government support schemes, 2022 will be a
challenging year but it will also bring opportunity.
On the Isle of Man, the lending market is buoyant and the Bank
has new products in development which will allow it to increase
market share, particularly for those markets currently
untapped.
In the UK, the Bank does not operate in the mainstream clearing
bank markets but in niche, resilient sectors and, as such, we
expect the competitive environment to remain similar to this year.
Further, it already has a healthy pipeline for its Structured
Finance products which, along with its accreditation to government
support schemes, will form the backbone to our loan book growth
next year.
Uncertainty, whilst historically challenging for our Isle of Man
IFA business, should not impact Edgewater Associates Limited to the
same extent as the constraints forced upon the operation during the
pandemic. Conversely, our FX business has thrived on currency
swings, and the current global concerns should allow this business
to maintain its profitability.
Our existing investments in Blue Star Business Solutions Limited
(financing technology); Ninkasi Leasing & Rental Limited
(leasing fermentation tanks) and The Business Lending Exchange
Limited (lending to sub-prime SMEs) are all performing well and we
seek to replicate this success with similar acquisitions.
In summary, our diversity will continue to be a strength during
this period of uncertainty.
Board changes
In November, I announced changes to the Board composition.
Denham Eke, our previous CEO, has moved to the newly created
position of Executive Vice-Chairman. I would like to put on record
my thanks to Denham for his capable leadership during his tenure.
Douglas Grant, previously our CFO, has accepted the position of CEO
in Denham's stead. James Smeed, previously our Group Financial
Controller, has, in turn, accepted the position of CFO and joined
the Board together with Greg Jones as an Independent Non-Executive
Director.
Greg also joins the Board of the Bank as a Non-Executive
Director and as a member of the Audit, Risk and Compliance
Committee. Greg will be an invaluable addition to the Group,
particularly in providing assistance in matters both legal and tax,
and also by broadening the already significant skill range of our
Independent Directors.
I believe these appointments further strengthen our Board and I
look forward to working with my colleagues to meet the challenges
and opportunities our industry will provide in the coming
years.
Changes to our Memorandum and Articles of Association
As we continue with our expansion, it has become apparent to the
Board that we will have to modify our Memorandum and Articles of
Association if we are to meet the regulatory licence application
requirements for additional jurisdictions. Thus, at the forthcoming
General Meeting, shareholders will be presented with a number of
amendments to adopt. Whilst initially these changes may appear
complex, their sole intention is to provide an enhanced layer of
protection for our current banking licence and any additional
licences we may seek to secure in the future. This requirement will
be explained more thoroughly in a Circular which will accompany the
Notice for the General Meeting.
Thank you
The last two years have proved difficult for our staff, both
personally and professionally, but they have been a great credit to
the Group. I would like to take this opportunity to thank them all
for their dedication to both our customers and to our business
during these difficult times. But it is not only our staff I need
to thank, but also all our other stakeholders for the support
provided to the Group over the year.
Jim Mellon
Executive Chairman
9 March 2022
CONSOLIDATED STATEMENT OF PROFIT OF LOSS AND OTHER COMPREHENSIVE
INCOME
2021 2020
For the year ended 31 December Notes GBP000 GBP000
------------------------------------------------ ------ -------- --------
Interest income 22,947 20,692
Interest expense (4,967) (5,222)
Net interest income 9 17,980 15,470
Fee and commission income 10 4,621 3,865
Fee and commission expense 10 (3,339) (3,481)
Depreciation on leasing assets 22 (269) (406)
Net trading income 18,993 15,448
Other operating income 365 200
Gain on financial instruments 19 30 259
Realised (loss) / gain on debt securities 18 (1) 261
Revaluation on acquisition of subsidiary 31(F) 660 237
Operating income 20,047 16,405
Personnel expenses 11 (7,156) (6,823)
Other expenses 12 (4,500) (3,707)
Impairment on loans and advances to customers 13 (4,360) (3,950)
Depreciation 22 (675) (490)
Amortisation and impairment of intangibles 23 (458) (374)
Share of profit of equity accounted investees,
net of tax 29 32 54
VAT recovery 21 113 906
Profit before tax payable 14 3,043 2,021
Income tax expense 15 (234) (53)
Profit for the year 2,809 1,968
-------- --------
2021 2020
For the year ended 31 December Notes GBP000 GBP000
-------------------------------------------------------- ------ -------- --------
Profit for the year 2,809 1,968
Other comprehensive income:
Items that will be reclassified to profit or
loss
Unrealised loss on debt securities 18 (18) (51)
Revaluation gain on property, plant and equipment 22 15 -
Recognition of deferred tax credit on defined 67 -
benefit pension
Items that will never be reclassified to profit
or loss
Actuarial gain / (loss) on defined benefit pension
scheme taken to equity 27 172 (241)
Total comprehensive income for the period attributable
to owners 3,045 1,676
-------- --------
Profit attributable to:
Owners of the Company 2,793 1,935
Non-controlling interests 16 33
-------- --------
2,809 1,968
Total comprehensive income attributable to:
Owners of the Company 3,029 1,643
Non-controlling interests 16 33
-------- --------
3,045 1,676
-------- --------
Earnings per share - Profit for the year
Basic earnings per share (pence) 16 2.46 1.65
Diluted earnings per share (pence) 16 1.97 1.37
Earnings per share - Total comprehensive income
for the year
Basic earnings per share (pence) 16 2.66 1.41
Diluted earnings per share (pence) 16 2.13 1.19
The Directors believe that all results derive
from continuing activities.
COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
2021 2020
For the year ended 31 December Notes GBP000 GBP000
------------------------------------------------- ------ -------- ------------
Dividend income 1,259 572
Interest income 518 522
Other income 78 -
Operating income 1,855 1,094
Personnel expenses (129) (74)
Administration expenses (59) (122)
Depreciation expense (91) (101)
Amortisation expense (2) -
Impairment of intercompany receivable (545) -
Profit before tax payable 14 1,029 797
Tax payable - -
Profit for the year 1,029 797
Total comprehensive income for the year 1,029 797
------------------------------------------------- ------ -------- ------------
The Directors believe that all results derive
from continuing activities.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2021 2020
As at 31 December Notes GBP000 GBP000
--------------------------------- -------- -------- --------
Assets
Cash and cash equivalents 17 20,279 34,053
Debt securities 18 40,987 25,532
Financial asset 33 68 4
Loans and advances to customers 20 229,251 193,143
Trade and other receivables 21 1,947 2,170
Property, plant and equipment 22 7,257 6,045
Intangible assets 23 2,508 2,286
Investment in associates 29 136 316
Goodwill 34 6,320 4,412
Total assets 308,753 267,961
Liabilities
Deposits from customers 24 253,459 218,285
Creditors and accrued charges 25 4,745 3,206
6(ii),
Contingent consideration 31 1,023 672
Loan notes 26 23,672 22,222
Pension liability 27 687 944
Deferred tax liability 15 182 197
Total liabilities 283,768 245,526
Equity
Called up share capital 28 19,133 19,121
Profit and loss account 5,781 3,230
Revaluation reserve 22 15 -
Non-controlling interest 56 84
Total equity 24,985 22,435
Total liabilities and equity 308,753 267,961
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2021 2020
Notes GBP000 GBP000
------------------------------------- -------- -------- --------
Assets
Cash and cash equivalents 17 430 1,378
Trade and other receivables 21 472 309
Amounts due from Group undertakings 35 6,104 1,935
Property, plant and equipment 22 263 354
Intangible assets 20 7
Investment in subsidiaries 30 22,597 22,597
Subordinated loans 35 7,728 7,728
Total assets 37,614 34,308
Liabilities
Creditors and accrued charges 25 501 501
Amounts due to Group undertakings 35 3,309 2,297
Loan notes 26 23,672 22,222
Total liabilities 27,482 25,020
Equity
Called up share capital 28 19,133 19,121
Profit and loss account (9,001) (9,833)
Total equity 10,132 9,288
Total liabilities and equity 37,614 34,308
CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY
Attributable to owners
of the Company
------- ------------------------------------------- ------------- --------- ---------------------------
Profit Non-controlling
Share and Revaluation interests Total
capital loss reserve Total GBP000 equity
Group GBP000 account GBP000 GBP000 GBP000
GBP000
----------------------------- --------- -------- ----------------- --------- ---------------- ---------
Balance as at 1 January
2020 20,732 1,587 - 22,319 - 22,319
Profit for the year - 1,935 - 1,935 33 1,968
Other comprehensive
income - (292) - (292) - (292)
Transactions with
owners
Changes in ownership
interests (1,611) - - (1,611) - (1,611)
Acquisition of subsidiary
with non-controlling
interest - - - - 51 51
Balance as at 31 December
2020 19,121 3,230 - 22,351 84 22,435
Profit for the year - 2,793 - 2,793 16 2,809
Other comprehensive
income - 221 15 236 - 236
Transactions with
owners
Dividend declared
(see note 28) 12 (197) - (185) - (185)
Acquisition of subsidiary
with non-controlling
interest - (266) - (266) (44) (310)
Balance as at 31 December
2021 19,133 5,781 15 24,929 56 24,985
Profit
Share and loss Total
capital account equity
Company GBP000 GBP000 GBP000
--------------------------------- ---------- ---------- ---------
Balance as at 1 January 2020 20,732 (10,630) 10,102
Profit for the year - 797 797
Transactions with owners
Changes in ownership interests (1,611) - (1,611)
Balance as at 31 December 2020 19,121 (9,833) 9,288
Profit for the year - 1,029 1,029
Transactions with owners
Dividend declared (see note 28) 12 (197) (185)
Balance as at 31 December 2021 19,133 (9,001) 10,132
CONSOLIDATED STATEMENT OF CASH FLOWS
2021 2020
For the year ended 31 December Notes GBP000 GBP000
------------------------------------------------------- -------- --------- ---------
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING
CASH FLOWS
Profit before tax 3,043 2,021
Adjustments for:
Depreciation 22 944 896
Amortisation and impairment of intangibles 23 458 374
Share of profit of equity accounted investees 29 (32) (54)
Contingent consideration interest expense 6(ii) 114 122
Pension charge included in personnel expenses 27 13 15
Gain on financial instruments 19 (30) (253)
Revaluation on acquisition of subsidiary 31 (660) (237)
3,850 2,884
Changes in:
Financial asset 4 15
Trade and other receivables 223 415
Creditors and accrued charges (109) 315
Net cash flow from trading activities 3,968 3,629
Changes in:
Loans and advances to customers (36,128) (16,023)
Deposits from customers 35,174 8,352
Pension contribution 27 (98) -
Cash inflow / (outflow) from operating activities 2,916 (4,042)
CASH FLOW STATEMENT
Cash from operating activities
Cash inflow / (outflow) from operating activities 2,916 (4,042)
Income taxes paid (10) (172)
Net cash inflow / (outflow) from operating activities 2,906 (4,214)
Cash flows from investing activities
Purchase of property, plant and equipment 22 (2,109) (1,187)
Purchase of intangible assets 23 (481) (231)
Sale of tangible fixed assets 22 961 127
Acquisition of subsidiary or associate, net of
cash acquired 31,32 (555) (648)
(Purchase) / sale of debt securities 18 (15,473) 21,209
Contingent consideration 6(ii),31 (120) (59)
Net cash (outflow) / inflow from investing activities (17,777) 19,211
Cash flows from financing activities
Receipt of loan notes 26 1,450 4,640
Payment of lease liabilities (capital) 37 (201) (204)
Dividend paid 28 (152) -
Net cash inflow from financing activities 1,097 4,436
Net (decrease) / increase in cash and cash equivalents (13,774) 19,433
Cash and cash equivalents at 1 January 34,053 14,620
Cash and cash equivalents at 31 December 20,279 34,053
Included in cash flows are:
Interest received - cash amounts 22,624 20,274
Interest paid - cash amounts 4,936 (5,053)
COMPANY STATEMENT OF CASH FLOWS
2021 2020
For the year ended 31 December Notes GBP000 GBP000
-------------------------------------------------------- -------- -------- --------
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING
CASH FLOWS
Profit before tax 1,029 797
Adjustments for:
Depreciation 22 91 101
Amortisation 2 -
Dividend income (1,259) (572)
(137) 326
Changes in:
Amounts due from group undertakings (2,910) (347)
Trade and other receivables (163) (78)
Creditors and accrued charges 66 17
Amounts due from Group undertakings 1,012 1,522
Cash (outflow) / inflow from operating activities (2,132) 1,440
CASH FLOW STATEMENT
Cash from operating activities
Cash (outflow) / inflow from operating activities (2,132) 1,440
Income taxes paid - -
Net cash (outflow) / inflow from operating activities (2,132) 1,440
Cash flows from investing activities
Investment in subsidiaries 30 - (4,775)
Purchase of property, plant and equipment - (5)
Purchase of intangible assets (15) -
Net cash outflow from investing activities (15) (4,780)
Cash flows from financing activities
Receipt of loan notes 26 1,450 4,640
Receipt of subordinated loan - 50
Payment of finance lease liability (99) (91)
Dividend paid (152) -
Net cash inflow from financing activities 1,199 4,599
Net (decrease) / increase in cash and cash equivalents (948) 1,259
Cash and cash equivalents at 1 January 1,378 119
Cash and cash equivalents at 31 December 430 1,378
The notes form part of these financial statements.
1. Reporting entity
Manx Financial Group PLC ("Company") is a company incorporated
in the Isle of Man. The consolidated financial statements of the
Company for the year ended 31 December 2021 comprise the Company
and its subsidiaries ("Group") including Conister Bank Limited (the
"Bank"). The Group is primarily involved in the provision of
financial services.
2. Basis of accounting
The consolidated and the separate financial statements of the
Company have been prepared in accordance with international
accounting standards in accordance with UK-adopted international
accounting standards ("UK-adopted IFRS" or "IFRSs"), on a going
concern basis as disclosed in the Directors' Report.
3. Functional and presentation currency
These financial statements are presented in pounds sterling,
which is the Group's functional currency. All amounts have been
rounded to the nearest thousand, unless otherwise indicated. All
subsidiaries of the Group have pounds sterling as their functional
currency.
4. Use of judgements and estimates
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates.
The extent to which COVID-19 impacts the Group's business will
depend on the effectiveness of government containment actions and
the effectiveness of government and central bank stimulus measures.
As the economic environment remains uncertain, actual results may
differ from the estimates below.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised and in any future periods
affected.
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties at
year-end that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities in the
next financial year is included in the following notes:
n Note 27 - measurement of defined benefit obligations: key
actuarial assumptions;
n Note 23 and 34 - impairment test of intangible assets and
goodwill: key assumptions underlying recoverable amounts;
n Note 43(G)(vii) - measurement of Expected Credit Loss ("ECL")
allowance for loans and advances to customers and assessment of
impairment allowances where loans are in default or arrears: key
assumptions in determining the weighted-average loss rate; and
n Note 6 - measurement of contingent consideration.
5. Financial instruments - Classification
For description of how the Group classifies financial assets and
liabilities, see note 43(G)(ii).
The following table provides reconciliation between line items
in the statement of financial position and categories of financial
instruments.
FVOCI FVOCI Total
Mandatorily Designated - debt - equity Amortised carrying
at FVTPL as at instruments instruments cost amount
FVTPL
31 December 2021 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cash and cash equivalents - - - - 20,279 20,279
Debt securities - - 40,987 - - 40,987
Financial asset - 68 - - - 68
Loans and advances
to customers - - - - 229,251 229,251
Trade and other receivables - - - - 1,947 1,947
---------------------------- -------------- ------------- ------------- ------------- ------------ ----------
Total financial assets - 68 40,987 - 251,477 292,532
---------------------------- -------------- ------------- ------------- ------------- ------------ ----------
Deposits from customers - - - - 253,459 253,459
Creditor and accrued
charges - - - - 4,745 4,745
Contingent consideration - 1,023 - - - 1,023
Loan notes - - - - 23,672 23,672
---------------------------- -------------- ------------- ------------- ------------- ------------ ----------
Total financial
liabilities - 1,023 - - 281,876 282,899
---------------------------- -------------- ------------- ------------- ------------- ------------ ----------
FVOCI FVOCI Total carrying
Mandatorily Designated - - equity Amortised amount
at FVTPL as at debt instruments instruments cost
FVTPL
31 December 2020 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cash and cash
equivalents - - - - 34,053 34,053
Debt securities - - 25,532 - - 25,532
Trading assets 4 - - - - 4
Loans and advances
to customers - - - - 193,143 193,143
Trade and other
receivables - - - - 2,170 2,170
--------------------- -------------- ------------- ------------------ ------------- ------------ ---------------
Total financial
assets 4 - 25,532 - 229,366 254,902
--------------------- -------------- ------------- ------------------ ------------- ------------ ---------------
Deposits from
customers - - - - 218,285 218,285
Creditor and accrued
charges - - - - 3,206 3,206
Loan notes - - - - 22,222 22,222
--------------------- -------------- ------------- ------------------ ------------- ------------ ---------------
Total financial
liabilities - - - - 243,713 243,713
--------------------- -------------- ------------- ------------------ ------------- ------------ ---------------
6. Financial instruments - Fair values
For description of the Group's fair value measurement accounting
policy, see note 43(G)(vi).
The following table shows the carrying amounts and fair values
of financial assets and financial liabilities, including their
levels in the fair value hierarchy. It does not include fair value
information for financial assets and financial liabilities not
measured at fair value if the carrying amount is a reasonable
approximation of fair value.
Carrying Fair value
amount
--------- --------------------------------------
Total Level Level Level Total
31 December 2021 GBP000 1 2 3 GBP000
GBP000 GBP000 GBP000
------------------------------------ --------- -------- -------- -------- --------
Financial assets measured at fair
value
Debt securities 40,987 - 40,987 - 40,987
Financial asset 68 - - 68 68
--------- -------- -------- -------- --------
41,055 - 40,987 68 41,055
--------- -------- -------- -------- --------
Financial assets not measured at
fair value
Cash and cash equivalents 20,279 - - - -
Loans and advances to customers 229,251 - - - -
Trade and other receivables 1,947 - - - -
--------- -------- -------- -------- --------
251,477 - - - -
--------- -------- -------- -------- --------
Financial liabilities measured at
fair value
Contingent consideration 1,023 - - 1,023 1,023
--------- -------- -------- -------- --------
1,023 - - 1,023 1,023
--------- -------- -------- -------- --------
Financial liabilities not measured
at fair value
Deposits from customers 253,459 - - - -
Creditors and accrued charges 4,745 - - - -
Loan notes 23,672 - - - -
---------
281,876 - - - -
------------------------------------ --------- -------- -------- -------- --------
Carrying Fair value
amount
--------- --------------------------------------
Total Level Level Level Total
31 December 2020 GBP000 1 2 3 GBP000
GBP000 GBP000 GBP000
------------------------------------ --------- -------- -------- -------- --------
Financial assets measured at fair
value
Debt securities 25,532 25,532 - - 25,532
Trading assets 4 4 - - 4
--------- -------- -------- -------- --------
25,536 25,536 - - 25,536
--------- -------- -------- -------- --------
Financial assets not measured at
fair value
Cash and cash equivalents 34,053 - - - -
Loans and advances to customers 193,143 - - - -
Trade and other receivables 2,170 - - - -
--------- -------- -------- -------- --------
229,366 - - - -
--------- -------- -------- -------- --------
Financial liabilities measured at
fair value
Contingent consideration 672 - - 672 672
--------- -------- -------- -------- --------
672 - - 672 672
--------- -------- -------- -------- --------
Financial liabilities not measured
at fair value
Deposits from customers 218,285 - - - -
Creditors and accrued charges 3,206 - - - -
Loan notes 22,222 - - - -
--------- -------- -------- -------- --------
243,713 - - - -
------------------------------------ --------- -------- -------- -------- --------
Measurement of fair values
i. Valuation techniques and significant unobservable inputs
Type Valuation technique Significant unobservable Inter-relationship
inputs between significant
unobservable inputs
and fair value measurement
Debt securities Market comparison/discounted Not applicable. Not applicable.
cash flow: The fair
value is estimated
considering a net
present value calculated
using discount rates
derived from quoted
yields of securities
with similar maturity
and credit rating
that are traded
in active markets.
----------------------------- ------------------------- ----------------------------
Contingent consideration Discounted cash Expected cash flows The estimated fair
flows: The valuation GBP1,133,820 (2020: value would increase
model considers GBP790,869). (decrease) if:
the present value Risk-adjusted discount -the expected cash
of the expected rate 14% (2020: flows were higher
future payments, 14%). (lower); or
discounted using -the risk-adjusted
a risk-adjusted discount rate were
discount rate. lower (higher).
----------------------------- ------------------------- ----------------------------
ii. Level 3 recurring fair values
Reconciliation of Level 3 fair values
The following table shows a reconciliation from the opening
balances to the closing balances for Level 3 fair values.
2021 2020
GBP000 GBP000
--------------------------------------- -------- --------
Balance at 1 January 672 863
Assumed in a business combination 387 -
(Note 31)
Finance costs 114 122
Net change in fair value (unrealised) (30) (253)
-------- --------
84 (131)
Payment (120) (60)
Balance at 31 December 1,023 672
----------------------------------------- -------- --------
Sensitivity analysis
For the fair value of contingent consideration, reasonably
possible changes at the reporting date to one of the significant
unobservable inputs, holding other inputs constant would have the
following effects.
Profit or loss
--------------------
31 December 2021 Increase Decrease
------------------------------------ --------- ---------
Expected cash flows (10% movement) 113 66
Risk-adjusted discount rate (1%
movement) (12) (8)
-------------------------------------- --------- ---------
7. Financial risk review
Risk management
This note presents information about the Group's exposure to
financial risks and the Group's management of capital. For
information on the Group's financial risk management framework, see
note 37.
A. Credit risk
For definition of credit risk and information on how credit risk
is mitigated by the Group, see note 41.
i. Credit quality analysis
Loans and advances to customers
Explanation of the terms 'Stage 1', 'Stage 2' and 'Stage 3' is
included in note 43(G)(vii).
An analysis of the credit risk on loans and advances to
customers is as follows:
2021 2020
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 GBP000 1 2 3 GBP000
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Grade A 213,103 - - 213,103 173,673 - - 173,673
Grade B - 5,735 5,594 11,329 - 5,728 7,751 13,479
Grade C 342 541 12,656 13,539 335 9 12,771 13,115
Gross value 213,445 6,276 18,250 237,971 174,008 5,737 20,522 200,267
Allowance for impairment (503) (124) (8,093) (8,720) (423) (18) (6,683) (7,124)
-------- -------- -------- -------- -------- -------- -------- --------
Carrying value 212,942 6,152 10,157 229,251 173,585 5,719 13,839 193,143
-------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Loans are graded A to C depending on the level of risk. Grade A
relates to agreements with the lowest risk, Grade B with medium
risk and Grade C relates to agreements with the highest of
risk.
The following table sets out information about the overdue
status of loans and advances to customers in Stage 1, 2 and 3:
2021 2020
Stage Stage Stage Total Stage Stage Stage Total
31 December 1 2 3 GBP000 1 2 3 GBP000
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- -------- -------- -------- -------- -------- -------- -------- --------
Current 210,491 - - 210,491 170,436 - - 170,436
Overdue < 30 days 2,954 - - 2,954 3,572 - - 3,572
Overdue > 30 days - 6,276 18,250 24,526 - 5,737 20,522 26,259
213,445 6,276 18,250 237,971 174,008 5,737 20,522 200,267
------------------- -------- -------- -------- -------- -------- -------- -------- --------
For Stage 3 loans and advances that are overdue for more than 30
days, the Bank holds collateral with a value of GBP11,625,250
(2020: GBP13,362,468) representing security cover of 64% (2020:
65%).
Debt securities, cash and cash equivalents
The following table sets out the credit quality of liquid
assets:
2021 2020
GBP000 GBP000
------------------------------------- --------- ---------
Government bonds and treasury bills
Rated A to A+ 40,987 24,431
Floating rate notes
Rated A to A+ - 1,101
Cash and cash equivalents
Rated A to A+ 20,279 34,053
61,266 59,585
------------------------------------- --------- ---------
The analysis has been based on Standard & Poor's
ratings.
ii. Collateral and other credit enhancements
The Group holds collateral in the form of the underlying assets
(typically private and commercial vehicles, plant and machinery) to
loan arrangements as security for HP, finances leases, vehicle
stocking plans, block discounting, wholesale funding arrangements,
integrated wholesale funding arrangements and secured commercial
loan balances, which are sub-categories of loans and advances to
customers. In addition, the commission share schemes have an
element of capital indemnified. During 2021, 76% of loans and
advances had an element of capital indemnification (2020:
34.0%).
At the time of granting credit within the sub-categories listed
above, the loan balances due are secured over the underlying assets
held as collateral. Collateral is valued at the time of borrowing,
and generally are not updated except when a loan is individually
assessed as impaired.
iii. Amounts arising from ECL
See accounting policy in note 43(G)(vii).
IFRS 9 significantly overhauled the requirements and methodology
used to assess credit impairments by transitioning to a
forward-looking approach based on an expected credit loss model.
The new impairment model applies to financial assets measured at
amortised cost, contract assets and debt investments at FVOCI, but
not to investments in equity instruments. Under IFRS 9, credit
losses are recognised earlier than under IAS 39 - Financial
Instruments: Recognition and Measurement.
After a detailed review, the Group devised and implemented an
impairment methodology in light of the IFRS 9 requirements outlined
above noting the following:
-- A Significant Increase in Credit Risk ("SICR") is always
deemed to occur when the borrower is 30 days past due on its
contractual payments. If the Group becomes aware ahead of this time
of non-compliance or financial difficulties of the borrower, such
as loss of employment, avoiding contact with the Group then a SICR
has also deemed to occur.
-- The Group has granted payment holidays to customers with no
prior arrears based on individual circumstances. These customers
are not able to incur further arrears as no payments are being
called whilst they are on the payment holiday. These customers have
not been deemed to have a SICR unless the customer is under
exceptional financial hardship due to COVID-19.
-- A receivable is always deemed to be in default and
credit-impaired when the borrower is 90 days past due on its
contractual payments or earlier if the Group becomes aware of
severe financial difficulties such as bankruptcy, individual
voluntary arrangements, abscond or disappearance, fraudulent
activity or other similar events.
-- The ECL was derived by reviewing the Group's loss rate and
loss-given-default over the past 9 years by product and
geographical segment.
-- The Group has assumed that the future economic conditions
will broadly mirror the current environment and therefore the
forecasted loss levels in the next 3 years will match the Group's
experience in recent years.
-- For portfolios where the Group has never had a default in its
history or has robust credit enhancements such as credit insurance
or default indemnities for the entire portfolio, then no IFRS 9
provision is made.
-- If the Group holds objective evidence through specifically
assessing a credit-impaired receivable and believes it will go on
to completely recover the debt due to the collateral held and
cooperation with the borrower, then no IFRS 9 provision is
made.
There have been no significant changes to ECL assumptions from
the prior year.
iv. Concentration of credit risk
Geographical
Lending is restricted to individuals and entities with Isle of
Man, UK or Channel Islands addresses.
Segmental
The Bank is exposed to credit risk with regard to customer loan
accounts, comprising HP and finance lease balances, unsecured
personal loans, secured commercial loans, block discounting,
vehicle stocking plan loans and wholesale funding agreements. In
addition, the Bank lends via significant introducers into the UK.
There was no introducer that accounted for more than 20% of the
Bank's total lending portfolio at the end of 31 December 2021
(2020: none).
B. Liquidity risk
For the definition of liquidity risk and information on how
liquidity risk is manged by the Group, see note 41.
i. Exposure to liquidity risk
The key measure used by the Group for managing liquidity risk is
the ratio of net liquid assets to deposits from customers and
short-term funding. For this purpose, net liquid assets includes
cash and cash equivalents and investment-grade debt securities for
which there is an active and liquid market.
Details of the reported Group ratio of net liquid assets to
deposits from customers at the reporting date and during the
reporting year were as follows:
2021 2020
---------------------- ----- -----
At 31 December 24% 27%
Average for the year 25% 28%
Maximum for the year 28% 32%
Minimum for the year 20% 25%
---------------------- ----- -----
ii. Maturity analysis for financial liabilities and financial
assets
The table below shows the Group's financial liabilities
classified by their earliest possible contractual maturity, on an
undiscounted basis including interest due at the end of the deposit
term. Based on historical data, the Group's expected actual cash
flow from these items vary from this analysis due to the expected
re-investment of maturing customer deposits.
Residual contractual maturities of financial liabilities as at
the reporting date (undiscounted):
>8 >1 >3 >6 >3
days month months months >1 year years
31 December Sight- - 1 - 3 - 6 - 1 - 3 - 5 >5
2021 8 days month months months year years years years Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Deposits 6,864 4,743 18,359 63,733 61,891 88,036 16,738 - 260,364
Other
liabilities 291 83 1,210 1,253 10,995 9,091 9,053 869 32,845
Total
liabilities 7,155 4,826 19,569 64,986 72,886 97,127 25,791 869 293,209
>8 >1 >3 >6 >3
days month months months >1 year years
31 December Sight- - 1 - 3 - 6 - 1 - 3 - 5 >5
2020 8 days month months months year years years years Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Deposits 3,106 3,194 19,775 53,380 59,023 61,491 25,221 - 225,190
Other
liabilities 27 88 668 819 3,630 16,401 7,851 1,141 30,625
Total
liabilities 3,133 3,282 20,443 54,199 62,653 77,892 33,072 1,141 255,815
Maturity of assets and liabilities at the reporting date:
>8 >1 >3 >6 >1 >3
days month months months year years
31 December Sight- - 1 - 3 - 6 - 1 - 3 - 5 >5
2021 8 days month months months year years years years Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Assets
Cash 20,279 - - - - - - - 20,279
Debt
securities - 5,001 20,994 14,992 - - - - 40,987
Loans and
advances 9,271 8,372 12,378 25,458 30,835 94,395 44,081 4,462 229,252
Other assets 68 - - - 3,186 - 6,018 8,964 18,236
Total assets 29,618 13,373 33,372 40,450 34,021 94,395 50,099 13,426 308,754
Liabilities
Deposits 6,864 4,285 17,565 62,831 60,790 85,350 15,774 - 253,459
Other
liabilities 238 - 1,000 946 10,512 7,967 8,777 869 30,309
Total
liabilities 7,102 4,285 18,565 63,777 71,302 93,317 24,551 869 283,768
>8 >1 >3 >6 >1 >3
days month months months year years
31 December Sight- - 1 - 3 - 6 - 1 - 3 - 5 >5
2020 8 days month months months year years years years Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Assets
Cash 34,053 - - - - - - - 34,053
Debt
securities - 5,301 14,000 - 6,231 - - - 25,532
Loans and
advances 6,270 7,750 21,565 17,822 27,490 84,111 25,756 2,379 193,143
Other assets 4 - - - 2,578 - 5,637 7,014 15,233
Total assets 40,327 13,051 35,565 17,822 36,299 84,111 31,393 9,393 267,961
Liabilities
Deposits 3,106 2,736 18,981 52,478 57,922 58,805 24,257 - 218,285
Other
liabilities - - 450 496 2,983 14,874 7,297 1,141 27,241
Total
liabilities 3,106 2,736 19,431 52,974 60,905 73,679 31,554 1,141 245,526
iii. Liquidity reserves
The following table sets out the components of the Group's
liquidity reserves:
2021 2021 2020 2020
Carrying Fair Carrying Fair
amount value amount value
GBP000 GBP000 GBP000 GBP000
------------------------------ ---------- ------- ---------- -------
Balances with other banks 20,279 20,279 34,053 34,053
Unencumbered debt securities 40,987 40,987 25,532 25,532
Total liquidity reserves 61,266 61,266 59,585 59,585
------------------------------ ---------- ------- ---------- -------
C. Market risk
For the definition of market risk and information on how the
Group manages the market risks of trading and non-trading
portfolios, see note 41.
The following table sets out the allocation of assets and
liabilities subject to market risk between trading and non-trading
portfolios:
Market risk measure
Carrying Trading Non-trading
amount portfolios portfolios
31 December 2021 GBP000 GBP000 GBP000
------------------------------- --------- ------------ ------------
Assets subject to market risk
Debt securities 40,987 - 40,987
Financial asset 68 - 68
Total 41,055 - 41,055
------------------------------- --------- ------------ ------------
Market risk measure
Non-trading
Carrying Trading portfolios
amount portfolios
31 December 2020 GBP000 GBP000 GBP000
------------------------------- ----------- ------------- ------------
Assets subject to market risk
Debt securities 25,532 - 25,532
Financial asset 4 4 -
Total 25,536 4 25,532
------------------------------- ----------- ------------- ------------
i. Exposure to interest rate risk
The following tables present the interest rate mismatch position
between assets and liabilities over the respective maturity dates.
The maturity dates are presented on a worst-case basis, with assets
being recorded at their latest maturity and deposits from customers
at their earliest.
>1 >3
Sight- >1month >3months year years
1 - - >6months- - 3 - 5 >5 Non-Interest
31 December month 3months 6months 1 year years years years Bearing Total
2021 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Assets
Cash & cash
equivalents 20,279 - - - - - - - 20,279
Debt
securities 5,001 20,994 14,992 - - - - - 40,987
Loans and
advances
to customers 17,642 12,378 25,458 30,835 94,395 44,081 4,462 - 229,251
Other assets - - - - - - - 18,236 18,236
Total assets 42,922 33,372 40,450 30,835 94,395 44,081 4,462 18,236 308,753
Liabilities
and
equity
Deposits from
customers 11,149 17,565 62,831 60,790 85,350 15,774 - - 253,459
Other
liabilities 238 1,000 946 7,050 7,967 8,777 687 3,644 30,309
Total equity - - - - - - - 24,985 24,985
Total
liabilities
and equity 11,387 18,565 63,777 67,840 93,317 24,551 687 28,629 308,753
Interest
rate
sensitivity
gap 31,535 14,807 (23,327) (37,005) 1,078 19,530 3,775 (10,393) -
Cumulative 31,535 46,312 23,015 (13,990) (12,912) 6,618 10,393 - -
>1 >3
Sight- >1month >3months year years
1 - - >6months- - 3 - 5 >5 Non-Interest
31 December month 3months 6months 1 year years years years Bearing Total
2020 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Assets
Cash & cash
equivalents 34,053 - - - - - - - 34,053
Debt
securities 5,301 14,000 - 6,231 - - - - 25,532
Loans and
advances
to customers 14,020 21,565 17,822 27,490 84,111 25,756 2,379 - 193,143
Other assets - - - - - - - 15,233 15,233
Total assets 53,374 35,565 17,822 33,721 84,111 25,756 2,379 15,233 267,961
Liabilities
and
equity
Deposits from
customers 5,842 18,981 52,478 57,922 58,805 24,257 - - 218,285
Other
liabilities - 450 496 280 14,874 7,297 944 2,900 27,241
Total equity - - - - - - - 22,435 22,535
Total
liabilities
and equity 5,842 19,431 52,974 58,202 73,679 31,554 944 25,335 267,961
Interest
rate
sensitivity
gap 47,532 16,134 (35,152) (24,481) 10,432 (5,798) 1,435 (10,102) -
Cumulative 47,532 63,666 28,514 4,033 14,465 8,667 10,102 - -
The Bank monitors the impact of changes in interest rates on
interest rate mismatch positions using a method consistent with the
FSA required reporting standard. The methodology applies weightings
to the net interest rate sensitivity gap in order to quantify the
impact of an adverse change in interest rates of 2.0% per annum
(2020: 2.0%). The following tables set out the estimated total
impact of such a change based on the mismatch at the reporting
date:
>1 >3
Sight- >3months >6months year years
31 December 1 >1month - - - 3 - 5 >5 Non-Interest
2021 month -3months 6months 1 year years years years Bearing Total
Interest
rate
sensitivity
gap
GBP000 31,535 14,807 (23,327) (37,005) 1,078 19,530 3,775 (10,393) -
Weighting 0 0.003 0.007 0.014 0.027 0.054 0.115 0 0
GBP000 - 44 (163) (518) 29 1,055 434 - 881
i. Exposure to interest rate risk (continued)
>1 >3
Sight- >3months >6months year years
31 December 1 >1month - - - 3 - 5 >5 Non-Interest
2020 month -3months 6months 1 year years years years Bearing Total
Interest
rate
sensitivity
gap
GBP000 47,532 16,134 (35,152) (24,481) 10,432 (5,798) 1,435 (10,102) -
Weighting - 0.003 0.007 0.014 0.027 0.054 0.115 - -
GBP000 - 48 (246) (343) 282 (313) 165 - (407)
D. Capital Management
i. Regulatory capital
The lead regulator of the Group's wholly owned subsidiary, the
Bank, is the FSA. The FSA sets and monitors capital requirements
for the Bank.
The Bank's regulatory capital consists of the following
elements.
n Common Equity Tier 1 ("CET1") capital, which includes ordinary
share capital, retained earnings and reserves after adjustment for
deductions for goodwill, intangible assets and intercompany
receivable.
n Tier 2 capital, which includes qualifying subordinated
liabilities and any excess of impairment over expected losses.
The FSA's approach to the measurement of capital adequacy is
primarily based on monitoring the relationship of the capital
resources requirement to available capital resources. The FSA sets
individual capital guidance ("ICG") for the Bank in excess of the
minimum capital resources requirement. A key input to the ICG
setting process is the Bank's internal capital adequacy assessment
process ("ICAAP").
The Bank is also regulated by the FCA in the UK for credit and
brokerage related activities.
ii. Capital allocation
Management uses regulatory capital ratios to monitor its capital
base. The allocation of capital between specific operations and
activities is, to a large extent, driven by optimisation of the
return achieved on the capital allocated. The amount of capital
allocated to each operation or activity is based primarily on
regulatory capital requirements.
8. Operating segments
Segmental information is presented in respect of the Group's
business segments. The Directors consider that the Group currently
operates in one geographic segment comprising of the Isle of Man,
UK and Channel Islands. The primary format, business segments, is
based on the Group's management and internal reporting structure.
The Directors consider that the Group operates in three (2020:
four) product orientated segments in addition to its investing
activities: Asset and Personal Finance (including provision of HP
contracts, finance leases, personal loans, commercial loans, block
discounting, vehicle stocking plans and wholesale funding
agreements); Edgewater Associates Limited (provision of financial
advice); and Manx FX Limited (provision of foreign currency
transaction services).
Asset
and Edgewater Investing
Personal Associates Manx Activities Total
For the year ended 31 December Finance GBP000 FX GBP000 GBP000
2021 GBP000 GBP000
Net interest income 17,980 - - - 17,980
Fee and commission income 811 2,282 1,528 - 4,621
Operating income 16,251 2,282 1,514 - 20,047
Profit / (loss) before tax payable 2,528 114 1,227 (826) 3,043
Capital expenditure 3,083 13 1 5 3,102
Total assets 292,721 2,330 802 12,900 308,753
Total liabilities 265,751 638 61 17,318 283,768
Asset
and Edgewater Investing
Personal Associates Manx Activities Total
For the year ended 31 December Finance GBP000 FX GBP000 GBP000
2020 GBP000 GBP000
Net interest income 15,470 - - - 15,470
Fee and commission income 430 2,103 1,332 - 3,865
Operating income 13,206 2,103 1,096 - 16,405
Profit / (loss) before tax
payable 1,316 (94) 1,096 (297) 2,021
Capital expenditure 1,138 46 2 1 1,187
Total assets 260,155 2,638 536 4,632 267,961
Total liabilities 230,001 660 12 14,853 245,526
9. Net interest income
2021 2020
GBP000 GBP000
Interest income
Loans and advances to customers 21,010 19,484
Total interest income calculated using the effective
interest method 21,010 19,484
Operating lease income 1,937 1,208
Total interest income 22,947 20,692
Interest expense
Deposits from customers (3,512) (4,044)
Loan note interest (1,299) (1,016)
Lease liability (42) (40)
Contingent consideration: interest expense (114) (122)
Total interest expense (4,967) (5,222)
Net interest income 17,980 15,470
10. Net fee and commission income
In the following table, fee and commission income from contracts
with customers in the scope of IFRS 15 - Revenue from Contracts
with Customers is disaggregated by major type of services. The
table includes a reconciliation of the disaggregated fee and
commission income with the Group's reportable segments. See note
43D regarding revenue recognition.
2021 2020
GBP000 GBP000
Major service lines
EAL: Independent financial advice income 2,282 2,103
MFX: Foreign exchange trading income 1,528 1,332
Asset and personal finance: Brokerage services income 510 430
MCL: Debt collection 301 -
Fee and commission income 4,621 3,865
Fee and commission expense (3,339) (3,481)
Net fee and commission income 1,282 384
11. Personnel expenses
2021 2020
GBP000 GBP000
Staff gross salaries (5,416) (5,331)
Executive Directors' remuneration (440) (299)
Non-executive Directors' fees (176) (163)
Executive Directors' pensions (34) (21)
Executive Directors' performance related pay (51) (50)
Staff pension costs (330) (297)
National insurance and payroll taxes (623) (606)
Staff training and recruitment costs (86) (56)
(7,156) (6,823)
12. Other expenses
2021 2020
GBP000 GBP000
Professional and legal fees (1,367) (1,063)
Marketing costs (264) (177)
IT costs (1,001) (822)
Establishment costs (317) (270)
Communication costs (129) (105)
Travel costs (104) (95)
Bank charges (124) (151)
Insurance (344) (300)
Irrecoverable VAT (268) (436)
Other costs (582) (288)
(4,500) (3,707)
13. Impairment on loans and advances to customers
The charge in respect of allowances for impairment comprises,
excluding loss allowances on financial assets managed on a
collective basis.
2021 2020
GBP000 GBP000
Impairment allowances made (5,457) (6,833)
Reversal of allowances previously made 1,055 3,039
Total charge for provision for impairment (4,402) (3,794)
The charge in respect of allowances for impairment on financial
assets managed on a collective basis comprises:
2021 2020
GBP000 GBP000
Collective impairment allowances made (77) (421)
Release of allowances previously made 119 265
Total credit / (charge) for allowances for impairment
on financial assets managed on a collective basis 42 (156)
Total charge for allowances for impairment (4,360) (3,950)
14. Profit before tax payable
The profit before tax payable for the year is stated after
charging:
Group Company
2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000
Auditor's remuneration: as Auditor
current year (232) (167) - -
non-audit
services (2) (10) - -
Pension cost defined benefit scheme (13) (16) - -
Operating lease rentals for property (64) (97) - -
15. Income tax expense
2021 2020
GBP000 GBP000
Current tax expense
Current year (132) 3
Changes to estimates for prior years (50) -
(182) 3
Deferred tax expense
Origination and reversal of temporary differences (52) (56)
Tax expense (234) (53)
-------
2021 2020
% GBP000 % GBP000
Reconciliation of effective tax rate
Profit before tax 3,043 2,021
Tax using the Bank's domestic tax rate (10.0) (304) (10.0) (202)
Effect of tax rates in foreign jurisdictions (1.45) (44) 1.4 28
Tax exempt income 5.19 158 0.0 -
Timing difference in current year 0.0 - 3.2 65
Changes to estimates for prior years 1.64 50
Origination and reversal of temporary differences
in deferred tax (1.71) (52) 2.8 56
R&D claim (1.38) (42) 0.0 -
--------
Tax expense (11.41) (234) (2.6) (53)
--------
The main rate of corporation tax in the Isle of Man is 0.0%
(2020: 0.0%). However, the profits of the Group's Isle of Man
banking activities are taxed at 10.0% (2020: 10.0%). The profits of
the Group's subsidiaries that are subject to UK corporation tax are
taxed at a rate of 19.0% (2020: 19.0%).
The value of tax losses carried forward reduced to nil and there
is now a timing difference related to accelerated capital
allowances resulting in a GBP182,000 liability (2020: GBP197,000
liability). This resulted in an expense of GBP52,000 (2020:
GBP56,000) to the Consolidated Income Statement offset by a
deferred tax credit on the defined benefit pension through the OCI
of GBP67,000 (2020: GBPnil).
16. Earnings per share
2021 2020
Profit for the year GBP2,809,000 GBP1,968,000
Weighted average number of Ordinary
Shares in issue (basic) 114,291,639 118,964,270
Basic earnings per share (pence) 2.46 1.65
Diluted earnings per share (pence) 1.97 1.37
Total comprehensive income for the year GBP3,045,000 GBP1,676,000
Weighted average number of Ordinary
Shares in issue (basic) 114,291,639 118,964,270
Basic earnings per share (pence) 2.66 1.41
Diluted earnings per share (pence) 2.13 1.19
The basic earnings per share calculation is based upon the
profit for the year after taxation and the weighted average of the
number of shares in issue throughout the year.
As at: 2021 2020
Reconciliation of weighted average number
of Ordinary Shares in issue between basic
and diluted
Weighted average number of Ordinary Shares
(basic) 114,291,639 118,964,270
Number of shares issued if all convertible
loan notes were exchanged for equity 36,555,556 36,555,556
Dilutive element of share options if exercised - -
Weighted average number of Ordinary Shares
(diluted) 150,847,195 155,519,826
Reconciliation of profit for the year between
basic and diluted
Profit for the year (basic) GBP2,809,000 GBP1,968,000
Interest expense saved if all convertible GBP166,250 GBP166,250
loan notes were exchanged for equity
Profit for the year (diluted) GBP2,975,250 GBP2,134,250
The diluted earnings per share calculation assumes that all
convertible loan notes and share options have been converted /
exercised at the beginning of the year where they are dilutive.
As at: 2021 2020
Reconciliation of total comprehensive income
for the year between basic and diluted
Total comprehensive income for the year (basic) GBP3,045,000 GBP1,676,000
Interest expense saved if all convertible loan GBP166,250 GBP166,250
notes were exchanged for equity
Total comprehensive income for the year (diluted) GBP3,211,250 GBP1,842,250
17. Cash and cash equivalents
Group Company
2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000
Cash at bank and in hand 18,278 11,728 430 1,378
Notice account balance (less than 90
days) 2,001 21,025 - -
Fixed deposit (less than 90 days) - 1,300 - -
20,279 34,053 430 1,378
Cash at bank includes an amount of GBP56,000 (2020: GBP120,000)
representing receipts which are in the course of transmission.
18. Debt securities
Group Company
2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000
Financial assets at FVOCI:
UK Government Treasury Bills 40,987 24,431 - -
Floating Rate Notes - 1,101 - -
40,987 25,532 - -
UK Government Treasury Bills are stated at fair value and
unrealised changes in the fair value are reflected in other
comprehensive income. There were realised losses of GBP1,000 (2020:
gains of GBP261,000) and unrealised losses of GBP18,000 (2020:
unrealised losses of GBP51,000) during the year.
19. Financial assets
Group Company
2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000
Financial assets at FVOCI:
Gain on Contingent consideration (see
note 6(ii)) 30 253 - -
Gain on equity instrument - 6 - -
30 259 - -
The equity instrument representing an investment in a UK quoted
company was disposed of during the period at the carrying amount.
No gain / loss has thus been recognised due to the disposal.
The Bank acquired a new equity instrument during the financial
year. (See Note 33)
20. Loans and advances to customers
2021 2020
Gross Impairment Carrying Gross Impairment Carrying
Amount Allowance Value Amount Allowance Value
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
HP balances 71,789 (4,107) 67,682 72,930 (1,779) 71,151
Finance lease balances 28,131 (3,317) 24,814 34,373 (3,241) 31,132
Unsecured personal
loans 31,267 (537) 30,730 27,762 (364) 27,398
Vehicle stocking plans 1,675 - 1,675 1,807 - 1,807
Wholesale funding arrangements 15,447 - 15,447 18,080 (808) 17,272
Block discounting 16,465 - 16,465 13,848 (418) 13,430
Secured commercial
loans 11,099 (519) 10,580 9,602 (511) 9,091
Secured personal loans 1,739 - 1,739 2,152 - 2,152
Government backed loans 60,358 (239) 60,119 19,710 - 19,710
237,970 (8,719) 229,251 200,264 (7,121) 193,143
Collateral is held in the form of underlying assets for HP,
finance leases, vehicles stocking plans, block discounting, secured
commercial and personal loans and wholesale funding
arrangements.
2021 2020
Allowance for impairment GBP000 GBP000
Balance at 1 January 6,824 4,632
Allowance for impairment made 5,457 5,231
Release of allowances previously made (1,055) (1,519)
Write-offs (2,762) (1,520)
Balance at 31 December 8,464 6,824
2021 2020
Collective allowance for impairment GBP000 GBP000
Balance at 1 January 297 141
Collective allowance for impairment made 77 421
Release of allowances previously made (119) (265)
Balance at 31 December 255 297
Total allowances for impairment 8,719 7,121
Advances on preferential terms are available to all Directors,
management and staff. As at 31 December 2021 GBP945,625 (2020:
GBP629,345) had been lent on this basis. In the Group's ordinary
course of business, advances may be made to Shareholders, but all
such advances are made on normal commercial terms (see note
33).
At the end of the current financial year 5 loan exposures (2020:
6) exceeded 10.0% of the capital base of the Bank:
Outstanding Outstanding
Balance Balance Facility
2021 2020 Limit
Exposure GBP000 GBP000 GBP000
Block discounting facility 16,465 5,878 46,529
Wholesale funding agreement 25,645 16,315 37,042
HP and finance lease receivables
Loans and advances to customers include the following HP and
finance lease receivables:
2021 2020
GBP000 GBP000
Less than one year 34,833 52,028
Between one and five years 58,949 71,348
Gross investment in HP and finance lease receivables 93,782 123,376
The investment in HP and finance lease receivables net of
unearned income comprises:
2021 2020
GBP000 GBP000
Less than one year 32,495 45,250
Between one and five years 54,994 62,053
Net investment in HP and finance lease receivables 87,489 107,303
21. Trade and other receivables
Group Company
2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000
Prepayments 498 482 100 53
VAT claim - 586 371 256
Other debtors 1,449 1,102 1 -
1,947 2,170 472 309
After consultation with its professional advisors, the Bank made
a notice of error correction ("NEC") to the Isle of Man Government
Customs & Exercise Division in respect of a repayment for
overpaid VAT to the amount of GBP534,000 exclusive of statutory
interest. The NEC relates to bad debt relief that was not claimed
during the period from 1 April 1989 to 18 March 1997. The Bank
recognised a receivable and income of GBP534,000 during 2020.
The VAT claim was settled in full and the Bank received
GBP699,000 during the period. An additional recovery of GBP113,000
over and
above the carrying amount recognised at year end has been
recognised in profit and loss.
22. Property, plant and equipment and right-of-use assets
Buildings
and Leasehold IT Furniture Motor Right-of-use
Group Improvements Equipment and Vehicles assets Total
GBP000 GBP000 Equipment (1) GBP000 GBP000
GBP000 GBP000
Cost
As at 1 January 2021 698 462 4,332 2,477 737 8,706
Revaluation 15 - - - - 15
Additions 25 62 2,019 3 993 3,102
Disposals (57) (87) (422) (1,769) (285) (2,620)
---------------
As at 31 December
2021 681 437 5,929 711 1,445 9,203
Accumulated depreciation
As at 1 January 2021 384 343 801 804 329 2,661
Charge for year 55 61 389 277 162 944
Disposals (12) (91) (381) (890) (285) (1,659)
As at 31 December
2021 427 313 809 191 206 1,946
Carrying value at
31 December 2021 254 124 5,120 520 1,239 7,257
Carrying value at
31 December 2020 314 119 3,531 1,673 408 6,045
(1) Included in motor vehicles are operating leases with the
Group as lessor. Depreciation on leasing assets was GBP269,000
(2020: GBP406,000).
Buildings with an original cost of GBP160,000 were revalued by
independent valuers Vospers Limited to GBP175,000 on the basis of
market value as at 15 September 2021. The valuation conforms to
International Valuation Standards and was based on recent market
transactions on arm's length terms for similar properties. The
Directors consider the valuation of the Buildings as at 31 December
2021 remains GBP175,000.
Leasehold IT Furniture Right-of
Improvements Equipment and use-assets Total
Company GBP000 GBP000 Equipment GBP000 GBP000
GBP000
Cost
As at 1 January 2021 234 18 17 424 693
Additions - - - - -
Disposals - - - - -
As at 31 December 2021 234 18 17 424 693
Accumulated depreciation
As at 1 January 2021 207 5 7 120 339
Charge for year 27 1 2 61 91
Disposals - - - - -
As at 31 December 2021 234 6 9 181 430
Carrying value at 31
December 2021 - 12 8 243 263
Carrying value at 31
December 2020 27 13 10 304 354
23. Intangible assets
IT Software
Customer Intellectual and Website
Contracts Property Rights Development Total
Group GBP000 GBP000 GBP000 GBP000
Cost
As at 1 January 2021 1,920 749 2,320 4,989
Acquisition of subsidiary
(see note 31) 199 - - 199
Additions 260 - 221 481
Disposals 278 - - 278
As at 31 December 2021 2,657 749 2,541 5,947
Accumulated amortisation
As at 1 January 2021 408 523 1,772 2,703
Charge for year 179 - 279 458
Disposals 278 - - 278
As at 31 December 2021 865 523 2,051 3,439
Carrying value at 31
December 2021 1,792 226 490 2,508
Carrying value at 31
December 2020 1,512 226 548 2,286
24. Deposits from customers
2021 2020
GBP000 GBP000
Retail customers: term deposits 242,788 209,235
Corporate customers: term deposits 10,671 9,050
253,459 218,285
25. Creditors and accrued charges
Group Company
2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000
Commission creditors 1,520 1,748 - -
Other creditors and accruals 1,380 822 182 83
Lease liability 1,295 503 319 418
Taxation creditors 550 133 - -
4,745 3,206 501 501
26. Loan notes
Group Company
2021 2020 2021 2020
Notes GBP000 GBP000 GBP000 GBP000
Related parties
J Mellon JM 1,750 1,750 1,750 1,750
Burnbrae Limited BL 3,200 3,200 3,200 3,200
Southern Rock Insurance Company
Limited SR 2,097 2,097 2,097 2,097
7,047 7,047 7,047 7,047
Unrelated parties UP 16,625 15,175 16,625 15,175
23,672 22,222 23,672 22,222
JM - Two loans, one of GBP1,250,000 maturing on 26 February
2025, paying interest of 5.4% per annum, and one of GBP500,000
maturing on 31 July 2022 paying interest of 5.0% per annum. Both
loans are convertible at the rate of 7.5 pence and 9 pence
respectively.
BL - Three loans, one of GBP1,200,000 maturing on 31 July 2022,
paying interest of 5.0% per annum, and one of GBP1,000,000 maturing
25 February 2025, paying interest of 5.4% per annum, and one of
GBP1,000,000 maturing 28 February 2025 paying interest of 6% per
annum. Jim Mellon is the beneficial owner of BL and Denham Eke is
also a director. The GBP1,200,000 loan is convertible at a rate of
7.5 pence.
SR - One loan consisting of GBP2,097,085 maturing on 14 April
2025, paying interest of 6.5% per annum.
UP - Forty-two loans (2020: Thirty-three) consisting of an
average GBP461,806 (2020: GBP459,848) with an average interest
payable of 5.7% (2020: 5.8%) per annum. The earliest maturity date
is 3 January 2022 and the latest maturity is 3 November 2026.
With respect to the convertible loans, the interest rate applied
was deemed by the Directors to be equivalent to the market rate at
the time with no conversion option.
27. Pension liability
The Conister Trust Pension and Life Assurance Scheme ("Scheme")
operated by the Bank is a funded defined benefit arrangement which
provides retirement benefits based on final pensionable salary. The
Scheme is closed to new entrants and the last active member of the
Scheme left pensionable service in 2011.
The Scheme is approved in the Isle of Man by the Assessor of
Income Tax under the Income Tax (Retirement Benefit Schemes) Act
1978 and must comply with the relevant legislation. In addition, it
is registered as an authorised scheme with the FSA in the Isle of
Man under the Retirement Benefits Scheme Act 2000. The Scheme is
subject to regulation by the FSA but there is no minimum funding
regime in the Isle of Man.
The Scheme is governed by two corporate trustees, Conister Bank
Limited and Boal & Co (Pensions) Limited. The trustees are
responsible for the Scheme's investment policy and for the exercise
of discretionary powers in respect of the Scheme's benefits.
The rules of the Scheme state: "Each Employer shall pay such
sums in each Scheme Year as are estimated to be required to provide
the benefits of the Scheme in respect of the Members in its
employ".
Exposure to risk
The Company is exposed to the risk that additional contributions
will be required in order to fund the Scheme as a result of poor
experience. Some of the key factors that could lead to shortfalls
are:
n investment performance - the return achieved on the Scheme's
assets may be lower than expected; and
n mortality - members could live longer than foreseen. This
would mean that benefits are paid for longer than expected,
increasing the value of the related liabilities.
In order to assess the sensitivity of the Scheme's pension
liability to these risks, sensitivity analyses have been carried
out. Each sensitivity analysis is based on changing one of the
assumptions used in the calculations, with no change in the other
assumptions. The same method has been applied as was used to
calculate the original pension liability and the results are
presented in comparison to that liability. It should be noted that
in practice it is unlikely that one assumption will change without
a movement in the other assumptions; there may also be some
correlation between some of these assumptions. It should also be
noted that the value placed on the liabilities does not change on a
straight line basis when one of the assumptions is changed. For
example, a 2.0% change in an assumption will not necessarily
produce twice the effect on the liabilities of a 1.0% change.
No changes have been made to the method or to the assumptions
stress-tested for these sensitivity analyses compared to the
previous period. The investment strategy of the Scheme has been set
with regard to the liability profile of the Scheme. However, there
are no explicit asset-liability matching strategies in place.
Restriction of assets
No adjustments have been made to the statement of financial
position items as a result of the requirements of IFRIC 14 - IAS
19: The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction, issued by IASB's International
Financial Reporting Interpretations Committee.
Scheme amendments
There have not been any past service costs or settlements in the
financial year ending 31 December 2021 (2020: none).
Funding policy
The funding method employed to calculate the value of previously
accrued benefits is the Projected Unit Method. Following the
cessation of accrual of benefits when the last active member left
service in 2011, regular future service contributions to the Scheme
are no longer required. However, additional contributions will
still be required to cover any shortfalls that might arise
following each funding valuation.
The most recent triennial full actuarial valuation was carried
out at 31 March 2020, which showed that the market value of the
Scheme's assets was GBP1,432,000 representing 65.2% of the benefits
that had accrued to members, after allowing for expected future
increases in earnings. As required by IAS 19: Employee Benefits,
this valuation has been updated by the actuary as at 31 December
2021.
The amounts recognised in the Consolidated Statement of
Financial Position are as follows:
2021 2020
Total underfunding in funded plans recognised GBP000 GBP000
as a liability
Fair value of plan assets 1,543 1,406
Present value of funded obligations (2,230) (2,350)
(687) (944)
2021 2020
Movement in the liability for defined benefit GBP000 GBP000
obligations
Opening defined benefit obligations at 1 January 2,350 2,159
Benefits paid by the plan (74) (76)
Interest on obligations 32 45
Actuarial (gain) / loss (78) 222
Liability for defined benefit obligations at 31
December 2,230 2,350
2021 2020
Movement in plan assets GBP000 GBP000
Opening fair value of plan assets at 1 January 1,406 1,471
Expected return on assets 19 30
Contribution by employer 98 -
Actuarial gain / (loss) 94 (19)
Benefits paid (74) (76)
Closing fair value of plan assets at 31 December 1,543 1,406
2021 2020
Expense recognised in income statement GBP000 GBP000
Interest on obligation 32 45
Expected return on plan assets (19) (30)
Total included in personnel costs 13 15
Actual return on plan assets 113 11
2021 2020
Actuarial gain / (loss) recognised in other comprehensive GBP000 GBP000
income
Actuarial gain / (loss) on plan assets 94 (19)
Actuarial gain / (loss) on defined benefit obligations 78 (222)
172 (241)
2021 2020
Plan assets consist of the following % %
Equity securities 52 47
Corporate bonds 26 19
Government bonds 17 29
Cash 2 2
Other 3 3
100 100
2021 2020 2019
The actuarial assumptions used to calculate Scheme % % %
liabilities under IAS19 are as follows:
Rate of increase in pension in payment:
- - -
* Service up to 5 April 1997
* Service from 6 April 1997 to 13 September 2005 3.4 2.9 3.0
* Service from 14 September 2005 2.2 2.1 2.1
Rate of increase in deferred pensions 5.0 5.0 5.0
Discount rate applied to scheme liabilities 1.7 1.8 2.9
Inflation 3.5 3.0 3.1
The assumptions used by the actuary are best estimates chosen
from a range of possible assumptions, which due to the timescale
covered, may not necessarily be borne out in practice.
28. Called up share capital
Ordinary shares of no par value available for issue Number
At 31 December 2021 200,200,000
At 31 December 2020 200,200,000
Issued and fully paid: Ordinary shares of no par Number GBP000
value
At 31 December 2021 114,291,639 19,133
At 31 December 2020 114,130,077 19,121
On 7 July 2021, a Dividend was declared for GBP196,800 which
could either be taken up in cash or Shares. 161,562 new Shares were
elected to be taken as Shares and were admitted to the Alternative
Investment Market ("AIM") for 7.0575 pence per Share, being a total
cost of GBP11,402, on 10 August 2021.
On 9 April 2020, the Company and Southern Rock Insurance Company
Limited ("SR") entered into a share buyback agreement ("SBA"),
pursuant to which SR agreed to sell 16,966,158 Ordinary Shares for
a consideration of GBP1,611,785. The consideration was left
outstanding as a loan agreement (see note 26). The Ordinary Shares
acquired were cancelled, and the Company's issued share capital
reduced to 114,130,077 Ordinary Shares effective 14 April 2020.
Prior to the SBA, SR had a loan of GBP460,000, made to the
Company, which was due to be repaid or converted into Ordinary
Shares on or before 26 April 2020. Upon completion of the SBA, the
Company and SR entered into an agreement varying the terms of the
convertible loan such that they became subject to the terms of the
SBA which contains no ability to convert the amounts outstanding
into Ordinary Shares. The principal amount outstanding in respect
of the convertible loan was increased by GBP25,300 to account for
the reduction of the interest rate in transition to the SBA.
There are three convertible loans totalling GBP2,950,000 (2020:
GBP2,950,000).
On 23 June 2014, 1,750,000 share options were issued to
Executive Directors and senior management within the Group at an
exercise price of 14 pence. The options vest over three years with
a charge based on the fair value of 8 pence per option at the date
of grant. The period of grant is for 10 years less 1 day ending 22
June 2024. Of the 1,750,000 share options issued, 1,050,000 (2020:
1,050,000) remain outstanding.
Performance and service conditions attached to share options
that have not fully vested are as follows: The options granted on
23 June 2014 require a minimum of three years' continuous
employment service in order to exercise upon the vesting date.
The fair value of services received in return for share options
granted is based on the fair value of share options granted,
measured using a binomial probability model with the following
inputs for each award:
23 June
2014
Fair value at date of grant GBP0.08
Share price at date of grant GBP0.14
Exercise price GBP0.14
Expected volatility 55.0%
Option life 3
Risk-free interest rate (based on government
bonds) 0.5%
Forfeiture rate 33.3%
The charge for the year for share options granted was GBPnil
(2020: GBPnil).
Analysis of changes in financing during the year
2021 2020
GBP000 GBP000
Balance at 1 January 41,846 37,410
Issue of loan notes 1,450 4,640
Issue of lease liability 993 -
Issue of shares via scrip dividend 12 -
Payment of lease liabilities (201) (204)
Balance at 31 December 44,100 41,846
The 2021 closing balance is represented by GBP19,133,000 share
capital (2020: GBP19,121,000), GBP23,672,000 of loan notes (2020:
GBP22,222,000) and GBP1,295,000 lease liability (2020:
GBP503,000).
29. List of associates
Set out below is a list of associates of the Group:
Group Group
2021 2020
GBP000 GBP000
The Business Lending Exchange ("BLX") - 190
Payitmonthly Ltd ("PIML") 136 126
136 316
In December 2017, 40.0% of the share capital of BLX was acquired
for nil consideration. During the year, the Group obtained control
of the subsidiary (see note 31). Prior to obtaining control, the
share of the associate's total comprehensive income during the year
was GBP22,000 (2020: 23,000).
In August 2018, 30% of the share capital of PIML was acquired
for GBP90,000 consideration. The Group's resulting share of the
associate's total comprehensive income during the year was
GBP10,000 (2020: GBP31,000).
In April 2018, 20% of the share capital of BSL was acquired for
nil consideration. During 2020, the Group obtained control of the
subsidiary. Prior to obtaining control, the share of the
associate's total comprehensive income during the year was GBPnil
(2020: 10,000).
30. List of subsidiaries
Set out below is a list of subsidiaries of the Group:
Nature of 31 December Date of
Business 2021 Incorporation 2021 2020
Carrying value % Holding GBP000 GBP000
of investments
Conister Bank
Limited Asset and Personal Finance 100 05/12/1935 20,592 20,592
Edgewater Associates
Limited Wealth Management 100 24/12/1996 2,005 2,005
TranSend Holdings
Limited Holding Company 100 05/11/2007 - -
Manx Ventures
Limited (MVL) Holding Company 100 15/05/2009 - -
22,597 22,597
All subsidiaries are incorporated in the Isle of Man.
31. Acquisition of subsidiary
The Business Lending Exchange ("BLX")
On 11 October 2021, the Group (through MVL) announced that it
entered into an agreement to acquire 60% of the shares and voting
interests in BLX. As a result, the Group's equity interest in BLX
increased from 40% to 100%, thereby obtaining control of BLX.
Regulated by the FCA under Consumer Credit Authorisations, BLX
primarily lends to start-up companies and small businesses which
require asset backed finance.
This acquisition strengthens the Group's strategy of developing
a network of niche loan brokers within the UK.
For the 3 months ended 31 December 2021, BLX contributed revenue
of GBP438,864 and profit of GBP193,395 to the Group's results. If
the acquisition had occurred on 1 January 2021, management
estimates that the impact on consolidated fee income would have
been GBP1,444,137 and the impact on consolidated profit for the
period would have been GBP642,648.
A. BLX - Consideration transferred
The following table summarises the acquisition date fair value
of each major class of consideration transferred:
GBP000
Cash 921
Contingent consideration 387
Settlement of pre-existing relationship 5,216
6,524
Up to GBP483,663 consideration is payable to the sellers in
addition to the cash consideration of GBP920,503. The total amount
payable is contingent on the recovery of certain loans and advances
found to be in default at acquisition.
B. BLX - Settlement of pre-existing relationship
The Bank and BLX were parties to a wholesale loan agreement and
a Coronavirus Business Interruption Loan with the Bank as lender
and BLX as borrower. This pre-existing relationship was effectively
terminated when the Bank acquired BLX.
C. BLX - Acquisition-related costs
The Group incurred acquisition-related costs of GBP25,000
relating to external legal fees and due diligence costs. These
costs have been included in 'other costs' in the consolidated
statement of profit or loss and other comprehensive income.
D. BLX - Identifiable assets acquired, and liabilities
assumed
The following table summarises the recognised amounts of assets
acquired, and liabilities assumed at the date of acquisition:
GBP000
Intangible assets - customer related 199
Cash and cash equivalents 676
Trade and other receivables 5,196
Creditors and accrued charges (583)
Total identifiable net assets acquired 5,488
E. BLX - Measurement of fair values
The valuation techniques use for measuring the fair value of
material assets acquired were as follows:
Assets acquired Valuation technique
Intangible assets Multi-period excess earnings method:
The multi-period excess earnings
method considers the present value
of net cash flows expected to be
generated by the customer relationships.
The trade and other receivables comprise gross contractual
amounts due of GBP6,237,576, of which GBP1,042,095 was expected to
be uncollectable at the date of acquisition.
F. BLX - Goodwill
The goodwill arising from the acquisition has been recognised as
follows:
GBP'000
Total consideration transferred 6,524
Fair value of existing interest in BLX 872
Fair value of identifiable net assets (5,488)
Goodwill 1,908
The remeasurement to fair value of the Bank's existing 20%
interest in BLX resulted in a gain of GBP660,000 (GBP872,000 less
the GBP212,000 carrying amount of the equity accounted investee at
the date of acquisition). This amount has been included separately
in the statement of profit or loss and other comprehensive
income.
Ninkasi Rentals & Finance Limited ("NRFL") (formerly Beer
Swaps Limited ("BSL"))
On 28 February 2020, the Group (through the Bank) announced that
it entered into an agreement to acquire 55% of the shares and
voting interests in BSL. As a result, the Group's equity interest
in BSL increased from 20% to 75%, thereby obtaining control of BSL.
BSL provides equipment finance and rental products to UK based
craft and micro-breweries. This acquisition strengthens the Group's
strategy of developing a network of niche loan brokers within the
UK.
The consideration transferred was GBP2,957,000 and transaction
costs of GBP30,000 were incurred. The net fair value of
identifiable assets acquired and liabilities assumed was
GBP2,587,000. Goodwill of GBP678,000 was recognised.
The remeasurement to fair value of the Bank's existing 20%
interest in BSL resulted in a gain of GBP237,000 (GBP257,000 less
the GBP20,000 carrying amount of the equity accounted investee at
the date of acquisition). This amount has been included separately
in the statement of profit or loss and other comprehensive
income.
Blue Star Business Solutions Limited ("BBSL")
On 16 April 2019, the Group (through BBL) acquired 100% of the
shares and voting interest in BBSL, obtaining control of BBSL. The
Group agreed to pay the selling shareholders:
n 50% of net profits in BBSL for 3 years post completion;
and
n 50% of the incremental net profit that the Group benefits from
as a result of taking up BBSL loan proposals post completion up
until the third anniversary.
This is to be paid on each anniversary with a final payment in
year 4 for the unrealised lending profit. The total consideration
is to have a cap of GBP4,000,000 in total. The contingent
consideration is calculated by forecasting 3 years of net profits
discounted using an interest rate of 14.0% per annum. The range of
contingent consideration payable is GBPnil to GBP2,500,000.
See note 6 for the fair value of the Contingent Consideration at
31 December 2021.
32. Acquisition of non-controlling interest
On 14 June 2021, the Group increased its shareholding in NRFL to
90% (30 June and 31 December 2020: 75%) for a cash consideration of
GBP310,000.
The carrying value of non-controlling interest acquired at the
date of acquisition was GBP44,000. The consideration in excess of
the carrying amount of GBP266,000 has been charged directly to the
profit and loss account.
33. Acquisition of financial instrument
On 9 June 2021 the Group acquired 10% of the issued share
capital of RFG for nil consideration. The receipt of the issued
share capital is considered to be a commitment fee receivable by
the Group in order to originate loan facilities in aggregate not
exceeding GBP6,250,000 to RFG. The commitment fee is an integral
part of the effective interest rate of the associated loan
facilities issued to RFG.
The Group is not considered to have a significant influence over
RFG as it holds less than a 20% shareholding and is not considered
to participate in the policy making decisions of the entity. The
10% shareholding has thus been classified as a financial
instrument.
The Group continues to obtain information necessary to measure
the fair value of the shares obtained. The fair value of the
financial instrument received has been determined as GBP68,000 at
initial recognition based on the proportionate share of the net
asset value of RFG. There has been no change to fair value at
year-end.
As part of the transaction, the Group has been granted two
warrants to acquire further shares. The first warrant is for 5% of
the share capital and the second warrant is for a further 5% of the
share capital.
The two warrants are exercisable dependent upon the Group's
banking subsidiary, the Bank, contracting with RFG, for a larger
facility. The fair value of the two warrants has been determined to
be nil due to the significant uncertainty that exists at
acquisition date and the period end in issuing a further debt
facility.
34. Goodwill
Group Group
2021 2020
Cash generating unit GBP000 GBP000
EAL 1,849 1,849
BLX 1,908 -
BBSL 1,390 1,390
NRFL 678 678
Manx Collections Limited ("MCL") 454 454
Three Spires Insurance Services Limited ("Three
Spires") 41 41
6,320 4,412
The goodwill is considered to have an indefinite life and is
reviewed on an annual basis by comparing its estimated recoverable
amount with its carrying value.
The key assumptions used in the estimation of the recoverable
amount are set out in this note. The recoverable amount of the CGUs
discussed in this note were each based on value in use. The values
assigned to key assumptions represents management's assessment of
future trends in the relevant industries and have been based on
historical data from both external and internal sources.
The estimated recoverable amount in relation to the EAL CGU
(including also goodwill generated on acquisition of EAL) is based
on the forecasted 3 year cash flow projections, extrapolated to 10
years using a 2.0% annual increment, and then discounted using a
11.0% discount factor. The sensitivity of the analysis was tested
using additional discount factors of 15.0% and 20.0% on stable
profit levels.
The estimated recoverable amount in relation to the goodwill
generated on the purchase of BLX is based on forecasted 3 year
interest income calculated at an average yield of 8%, with a
terminal value calculated using a 3.0% growth rate of net income
and then discounted using a 14.0% discount factor. The sensitivity
of the analysis was tested using additional discount factors of up
to 20.0% on varying interest income growth rates.
The estimated recoverable amount in relation to the goodwill
generated on the purchase of BBSL is based on forecasted 3 year
interest income calculated at an average yield of 8%, with a
terminal value calculated using a 3.0% growth rate of net income
and then discounted using a 14.0% discount factor. The sensitivity
of the analysis was tested using additional discount factors of up
to 20.0% on varying interest income growth rates.
The estimated recoverable amount in relation to the goodwill
generated on the purchase of NRFL is based on a 4 year sales
forecast, extrapolated to 14 years using a 1.5% annual increment,
and then discounted using a 12% discount factor. The sensitivity of
the analysis was tested using additional discount factors of up to
20.0% on varying sales volumes. On the basis of the above reviews
no impairment to goodwill has been made in the current year.
The estimated recoverable amount in relation to the goodwill
generated on the purchase of MCL is based on forecasted 3-year
sales interest income calculated at 5.0% margin, extrapolated to 10
years using a 2.0% annual increment, and then discounted using a
11.0% discount factor. The sensitivity of the analysis was tested
using additional discount factors of 15.0% and 20.0% on varying
sales volumes.
The goodwill generated on the purchase of Three Spires has been
reviewed at the current year end and is considered adequate given
its income streams referred to EAL. Based on the above reviews no
impairment to goodwill has been made in the current year.
35. Investment in Group undertakings
Amounts owed to Group undertakings
Amounts owed to Group undertakings are unsecured, interest-free
and repayable on demand.
Subordinated loans
MFG has issued several subordinated loans as part of its equity
funding into the Bank and EAL.
Interest 2021 2020
Creation Maturity rate GBP000 GBP000
% p.a.
Conister Bank
Limited
11 February 2014 11 February 2024 7.0 500 500
27 May 2014 27 May 2024 7.0 500 500
9 July 2014 9 July 2024 7.0 500 500
17 September 2014 17 September 2026 7.0 400 400
22 July 2013 22 July 2033 7.0 1,000 1,000
25 October 2013 22 October 2033 7.0 1,000 1,000
23 September 2016 23 September 2036 7.0 1,100 1,100
14 June 2017 14 June 2037 7.0 450 450
12 June 2018 12 June 2038 7.0 2,000 2,000
Edgewater Associates
Limited
21 February 2017 21 February 2027 7.0 150 150
14 May 2017 14 May 2027 7.0 128 128
7,728 7,728
36. Related party transactions
Cash deposits
During the year, the Bank held cash on deposit on behalf of Jim
Mellon (Executive Chairman of MFG) and companies related to Jim
Mellon and Denham Eke (CEO of MFG). At 31 December total deposits
amounted to GBP507,908 (2020: GBP432,213), at normal commercial
interest rates in accordance with the standard rates offered by the
Bank.
At 31 December, the Bank held cash on deposit on behalf of David
Gibson (Non-executive Director of the Bank and MFG) of GBPnil
(2020: GBP50,282).
Staff and commercial loans
Details of staff loans are given in note 20.
Commercial loans have been made to various companies connected
to Jim Mellon and Denham Eke on normal commercial terms. As at 31
December 2021, GBPnil of capital and interest was outstanding
(2020: GBP23,742).
Intercompany recharges
Various intercompany recharges are made during the course of the
year as a result of the Bank settling debts in other Group
companies. EAL provides services to the Group in arranging its
insurance and defined contribution pension arrangements.
Loan advance to EAL
On 14 December 2016, a loan advance was made to EAL by the Bank
in order to provide the finance required to acquire MBL. The
advance was for GBP700,000 at an interest rate of 8% per annum
repayable over 6 years. A negative pledge was given by EAL to not
encumber any property or assets or enter into an arrangement to
borrow any further monies. The balance as at 31 December 2021 was
GBP140,950 (2020: GBP273,568).
Loan advance to PIML
On 24 May 2018, a GBP500,000 loan facility was made available to
PIML by the Bank in order to provide the finance required to expand
its operations. The facility is for 12 months. Interest is charged
at commercial rates. During the year, the facility was increased to
GBP1,219,000. At 31 December 2021, GBP1,219,000 (2020: GBP685,000)
had been advanced to PIML.
Subordinated loans
The Company has advanced GBP7,450,000 (2020: GBP7,450,000) of
subordinated loans to the Bank and GBP278,000 (2020: GBP278,000) to
EAL as at 31 December 2021. See note 33 for more details.
Loan notes
See note 26 for a list of related party loan notes as at 31
December 2021 and 2020.
Key management remuneration including Executive Directors
2021 2020
GBP000 GBP000
Short-term employee benefits 1,098 1,120
-------- --------
37. Leases
A. Leases as lessee
The Group leases the head office building in the Isle of Man.
The leases typically run for a period of 10 years with an option to
renew the lease after that date. Lease payments are renegotiated
every 10 years to reflect market rentals.
The Group leases an office unit in the United Kingdom and IT
equipment with contract terms of 2 to 3 years. These leases are
short-term and/or leases of low-value items. The Group has elected
not to recognise right-of-use assets and lease liabilities for
these leases.
Information about leases for which the Group is a lessee is
presented below.
i. Right-of-use assets
Right-of-use assets related to leased properties that do not
meet the definition of investment property are presented as
property, plant and equipment.
Land Total
and Buildings
Group GBP000 GBP000
Cost
As at 1 January 2021 737 737
Additions 993 993
Disposals (285) (285)
As at 31 December 2021 1,445 1,445
Accumulated depreciation
As at 1 January 2021 329 329
Charge for the year 162 162
Eliminated on disposals (285) (285)
As at 31 December 2021 206 206
Carrying value at 31 December 2021 1,239 1,239
Carrying value at 31 December 2020 408 408
ii. Amounts recognised in profit or loss
2021 2020
GBP000 GBP000
Interest on lease liabilities 42 40
Depreciation expense 162 164
Expenses relating to short-term leases and low-value assets 64 97
iii. Amounts recognised in statement of cash flows
2021 2020
GBP000 GBP000
Total cash outflow for leases 243 244
iv. Non-cancellable operating lease rentals are payable in
respect of property as follows:
2021 2020
GBP000 GBP000
Less than one year 64 84
Between one and five years 128 -
Over five years - -
Total operating lease rentals payable 192 84
38. Regulators
Certain Group subsidiaries are regulated by the FSA and the FCA
as detailed below.
The Bank and EAL are regulated by the FSA under a Class 1(1) -
Deposit Taking licence and Class 2 - Investment Business licence
respectively. The Bank and CFL are regulated by the FCA to provide
regulated products and services.
39. Contingent liabilities
The Bank is required to be a member of the Isle of Man
Government Depositors' Compensation Scheme which was introduced by
the Isle of Man Government under the Banking Business (Compensation
of Depositors) Regulations 1991 and creates a liability on the Bank
to participate in the compensation of depositors should it be
activated.
40. Subsequent events
There were no subsequent events occurring after 31 December
2021.
41. Financial risk management
A. Introduction and overview
The Group has exposure to the following risks from financial
instruments:
n credit risk;
n liquidity risk;
n market risk; and
n operational risk.
Risk management framework
The Board has overall responsibility for the establishment and
oversight of the Group's risk management framework. The Board has
established the ARCC, which is responsible for approving and
monitoring Group risk management policies. The ARCC is assisted in
its oversight role by Internal Audit. Internal Audit undertakes
both regular and ad hoc reviews of risk management controls and
procedures, the results of which are reported to the ARCC.
The Group's risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits.
The risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group's activities.
The Group, though its training and management standards and
procedures, aims to develop a disciplined and constructive control
environment in which all employees understand their roles and
obligations.
B. Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the
Group's loans and advances to customers and investment debt
securities. Credit risk includes counterparty, concentration,
underwriting and credit mitigation risks.
Management of credit risk
The Bank's Board of Directors created the Credit Committee which
is responsible for managing credit risk, including the
following:
n Formulating credit policies in consultation with business
units, covering collateral requirements, credit assessments, risk
grading and reporting, documentary and legal procedures, and
compliance with regulatory and statutory requirements;
n Establishing the authorisation structure for the approval and
renewal of credit facilities. Authorisation limits are allocated to
in line with credit policy;
n Reviewing and assessing credit risk: The Credit Committee
assesses all credit exposures in excess of designated limits,
before facilities are committed to customers. Renewals and reviews
of facilities are subject to the same review process.
n Limiting concentrations of exposures to counterparties,
geographies and industries, by issuer, credit rating band, market
liquidity and country (for debt securities);
n Developing and maintaining risk gradings to categorise
exposures according to the degree of risk of default. The current
risk grading consists of 3 grades reflecting varying degrees of
risk of default;
n Developing and maintaining the Group's process for measuring
ECL: This includes processes for:
o initial approval, regular validation and back-testing of the
models used;
o determining and monitoring significant increase in credit
risk; and
o incorporation of forward-looking information; and
n Reviewing compliance with agreed exposure limits. Regular
reports on the credit quality of portfolios are provided to the
Credit Committee which may require corrective action to be
taken.
C. Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. Liquidity risk arises from mismatches in the
timing and amounts of cash flows, which is inherent to the Group's
operations and investments.
Management of liquidity risk
The Group's approach to managing liquidity is to ensure, as far
as possible, that it will always have enough liquidity to meet its
liabilities when they are due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage
to the Group's reputation. The key elements of the Group's
liquidity strategy are as follows:
n Funding base: offering six-months to five-year fixed term
deposit structure with no early redemption option. This means the
Bank is not subject to optionality risk where customers redeem
fixed rate products where there may be a better rate available
within the market;
n Funding profile: the Bank has a matched funding profile and
does not engage in maturity transformation which means that on a
cumulative mismatch position the Bank is forecast to be able to
meet all liabilities as they fall due;
n Monitoring maturity mismatches, behavioural characteristics of
the Group's financial assets and financial liabilities, and the
extent to which the Group's assets are encumbered and so not
available as potential collateral for obtaining funding;
n Liquidity buffer: the Bank maintains a liquidity buffer of
10.0% of its deposit liabilities, with strict short-term mismatch
limits of 0.0% for sight to three months and -5.0% for sight to six
months. This ensures that the Bank is able to withstand any
short-term liquidity shock; and
n Interbank market: the Bank has no exposure to the interbank
lending market. The Bank has no reliance on liquidity via the
wholesale markets. In turn, if market conditions meant access to
the wholesale funding was constrained as per the 2008 credit
crisis, this would have no foreseeable effect on the Bank.
The Bank's liquidity position is monitored daily against
internal and external limits agreed with the FSA and according to
the Bank's Liquidity Policy. The Bank also has a Liquidity
Contingency Policy and Liquidity Contingency Committee in the event
of a liquidity crisis or potential liquidity disruption event
occurring.
The Treasury department receives information from other business
units regarding the liquidity profile of their financial assets and
financial liabilities and details of other projected cash flows
arising from projected future business. Treasury then maintains a
portfolio of short-term liquid assets, largely made up of
short-term liquid investment securities, loans and advances to
banks and other inter-bank facilities, to ensure that sufficient
liquidity is maintained within the Group as a whole.
Regular liquidity stress testing is conducted under a variety of
scenarios covering both normal and more severe market conditions.
The scenarios are developed considering both Group-specific events
and market-related events (e.g. prolonged market illiquidity).
D. Market risk
Market risk is the risk that changes in market prices; e.g.
interest rates, equity prices, foreign exchange rates and credit
spreads (not relating to changes in the obligor's/issuer's credit
standing), will affect the Group's income or value of its holdings
of financial instruments. The objective of the Group's market risk
management is to manage and control market risk exposures within
acceptable parameters to ensure the Group's solvency while
optimising the return on risk.
Management of market risks
Overall authority for market risk is vested in the Assets and
Liabilities Committee ("ALCO") which sets up limits for each type
of risk. Group finance is responsible for the development of risk
management policies (subject to review and approval by the ALCO)
and for the day-to-day review of their implementation.
Foreign exchange risk
The Bank is not subject to foreign exchange risks and its
business is conducted in pounds sterling.
Equity risk
The Group has investment in associates which are carried at cost
adjusted for the Group's share of net asset value. The Bank has
access to these accounts. The Bank's exposure to market risk is not
considered significant given the low carrying amount of the
investment.
The Group's does not hold any investments in listed
equities.
Interest rate risk
The principal potential interest rate risk that the Bank is
exposed to is the risk that the fixed interest rate and term
profile of its deposit base differs materially from the fixed
interest rate and term profile of its asset base, or basis and term
structure risk.
Additional interest rate risk may arise for banks where (a)
customers are able to react to market sensitivity and redeem fixed
rate products and (b) where a bank has taken out interest rate
derivate hedges especially against longer-term interest rate risk,
where the hedge moves against the bank. However, neither of these
risks apply to the Bank.
Interest rate risk for the Bank is not deemed to be currently
material due to the Bank's matched funding profile. Any interest
rate risk assumed by the Bank will arise from a reduction in
interest rates, in a rising environment due to the nature of the
Bank's products and its matched funded profile. The Bank should be
able to increase its lending rate to match any corresponding rise
in its cost of funds, notwithstanding its inability to vary rates
on its existing loan book. The Bank attempts to efficiently match
its deposit taking to its funding requirements.
E. Operational risk
Operational risk is the risk of direct or indirect loss arising
from a wide variety of causes associated with the Group's
processes, personnel, technology and infrastructure, and from
external factors other than credit, market and liquidity risks -
e.g. those arising from legal and regulatory requirements and
generally accepted standards of corporate behaviour. Operational
risks arise from all of the Group's operations.
Management of operational risk
The Group's objective is to manage operational risk so as to
balance the avoidance of financial losses and damage to the Group's
reputation with overall cost effectiveness and innovation. In all
cases, Group policy requires compliance with all applicable legal
and regulatory requirements.
The Group has developed standards for the management of
operational risk in the following areas:
n Business continuity planning;
n Requirements for appropriate segregation of duties, including
the independent authorisation of transactions;
n Requirements for the reconciliation and monitoring of
transactions;
n Compliance with regulatory and other legal requirements;
n Documentation of controls and procedures;
n Periodic assessment of operational risks faced, and the
adequacy of controls and procedures to address the risks
identified;
n Requirements for the reporting of operational losses and
proposed remedial action;
n Development of contingency plans;
n Training and professional development;
n Ethical and business standards;
n Information technology and cyber risks; and
n Risk mitigation, including insurance where this is
cost-effective.
Compliance with Group standards is supported by a programme of
periodic reviews undertaken by Internal Audit. The results of
Internal Audit reviews are reported to the ARCC.
42. Basis of measurement
The financial statements are prepared on a historical cost
basis, except for the following material items:
Items Measurement basis
FVTPL - Trading asset Fair value
FVOCI - Debt securities Fair value
Net defined benefit liability Fair value of plan assets less
the present value of the defined
benefit obligation
43. Significant accounting policies
A number of new standards have been effective from 1 January
2021 but they do not have a material effect on the Group's
financial statements.
The Group has consistently applied the following accounting
policies to all periods presented in these financial
statements.
Set out below is an index of the significant accounting
policies, the details of which are available on the pages that
follow:
Ref. Note description No.
Basis of consolidation of subsidiaries and separate
A. financial statements of the Company 76
B. Interest in equity accounted investees 76
C. Interest 76
D. Fee and commission income 77
E. Leases 77
F. Income tax 78
G. Financial assets and financial liabilities 79
H. Cash and cash equivalents 83
I. Loans and advances 83
J. Property, plant and equipment 83
K. Intangibles assets and goodwill 83
L. Impairment of non-financial assets 84
M. Deposits, debt securities issued and subordinated liabilities 85
N. Employee benefits 85
O. Share capital and reserves 85
P. Earnings per share ("EPS") 85
Q. Segmental reporting 86
A. Basis of consolidation of subsidiaries and separate financial
statements of the Company
i. Business combinations
The Group accounts for business combinations using the
acquisition method when control is transferred to the Group. The
consideration transferred in the acquisition is generally measured
at fair value, as are the identifiable net assets acquired. Any
goodwill that arises is tested annually for impairment. Any gain on
a bargain purchase is recognised in profit or loss immediately.
Transaction costs are expensed as incurred, except if they are
related to issue of debt or equity securities.
ii. Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity if it is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to
affect those returns through its control over the entity. The Group
reassesses whether it has control if there are changes to one or
more of the elements of control. This includes circumstances in
which protective rights held (e.g. those resulting from a lending
relationship) become substantive and lead to the Group having power
over an investee. The financial statements of subsidiaries are
included in the consolidated financial statements from the date on
which control commences until the date on which control ceases.
iii. Non-controlling interests ("NCI")
NCI are measured initially at their proportionate share of the
acquiree's identifiable net assets at the date of acquisition.
Changes in the Group's interest in a subsidiary that do not
result in a loss of control are accounted for as equity
transactions.
iv. Loss of control
When the Group loses control over a subsidiary, it derecognises
the assets and liabilities of the subsidiary, and any related NCI
and other components of equity. Any resulting gain or loss is
recognised in profit or loss. Any interest retained in the former
subsidiary is measured at fair value when control is lost.
v. Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements. Unrealised
losses are eliminated in the same way as unrealised gains, but only
to the extent that there is no evidence of impairment.
vi. Separate financial statements of the Company
In the separate financial statements of the Company, interests
in subsidiaries, associates and joint ventures are accounted for at
cost.
B. Interests in equity accounted investees
The Group's interests in equity accounted investees may comprise
interests in associates and joint ventures.
Associates are those entities in which the Group has significant
influence, but not control or joint control, over the financial and
operating policies. A joint venture is an arrangement in which the
Group has joint control, whereby the Group has rights to the net
assets of the arrangement, rather than rights to its assets and
obligations for its liabilities.
Interests in associates and joint ventures are accounted for
using the equity method. They are initially recognised at cost,
which includes transaction costs. Subsequent to initial
recognition, the consolidated financial statements include the
Group's share of the profit or loss and OCI of equity accounted
investees, until the date on which significant influence or joint
control ceases.
C. Interest
Interest income and expense are recognised in profit or loss
using the effective interest rate method.
i. Effective interest rate
The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts of the financial
instrument to the gross carrying amount of the financial asset or
amortised cost of the financial liability. When calculating the
effective interest rate for financial assets, the Group estimates
future cash flows considering all contractual terms of the
financial instruments, including origination fees, loan incentives,
broker fees payable, estimated early repayment charges, balloon
payments and all other premiums and discounts. It also includes
direct incremental transaction costs related to the acquisition or
issue of the financial instrument. The calculation does not
consider future credit losses.
ii. Amortised cost and gross carrying amount
The amortised cost of a financial asset or financial liability
is the amount at which the financial asset or financial liability
is measured on initial recognition minus the principal repayments,
plus or minus the cumulative amortisation using the effective
interest method of any difference between that initial amount and
the maturity amount and, for financial assets, adjusted for any
expected credit loss allowance.
The gross carrying amount of a financial asset is the amortised
cost of a financial asset before adjusting for any expected credit
loss allowance.
iii. Calculation of interest income and expense
In calculating interest income and expense, the effective
interest rate is applied to the gross carrying amount of the asset
(when the asset is not credit-impaired) or to the amortised cost of
the liability.
However, for financial assets that have become credit-impaired
subsequent to initial recognition, interest income is calculated by
applying the effective interest rate to the amortised cost of the
financial asset. If the asset is no longer credit-impaired, then
the calculation of interest income reverts to the gross basis.
D. Fee and commission income
The Group generates fee and commission income through provision
of independent financial advice, insurance brokerage agency,
introducer of foreign exchange services and commissions from
brokering business finance for small and medium sized
enterprises.
Independent financial advice and insurance brokerage agency
Income represents commission arising on services and premiums
relating to policies and other investment products committed during
the year, as well as renewal commissions having arisen on services
and premiums relating to policies and other investment products
committed during the year and previous years and effective at the
balance sheet date. Income is recognised on the date that policies
are submitted to product providers with an appropriate discount
being applied for policies not completed. As a way to estimate what
is due at the year-end, a "not proceeded with" rate of 10.0% for
pipeline life insurance products and 0.0% for non-life insurance
pipeline is assumed. Renewal commissions are estimated by taking
the historical amount written pro-rata to 3 months.
Other
Income other than that directly related to the loans is
recognised over the period for which service has been provided or
on completion of an act to which the fee relates.
E. Leases
At inception of a contract, the Group assesses whether a
contract is, or contains, a lease. A contract is, or contains, a
lease if the contract coveys the right to control the use of an
identified asset for a period of time in exchange for
consideration.
i. As a lessee
At commencement or on modification of a contract that contains a
lease component, the Group allocates the consideration in the
contract to each lease component on the basis of its relative
stand-alone prices. However, for the leases of property the Group
has elected not to separate non-lease components and as a result,
accounts for the lease and non-lease components as a single lease
component.
The Group recognises a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease
liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an
estimate of costs to dismantle and remove the underlying asset or
to restore the underlying asset or the site on which it is located,
less any lease incentives received.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the end of the
lease term, unless the lease transfers ownership of the underlying
asset to the Group by the end of the lease term or the cost of the
right-of-use asset reflects that the Group will exercise a purchase
option. In that case the right-of-use asset will be depreciated
over the useful life of the underlying asset, which is determined
on the same basis as those of property and equipment. In addition,
the right-of-use asset is periodically reduced by impairment
losses, if any, and adjusted for certain remeasurements of the
lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Generally, the Group uses its incremental borrowing
rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining
interest rates from various external financing sources and makes
certain adjustments to reflect the terms of the lease and the type
of the asset leased.
Lease payments included in the measurement of the lease
liability comprise the following:
n Fixed payments, including in-substance fixed payments;
n Variable lease payments that depend on an index or a rate,
initially measured using the index or rate as at the commencement
date;
n Amounts expected to be payable under a residual value
guarantee; and
n The exercise price under a purchase option that the Group is
reasonably certain to exercise, lease payments in an optional
renewal period if the Group is reasonably certain to exercise an
extension option, and penalties for early termination of a lease
unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the
effective interest method. It is remeasured when there is a change
in future lease payments arising from a change in an index or rate,
if there is a change in the Group's estimate of the amount expected
to be payable under a residual value guarantee, if the Group
changes its assessment of whether it will exercise a purchase,
extension or termination option or if there is a revised
in-substance fixed lease payment.
When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying amount of the
right-of-use asset, or is recorded in profit or loss if the
carrying amount of the right-of-use asset has been reduced to
zero.
The Group presents right-of-use assets that do not meet the
definition of investment property in 'property, plant and
equipment' and lease liabilities in 'loans and borrowings' in the
statement of financial position.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and
lease liabilities for leases of low-value assets and short-term
leases, including IT equipment. The Group recognises the lease
payments associated with these leases as an expense on a
straight-line basis over the lease term.
ii. As a lessor
At inception or on modification of a contract that contains a
lease component, the Group allocates the consideration in the
contract to each lease component on the basis of their relative
stand-alone prices.
When the Group acts as a lessor, it determines at lease
inception whether each lease is a finance or an operating
lease.
To classify each lease, the Group makes an overall assessment of
whether the lease transfers substantially all of the risks and
rewards incidental to ownership of the underlying asset. If this is
the case, then the lease is a finance lease; if not, then it is an
operating lease. As part of this assessment, the Group considers
certain indicators such as whether the lease is for the major part
of the economic life of the asset.
Finance leases and HP contracts
When assets are subject to a finance lease or HP contract, the
present value of the lease payments is recognised as a receivable.
The difference between the gross receivable and the present value
of the receivable is recognised as unearned finance income. HP and
lease income is recognised over the term of the contract or lease
reflecting a constant periodic rate of return on the net investment
in the contract or lease. Initial direct costs, which may include
commissions and legal fees directly attributable to negotiating and
arranging the contract or lease, are included in the measurement of
the net investment of the contract or lease at inception.
Operating leases
Leases in which a significant portion of the risks and rewards
of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any incentives
received from the lessor) are charged to profit or loss and other
comprehensive income on a straight-line basis over the period of
the lease.
F. Income tax
Current and deferred taxation
Current taxation relates to the estimated corporation tax
payable in the current financial year. Deferred taxation is
provided in full, using the liability method, on timing differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred
tax is not recognised for taxable temporary differences arising on
the initial recognition of goodwill and temporary differences
related to investments in subsidiaries and associates to the extent
that the Group is able to control the timing of the reversal of the
temporary differences and it is probable that they will not reverse
in the foreseeable future.
Deferred taxation is determined using tax rates, and laws that
have been enacted or substantially enacted by the reporting date
and are expected to apply when the related deferred tax is
realised. Deferred taxation assets are recognised to the extent
that it is probable that future taxable profit will be available
against which the temporary differences can be utilised.
G. Financial assets and financial liabilities
i. Recognition and initial measurement
The Group initially recognises loans and advances, deposits,
debt securities issued and subordinated liabilities on the date on
which they are originated. All other financial instruments
including regular-way purchases and sales of financial assets are
recognised on the trade date, which is the date on which the Group
becomes party to the contractual provisions of the instrument.
A financial asset or financial liability is measured initially
at fair value plus, for an item not at FVTPL, transaction costs
that are directly attributable to its acquisition or issue.
ii. Classification
Financial assets
On initial recognition, a financial asset is classified as
measured at amortised cost, FVOCI or FVTPL.
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at FVTPL:
n The asset is held within a business model whose objective is
to hold assets to collect contractual cash flows; and
n The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest ("SPPI").
A debt instrument is measured at FVOCI only if it meets both of
the following conditions and is not designated as FVTPL:
n The asset is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling
financial assets; and
n The contractual terms of the financial asset give rise on
specified dates to cash flows that are SPPI.
On initial recognition of an equity investment that is not held
for trading, the Group may irrevocably elect to present subsequent
changes in fair value in OCI. This election is made on an
investment-by-investment basis.
All other financial assets are classified as measured at
FVTPL.
In addition, on initial recognition, the Group may irrevocably
designate a financial asset that otherwise meets the requirements
to be measured at amortised cost or at FVOCI as at FVTPL if doing
so eliminates or significantly reduces an accounting mismatch that
would otherwise arise.
Business model assessment
The Group makes an assessment of the objective of a business
model in which an asset is held at a portfolio level because this
best reflects the way the business is managed and information
provided to management.
Assessment of whether contractual cash flows are solely payments
of principal and interest
For the purposes of this assessment, 'principal' is defined as
the fair value of the financial asset on initial recognition.
'Interest' is defined as consideration for the time value of money
and for the credit risk associated with the principal amount
outstanding during a particular period of time and for other basic
lending risks and costs (e.g. liquidity risk and administrative
costs), as well as profit margin.
In assessing whether the contractual cash flows are SPPI, the
Group considers the contractual terms of the instrument. This
includes assessing whether the financial asset contains a
contractual term that could change the timing or amount of
contractual cash flows such that it would not meet this
condition.
Reclassifications
Financial assets are not reclassified subsequent to their
initial recognition, except in the period after the Group changes
its business model for managing financial assets.
Financial liabilities
The Group classifies its financial liabilities, other than
financial guarantees and loan commitments, as measured at amortised
cost.
iii. Derecognition
Financial assets
The Group derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire, or when
it transfers the rights to receive the contractual cash flows in a
transaction in which substantially all of the risks and rewards of
ownership of the financial asset are transferred or in which the
Group neither transfers nor retains substantially all of the risks
and rewards of ownership and it does not retain control of the
financial asset.
On derecognition of a financial asset, the difference between
the carrying amount of the asset (or the carrying amount allocated
to the portion of the asset derecognised) and the sum of (i) the
consideration received (including any new asset obtained less any
new liability assumed) and (ii) any cumulative gain or loss that
had been recognised in OCI is recognised in profit or loss.
Financial liabilities
The Group derecognises a financial liability when its
contractual obligations are discharged or cancelled, or expire.
iv. Modifications of financial assets and financial
liabilities
Financial assets
If the terms of a financial asset are modified, then the Group
evaluates whether the cash flows of the modified asset are
substantially different.
If the cash flows are substantially different, the contractual
rights to cash flows from the original financial asset are deemed
to have expired. In this case, the original financial asset is
derecognised and a new financial asset is recognised at fair value
plus any eligible transaction costs.
If the cash flows are modified when the borrower is in financial
difficulties, then the objective of the modification is usually to
maximise recovery of the original contractual terms rather than to
originate a new asset with substantially different terms. If the
Group plans to modify a financial asset in a way that would result
in forgiveness of cash flows, then it first considers whether a
portion of the asset should be written off before the modification
takes place. This approach impacts the result of the quantitative
evaluation and means that the derecognition criteria are not
usually met in such cases.
If the modification of a financial asset measured at amortised
cost or FVOCI does not result in derecognition of the financial
asset, then the Group first recalculates the gross carrying amount
of the financial asset using the original effective interest rate
of the asset and recognises the resulting adjustment as a
modification gain or loss in profit or loss. Any costs or fees
incurred and fees received as part of the modification adjust the
gross carrying amount of the modified financial asset and are
amortised over the remaining term of the modified financial asset.
If such modification is carried out because of financial
difficulties of the borrower, then the gain or loss is presented
together with impairment losses. In other cases, it is presented as
interest income calculated using the effective interest rate
method.
Financial liabilities
The Group derecognises a financial liability when its terms are
modified and the cash flows of the modified liability are
substantially different. In this case, a new financial liability
based on the modified terms is recognised at fair value. The
difference between the carrying amount of the financial liability
derecognised and consideration paid is recognised in profit or
loss. Consideration paid includes non-financial assets transferred,
if any, and the assumption of liabilities, including the new
modified financial liability.
If the modification of a financial liability is not accounted
for as derecognition, then the amortised cost of the liability is
recalculated by discounting the modified cash flows at the original
effective interest rate and the resulting gain or losses recognised
in profit or loss. Any costs and fee incurred are recognised as an
adjustment of the carrying amount of the liability and amortised
over the remaining term of the modified financial liability by
re-computing the effective interest rate on the instrument.
v. Offsetting
Financial assets and financial liabilities are offset and the
net amount presented in the statement of financial position when,
and only when, the Group currently has a legally enforceable right
to set off the amounts and it intends either to settle them on a
net basis or to realise the asset and settle the liability
simultaneously.
Income and expenses are presented on a net basis only when
permitted under IFRS, or for gains and losses arising from a group
of similar transactions such as in the Group's trading
activity.
vi. Fair value measurement
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in the principal or, in
its absence, the most advantageous market to which the Group has
access at the date. The fair value of a liability reflects its
non-performance risk.
The Group recognises transfers between levels of the fair value
hierarchy as of the end of the reporting period during which the
change has occurred.
The Group measures fair values using the following fair value
hierarchy, which reflects the significance of the inputs used in
making the measurements:
n Level 1: inputs that are quoted market prices (unadjusted) in
active markets for identical instruments;
n Level 2: inputs other than quoted prices included within Level
1 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category includes
instruments valued using: quoted market prices in active markets
for similar instruments; quoted prices for identical or similar
instruments in markets that are considered less than active; or
other valuation techniques in which all significant inputs are
directly or indirectly observable from market data; and
n Level 3: inputs that are unobservable. This category includes
all instruments for which the valuation technique includes inputs
not based on observable data and the unobservable inputs have a
significant effect on the instrument's valuation. This category
includes instruments that are valued based on quoted prices for
similar instruments for which significant unobservable adjustments
or assumptions are required to reflect differences between the
instruments.
The fair values of financial assets and financial liabilities
that are traded in active markets are based on quoted market prices
or dealer price quotations. For all other financial instruments,
the Group determines fair values using other valuation
techniques.
For financial instruments that trade infrequently and have
little price transparency, fair value is less objective, and
requires varying degrees of judgement depending on liquidity,
concentration, uncertainty of market factors, pricing assumptions
and other risks affecting the specific instrument.
vii. Impairment
A financial instrument that is not credit-impaired on initial
recognition is classified in 'Stage 1' and has its credit risk
continuously monitored by the Group.
If a SICR since initial recognition is identified, the financial
instrument is moved to 'Stage 2' but is not yet deemed to be
credit-impaired.
n An SICR is always deemed to occur when the borrower is 30 days
past due on its contractual payments. If the Group becomes aware
ahead of this time of non-compliance or financial difficulties of
the borrower, such as loss of employment, avoiding contact with the
Group then an SICR has also deemed to occur; and
n A receivable is always deemed to be in default and
credit-impaired when the borrower is 90 days past due on its
contractual payments or earlier if the Group becomes aware of
severe financial difficulties such as bankruptcy, individual
voluntary arragement, abscond or disappearance, fraudulent activity
and other similar events.
If the financial instrument is credit-impaired, the financial
instrument is then moved to 'Stage 3'. Financial instruments in
Stage 3 have their ECL measured based on expected credit losses on
an undiscounted lifetime basis.
The Group measures loss allowances at an amount equal to
lifetime ECL, except for debt investment securities that are
determined to have low credit risk at the reporting date for which
they are measured as a 12-month ECL. Loss allowances for lease
receivables are always measured at an amount equal to lifetime
ECL.
12-month ECL are the portion of ECL that result from default
events on a financial instrument that are possible within the 12
months after the reporting date. Financial instruments for which a
12-month ECL is recognised are referred to as 'Stage 1 financial
instruments'.
Lifetime ECL are the ECL that result from all possible default
events over the expected life of a financial instrument. Financial
instruments for which a lifetime ECL is recognised but which are
not credit-impaired are referred to as 'Stage 2 financial
instruments'.
Measurement of ECL
After a detailed review, the Group devised and implemented an
impairment methodology in light of the IFRS 9 requirements outlined
above noting the following:
n The ECL was derived by reviewing the Group's loss rate and
loss given default over the past 9 years by product and
geographical segment;
n The Group has assumed that the future economic conditions will
broadly mirror the current environment and therefore the forecasted
loss levels in the next 3 years will match the Group's experience
in recent years;
n For portfolios where the Group has never had a default in its
history or has robust credit enhancements such as credit insurance
or default indemnities for the entire portfolio, then no IFRS 9
provision is made. At 2021 year-end, 28.8% had such credit
enhancements (2020: 36.6%); and
n If the Group holds objective evidence through specifically
assessing a credit-impaired receivable and believes it will go on
to completely recover the debt due to the collateral held and
cooperation with the borrower, then no IFRS 9 provision is
made.
ECL are probability-weighted estimates of credit losses. They
are measured as follows:
n Financial assets that are not credit-impaired at the reporting
date: as the present value of all cash shortfalls (i.e. the
difference between the cash flows due to the entity in accordance
with the contract and the cash flows that the Group expects to
receive);
n Financial assets that are credit-impaired at the reporting
date: as the difference between the gross carrying amount and the
present value of estimated future cash flows; and
n Undrawn loan commitments: as the present value of the
difference between the contractual cash flows that are due to the
Group if the commitment is drawn down and the cash flows that the
Group expects to receive.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial
assets carried at amortised cost and debt financial assets carried
at FVOCI, and finance lease receivables are credit-impaired
(referred to as 'Stage 3 financial assets'). A financial asset is
credit-impaired when one or more events that have a detrimental
impact on the estimated future cash flows of the financial asset
have occurred.
Evidence that a financial asset is credit-impaired includes the
following observable date:
n Significant financial difficulty of the borrower or
issuer;
n A breach of contract such as a default or past due event;
n The restructuring of a loan or advance by the Group on terms
that the Group would not consider otherwise;
n It is becoming probable that the borrower will enter
bankruptcy or other financial reorganisation; or
n The disappearance of an active market for a security because
of financial difficulties.
A loan that has been renegotiated due to a deterioration in the
borrower's condition is usually considered to be credit-impaired
unless there is evidence that the risk of not receiving contractual
cash flows has reduced significantly and there are no other
indicators of impairment. In addition, a retail loan that is
overdue for 90 days or more is considered credit-impaired even when
the regulatory definition of default is different.
In making an assessment of whether an investment in sovereign
debt is credit impaired, the Group considers the following
factors:
n The market's assessment of creditworthiness as reflected in
the bond yields;
n The rating agencies' assessments of creditworthiness;
n The country's ability to access the capital markets for new
debt issuance;
n The probability of debt being restructured, resulting in
holders suffering losses through voluntary or mandatory debt
forgiveness; and
n The international support mechanisms in place to provide the
necessary support as 'lender of last resort' to that country, as
well as the intention, reflected in public statements, of
governments and agencies to use those mechanisms. This includes an
assessment of the depth of those mechanisms and, irrespective of
the political intent, whether there is the capacity to fulfil the
required criteria.
Presentation of allowance for ECL in the statement of financial
position
Loss allowances for ECL are presented in the statement of
financial position as follows:
n Financial assets measured at amortised cost: as a deduction
from the gross carrying amount of the assets;
n Loan commitments: generally, as a provision; and
n Debt instruments measured at FVOCI: no loss allowance is
recognised in the statement of financial position because the
carrying amount of these assets is their fair value. However, the
loss allowance is disclosed and is recognised in the fair value
reserve.
Write-off
Loans and debt securities are written off (either partially or
in full) when there is no reasonable expectation of recovering a
financial asset in its entirety or a portion thereof. This is
generally the case when the Group determines that the borrower does
not have assets or sources of income that could generate sufficient
cash flows to repay the amounts subject to the write-off. This
assessment is carried out at the individual asset level.
Recoveries of amounts previously written off are included in
'impairment losses on financial instruments' in the statement of
profit or loss and OCI.
Financial assets that are written off could still be subject to
enforcement activities in order to comply with the Group's
procedures for recovery of amounts due.
H. Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash
equivalents comprise cash and deposit balances with an original
maturity date of three months or less.
I. Loans and advances
Loans and advances' captions in the statement of financial
position include:
n Loans and advances measured at amortised cost (see note 43
(I)). They are initially measured at fair value plus incremental
direct transaction costs, and subsequently at their amortised cost
using the effective interest method; and
n Finance lease receivables (see note 43 (G)).
J. Property, plant and equipment
Items of property, plant and equipment are stated at historical
cost less accumulated depreciation (see below). Historical cost
includes expenditure that is directly attributable to the
acquisition of the items.
The assets' residual values and useful economic lives are
reviewed, and adjusted if appropriate, at each reporting date. An
asset's carrying amount is written down immediately to its
recoverable amount if the asset's carrying amount is greater than
its estimated recoverable amount.
When parts of an item of property, plant and equipment have
different useful lives, those components are accounted for as
separate items of property, plant and equipment.
Depreciation and amortisation
Assets are depreciated or amortised on a straight-line basis, so
as to write off the book value over their estimated useful lives.
The estimated useful lives of property, plant and equipment and
intangibles are as follows:
Property, plant and equipment
Leasehold improvements to expiration of the lease
IT equipment 4 - 5 years
Motor vehicles 2 - 5 years
Furniture and equipment 4 -10 years
Plant and machinery 5 - 20 years
K. Intangible assets and goodwill
i. Goodwill
Goodwill that arises on the acquisition of subsidiaries is
measured at cost less accumulated impairment losses.
ii. Software
Software acquired by the Group is measured at cost less
accumulated amortisation and any accumulated impairment losses.
Expenditure on internally developed software is recognised as an
asset when the Group is able to demonstrate: that the product is
technically feasible, its intention and ability to complete the
development and use the software in a manner that will generate
future economic benefits, and that it can reliably measure the
costs to complete the development. The capitalised costs of
internally developed software include all costs directly
attributable to developing the software and capitalised borrowing
costs, and are amortised over its useful life. Internally developed
software is stated at capitalised cost less accumulated
amortisation and any accumulated impairment losses.
Software is amortised on a straight-line basis in profit or loss
over its estimated useful life, from the date on which it is
available for use. Amortisation methods, useful lives and residual
values are reviewed at each reporting date and adjusted if
appropriate.
iii. Other
Intangible assets that are acquired by an entity and having
finite useful lives are measured at cost less accumulated
amortisation and any accumulated impairment losses.
Intangible assets acquired as part of a business combination,
with an indefinite useful live are measured at fair value.
Intangible assets with indefinite useful lives are not amortised
but instead are subject to impairment testing at least
annually.
The useful lives of intangibles are as follows:
Customer contracts and lists to expiration of the agreement
Business intellectual property rights 4 years - indefinite
Website development costs indefinite
Software 5 years
L. Impairment of non-financial assets
At each reporting date, the Group reviews the carrying amounts
of its non-financial assets (other than deferred tax assets) to
determine whether there is any indication of impairment. If any
such indication exists, the asset's recoverable amount is
estimated. Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from
continuing use that is largely independent of the cash inflows of
other assets or Cash Generating Units ("CGUs"). Goodwill arising
from a business combination is allocated to CGUs or groups of CGUs
that are expected to benefit from the synergies of the
combination.
The recoverable amount of an asset or CGU is the greater of its
value in use and its fair value less cost to sell. Value in use is
based on the estimated future cash flows, discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an
asset or CGU exceeds its recoverable amount.
The Group's corporate assets do not generate separate cash
inflows and are used by more than one CGU. Corporate assets are
allocated to CGUs on a reasonable and consistent basis and tested
for impairment as part of the testing of the CGUs to which the
corporate assets are located.
Impairment losses are recognised in profit or loss. They are
allocated first to reduce the carrying amount of any goodwill
allocated to the CGU, and then to reduce the carrying amounts of
the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For
other assets, an impairment loss is reversed only to the extent
that the asset's carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
M. Deposits, debt securities issued and subordinated
liabilities
Deposits, debt securities issued and subordinated liabilities
are the Group's sources of debt funding.
The Group classifies capital instruments as financial
liabilities or equity instruments in accordance with the substance
of the contractual terms of the instruments.
Deposits, debt securities issued and subordinated liabilities
are initially measured at fair value minus incremental direct
transaction costs, and subsequently measured at their amortised
cost using the effective interest method.
N. Employee benefits
i. Long-term employee benefits
Pension obligations
The Group has pension obligations arising from both defined
benefit and defined contribution pension plans.
A defined contribution pension plan is one under which the Group
pays fixed contributions into a separate fund and has no legal or
constructive obligations to pay further contributions. Defined
benefit pension plans define an amount of pension benefit that an
employee will receive on retirement, usually dependent on one or
more factors such as age, years of service and remuneration.
Under the defined benefit pension plan, in accordance with IAS
19 Employee benefits, the full-service cost for the period,
adjusted for any changes to the plan, is charged to the income
statement. A charge equal to the expected increase in the present
value of the plan liabilities, as a result of the plan liabilities
being one year closer to settlement, and a credit reflecting the
long-term expected return on assets based on the market value of
the scheme assets at the beginning of the period, is included in
the income statement.
The statement of financial position records as an asset or
liability as appropriate, the difference between the market value
of the plan assets and the present value of the accrued plan
liabilities. The difference between the expected return on assets
and that achieved in the period, is recognised in the income
statement in the year in which they arise. The defined benefit
pension plan obligation is calculated by independent actuaries
using the projected unit credit method and a discount rate based on
the yield on high quality rated corporate bonds.
The Group's defined contribution pension obligations arise from
contributions paid to a Group personal pension plan, an ex gratia
pension plan, employee personal pension plans and employee
co-operative insurance plans. For these pension plans, the amounts
charged to the income statement represent the contributions payable
during the year.
ii. Share-based compensation
The Group maintains a share option programme which allows
certain Group employees to acquire shares of the Group. The change
in the fair value of options granted is recognised as an employee
expense with a corresponding change in equity. The fair value of
the options is measured at grant date and spread over the period
during which the employees become unconditionally entitled to the
options.
At each reporting date, the Group revises its estimate of the
number of options that are expected to vest and recognises the
impact of the revision to original estimates, if any, in the income
statement, with a corresponding adjustment to equity.
The fair value is estimated using a proprietary binomial
probability model. The proceeds received, net of any directly
attributable transaction costs, are credited to share capital
(nominal value) and share premium when the options are
exercised.
O. Share capital and reserves
Share issue costs
Incremental costs that are directly attributable to the issue of
an equity instrument are deducted from the initial measurement of
the equity instruments.
P. Earnings per share ("EPS")
The Group presents basic and diluted EPS data for its Ordinary
Shares. Basic EPS is calculated by dividing the profit or loss that
is attributable to ordinary Shareholders of MFG by the
weighted-average number of Ordinary Shares outstanding during the
period. Diluted EPS is determined by adjusting profit or loss that
is attributable to Ordinary Shareholders and the weighted-average
number of Ordinary Shares outstanding for the effects of all
dilutive potential Ordinary Shares, which comprise share options
granted to employees.
Q. Segmental reporting
A segment is a distinguishable component of the Group that is
engaged either in providing products or services (business
segment), or in providing products or services within a particular
economic environment (geographical segment), which is subject to
risks and rewards that are different from those of other segments.
The Group's primary format for segmental reporting is based on
business segments.
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses, including revenues and expenses relating to transactions
with any of the Group's other components, whose operating results
are regularly reviewed by the CEO who is the chief operating
decision maker ("CODM") to make decisions about resources to be
allocated to the segment and assess its performance, and for which
discrete financial information is available.
Segment results reported to the CEO include items that are
directly attributable to a segment as well as those that can be
allocated on a reasonable basis.
Appendix - Glossary of terms
ALCO Assets and Liabilities Committee
ARCC Audit, Risk and Compliance Committee
BBSL Blue Star Business Solutions Limited
BL Burnbrae Limited
BLX The Business Lending Exchange Limited
Bank Conister Bank Limited
Bank's Board The Bank's Board of Directors
BSL Beer Swaps Limited
CEO Chief Executive Officer
CET1 Common Equity Tier 1
CFL Conister Finance & Leasing Ltd
CGU Cash Generating Unit
CODM Chief Operating Decision Maker
Company Manx Financial Group PLC
EAL Edgewater Associates Limited
ECF ECF Asset finance PLC
ECL Expected Credit Loss
ESG Environmental, Social and Governance
EPS Earnings Per Share
FCA UK Financial Conduct Authority
Fraud risks Risk of Material Misstatement Due to Fraud
FSA Isle of Man Financial Services Authority
FVOCI Fair Value Through Other Comprehensive Income
FVTPL Fair Value Through Profit or Loss
Group Comprise the Company and its subsidiaries
HP Hire Purchase
IAS International Accounting Standard
ICAAP Internal Capital Adequacy Assessment Process
ICG Individual Capital Guidance
IFA Independent Financial Advisors
IFRIC International Financial Reporting Interpretations
Committee
IFRS International Financial Reporting Standards
Interim financial Condensed consolidated interim financial statements
statements
IOM Isle of Man
ISA International Standards of Auditing
JM Jim Mellon
LSE London Stock Exchange
MBL MBL Financial Limited
MCL Manx Collections Limited
MFG Manx Financial Group PLC
MFX Manx FX Limited
MFX.L Manx Financial Group PLC ticker symbol on the LSE
MVL Manx Ventures Limited (previously Bradburn Limited)
NEC Notice of Error Correction
NOMCO Nomination Committee
NRFL Ninkasi Rentals & Finance Limited (previously Beer
Swaps Limited)
OCI Other Comprehensive Income
PIML Payitmonthly Limited
QCA Quoted Companies Alliance
REMCO Remuneration Committee
RFG Rivers Finance Group Plc
RMF Risk Management Framework
SBA Share Buyback Agreement
Scheme The Conister Trust Pension and Life Assurance Scheme
SICR Significant Increase in Credit Risk
SPPI Solely Payments of Principal and Interest
SR Southern Rock Insurance Company Limited
Subsidiaries MFG's subsidiaries being Bank, BBSL, BLX, CFL, ECF,
EAL, MFX, MVL, NRFL
TCF Treating Customers Fairly
Three Spires Three Spires Insurance Services Limited
UK United Kingdom
UP Unrelated parties
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR JLMRTMTIMBIT
(END) Dow Jones Newswires
March 10, 2022 02:00 ET (07:00 GMT)
Manx Financial (LSE:MFX)
Historical Stock Chart
From Jun 2024 to Jul 2024
Manx Financial (LSE:MFX)
Historical Stock Chart
From Jul 2023 to Jul 2024
