REG - Secure Trust BankPLC - Final Results
13/03/2025 07:15
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RNS Number : 4576A Secure Trust Bank PLC 13 March 2025
PRESS RELEASE
13 March 2025
For immediate release
LEI: 213800CXIBLC2TMIGI76
SECURE TRUST BANK PLC
Preliminary Results for the 12 months to 31 December 2024
Solid growth and improved cost to income ratio
Tangible book value per share increased to £18.64
David McCreadie, Chief Executive, said:
"Secure Trust Bank has remained focused on its medium-term targets and
strategic priorities, delivering on balance sheet growth, stabilising net
interest margin, and delivering cost efficiencies. The business has delivered
an 18.0% increase in its adjusted(1) profit before tax pre impairments. We
have continued to grow our loan book towards our £4 billion target, at which
point we expect to deliver an adjusted(1) return on average equity of 14-16%.
As such, we remain confident in achieving our medium-term targets which we
will have largely delivered by the end of 2025."
Financial Highlights(2)
• 8.8% growth in lending balances to £3.6 billion (2023: £3.3 billion) driven
by record new lending volumes
• Total profit before tax of £29.2 million decreased by 12.6% (2023: £33.4
million)
• Adjusted(1) profit before tax pre impairments up 18.0% to £100.9 million
(2023: £85.5 million)
• Adjusted(1) profit before tax of £39.1 million down 8.2% (2023: £42.6
million)
• Net Interest Margin ('NIM') stable at 5.4% (2023: 5.4%) with improvement in H2
2024 (H2 2024: 5.5%; H1 2024: 5.3%)
• Adjusted(1) cost income ratio improved by 310 bps to 50.9% (2023: 54.0%) (H2
2024: 48.4%, H1 2024: 53.7%). Statutory cost income ratio at 55.8% (2023:
57.5%)
• Project Fusion delivered the initial target of £5 million(3) of annualised
cost savings by the end of 2024, and will deliver a further £3 million(3) of
cost savings in 2025
• Cost of risk increased to 1.8% (2023: 1.4%) impacted by the pause in our
collection processes in Vehicle Finance during H2 2023 and collections
challenges in H1 2024
• Tangible book value per share increased 4.7% to £18.64 per share (2023:
£17.80 per share)
• Exceptional costs of £9.9 million (£6.5 million), includes £6.9 million of
potential redress and costs relating to motor commissions
Secure Trust Bank PLC ('Secure Trust Bank', 'STB' or the 'Group') achieved net
lending growth of 8.8% (£293.2 million), primarily driven by the Consumer
Finance business, which grew by 13.4% (£225.7 million). Business Finance saw
growth of 4.2% (£67.5 million), which was driven by the Real Estate Finance
business with growth of £97.6 million combined with a small year-on-year
reduction in Commercial Finance, which continued to be impacted by a subdued
market. This resulted in a stable NIM of 5.4% (2023: 5.4%), reflecting
improvement in the second half of the year (H2 2024: 5.5%; H1 2024: 5.3%).
Customer deposits reached a record level of £3.2 billion (2023: £2.9
billion) through a combination of growth in Access accounts and ISAs. This
increase alongside the use of ILTR funding enabled us to repay £160.0 million
of TFSME funding in 2024 ahead of maturity. A further £60.0 million of TFSME
funding was repaid by the end of February 2025, leaving £170.0 million
outstanding.
Project Fusion, the Group's cost optimisation programme, continued to
contribute to our adjusted(1) cost income ratio which improved from 54.0% in
2023 to 50.9%, limiting cost growth to 4.1%. Adjusted(1) cost income ratio was
48.4% for H2 2024, reflecting the ongoing growth of the loan book and tight
cost control.
The impairment charge of £61.9 million (2023: £43.2 million) was
significantly impacted by the pause in our collection processes in Vehicle
Finance during the second half of 2023 following the FCA's Borrowers in
Financial Difficulty ('BiFD') review. Delayed repossession and recovery
activities created operational challenges in the first half of 2024 and
resulted in an elevated stock of defaulted loans. Strategic initiatives to
recover a proportion of these defaults were hampered by the market environment
following the Court of Appeal judgment in October 2024. Initiatives to reduce
these excess default balances in Vehicle Finance are underway in 2025. The
credit quality of new lending in the Vehicle Finance business has improved
over time and arrears levels have reduced over the year from 12.2% to 10.0%.
Retail Finance cost of risk improved to 1.0% (2023: 1.4%) reflecting the
quality of business written and IFRS 9 model enhancements. The impairment
charge for the year also reflects a loss of £5.6 million in Commercial
Financial due to a client failing through challenges in the market in which it
operated.
On an adjusted(1) basis the Group achieved a profit before tax of £39.1
million (2023: £42.6 million), a decrease of 8.2%. Total profit before tax of
£29.2 million (2023: £33.4 million) was impacted by exceptional items (£9.9
million) in 2024 (2023: £6.5 million). The Group achieved an adjusted(1)
return on average equity ('ROAE') of 8.0% (2023: 9.6%) and a common equity
tier 1 ratio of 12.3% (2024: 12.7%).
Further information on exceptional items relating to BiFD and motor
commissions are detailed below. The remaining costs were for the Group's
organisational redesign (£1.5 million) relating to employee redundancies,
which will deliver the additional annualised savings under Project Fusion of
£3 million(3) to be realised in 2025.
Capital ratios have reduced in the period by 0.4 percentage points due to the
exceptional items impact of 0.3 percentage points and capital generated being
utilised to support growth in Risk Weighted Assets ('RWAs') and dividends.
Financial summary(2)
2024 2023 Change(4)
%
Total statutory profit before tax £29.2m £33.4m (12.6)
Adjusted(1) profit before tax £39.1m £42.6m (8.2)
Adjusted(1) profit before tax and pre impairments £100.9m £85.5m 18.0
Total basic earnings per share 103.4 pence 129.6 pence (20.2)
Continuing basic earnings per share 103.4 pence 140.8 pence (26.6)
Total ordinary dividend per share 33.8 pence 32.2 pence 5.0
Total return on average equity 5.5% 7.3% (1.8)pp
Adjusted(1) return on average equity 8.0% 9.6% (1.6)pp
Net interest margin 5.4% 5.4% -
Cost of risk 1.8% 1.4% 0.4pp
Adjusted(1) cost income ratio 50.9% 54.0% (3.1)pp
Cost income ratio 55.8% 57.5% (1.7)pp
Net lending balances £3,608.5m £3,315.3m 8.8
Customer deposits £3,244.9m £2,871.8m 13.0
Tangible book value per share £18.64 £17.80 4.7
CET 1 ratio 12.3% 12.7% (0.4)pp
Total capital ratio 14.6% 15.0% (0.4)pp
Optimising for Growth: Further strategic progress
The Group has made good progress against its strategic priorities of Simplify,
Enhance Customer Experience and Leverage Networks during the year. This
strategic progress has driven our loan book growth and cost efficiency.
• As at the end of 2024 Project Fusion has delivered £5 million of annualised
cost savings(3), and will deliver another £3 million(3) of cost savings in
2025, which has mostly been obtained by the Group's organisational redesign.
• Vehicle Finance will complete its move to a single technology platform, which
will facilitate applicants to be matched to our most suitable product offering
based on their credit profile.
• Market share gains in 2024 for both Retail Finance and Vehicle Finance, and
will maximise the opportunities from their strong networks.
Other highlights
• Customer satisfaction remains high, as measured by Feefo, 4.7 stars (2023: 4.6
stars)
• Listed as an official UK Best Workplace™ for the sixth year running, ranking
26 out of 105 companies (large organisations category) and, in the first year
of rankings, for a new category of Development, ranking 26 out of 100
companies (large organisations category).
• We recently became members of Partnership for Carbon Accounting Financial
('PCAF'), which underlines our ongoing commitment to measure and monitor our
environmental impacts as part of our Environmental, Social and Governance
('ESG') strategy, which enhanced our Scope 3 emissions reporting.
• Our initiatives in energy efficiency and cost control led to a 55.5% reduction
in Scope 1 and Scope 2 CO(2)e emissions. This surpasses our target of a 50%
reduction by December 2025, compared to the 2021 baseline.
Regulatory and legal developments
As highlighted at the end of 2023, we have been working on improving our
collections processes, procedures and policies following the FCA's review of
BiFD across the industry. The BiFD review resulted in payments to customers
for historical distress and inconvenience which were materially provided for
in the 2023 accounts. The majority of customer communications have now been
distributed, and we expect to complete activities by the middle of 2025. This
was a delay on our initial timetable, as we took additional time to ensure the
quality and clarity of our correspondence was appropriate for our customers.
We incurred an additional £1.5 million of cost (treated as exceptional)
during 2024, primarily in relation to managing the programme.
In light of legal and regulatory developments, including the FCA's ongoing
review of the historical discretionary commission arrangements ('DCA') in the
motor finance market (January 2024), and the Court of Appeal's judgement
(October 2024) which is currently under appeal, the Group has recognised costs
of £6.9 million (£5.2 million potential redress, £1.7 million costs, of
which £6.4 million is recognised as a provision) for both DCA and fixed
commission structures.
The Vehicle Finance business sometimes operated DCAs until June 2017, stopping
using them well ahead of the FCA banning their use in January 2021. Only 4% of
our Vehicle Finance commission payments had these arrangements. Not all of the
fact pattern in the three Court of Appeal cases is the same as how the Group
operated. A key feature of their fact pattern was the linked sale by a dealer
of the vehicle and the direct introduction of the finance by that same dealer.
Sales by a dealer made up only 20% of our motor commission payments. 80% of
motor commission was not paid through dealers but through brokers and various
other introducers. Due to the uncertain outcomes (including the nature, extent
and timing) of the legal and regulatory developments, we have undertaken
scenario analysis with a number of different assumptions, which have been
probability weighted to estimate a potential exposure. As and when new
information becomes available, these assumptions will be updated accordingly
and so the provision could be materially higher or lower. Further information
can be found in Note 29 to the Financial Statements.
Dividend
The Directors are proposing a final dividend of 22.5 pence per share for 2024,
which will be payable on 22 May 2025 to shareholders on the register at the
close of business on 25 April 2025. The total dividend payable for 2024 is
33.8 pence per share (2023: 32.2 pence per share). This is in line with the
Board's decision to move to a progressive dividend policy for the 2024
financial year, reflecting feedback from shareholders. The total dividend
pence per share represents a 5% increase against prior year.
Outlook
Although 2024 has left us on balance with a more positive economic outlook,
the expected stability and optimism for growth that was promised from a change
in UK government has not yet materialised. Interest rates have started slowly
to come down following a period of stabilised inflation figures, but concerns
exist over growth in the UK economy and the perceived adverse impact of the
new Chancellor's Budget on the market, businesses and consumer confidence.
There has also been additional geopolitical uncertainty due to the change of
legislature in the US, notably how new economic policy will influence global
markets.
2024 has been extremely challenging for specialist banks due to the regulatory
and legal developments that have taken place with respect to historical motor
finance commissions. We are acutely aware that the perceived risk of these
proposed developments is dampening investor sentiment to the sector. We are
hopeful that the industry will receive the clarity it needs on motor finance
commissions mid 2025, and that we can move forward with confidence and renewed
focus on delivering against our strategic objectives.
Subject to no adverse changes in the economy and trading environment, we
expect by the end of 2025 we will be well positioned to have largely delivered
against our £4 billion net lending target.
Medium-term targets 2024 Target
Actual
Net lending balance £3.6bn £4bn
Net interest margin 5.4% >5.5%
Adjusted(1) cost income ratio 50.9% 44-46%
Adjusted(1) return on average equity 8.0% 14% - 16%
CET 1 ratio 12.3% >12.0%
Footnotes:
1. Adjusted metrics exclude exceptional items of £9.9 million (2023: £6.5
million). Details can be found in Note 8 to the Financial Statements.
2. Performance metrics relate to continuing operations, unless otherwise
stated. Further details of the metrics can be found in the Appendix to the
2024 Annual Report and Accounts.
3. £5.0 million cost savings relative to operating expenses for the 12 months
ended December 2021. The additional £3.0 million cost savings relative to
annualised operating expenses for the six months ending 30 June 2024.
4. pp represents the percentage point movement.
Results presentation
This announcement together with the associated investors' presentation are
available
on:www.securetrustbank.com/results-reports/results-reports-presentations
(http://www.securetrustbank.com/results-reports/results-reports-presentations)
Secure Trust Bank will host a webcast for analysts and investors today, 13
March 2025 at 9:00am, which can be accessed by registering at:
https://brrmedia.news/STB_FY24
(https://stream.brrmedia.co.uk/broadcast/6777d587139c6b2fd9c4b45d)
For those wishing to ask a question, please dial into the event by conference
call:
Dial +44 (0)330 551 0200
UK Toll Free: 0808 109 0700
Confirmation code (if prompted): Secure Trust Bank
Enquiries:
Secure Trust Bank PLC
David McCreadie, Chief Executive Officer
Rachel Lawrence, Chief Financial Officer
Phil Clark, Investor Relations
Tel: +44 (0) 121 693 9100
Investec Bank plc (Joint Broker)
Chris Baird
David Anderson
Maria Gomez de Olea
Tel: +44 (0) 20 7597 5970
Shore Capital Stockbrokers (Joint Broker)
Mark Percy / Rachel Goldstein (Corporate Advisory)
Guy Wiehahn (Corporate Broking)
Tel: +44 (0) 20 7408 4090
Camarco
Ed Gascoigne-Pees, Geoffrey Pelham-Lane, Sean Palmer
securetrustbank@camarco.co.uk (mailto:securetrustbank@camarco.co.uk)
Tel: +44 (0) 7591 760844
Forward looking statements
This announcement contains forward looking statements about the business,
strategy and plans of STB and its current objectives, targets and expectations
relating to its future financial condition and performance. Statements that
are not historical facts, including statements about STB's or management's
beliefs and expectations, are forward looking statements. By their nature,
forward looking statements involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future. STB's actual
future results may differ materially from the results expressed or implied in
these forward looking statements as a result of a variety of factors. These
include economic and business conditions, risks from failure of clients,
customers and counterparties, market related risks including interest rate
risk, risks regarding market conditions outside STB's control, expected credit
losses in certain scenarios involving forward looking data, operational
risks, legal, regulatory, or governmental developments, and other factors.
The forward looking statements contained in this announcement are made as of
the date of this announcement, and (except as required by law or regulation)
STB undertakes no obligation to update any of its forward looking statements.
Group at a glance
Our strategic progress
Simplify
· Initial Project Fusion target achieved, with £5 million annualised cost
savings¹
· Organisational redesign completed with IT and Operations consolidated under a
single management structure
· New Project Fusion target announced at half year on track to achieve an
additional £3 million annualised cost savings(1) in 2025
· Delivered over 50% reduction in Scope 1 and Scope 2 CO(2) target for
emissions one year early (since 2021)
· Delivering our cost savings target improves our cost income ratio and return
on equity
Enhance customer experience
· Digital-first approach for Savings, delivering an enhanced online application
process
· Over 87% self-service adoption in Retail Finance, and app rollout to allow
customer self-servicing
· Automated savings bond maturity process implemented
· Customer Feefo score of 4.7 stars and 4.6 stars for Trustpilot
· Delivering cost-efficiency and balance sheet growth by retaining satisfied
customers
Leverage networks
· Extended contracts with key furniture and jewellery retailers in Retail
Finance
· Extensive distribution relationships across consumer businesses
· Repeat business and client retention within Business Finance from established
relationships
· Market share gains of new business in both Retail Finance and Vehicle Finance
· Driving growth in net lending and net interest margin as our balance sheet mix
moves towards consumer lending
Enabled by technology
· Vehicle Finance rate for risk platform launched, facilitating applicants to be
matched to our products
· Use of AI tools and automated data gathering in complaints handling
· Savings app enhancements, with more transactional activity and over 30% of
customers registered
· Platforms proven to be scalable and flexible with increased partner API
integrations
· A digital-first approach supports cost-efficiencies and growth capacity
1. £5.0 million cost savings relative to operating expenses for the 12 months
ended December 2021. The additional £3.0 million savings will be relative to
annualised operating expenses for the six months ended 30 June 2024.
Chair's statement
We have delivered a resilient performance in 2024, in a challenging operating
environment with elevated inflation, continued high interest rates, a new UK
government and slowing economic growth, causing uncertainty across the markets
in which we operate. In addition, like many other firms across the sector, we
faced significant legal and regulatory headwinds, which have created further
uncertainty and disruption.
Despite these challenges, we have continued to focus on delivering for our
customers, which has driven continued lending growth across both our Consumer
and Business Finance segments. During the year, we have taken decisions to
refocus our Vehicle Finance business, invest in our collections
capability and simplify our organisational design, further reducing
complexity and costs.
First impressions
I joined Secure Trust Bank because I believe in the underlying strength of the
business and the strategic growth opportunities available. Since my
appointment as Chair in May 2024, I have engaged with many people across the
business and visited our key offices, which has served to reinforce my initial
views. I have been particularly impressed by the commitment shown by our
people, who are dedicated to delivering for our customers and helping them
to fulfil their ambitions. This focus on our customers and achieving good
outcomes for them, will drive our future success.
I have welcomed the opportunity to meet with many of our major shareholders
and hear their views, on the business and the markets in which we operate.
This engagement has been very valuable as I have transitioned into the Chair
role.
In-line with feedback from shareholders, we have enhanced our segmental
reporting, providing greater granularity on the performance of each business
unit, further information on which can be found in Note 3 of the Financial
Statements.
Business performance
Adjusted(1) profit before tax for the year ended 31 December 2024 was £39.1
million (2023: £42.6 million) and statutory profit before tax was £29.2
million (2023: £36.1 million). Excluding impairment charges, which were
impacted by the FCA's Borrowers in Financial Difficulty ('BiFD') review as
explained in the following section, adjusted(1) profit before tax
pre-impairments increased 18.0% to £100.9 million (2023: £85.5 million).
Adjusted(1) return on average equity has decreased to 8.0% from 9.6% in 2023;
improving the bank's return on equity across the business units is a key area
of focus for the Board and management.
We have taken several decisions during the year to accelerate the growth in
our return on equity, particularly within our Vehicle Finance business, where
we have refined our strategy to focus on higher returning segments of the
market and made further investments to improve our collections processes.
Across the Group we have implemented centralised operating and governance
models, which have reduced complexity, improved the consistency of service to
clients, delivered cost efficiencies and resulted in a more agile
organisation.
Legal and regulatory developments
The FCA's BiFD review and subsequent engagement with the regulator meant the
Group paused collections processes in our Vehicle Finance business during the
second half of 2023. During the year, we have invested in our collections
capabilities, to enhance the outcomes for our customers and improve our
processes. The reduced collections activity into 2024 resulted in a material
increase in our impairment charges in 2024, which impacted our profitability
for the year. Collections activity returned to normalised levels during H2 24
and we are considering options to manage the level of defaulted stock.
Separately, in January 2024 the FCA launched a review of the historic use of
discretionary commission arrangements ('DCAs') in the motor finance market.
DCAs were prohibited by the FCA in 2021, although the Group ceased these types
of arrangements well before in June 2017.
The Court of Appeal's October 2024 judgment on three motor commission cases
led to lending pauses and uncertainty across the motor finance market and is
the subject of a Supreme Court appeal. There are important differences in the
fact patterns in those cases and our lending model. We also believe that key
aspects of the judgment, if upheld, go beyond the regulatory requirements
applied by the FCA, and generally understood by market participants, at the
time. Further information can be found in Note 29 of the Financial Statements.
Immediately before the Court of Appeal's judgment, the Company's share price
had increased by 18% for the year to October. After this judgment and with the
continuing uncertainty in the sector, our share price fell by 48% to £3.62 as
at 31 December 2024, significantly below the Group's tangible book value of
£18.64.
Capital management and dividend
As at 31 December 2024 the Group's Common Equity Tier 1 ratio was 12.3%
(2023:12.7%). The optimal deployment of our capital and the returns it
generates will be a key area of focus during 2025, as we balance maintaining a
healthy capital surplus with investing for growth and returns to shareholders.
With effect from the 2024 AGM we implemented a new progressive dividend
policy, which means dividends will be no less than that of the previous year.
Under the policy the Board will consider the Group's capital requirements,
liquidity and market expectations in determining the specific amount. In-line
with that policy the Board proposes a final dividend of 22.5 pence per share
(2023: 16.2 pence per share), which if approved by shareholders at the
Company's 2025 AGM, will be paid on 22 May 2025 to those shareholders on the
register on 25 April 2025.
Governance
There have been a number of changes to the Board during the year. Victoria
Stewart, a Non-Executive Director and Chair of the Remuneration Committee,
stood down from the Board on 31 December 2024, after entering her ninth year
as a Director. I would like to thank Victoria for her stewardship of the
Remuneration Committee and her wider contribution to the development of the
Group throughout her tenure.
In October, we welcomed Julie Hopes to the Board, who succeeded Victoria as
Chair of the Remuneration Committee with effect from 31 December 2024. Julie
has strong experience of Chairing Remuneration Committees, particularly within
Financial Services, and brings a strategic mindset, experience of business
transformation and a strong focus on consumers.
In October, we also appointed Victoria Mitchell, an existing Non-Executive
Director to our Risk Committee. Victoria previously served as the Chief Risk
Officer of Capital One (Europe) plc and her experience further strengthens and
broadens the experience of the Risk Committee.
Outlook
We have a strong, diversified business and see significant growth
opportunities in sectors in which we operate. We believe our customer focus
positions us well to capitalise on these opportunities and increase our return
on equity.
As highlighted, there remains significant legal and regulatory uncertainty
across the motor finance sector and the wider macroeconomic environment.
Supporting the management team to address the potential implications of the
Supreme Court's decision is a priority for the Board.
Throughout this, we will continue to focus on building momentum across our
business units, the effective deployment of our capital and increasing our
return on equity.
I would like to sincerely thank our customers for their continued trust and
our colleagues for their hard work throughout the year; they have demonstrated
their resilience and have remained dedicated to delivering for our customers,
shareholders and other stakeholders.
1. Adjusted metrics exclude exceptional items of £9.9 million (2023: £6.5
million). Details can be found in Note 8 to the Financial Statements.
Chief Executive's statement
There were a number of challenges that presented themselves during the year,
and so, I was pleased that while navigating those, we were also able to
deliver improvements, particularly in the second half of the year across
lending growth, net interest margin and adjusted(1) cost income ratio. This
has been achieved with a Common Equity Tier 1 ('CET 1') ratio of 12.3%.
Full-year adjusted(1) profit before tax pre impairments increased by 18.0% to
£100.9 million (2023: £85.5 million). Statutory profit before tax was £29.2
million (2023: £36.1 million).
Progress against our medium-term targets has been encouraging. We achieved an
8.8% growth in net lending (2024: £3.6 billion; 2023: £3.3 billion), moving
us closer to our £4.0 billion target and stabilised our net interest margin
at 5.4% (2023: 5.4%), just below our target of greater than 5.5%, despite
incurring higher funding costs. Project Fusion, our cost optimisation
programme, prudent cost management and continued income growth contributed to
an improvement in our adjusted(1) cost income ratio to 50.9% (2023: 54.0%), a
reduction of 310 basis points. Statutory cost income ratio was 55.8% (2023:
57.5%). This is excellent progress towards our target of 44% to 46%. Continued
growth in net lending and net interest margin and effective cost management
will drive us towards delivering our target return on average equity ('ROAE')
of 14% to 16%.
Although the year saw a reduction in the Bank of England Base Rate, we have
operated in a highly competitive interest rate environment for Savings
accounts. We continue to offer competitive rates to depositors, attracting
significant levels of new funding (£1.6 billion), as well as retaining
matured funds (£0.9 billion). Our deposits are entirely from retail customers
and more than 95% of deposits are fully covered by the FSCS. We have achieved
this, despite the challenges we have faced in 2024, with a high interest rate
environment and uncertainty around timing of interest rate cuts, slowing
economic growth and political changes. This has impacted demand for credit,
particularly in Business Finance. We continued to manage credit exposures in a
disciplined way and remained agile in managing our balance sheet.
Cost of risk increased from 1.4% to 1.8% and was impacted by the secondary
impact of the pause in our collection processes in Vehicle Finance during the
second half of 2023, which resulted in an elevated stock of defaulted loans
(see section on Regulatory and legal interventions), which increased
impairment charges for the year. As a consequence, the cost of risk for
Vehicle Finance increased from 3.4% in 2023 to 7.7%. Unfortunately, the
initiatives we hoped would restore performance of the Vehicle Finance
portfolio towards a normal level for year-end, were not possible to fully
execute due to the market environment. We continue to pursue strategic options
to manage down the stock of historic defaulted balances. Retail Finance cost
of risk improved to 1.0% (2023: 1.4%) reflecting the quality of business
written and IFRS 9 model enhancements, which resulted in some one-off
provision releases.
As a result, we delivered an adjusted(1) profit before tax of £39.1 million
(2023: £42.6 million) in the year, which impacted our adjusted(1) ROAE of
8.0% (2023: 9.6%). Total ROAE was 5.5% (2023: 7.3%). Three of our specialist
businesses grew profitability year-on-year. The higher cost of risk in Vehicle
Finance impacted our overall results. Further insight is shared in our
segmental reporting which can be found in Note 3 to the Financial Statements.
With our four specialist lending segments all offering compelling propositions
in large addressable markets, we have solid foundations in place to make
further market share gains. This is demonstrated by our strong track record in
recent years. We saw gains in Retail Finance's market share of new business,
which grew to 15.3%(2); this continues to grow year-on-year (2023: 13.5%).
Vehicle Finance's market share of new business was 1.4%(3) increasing its
position from 2023 (1.2%). As a result, this contributed to net lending growth
in the Consumer Finance businesses of 13.4% (£225.7 million) since 2023.
Business Finance increased by £67.5 million, despite a subdued trading
environment.
During the year, we took the opportunity to showcase our Real Estate Finance
and Commercial Finance businesses at Capital Markets events held in July and
November. Further details can be found on our website
www.securetrustbank.com/presentations
1. Adjusted metrics exclude exceptional items of £9.9 million (2023: £6.5
million). Details can be found in Note 8 to the Financial Statements.
2. Source: Finance & Leasing Association ('FLA'): New business values
within retail store and online credit: 2024 15.3% (2023: 13.5%): FLA total and
Retail Finance new business of £8,427million (2023: £8,810 million) and
£1,289.7 million (2023: £1,185.4 million) respectively. As published at 31
December 2024.
3. Source: FLA. Cars bought on finance by consumers through the point of sale:
New business values: 2024 1.4% (2023: 1.2%): Used cars: 2024, FLA total and
Vehicle Finance total of £21,281 million (2023: £22,082 million) and £294.4
million (2023: £260.0 million) respectively. As published at 31 December
2024.
Key performance indicators
The following key performance indicators are the primary measures used by
management to assess the performance of the Group.
Financial
Loans and advances to customers (bn)
2020 2021 2022 2023 2024
2.2 2.5 2.9 3.3 3.6
Why we measure this
Shows the growth in the Group's lending balances, which generate income
Net interest margin (%)
2020 2021 2022 2023 2024
6.1 6.1 5.7 5.4 5.4
Why we measure this
Shows the interest margin earned on the Group's lending balances, net of
funding costs
Total return on average equity (%)
2020 2021 2022 2023 2024
5.9 15.9 10.8 7.3 5.5
Why we measure this
Measures the Group's ability to generate profit from the equity available
to it
Common Equity Tier 1 ('CET 1') ratio (%)
2020 2021 2022 2023 2024
14.0 14.5 14.0 12.7 12.3
Why we measure this
The CET 1 ratio demonstrates the Group's capital strength
Cost to income ratio (%)
2020 2021 2022 2023 2024
Statutory 56.6 60.0 55.0 57.5 55.8
Adjusted(1) 56.6 60.0 55.0 54.0 50.9
Why we measure this
Measures how efficiently the Group uses its cost base to produce income
1. Adjusted cost to income ratio excludes exceptional items.
Cost of risk (%)
2020 2021 2022 2023 2024
2.0 0.2 1.4 1.4 1.8
Why we measure this
Measures how effectively the Group manages the credit risk of its lending
portfolios
Non-financial
Customer Feefo ratings (Stars)(2)
2020 2021 2022 2023 2024
4.7 4.6 4.6 4.6 4.7
Why we measure this
Indicator of customer satisfaction with the Group's products and services
2. Mark out of 5 based on star rating from 1,661 reviews (2023:1,989; 2022:
990; 2021: 937; 2020: 1,466).
Employee survey trust index score (%)
2020 2021 2022 2023 2024
82.0 80.0 85.0 83.0 74.0
Why we measure this
Indicator of employee engagement and satisfaction
Environmental intensity indicator(3)
2020 2021 2022 2023 2024
3.1 3.0 2.8 2.0 1.5
3. Total Scope 1, 2 and certain Scope 3 emissions per £million Group
operating income.
Why we measure this
Indicator of the Group's impact on the environment
Certain key performance indicators represent alternative performance measures
that are not defined or specified under International Financial Reporting
Standards ('IFRS').
Definitions of the financial key performance indicators, their calculation and
an explanation of the reasons for their use can be found in the Appendix to
the 2024 Annual Report and Accounts.
All key performance indicators are presented on a continuing basis, unless
otherwise stated.
Further information on discontinued operations are included in Note 10 to the
Financial Statements.
Further explanation of the financial key performance indicators is discussed
in the narrative of the Financial Review.
Further explanation of the non-financial key performance indicators is
provided in the Managing our Business Responsibly and Climate-Related
Financial Disclosures sections.
The Directors' Remuneration report in the 2024 Annual Report and Accounts,
sets out how executive pay is linked to the assessment of key financial and
non-financial performance indicators.
Strategic priorities
Our strategic priorities are simplifying the Group, enhancing customer
experience and leveraging our networks, all enabled by technology. These are
the right priorities to Optimise for Growth, and will enable us to progress
towards delivering all of our medium-term targets.
Simplify
A key initiative of simplification has been Project Fusion, where we achieved
the target of £5 million(1) in annualised savings at the end of 2024. This
was achieved through a sustained focus on cost discipline and we contained our
year-on-year cost growth at 4.1%. We continued with supplier reviews to
crystallise cost savings, and implemented technology enhancements. This year,
this included migrating the e-signing of lending agreements to use in-house
developed technology for our Retail Finance business, eliminating the need to
use a third party.
The update in our Project Fusion target, announced at the half year, to £8
million(1) in annualised savings reflected material cost savings from
organisational redesign. In the first half of the year, we consolidated our IT
and Operations teams under the Group's Chief Operating Officer, and in the
second half of the year this was further refined where we amalgamated
product-specific teams under a single management structure. In addition, there
were changes within Finance and the Risk Function to ensure they are
configured to support the business in the most effective way, this also led to
the creation of several new roles. The organisational changes will drive a
simpler and more cost-efficient structure, remove duplication and provide
clearer career paths and development opportunities. The changes did result in
a redundancy programme, which resulted in some colleagues leaving the
organisation, at a cost of £1.5 million. I would like to thank all colleagues
who have left the business for their hard work and dedication and wish them
well for the future. Although not an easy decision to make, these changes
position the Group for future success. The organisational changes work was
completed in December 2024, and the £3 million cost savings will be fully
realised in 2025.
Combined, these initiatives give us high confidence in driving our cost income
ratio to our target of 44 to 46% as we achieve our ambition for net lending of
£4 billion. With that in mind, we are currently undertaking a strategic
review of our business activities and future opportunities to inform the
Group's future ambition and objectives beyond 2025.
Enhance customer experience
We are pleased to see that our customers are taking advantage of our digital
platforms. During the year, we invested in enhancing our savings application
process by simplifying the customer journey on our website. This included
making the process a lot more user friendly, and better supporting customers
with accessibility needs.
Over 97.1% of our Savings customers are registered to use online banking
(2023: 95.8%). Since the launch of our Savings app in 2023, we have seen
further uptake of app registrations, which is now at 30.1% and saw over half
of servicing transactions being submitted on the Savings app for Access and
Notice accounts.
More customers than ever (87.4%) have registered with our Retail Finance
online account management system (2023: 80.4%). We also re-launched our
AppToPay app, which now offers a mobile-based service platform for all our
Retail Finance products, allowing customers to self-serve and initiate
payments (see below for further details).
We continue to focus on customer outcomes and improving customer satisfaction,
and again we score highly with Feefo, achieving 4.7 (2023: 4.6) for our
Consumer Finance businesses. In addition, our Retail Finance business was
nominated for Best Consumer Credit Product at the Credit Awards.
Within Business Finance, our Commercial Finance business was recognised by
TheBusinessDesk.com North West Rainmakers Award, and was nominated for the
'Asset- based Lending Team'. In September, the business surpassed this and won
the ABL/Non-Bank Lender of the Year award at the Midlands Insider Deal Makers
Awards, a great achievement. Internal customer satisfaction reviews showed a
97% satisfaction score, which is a testament to a business that is highly
reliant on expertise and relationship management model. In Real Estate
Finance, 100% of respondents rated the service they receive from the team as
'Excellent'.
Leverage networks
Our relationships with partners, retailers, car dealers, intermediaries, new
business originators and advisers support our growth.
Our Retail Finance net lending balance of £1.4 billion (2023: £1.2 billion)
was supported by nearly 1,100 retail partners. 2024 saw the business secure
longer-term contracts with a large furniture retailer and a jewellery
retailer, and gaining new retailers in the lifestyle sector. Vehicle Finance
saw an increase of 19.5% in its net lending balance growing from £0.47
billion to £0.56 billion.
API integration is a key feature in our offering to our consumer distribution
networks. This enables us to work seamlessly with our partners, creating
efficient working practices across both partner organisations and internally.
This has long been an advantage as part of our Retail Finance offering to
retail partners, integrating at speed.
The power of our relationship model in Real Estate Finance has seen new
lending to existing clients increase from 36% in 2021 to 67% in 2024, with
reliance on new lending origination from brokers declining from 42% to 13%
over the same period. This retention model has the benefit of reduced cost of
customer acquisition and provides greater knowledge of customers' risk
profiles.
1. £5.0 million cost savings relative to operating expenses for the 12 months
ended December 2021. The additional £3.0 million savings (of the £8.0
million) will be relative to annualised operating expenses for the six months
ending 30 June 2024.
Enabled by technology
In October, we rolled-out the enhanced capability of our modern Vehicle
Finance origination and loan management platform, which is now capable of
hosting all new business across products and risk segments. Importantly,
customer applications submitted by intermediaries will cascade through our
credit tiers and be matched to the most appropriate product terms, which will
enable us to offer loans to more customers. This represents a significant
investment made over several years allowing us to move forward with technology
designed for the market and allow us to migrate away from legacy high
maintenance systems.
As noted, we re-launched our AppToPay proposition in December. Initial data
shows customers taking advantage of making payments through open-banking,
which is more convenient for the customer, and more cost-efficient for the
Group. The app provides the initial foundations for providing customers and
retailers opportunities to access our full Retail Finance product suite.
Regulatory and legal interventions
As highlighted at the end of 2023, we were working on improving our
collections processes, procedures and policies following the FCA's review of
Borrowers in Financial Difficulty ('BiFD') across the industry. Customers are
now being offered a wider range of forbearance options to support them through
financial difficulties. We have identified that it is appropriate to pay £2.2
million to customers (of which £2.0 million was recognised in 2023) where we
could have supported them better due to their individual circumstances. A
significant part of the customer communications have now been distributed, and
we expect to complete activities by the middle of 2025. This was a delay on
our initial timetable, as we took additional time to ensure the quality and
clarity of our correspondence was appropriate for our customers. We incurred
an additional £1.5 million of costs (treated as exceptional) during 2024,
primarily in relation to managing the programme.
The BiFD review resulted in a larger stock of defaulted loans within our
Vehicle Finance business and increased the associated loan impairment
provision. The stock of defaulted Vehicle Finance loans has remained elevated
throughout the year, and as noted above, market conditions were not conducive
to deliver on our strategic plans to normalise the position by year-end. The
impairment charges recognised on the defaulted stock is not a reflection of
the underlying quality of the business being originated. Collections
activities returned to normal as the year progressed and arrears levels have
reduced over the year.
In light of legal and regulatory developments, including the FCA's ongoing
review of historical discretionary commission arrangements ('DCA') in the
motor finance market, and the Court of Appeal's judgment which is currently
under appeal, we have recognised costs of £6.9 million (£5.2 million
redress, £1.7 million costs) for both DCA and fixed commission structures.
There are important factual differences between those cases and how we
operated. Further information can be found in Note 29 to the Financial
Statements.
Environmental, Social and Governance ('ESG')
We have made progress against all our ESG focus areas during the year and
refreshed our strategy to ensure it is reflective of our ESG aspirations
moving forwards.
We were again recognised by UK's Best Workplaces™ by Great Place to Work®
for a number of accolades. This is supported by colleagues completing employee
opinion surveys at the end of 2023. The Group undertook a survey towards the
end of 2024 and achieved a trust index score of 74% (2023: 83%). We had
anticipated this fall, with the survey being undertaken during the rollout of
our organisational redesign programme, which led to a period of uncertainty
for many colleagues and a number of roles ultimately being made redundant.
However, the score remained high against similar size organisations, which is
positive considering the wide impact of change. I appreciate this time has
been very challenging for those impacted as well as those remaining within the
organisation. I would like to extend my personal thanks to colleagues for
their hard work and commitment while we worked through this period of change.
Our colleagues continued to work hard to donate their time and efforts to
support and raise funds for charity across a number of events, which included
a golf day and the Three Peaks Challenge, raising nearly £100,000 for great
causes this year.
As part of our ongoing work on Climate Action, we have become members of the
Partnership for Carbon Accounting Financials ('PCAF'). Our membership of PCAF
underlines our ongoing commitment to monitor and manage our environmental
impacts as part of our ESG strategy. We have enhanced our emission disclosures
around Scope 3 (see Climate-related financial disclosures in the 2024 Annual
Report and Accounts). We also surpassed our goal to reduce our Scope 1 and 2
emissions by 50% (from 2021) a year early. During 2024, initiatives such as
reducing our office footprint have contributed towards this reduction. We
continue to look at internal initiatives to also support the impact we have on
the environment, having launched a new employee benefit, a green car scheme,
that is enabling our colleagues to lease brand new electric or plug-in hybrid
vehicles.
Changes in Executive Committee
During the year, we saw some changes to our Executive Committee. John Bevan
who oversaw the Commercial Finance business retired at the end of the year.
John was with the Group for over 10 years, establishing the Commercial Finance
business in 2014 and growing it to be a significant player in the asset-based
lending market. Geoff Ray, Managing Director of the Real Estate Finance
business, will retire in April 2025. Geoff joined the business in its early
days and has been an integral part of its leadership team. Both have played a
key role in developing their teams and growing their franchises with huge
passion for their respective sectors. I would like to thank them both for the
valuable contribution and wish them well in their retirement.
I would like to welcome Luke Jooste, who joined us on 1 March 2025 from
Momenta Finance where he was the Chief Executive Officer. Luke has been
appointed as Managing Director, Business Finance and will provide a fresh
perspective to both Commercial and Real Estate Finance, and be the Executive
Committee lead in setting the future strategy for our proposition to business
customers.
Outlook
On balance, 2024 ended with a more positive economic outlook than 2023 with
issues such as COVID and the cost-of-living crisis seeming to be largely
behind us. However, the expected stability and optimism for growth that was
promised from a change in UK government has not yet materialised. Whilst
interest rates have started to slowly come down following a period of
stabilised inflation figures, concerns over growth in the UK economy and the
perceived adverse impact of the new Chancellor's Budget on the market,
businesses and consumer confidence. There has also been additional
geopolitical uncertainty due to the change of legislature in the US.
2024 has been extremely challenging for specialist banks due to the legal and
regulatory developments relating to motor finance commissions. We are hopeful
that the industry will receive the clarity it needs in 2025, and that we can
move forward with confidence and renewed focus on delivering against our
strategic objectives.
Subject to no adverse changes in the economy and trading environment, we
expect by the end of 2025 we will have clear line of sight to delivering
against our medium-term targets. With that in mind, we are currently
undertaking a Group-wide review of our business activities. We have made an
initial decision to re-focus the Vehicle Finance business on higher returning
segments. I intend to provide an update on the outcome of this work in our
2025 Interim Report.
Financial review
Income statement
2024 2023 Movement
%
£million £million
Continuing operations
Interest income and similar income 366.0 304.0 20.4
Interest expense and similar charges (181.1) (136.5) 32.7
Net interest income 184.9 167.5 10.4
Fee and commission income 19.2 17.3 11.0
Fee and commission expense (0.2) (0.1) 100.0
Net fee and commission income 19.0 17.2 10.5
Operating income 203.9 184.7 10.4
Net impairment charge on loans and advances to customers (61.9) (43.2) 43.3
Other (losses)/gains (0.3) 0.3 (200.0)
Fair value and other gains on financial instruments 1.2 0.5 140.0
Operating expenses (103.8) (99.7) 4.1
Profit before income tax from continuing operations before exceptional items 39.1 42.6 (8.2)
Exceptional items (9.9) (6.5) 52.3
Profit before income tax from continuing operations 29.2 36.1 (19.1)
Income tax expense (9.5) (9.7) (2.1)
Profit for the year from continuing operations 19.7 26.4 (25.4)
Discontinued operations
Loss before income tax from discontinued operations - (2.7) (100.0)
Income tax credit - 0.6 (100.0)
Loss for the year from discontinued operations - (2.1) (100.0)
Profit for the year 19.7 24.3 (18.9)
Basic earnings per share (pence) - Adjusted 150.1 172.3 (12.9)
Basic earnings per share (pence) - Continuing 103.4 140.8 (26.6)
Basic earnings per share (pence) - Total 103.4 129.6 (20.2)
Selected key performance indicators and performance metrics 2024 2023 Percentage point movement
% %
Net interest margin 5.4 5.4 -
Net revenue margin 6.0 6.0 -
Adjusted cost to income ratio 50.9 54.0 (3.1)
Statutory cost to income ratio 55.8 57.5 (1.7)
Cost of risk 1.8 1.4 0.4
Adjusted return on average equity 8.0 9.6 (1.6)
Total return on average equity 5.5 7.3 (1.8)
Common Equity Tier 1 ratio 12.3 12.7 (0.4)
Total capital ratio 14.6 15.0 (0.4)
Certain key performance indicators and performance metrics represent
alternative performance measures that are not defined or specified under
International Financial Reporting Standards ('IFRS'). Definitions of these
alternative performance measures, their calculation and an explanation of the
reasons for their use can be found in the Appendix to the 2024 Annual Report
and Accounts.
All key performance indicators are presented on a continuing basis, unless
otherwise stated. Adjusted profit before tax refers to profit before income
tax from continuing operations before exceptional items. Further information
on exceptional items are included in Note 8 of the Financial Statements.
The Directors' Remuneration report in the 2024 Annual Report and Accounts,
sets out how executive pay is linked to the assessment of key financial and
non-financial performance metrics.
In 2024, we delivered strong lending growth, particularly within our Consumer
Finance businesses, with net lending growth, of 8.8% driving income growth of
10.4% at a stable netinterest margin. Cost growth has been actively managed
and contained at 4.1%, but we have incurred higher impairments within our
Vehicle Finance business due to the operational impacts of the FCA's review of
Borrowers in Financial Difficulty ('BiFD'). The Group achieved an adjusted
profit before tax of £39.1 million (2023: £42.6 million), with the Common
Equity Tier 1 ('CET 1') ratio of 12.3%.
Increased impairment charges have reduced profits, resulting in total Earnings
Per Share ('EPS') decreasing from 129.6 pence per share (2023) to 103.4 pence
per share. On an adjusted basis, EPS decreased to 150.1 pence per share (2023:
172.3 pence per share). Total return on average equity decreased from 7.3%
(2023) to 5.5%. On an adjusted basis, return on average equity decreased to
8.0% (2023: 9.6%).
Detailed disclosures of EPS are shown in Note 11 to the Financial Statements.
The components of the Group's profit are analysed in more detail in the
following sections.
Operating income
The Group's operating income increased by 10.4% to £203.9 million (2023:
£184.7 million). Net interest income on the Group's lending assets continues
to be the largest component of operating income. This increased by 10.4% to
£184.9 million (2023: £167.5 million), driven by growth in net lending
assets, with average balances increasing by 10.1% to £3,413.9 million (2023:
£3,099.4 million).
The Group's net interest margin was maintained at 5.4% (2023: 5.4%) by
actively increasing gross yields to reflect the higher cost of funds.
The Group's other income, which relates to net fee and commission income,
increased by 10.5% to £19.0 million (2023: £17.2 million).
Impairment charge
Impairment charges increased to £61.9 million (2023: £43.2 million)
resulting in an increased Group cost of risk of 1.8% (2023: 1.4%).
Increased expected credit losses in the Vehicle Finance business have been the
principal reason for the increased impairment charges. Vehicle Finance has
experienced increased levels of customer defaults due to a pause in
collections activities from second half of 2023 as the business addressed the
specific feedback received following the FCA's review of BiFD. The credit
quality of new lending in the Vehicle Finance business has improved over time
and arrears levels have reduced over the year.
Impairment charges are lower year on year across all other lending businesses.
Retail Finance has originated a greater mix of higher-quality loans and also
updated to reflect an improved debt sale arrangement. Both Business Finance
businesses have incurred charges on specific cases but, overall, the
portfolios performed better than 2023.
Overall impairment provisions increased to £111.8 million (2023: £88.1
million) with a total coverage level of 3.0% (2023: 2.6%).
During the financial year, the Group refreshed macroeconomic inputs to its
IFRS 9 Expected Credit Loss ('ECL') models, incorporating its external
economic adviser's latest UK economic outlook. The forecast economic
assumptions within each IFRS 9 scenario, and the weighting applied, are set
out in more detail in Note 16 to the Financial Statements.
The Group has applied Expert Credit Judgements ('ECJ's') underlays totalling
£5.7 million (2023: £1.2 million underlay), where management believes the
IFRS 9 modelled output is not accurately reflecting current risks in the loan
portfolios. The majority of the ECJ underlays of £4.5 million (2023: £2.1
million) relate to the Vehicle Finance lending portfolios LGD stage 1 and 2
recovery assumptions being understated in the model; which will be updated in
2025. Further details of these ECJs are included in Note 16 to the Financial
Statements. During the year, the Group implemented a new IFRS 9 model for
Vehicle Finance prime lending and an enhanced Probability of Default model for
Retail Finance. These better reflect the underlying credit quality of business
written and has reduced the need for ECJ's. We have also updated IFRS 9
Significant Increase in Credit Risk ('SICR') criteria, and implemented a new
curing policy for Consumer Finance, further information can be found in Note
16 to the Financial Statements.
Fair value and other gains on financial instruments
The Group has highly effective hedge accounting relationships, and, as a
result, recognised a small hedging ineffectiveness gain of £0.1 million
(2023: £0.1 million gain) and £0.6 million gain (2023: £nil) relating to
hedge accounting inception and amortisation adjustments (See Note 5 to the
Financial Statements). The Group also recognised a gain of £0.5 million
(2023: £0.8 million loss) relating to interest rate swaps being entered into
ahead of hedge accounting becoming available, which will reverse to the income
statement over the remaining life of the swaps.
During 2023, the Group realised a gain of £1.2 million on the buy-back of the
2018 Tier 2 debt.
Operating expenses
The Group's adjusted cost income ratio improved to 50.9% (2023: 54.0%) with
the cost base increasing by 4.1% to £103.8 million (2023: £99.7 million).
The improved ratio reflects both the increase in operating income and the
ongoing programme of initiatives that are driving more efficient and effective
operational processes, including digitalisation of processes, supplier and
procurement reviews, organisational design and property management. As at the
end of 2024, Project Fusion has delivered £5 million of annualised cost
savings(¹), and will deliver another £3 million of additional annualised
savings(1) in 2025. Statutory cost income ratio inclusive of exceptional items
was 55.8% (2023: 57.5%).
Taxation
The effective tax rate on continuing activities of 32.5%, increased compared
with 2023 (26.9%) primarily as a result of non-deductible expenses in
exceptional items.
Exceptional items
The Group recognised charges for exceptional items of £9.9 million during the
year (2023: £6.5 million).
Further costs have been recognised in 2024 following the FCA's review of BiFD
across the industry of £1.5 million (£1.3 million costs and £0.2 million
potential redress/goodwill). £4.7 million was recognised in 2023 (£2.7
million costs and £2.0 million potential redress/goodwill).
In light of the FCA's ongoing review of historical discretionary commission
arrangements ('DCA') in the motor finance market, and the Court of Appeal's
judgment which is currently under appeal, we have recognised costs of £6.9
million (£5.2 million redress, £1.7 million costs) for both DCA and fixed
commission structures. Further information can be found in Note 29 to the
Financial Statements.
Following an organisational redesign in 2024, £1.5 million was incurred for
restructuring costs. In 2023, the Group recognised charges in relation to
non-recurring corporate activity of £1.8 million.
Further details on all Exceptional items are included in Note 8 to the
Financial Statements.
Distributions to shareholders
The Board recommended the payment of a final dividend for 2024 of 22.5 pence
per share, which together with the interim dividend of 11.3 pence per share,
represents a total dividend for the year of 33.8 pence per share (2023: 32.2
pence per share). This is in line with the Group's progressive dividend
policy.
1. £5.0 million cost savings relative to operating expenses for the 12 months
ended December 2021. The additional £3.0 million savings will be relative to
annualised operating expenses for the six months ending 30 June 2024.
Summarised balance sheet
Assets 2024 2023
£million £million
Cash and Bank of England reserve account 445.0 351.6
Loans and advances to banks 24.0 53.7
Loans and advances to customers 3,608.5 3,315.3
Fair value adjustment for portfolio hedged risk (6.8) (3.9)
Derivative financial instruments 14.3 25.5
Other assets 31.7 35.8
4,116.7 3,778.0
Liabilities
Due to banks 365.8 402.0
Deposits from customers 3,244.9 2,871.8
Fair value adjustment for portfolio hedged risk (3.4) (1.4)
Derivative financial instruments 10.0 22.0
Tier 2 subordinated liabilities 93.3 93.1
Other liabilities 45.6 46.0
3,756.2 3,433.5
New business
2024 was another positive year for new business with new lending of £2,331.9
million, up 1.1% year on year (2023: £2,305.4 million). Consumer Finance,
which grew by 11.2% over 2023, offset by lower Business Finance, 24.6% lower
than in 2023 due to more challenging market conditions. Further details on the
divisional split of this new business can be found in the Business Review.
New business volumes
2024: £2,331.9m (2023: £2,305.4m)
Retail Finance Vehicle Finance Real Estate Finance Commercial Finance
£1,289.7m £552.9m £383.5m £105.8m
Customer lending and deposits
Group lending assets increased by £293.2 million (8.8%) to £3,608.5 million
(2023: £3,315.3 million), continuing our growth towards our net lending
ambition of £4.0 billion.
Consumer Finance balances grew by £225.7 million or 13.4% driven by strong
demand from strategic partner retailers, supported by Business Finance
balances growth of £67.5 million (4.2%).
Loans and advances to customers
2024: £3,608.5m (2023: £3,315.3m)
Retail Finance Vehicle Finance Real Estate Finance Commercial Finance
£1,357.8m £558.3m £1,341.4m £351.0m
Further analysis of loans and advances to customers, including a breakdown of
the arrears profile of the Group's loan books, is provided in Note 16 to the
Financial Statements.
Customer deposits include Fixed term bonds, ISAs, Notice and Access accounts.
Customer deposits increased by 13.0% to £3,244.9 million (2023: £2,871.8
million) driven by lending book growth and as part of the strategy to replace
drawings from the Bank of England Term Funding Scheme with additional
incentives for SMEs ('TFSME') funding. Total funding ratio of 112.4% increased
slightly from 31 December 2023 (111.7%). The mix of the deposit book has
continued to change as the Group has adapted to the interest rate environment,
with a focus on meeting customer demand for Access products, and retaining
stable funds, which is reflected in the proportion of Fixed term bonds and
ISAs.
Investments and wholesale funding
Amounts due to banks include drawings from the TFSME facility of £230.0
million, reducing from 2023 (£390.0 million) as the Group actively prepays
this funding. In addition, it includes £125.0 million drawn from the Indexed
Long-Term Repo ('ILTR') facility as at the end of 2024 (2023: £nil), a
routine sterling liquidity management facility provided by the Bank of
England.
Tier 2 subordinated liabilities
Tier 2 subordinated liabilities represent £90.0 million of 10.5-year 13.0%
Fixed Rate Callable Subordinated Notes, which qualify as Tier 2 capital.
Capital
Management of capital
Our capital management policy is focused on optimising shareholder value over
the long term. Capital is allocated to achieve targeted risk adjusted returns,
while ensuring appropriate surpluses are held above the minimum regulatory
requirements.
Key factors influencing the management of capital include:
· The level of buffers and the capital requirement set by the Prudential
Regulation Authority ('PRA');
· Estimated credit losses calculated using IFRS 9 methodology, and the
applicable transitional rules;
· New business volumes; and
· The product mix of new business.
Capital resources
Capital resources increased over the year from £397.6 million to £415.7
million. This includes the proposed 2024 final dividend of £4.2 million. The
increase was primarily in CET 1 capital and was driven by total profit for the
year of £19.7 million, offset by the final 2024 dividend of £4.2 million,
and the expected reduction in the IFRS 9 transitional adjustment of £2.0
million. The remainder of the increase was from Tier 2 (£4.6 million) as
capital eligibility increased through asset growth.
The resultant CET 1 and Total capital ratios are 12.3% (2023: 12.7%) and 14.6%
(2023: 15.0%) respectively.
Capital 2024 2023
£million £million
CET 1 capital, excluding IFRS 9 transitional adjustment 351.3 335.8
IFRS 9 transitional adjustment 0.1 2.1
CET 1 capital 351.4 337.9
Tier 2 capital(1) 64.3 59.7
Total capital 415.7 397.6
Total risk exposure 2,855.7 2,653.4
Capital ratios 2024 2023
% %
CET 1 capital ratio 12.3 12.7
Total capital ratio 14.6 15.0
CET 1 capital ratio (excluding IFRS 9 transitional adjustment) 12.3 12.7
Total capital ratio (excluding IFRS 9 transitional adjustment) 14.5 14.9
Leverage ratio 9.5 9.7
1. Tier 2 capital, which is solely subordinated debt net of unamortised issue
costs, capped at 25% of total Pillar 1 and Pillar 2A requirements.
Capital requirements
The Total Capital Requirement, set by the PRA, includes both the calculated
requirement derived using the standardised approach and the additional capital
required, derived from the Internal Capital Adequacy Assessment Process
('ICAAP'). In addition, capital is held to cover generic buffers set at a
macroeconomic level by the PRA.
2024 2023
£million £million
Total Capital Requirement 257.0 238.8
Capital conservation buffer 71.4 66.3
Countercyclical buffer 57.1 53.1
Total 385.5 358.2
The increase in lending balances through the year resulted in an increase in
risk weighted assets over the period, bringing the total risk exposure up from
£2,653.4 million to £2,855.7 million.
Liquidity
Management of liquidity
The Group uses a number of measures to manage liquidity risk. These include:
· The Overall Liquidity Adequacy Requirement ('OLAR'), which is the Board's view
of the Group's liquidity needs, as set out in the Board-approved Internal
Liquidity Adequacy Assessment Process ('ILAAP').
· The Liquidity Coverage Ratio ('LCR'), which is a regulatory measure that
assesses net 30-day cash outflows as a proportion of High Quality Liquid
Assets ('HQLA').
· Total funding ratio, as defined in the Appendix to the Annual Report.
· 'HQLA' are held in the Bank of England Reserve Account and UK Treasury Bills.
For LCR purposes, the HQLA excludes UK Treasury Bills that are pledged as
collateral against the Group's TFSME drawings with the Bank of England.
The Group was above the LCR minimum threshold (100%) throughout the year, with
the Group's average LCR being 219.6% (2023: 208.0%) based on a rolling 12
month-end average.
Liquid assets
We continued to hold significant surplus liquidity over the minimum
requirements throughout 2024, managing liquidity by holding HQLA and utilising
funding (predominantly from retail funding) to support lending. Total liquid
assets increased to £469.0 million (2023: £400.3 million) which, amongst
other things, reflects the levels of liquidity at the end of 2024 to support
funding required to fund the pipeline and fixed term bond maturities.
The Group is a participant in the Bank of England's Sterling Money Market
Operations under the Sterling Monetary Framework and has drawn £230.0 million
under the TFSME (2023: £390.0 million) and £125.0 million under the ILTR
scheme (2023: £nil). The ILTR scheme has used collateral already
prepositioned with the Bank of England and was initiated during the year as
part of the strategy to repay TFSME before the end of its contractual term.
Further drawings of ILTR are planned in 2025 as the remaining balance of TFSME
is repaid. The Group has no liquid asset exposures outside the United Kingdom
and no amounts that are either past due or impaired.
Liquid assets 2024 2023
£million £million
Aaa-Aa3 445.0 356.4
A1-A2 24.0 43.9
Total 469.0 400.3
We continue to attract customer deposits to support balance sheet growth. The
composition of customer deposits is shown in the table below:
Customer deposits 2024 2023
% %
Fixed term bonds 47 54
Notice accounts 2 6
ISAs 26 22
Access accounts 25 18
Total 100 100
Business review
Consumer Finance
Retail Finance
We provide quick and easy finance options at the point of purchase.
What we do
· We provide a market-leading online e-commerce service to retailers, providing
unsecured, interest-free and interest-bearing prime lending products to UK
customers to facilitate the purchase of a wide range of consumer products,
including furniture, jewellery, dental, leisure items and football season
tickets. These retailers include a large number of household names.
· Products are available to purchase in store or online, using our
market-leading origination platform, which provides fast decision making, with
90% of applications agreed in an average of six seconds.
· The customer proposition and the integrated platform support the growth of UK
retailers and the real economy.
2024 performance
· Another record year for new lending led to lending balances increasing by
11.0% with an increase in Retail Finance's market share of new business, which
grew to 15.3%(1) (2023: 13.5%).
· In the year, the lag effect of the steep increases in Base Rate began to
reverse, with a stable and now declining Base Rate, such that margins
expanded, resulting in net interest margin increasing to 6.8% (2023: 6.4%).
· At the end of the year, 86.7% (2023: 86.3%) of the lending book related to
interest-free lending, and 87.4% (2023: 80.4%) of customers have signed up to
online account management allowing self-service of their account.
Outlook
· Despite a challenging environment for both retailers and consumers, we still
anticipate further lending growth from both new and existing retail partners,
with potential improvement in net interest margin. Cost of risk will normalise
to 2023 levels.
· Our operational plans now include our recently launched AppToPay service,
which will continue to digitalise our processes to improve our customer and
retail partners' experience through app-based technology.
1. Source: Finance & Leasing Association ('FLA'): New business values
within retail store and online credit: 2024 15.3% (2023: 13.5%): FLA total and
Retail Finance new business of £8,427 million (2023: £8,810 million) and
£1,289.7 million (2023: £1,185.4 million) respectively. As published at 31
December 2024.
Performance history
New business (£m)
2020 2021 2022 2023 2024
614.5 771.5 1,124.3 1,185.4 1,289.7
Loans and advances to customers (£m)
2020 2021 2022 2023 2024
658.4 764.8 1,054.5 1,223.2 1,357.8
Net interest margin (%)
2020 2021 2022 2023 2024
8.7 8.1 6.8 6.4 6.8
Risk adjusted margin (%)
2020 2021 2022 2023 2024
6.7 7.8 5.6 5.3 6.0
Consumer Finance
Vehicle Finance
We provide quick and easy used car finance options at
the point of purchase.
What we do
· We provide consumer lending products that are secured against the second hand
vehicle being financed.
· We also provide a vehicle stock funding product, which is secured against
dealer forecourt used car stock; sourced from auctions, part exchanges or
trade sources.
· Finance is provided via technology platforms, allowing us to receive
applications online from introducers; provide an automated decision;
facilitate document production through to pay-out to dealer; and manage
in-life loan accounts.
2024 performance
· Record new business of £552.9 million, resulted in lending balances
increasing by 19.5%. Our market share of new business increased to 1.4%(1)
(2023: 1.2%).
· Growth has come from higher-quality, lower-margin consumer products and Stock
Funding. Combined this has reduced net interest margin to 9.4% (2023: 10.3%).
· Stock funding continued to grow despite the contraction of the overall market
with some competitors choosing to exit. We now have 427 active dealers (2023:
297) with credit lines of £70.8 million (2023: £51.5 million).
· Cost of risk increased to 7.6% (2023: 3.4%) largely driven by the pause in
consumer collections in the second half of 2023 in relation to the FCA's
review of Borrowers in Financial Difficulty.
· We have now completed the final phase of our Motor Transformation Programme,
including the rate for risk module, and undertaken a pilot with a select
number of introducers. This allows us to price customer lending based on the
risk profile of the borrower.
Outlook
· We have already taken steps in 2025 to refine our strategy in Vehicle Finance
to focus on higher returning segments.
· We plan to complete the transfer of all future consumer vehicle finance
originations onto the new rate for risk platform by the end of 2025.
1. Source: FLA. Cars bought on finance by consumers through the point of sale:
New business values: 2024 1.4% (2023: 1.2%): Used cars: 2024, FLA total and
Vehicle Finance total of £21,281 million (2023: £22,082 million) and £294.4
million (2023: £260.0 million) respectively. As published at 31 December
2024.
Performance history
New business (£m)
2020 2021 2022 2023 2024
78.6 199.8 401.7 471.2 552.9
Loans and advances to customers (£m)
2020 2021 2022 2023 2024
243.9 263.3 373.1 467.2 558.3
Net interest margin (%)
2020 2021 2022 2023 2024
12.8 13.1 12.0 10.3 9.4
Risk adjusted margin (%)
2020 2021 2022 2023 2024
5.1 14.0 6.1 7.3 1.9
Business Finance
Real Estate Finance
We lend money against residential properties to professional landlords
and property developers.
What we do
· We provide non-regulated first charge secured lending to specialist real
estate markets, lending to professional landlords to enable them to improve
and grow their portfolio and provide development facilities to property
developers and SME housebuilders to help build new homes for sale or letting.
· Due to our specialist relationship-led business model, we offer through the
cycle tailored underwriting and cash flow led debt structuring.
· Finance opportunities are sourced and supported on a relationship basis
directly and via introducers and brokers.
2024 performance
· Strong levels of new business, particularly in the Residential Investment
sector, built on a strong origination team and the refinancing of existing
loans through strong customer relationships.
· Lending balances grew by 7.8% to a record high of £1,341.4 million despite
weak economic growth and a challenging economy for investors and developers.
· The portfolio principally comprises lower risk residential investment lending,
88.1% (2023: 83.8%). The remainder of the book relates to development and
commercial investment lending.
· Our market remains competitive, however, net revenue margin was maintained at
2.6% (2023: 2.6%).
· Impairment charges of £4.0 million (2023: £4.5 million) remain higher than
the historical average, primarily due to one legacy development case, which is
being actively managed to achieve a timely exit. Despite this, we have seen a
0.1% improvement in the risk adjusted margin.
· As at year-end, the loan book has an average loan-to-value of 56.0% (2023:
57.2%).
Outlook
· With the economic outlook for house prices more stable than in recent years,
we see real growth opportunities in our focused real estate segments supported
by the new UK government's desire to build more homes.
Performance history
New business (£m)
2020 2021 2022 2023 2024
189.5 376.1 384.5 434.0 383.5
Loans and advances to customers (£m)
2020 2021 2022 2023 2024
1,051.9 1,109.6 1,115.5 1,243.8 1,341.4
Net revenue margin (%)
2020 2021 2022 2023 2024
3.0 3.0 2.7 2.6 2.6
Risk adjusted margin (%)
2020 2021 2022 2023 2024
2.5 3.0 2.6 2.2 2.3
Business Finance
Commercial Finance
We support the growth of UK businesses by enabling effective cash flow.
What we do
· We offer a full suite of asset-based lending solutions to SMEs and some larger
corporates who need bespoke working capital solutions for their business.
· We operate a high-touch relationship-led model throughout the life of a
facility, where partners and clients have direct access to decision-makers.
· Our lending remains predominantly against receivables, releasing funds of up
to 90% of qualifying invoices under invoice discounting facilities.
· Business is sourced and supported directly from clients via private equity
houses and professional introducers, but is not reliant on the broker market.
2024 performance
· New business lending has been lower in 2024 due to limited M&A activity in
our target markets, and our unwillingness to transact on riskier deal
structures at low margins.
· Whilst year-end balances were 7.9% lower in 2024, average lending balances
were 1.2% higher year-on-year.
· The increase in net revenue margin was driven by fees charged for new
facilities, extensions and early terminations.
· The risk adjusted margin has increased to 5.9%, reflecting the higher fees,
but it included a higher cost of risk at 1.7% (2023: 2.3%) after a £5.6
million charge relating to a specific client.
Outlook
· Economic and market conditions still remain challenging for our clients, but
we remain committed to supporting their growth and success, and we look
forward to partnering with new businesses in 2025 as market conditions
improve.
Performance history
New business (£m)
2020 2021 2022 2023 2024
126.1 93.7 157.3 214.8 105.8
Loans and advances to customers (£m)
2020 2021 2022 2023 2024
230.7 313.3 376.4 381.1 351.0
Net revenue margin (%)
2020 2021 2022 2023 2024
5.5 5.7 6.4 7.0 7.6
Risk adjusted margin (%)
2020 2021 2022 2023 2024
5.0 5.8 6.2 4.7 5.9
Savings
We look after our customers' savings and provide a competitive return.
What we do
· We offer a range of savings accounts that are purposely simple in design, with
a choice of products from Access to 180-day notice, and six month to
seven-year fixed terms across both Bonds and ISAs.
· Our range of savings products enables us to access the majority of the UK
personal savings markets and compete for significant liquidity pools,
achieving a lower marginal cost with the volume, mix and the competitive rates
offered; optimised to the demand of our funding needs.
2024 performance
· In 2024, we successfully funded the growth in the lending businesses, and are
now managing deposits of £3.2 billion, a 13.0% increase on year-end 2023
(£2.9 billion). We have raised over £1.6 billion of new deposits and
retained £0.9 billion at maturity.
· The Bank of England Base Rate remained at 5.25% for the first half of 2024,
with two 0.25% reductions in the second half in line with market forecasts.
Further rate reductions are expected in 2025, these are priced into market
rates for savings.
· We have seen significant growth in both Access and ISAs, both proving a
popular customer choice. Notice products have continued to be a less popular
choice in a high interest environment.
· Savings balances are made up of retail customers. 95.1% of total deposits are
fully covered by Financial Services Compensation Scheme ('FSCS') providing our
customers with additional confidence about the security of their savings.
Outlook
· The savings market has started to see product pricing adjustments in
anticipation of a falling interest rate environment. Customers will seek to
optimise returns, and we have a product set designed to meet these needs.
Performance history
Total deposits (£m)
2020 2021 2022 2023 2024
1,992.5 2,103.2 2,514.6 2871.8 3,244.9
Total funds raised (£m)
2020 2021 2022 2023 2024
535.9 661.3 1,210.1 1,719.1 1,604.2
2024: £3,244.9m
ISA Notice Access Term
£857.3m £72.4m £805.2m £1,510.0m
2023: £2,871.8m
ISA Notice Access Term
£629.6m £174.3m £521.3m £1,546.6m
Market review
The Group operates exclusively within the UK and its revenue is derived almost
entirely from customers operating in the UK. The Group is therefore
particularly exposed to the condition of the UK economy. Customers' borrowing
demands are variously influenced by, among other things, UK property markets,
employment levels, inflation, interest rates and customer confidence. The
economic environment and outlook affect demand for the Group's products,
margins that can be earned on lending assets and the levels of loan impairment
provisions.
As a financial services firm, the Group is subject to extensive and
comprehensive regulation by governmental and regulatory bodies in the UK. The
Group conducts its business subject to ongoing regulation by the Financial
Conduct Authority ('FCA') and the Prudential Regulation Authority ('PRA'). The
Group must comply with the regulatory regime across many aspects of its
activities, including: the training, authorisation and supervision of
personnel; systems; processes; product design; customer journey; and
documentation.
Economic review
Economic growth, measured in real annual UK Gross Domestic Product ('GDP'),
was estimated to be 0.9% in 2024 (2023: 0.4%). Economists' base case forecasts
indicate GDP growth will increase in 2025, with full-year growth in GDP
expected to be 1.4%. However, there is some scepticism that the new UK
government's first Budget will have the desired effects of boosting growth,
and that household savings are less available to be deployed to boost consumer
spending. This has led to downward revisions in more recent UK GDP forecasts,
in contrast to global growth forecasts, which have improved partly due to the
expected loosening of US fiscal policy under President Trump.
The rate of inflation fell sharply in 2024 and was largely back to the Bank of
England target of 2% by June 2024, but there was a small increase to 2.5% by
the end of the year and a further increase to 3.0% in January 2025. Reflecting
the 2024 fall in inflation, the Bank of England reduced the Base Rate from
5.25% to 5.00% in August 2024 and from 5.00% to 4.75% in November 2024. A
further decrease to 4.50% was announced in February 2025. Financial markets
have responded to the Bank of England reducing rates and the expectation that
inflation has largely stabilised by pricing in further Base Rate reductions
through 2025, albeit at a relatively cautious level.
Employment levels in December 2024 were 74.9%(1) which represents a small
decrease during the period from 75.0%(1) in December 2023. In line with this
fall, unemployment has risen from 3.9%(1) in December 2023 to 4.4%(1) at
December 2024. Vacancies in the labour market were circa 0.8 million and have
been decreasing for two and a half years. Although unemployment levels have
risen during the period, wage growth remained strong, at 5.9%(1) and remains
ahead of inflation. The latest forecasts suggest that unemployment has peaked,
and will remain near its current level throughout 2025.
UK house prices grew by 4.6%(2) in 2024 and the risk of a large correction in
prices has reduced. The uncertainty over the timing and quantum of Base Rate
cuts has given rise to some mortgage rate volatility in the year, albeit the
overall position is one of lower rates being available than in recent years.
Net mortgage borrowing showed 1.5%(3) annual growth in December 2024, with
mortgage approvals up significantly year on year.
Outlook
Interest rates are expected to fall further in 2025 with the market expecting
Base Rate to end the year below 4.00%. The UK economy is expected to grow in
2025 by less than 1%(3) per the Bank of England's latest forecast down from
its previous forecast of 1.5%. House prices are expected to continue to grow
as mortgage rates soften and borrower affordability improves. Unemployment is
expected to remain near its current level of 4.4%(1) for 2025. The longer-term
expectation is that unemployment will recover towards a long run level of 4.0%
by 2028.
1. Source: Office for National Statistics, data as at 31 December 2024, unless
otherwise stated.
2. Source: HM Land Registry
3. Bank of England
Government and regulatory
This has been another eventful year for government and regulatory
announcements that impact the Group and/or the markets in which it operates.
The key announcements in 2024 are set out below.
Prudential regulation
During March 2024, the PRA issued PS5/24 'Solvent exit planning for
non-systemic banks and building societies'. This is intended to provide an
alternative to resolution and creates a new requirement for non-systemic banks
to perform a Solvent Exit Analysis to develop an understanding of how firms
would exit from PRA-regulated activities, while remaining solvent, the main
barriers and risks faced in doing so, and how they would make timely and
effective decisions during the process. The Group has commenced work on the
Solvent Exit Analysis ahead of the implementation date of 1 October 2025.
Basel 3.1 changes remain the core focus of regulatory change for the Group
alongside the Small Domestic Deposit Takers ('SDDT') regime. Slightly later
than anticipated due to the general election, in September 2024, the PRA
issued PS9/24 'Implementation of the Basel 3.1 Standards near-final part 2'
and four consultation papers relevant to the topic. The policy statement set
out the awaited changes to Credit Risk, Pillar 3 disclosures and consequential
reporting changes, which completed the framework when considering PS17/23,
issued in December 2023.
The simplified capital regime proposal for SDDT firms was set out in CP7/24.
The highlights from these proposals included the removal of Pillar 1
requirements for counterparty credit risk and credit valuation adjustment
risk, simplified Pillar 2A approaches to credit risk, credit concentration
risk, operational risk, the removal of some methodologies and proposed
replacement of Pillar 2B capital buffers with a new non-cyclical Single
Capital Buffer ('SCB'). In addition, it also proposed reduced reporting,
including changes to the Internal Capital Adequacy Assessment Process
('ICAAP').
The Group undertook an initial impact analysis of the combined PS9/24 and
PS17/23 amendments, also considering the proposals set out in CP7/24 to
understand the impact under SDDT. The Group expects the impact to be broadly
neutral overall.
In the second half of 2024, the Group received confirmation of its successful
application to join the SDDT regime. PS17/23 confirmed that firms, that are
part of the SDDT regime, do not need to adopt full Basel 3.1 rules and can
remain on the interim rules equivalent to the current UK Capital Requirements
Regulation regime until the capital rules applicable to the SDDT regime are
applicable.
In November 2024, the PRA issued PS19/24 'Strong and simple framework: The
definition of an Interim Capital Regime', which set out the process firms
should follow to apply to adopt the Interim Capital Regime ('ICR'). The ICR
was expected to apply from 1 January 2026 with the expected SDDT
implementation date being 1 January 2027. However, on 18 February 2025, the
PRA announced a delay to Basel 3.1 implementation by one year to 1 January
2027. As a consequence we expect a delay in the implementation date for SDDT.
The Group has applied for a Modification by Consent waiver to apply the ICR.
Conduct regulation
Throughout 2024, FCA publications focused on Consumer Duty, including the
findings from their review of implementation, which highlighted good practice
and areas of improvement. Dear CEO letters and speeches have reiterated the
focus on ensuring firms prioritise areas where there is the greatest risk of
consumer harm, setting and testing higher standards, and promoting competition
and positive change. The application of the Duty to closed products came into
force on 31 July 2024 with limited impact to the Group.
In January 2024, the FCA introduced temporary changes to the rules for
handling motor finance complaints. This was to allow time for its review of
historical discretionary commission arrangements ('DCAs'), information
requests for which were sent to motor finance firms in the period. On 25
October 2024, the Court of Appeal issued its decision on three motor finance
commission cases.
The lenders involved have been granted permission to appeal the judgment to
the Supreme Court, the hearing for which will take place in April 2025. The
FCA will update firms on its next steps after the Supreme Court decision. The
pause in complaints responses was extended to 4 December 2025 for all motor
finance commission complaints. The FCA also issued a Dear CEO letter directing
firms to maintain adequate financial resources, with a view to the
implications for firms of any potential remedial activities arising from DCAs.
Further details on the impact of these developments can be found in Note 29 to
the Financial Statements.
In April 2024, the FCA published two policy statements. One on protections for
Borrowers in Financial Difficulty, incorporating aspects of the Tailored
Support Guidance into the FCA's sourcebooks with effect from November 2024;
the requirements for this have been addressed through an internal project. The
other bringing Consumer Credit product sales data reporting into force in Q4
2025. This will be the focus of an internal project during 2025.
Government and monetary policy
The Bank of England MPC announced two rate reductions over 2024, 0.25% rate
cuts in August and November 2024, reducing UK Bank Base Rate to 4.75% as at 31
December 2024.
Principal risks and uncertainties
Risk management
The effective management of risk is a key part of the Group's strategy and is
underpinned by its Risk Aware value. This helps to protect the Group's
customers and generate sustainable returns for shareholders. The Group is
focused on maintaining sufficient levels of capital, liquidity, operational
control, and acting in a responsible way.
The Group's Chief Risk Officer is responsible for leading the Group's Risk
function, which is independent from the Group's operational and commercial
teams. The Risk function is responsible for designing and overseeing the
embedding of appropriate risk management frameworks, processes and controls,
to enable key risks to be identified, assessed, monitored, and accepted or
mitigated in line with the Group's risk appetite. The Group's risk management
practices are regularly reviewed and enhanced to reflect changes in its
operating environment. The Chief Risk Officer is responsible for reporting to
the Board on the Group's principal risks and how they are being managed
against agreed risk appetite.
Risk appetite
The Group has identified the risk drivers and major risk categories relevant
to the business, which has enabled it to agree a suite of risk appetite
statements and metrics to underpin the strategy of the Group. The Board
approves the Group's risk appetite statements annually and these define the
level and type of risk that the Group is prepared to accept in the pursuit of
its strategic objectives.
Risk culture
A strong risk-aware culture is integral to the successful delivery of the
Group's strategy and the effective management of risk.
The Group's risk culture is shaped by a range of factors including risk
appetite, risk frameworks and policies, values and behaviours, as well as a
clear tone from the top.
The Group looks to enhance continually its risk culture, and performs an
annual assessment against standards based on industry best practice and
guidance from the Institute of Risk Management.
Risk governance
The Group's approach to managing risk is defined within its Enterprise-Wide
Risk Management Framework. This provides a clear risk taxonomy and an
overarching framework for risk management supported by frameworks and policies
for individual risk disciplines. These frameworks set the standards for risk
identification, assessment, mitigation, monitoring and reporting.
The Group's risk management frameworks, policies and procedures are regularly
reviewed and updated to reflect the evolving risks that the Group faces in its
business activities. They support decision making across the Group and are
designed to ensure that risks are appropriately managed and reported via
appropriate committees.
An Executive Risk Committee, chaired by the Chief Risk Officer, reviews key
risk management information from across all risk disciplines, with material
issues escalated to the Executive Committee and/or the Risk Committee of the
Board, as required.
The Group operates a 'Three Lines of Defence' model for the management of its
risks. The Three Lines of Defence, when taken together, control and manage
risks in line with the Group's risk appetite. The three lines are:
· First line: all employees within the business units and associated support
functions, including Operations, Finance, Treasury, Human Resources and Legal.
The first line has ownership of, and primary responsibility, for their risks.
· Second line: specialist risk management and compliance teams reporting
directly into the Chief Risk Officer, covering Credit risk, Operational risk,
Information Security, Prudential risk, Compliance and Conduct risk, and
Financial Crime risk. The second line are responsible for developing
frameworks to assist the first line in the management of their risks and
providing oversight and challenge designed to ensure they are managed within
appetite.
· Third line: is the Internal Audit function that provides independent assurance
on the effectiveness of risk management across the Group.
Committee structure:
Board and Board Committees
See Corporate Governance section of the 2024 Annual Report and Accounts.
Group Executive Committee
Chair: Chief Executive Officer
Provides an executive oversight of the ongoing safe and profitable operation
of the Group. It reports to the Board through the Chief Executive Officer.
Responsible for the execution of the strategy of the Group at the direction of
the Chief Executive Officer.
Executive Risk Committee
Chair: Chief Risk Officer
Responsible for overseeing the Group's risk profile, its adherence to
regulatory compliance and monitoring these against the risk appetite set by
the Board.
Monitors the effective implementation of the risk management framework across
the Group.
Assets and Liabilities Committee ('ALCO')
Chair: Chief Financial Officer
Responsible for implementing and controlling the liquidity, and asset and
liability management risk appetite of the Group, providing high-level control
over the Group's balance sheet and associated risks.
Set out controls, capital deployment, treasury strategy guidelines and limits,
and focuses on the effects of future plans and strategy on the Group's assets
and liabilities.
Credit Risk Committees
Responsible for making decisions and providing oversight of credit scorecards
and modelling.
Model Governance Committee
Responsible for understanding, challenging and assessing risk
and appropriateness of statistical and financial models, and to challenge
model assumptions, and to provide oversight of model validation.
Non-Financial Risk Committee
Responsible for providing oversight of all non-financial risks, including,
Financial Crime, Operational, Conduct and Compliance, Climate Change,
Information Security, IT and Change risk.
Assumptions Committee
Responsible for approving assumptions that have a material impact on the
Group's reporting and/or decision-making processes.
Principal risks
Executive management performs ongoing monitoring and assessment of the
principal risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity.
Further details of the principal risks and the changes to risk profile seen
during the 2024 financial year are set out below.
The Group also regularly reviews strategic and emerging risks and analysis has
been included to detail output of these reviews for 2024. Notes 37 to 40 to
the Financial Statements provide further analysis of credit, liquidity, market
and capital risks. Emerging risks are identified in line with the Group's
Enterprise-Wide Risk Management Framework, using a 'top-down' approach with
Group Executive workshops and a 'bottom-up' approach through the business unit
Risk and Control Self-Assessment process.
Further details of the Group's risk management framework, including risk
appetite, can be found on the Group's website:
www.securetrustbank.com/riskmanagement.
Description Mitigation Change during the year
Credit risk The Group has a defined Credit risk framework, which sets out how Credit risk During 2024, economic conditions continued to be challenging in the UK, with
The risk of loss to the Group from the failure of clients, customers or is managed and mitigated across the Group. high levels of inflation and cost-of-living pressures for consumers. The lower
counterparties to honour fully their obligations to the firm, including the
Base Rate environment in the second half of 2024 has, however, had a positive
whole and timely payment of principal, interest, collateral or other Risk appetite is cautious with the Group focusing on sectors and products impact upon the property market.
receivables. where it has deep experience.
The Group's lending portfolios performed satisfactorily in 2024. Vehicle
Progress: Stable Specialist Credit teams are in place within each business area to enable new Finance saw increased levels of arrears at the beginning of 2024 following
lending to be originated in line with the Group's risk appetite. changes to collections procedures and the introduction of new forbearance
options in the latter part of 2023. Performance has improved over 2024 from a
For Business Finance, lending is secured against assets, with Real Estate new business perspective with lower delinquency rates being observed, as well
Finance lending, the majority of which is at fixed rates, secured by property as at a portfolio level with roll and cure rates improving during the year.
at conservative loan-to-value ratios. Short dated Commercial Finance lending Retail Finance saw a small increase in arrears, following a relaxation of
is secured across a range of assets, including debtors, stock, and plant and strategy but remains well within risk appetite.
machinery.
The Real Estate Finance and Commercial Finance businesses are performing
For Consumer Finance, security is taken for Vehicle Finance lending and Retail satisfactorily, with key risk metrics remaining within appetite. Some
Finance is unsecured, however, positioned towards lower risk sectors. The vast customers have been impacted by higher inflation and lower consumer demand;
majority of Retail Finance lending is interest-free for consumers, with however, they have been managed closely with low levels of customer defaults
remaining consumer lending at fixed rates, which mitigates the direct impact resulting.
of rising interest rates on affordability. Consumer Credit risk is assessed
through a combination of risk scorecards, credit and affordability policy Real Estate Finance at a portfolio level is performing well, with continued
rules. strong rental demand supporting valuations across the portfolio. Only a small
number of cases are in active workout, and where appropriate, specific
Portfolio performance is tracked closely and reported via specialist provisions have been taken to cover the risk of loss from these exposures. The
management review meetings into the Executive and Board Risk Committees, with Real Estate Finance provisions have increased through the year, however, this
the ability to make changes to policy, affordability assessments or scorecards is mainly due to existing defaulted balances being held for longer than
on a dynamic basis. anticipated, leading to increased non-recovery of interest.
Management monitors and assesses concentration risk for all lending against Similarly, the Commercial Finance business is performing well at a portfolio
control limits. The diversification of lending activities and secured nature level. There has been one write-off taken at the end of 2024, attributable to
of larger exposures mitigates the exposure of the Group to concentration risk. a historic case that was impacted by loss of consumer demand and withdrawal of
trade credit insurance. However, in general within 2024, we have seen lower
levels of attrition due to client failure, compared to 2023. The overall
rating for the year is driven by the continuing uncertainty in the external
economic environment.
Description Mitigation Change during the year
Liquidity and Funding risk Liquidity and Funding risk is managed in line with the Group's Prudential Risk The Group received regulatory permission to move to the Small Domestic Deposit
Liquidity risk is the risk that the Group is unable to meet its liquidity Management Framework. The Group has a defined set of liquidity and funding Takers ('SDDT') regime during 2024, the simplified liquidity rules became
obligations as they fall due or can only do so at excessive cost. Funding risk risk appetite measures that are monitored and reported, as appropriate. effective from 1 July 2024.
is the risk that the Group is unable to raise or maintain funds to support
asset growth, or the risk arising from an unstable funding profile that could The Group manages its liquidity and funding in line with internal and The Group has maintained its liquidity and funding ratios in excess of
result in higher funding costs. regulatory requirements, and at least annually assesses its exposure to regulatory and internal risk appetite requirements throughout the year. A
liquidity risks and adequacy of its liquidity resources as part of the Group's significant level of high-quality liquid assets, held as cash at the Bank of
Progress: Stable Internal Liquidity Adequacy Assessment Process. England, continue to be maintained so that there is no material risk that
liabilities cannot be met as they fall due.
In line with the Prudential Regulation Authority's ('PRA') self-sufficiency
rule, the Group always seeks to maintain liquid resources that are adequate, The Group has reviewed funding requirements ahead of the upcoming Term Funding
both as to amount and quality, and managed to ensure that there is no Scheme with additional incentives for SMEs ('TFSME') maturities in 2025 to
significant risk that its liabilities cannot be met as they fall due under manage the associated refinancing risk and increased competition for retail
stressed conditions. The Group defines liquidity adequacy as the: funding, and during 2024 has repaid £160.0 million of TFSME earlier than the
· ongoing ability to accommodate the refinancing of liabilities upon maturity contractual maturity.
and other means of deposit withdrawal at acceptable cost;
· ability to fund asset growth; and
· otherwise, capacity to meet contractual obligations through unconstrained
access to funding at reasonable market rates.
The Group conducts regular and comprehensive liquidity stress testing to
identify sources of potential liquidity strain and to check that the Group's
liquidity position remains within the Board's risk appetite and prudential
regulatory requirements.
Contingency funding plans
The Group maintains a Recovery Plan that sets out how the Group would maintain
sufficient liquidity to remain viable during a severe liquidity stress event.
The Group also maintains access to the Bank of England liquidity schemes,
including the Discount Window Facility.
The Group conducts regular and comprehensive liquidity stress testing to
identify sources of potential liquidity strain and to check that the Group's
liquidity position remains within the Board's risk appetite and prudential
regulatory requirements.
Contingency funding plans
The Group maintains a Recovery Plan that sets out how the Group would maintain
sufficient liquidity to remain viable during a severe liquidity stress event.
The Group also maintains access to the Bank of England liquidity schemes,
including the Discount Window Facility.
The Group received regulatory permission to move to the Small Domestic Deposit
Takers ('SDDT') regime during 2024, the simplified liquidity rules became
effective from 1 July 2024.
The Group has maintained its liquidity and funding ratios in excess of
regulatory and internal risk appetite requirements throughout the year. A
significant level of high-quality liquid assets, held as cash at the Bank of
England, continue to be maintained so that there is no material risk that
liabilities cannot be met as they fall due.
The Group has reviewed funding requirements ahead of the upcoming Term Funding
Scheme with additional incentives for SMEs ('TFSME') maturities in 2025 to
manage the associated refinancing risk and increased competition for retail
funding, and during 2024 has repaid £160.0 million of TFSME earlier than the
contractual maturity.
Description Mitigation Change during the year
Capital risk Capital management is defined as the operational and governance processes by The Group's balance sheet and total risk exposure has increased since the
Capital risk is the risk that the Group will have insufficient capital which capital requirements are identified and capital resources maintained and beginning of the year as the Group continues to grow its core businesses
resources to meet minimum regulatory requirements and to support planned allocated, such that regulatory requirements are met, while optimising returns organically. Despite the growth in its balance sheet, the Group has continued
levels of growth. and supporting sustainable growth. to maintain adequate capital, and all capital ratio measures have been
exceeded throughout the period. Details of the Common Equity Tier 1 ratio,
The Group adopts a conservative approach to managing its capital. It annually The Group manages its capital requirements on a forward-looking basis against total capital ratio and leverage ratio are included in the Financial.
assesses the adequacy of the amount and quality of capital held under stress minimum regulatory requirements and the Board's risk appetite set to enable
as part of the Group's Internal Capital Adequacy Assessment Process ('ICAAP'). capital resources to be sufficient to support planned levels of growth. The The 2024 ICAAP showed that the Group can continue to meet its minimum
Group will take opportunities to increase overall levels of capital and to regulatory capital requirements, even under extreme stress scenarios.
Progress: Stable optimise its capital stack as and when appropriate. In addition to the ICAAP, Additionally, the Group has assessed the capital impact of severe but
the Group performs regular budgeting and reforecasting exercises that consider plausible outcomes in relation to potential redress payments related to
a five-year time horizon. historical motor commissions against our 2024 ICAAP and Recovery Plan and are
satisfied the Group could maintain capital adequacy in such a scenario.
These forecasts are used to plan for future lending growth at a rate that both
increases year-on-year profits and maintains a healthy capital surplus, taking The Group has assessed the high-level impact of the proposed Basel 3.1 rules
into consideration the impact of known and anticipated future regulatory and the PRA Interim Capital Regime, and has taken this into consideration as
changes. The Group also models various stressed scenarios looking over a part of the capital planning.
five-year time horizon, which consider a range of growth rates over those
years as part of the viability and going concern assessments.
Further information on the Group's capital requirement is contained within the
Pillar 3 disclosures, which are published as a separate document on our
website (www.securetrustbank.com/pillar3).
Description Mitigation Change during the year
Market risk The Group's principal exposure comes from the term structure of interest rate Despite changes in the Bank of England Base Rate during 2024, and continued
Market risk is the risk to the Group's earnings and/or value from unfavourable sensitive items and the sensitivity of the Group's current and future earnings uncertainty over interest rate movements, interest rate risk and foreign
market movements, such as interest rates and foreign exchange rates. The and economic value to movements in market interest rates. The Group does not exchange risk remain well managed. Risk exposures are actively managed through
Group's market risk primarily arises from interest rate risk. Interest rate take significant unmatched positions through the application of hedging increased frequency of monitoring and in 2024, the Group has successfully
risk refers to the exposure of the Group's financial position, balance sheet strategies and does not operate a trading book. implemented central clearing to support increased derivative activity.
and earnings to movements in interest rates.
The main contributors to interest rate risk are:
The Group's balance sheet is predominantly denominated in GBP, although a
· the mismatch, or duration, between repricing dates of assets and liabilities;
small number of transactions are completed in US Dollars, euros and other and
currencies in support of Commercial Finance customers. · customer optionality, for example, early repayment of loans in advance of
contractual maturity dates.
Progress: Stable
The Group uses an interest rate sensitivity gap analysis that informs the
Group of any significant mismatched interest rate risk positions that require
hedging. This takes into consideration the behavioural assumptions for
optionality as approved by ALCO. Risk positions are managed through the
structural matching of assets and liabilities with similar tenors and the use
of vanilla interest rate derivative instruments to hedge the residual
unmatched position and minimise the Group's exposure to interest rate risk.
The Group has a defined set of market risk appetite measures that are
monitored monthly. Interest rate risk in the banking book is measured from an
internal management and regulatory perspective, taking into consideration both
an economic value and earnings-based approach.
The Group monitors its exposure to basis risk and any residual non-GBP
positions. Processes are in place to review and react to movements of the Bank
of England Base Rate.
The Group has no significant exposures to foreign currencies and hedges any
residual currency risks to sterling.
All such exposures are maintained within the risk appetite set by the Board
and are monitored by ALCO.
The Group uses an interest rate sensitivity gap analysis that informs the
Group of any significant mismatched interest rate risk positions that require
hedging. This takes into consideration the behavioural assumptions for
optionality as approved by ALCO. Risk positions are managed through the
structural matching of assets and liabilities with similar tenors and the use
of vanilla interest rate derivative instruments to hedge the residual
unmatched position and minimise the Group's exposure to interest rate risk.
The Group has a defined set of market risk appetite measures that are
monitored monthly. Interest rate risk in the banking book is measured from an
internal management and regulatory perspective, taking into consideration both
an economic value and earnings-based approach.
The Group monitors its exposure to basis risk and any residual non-GBP
positions. Processes are in place to review and react to movements of the Bank
of England Base Rate.
The Group has no significant exposures to foreign currencies and hedges any
residual currency risks to sterling.
All such exposures are maintained within the risk appetite set by the Board
and are monitored by ALCO.
Despite changes in the Bank of England Base Rate during 2024, and continued
uncertainty over interest rate movements, interest rate risk and foreign
exchange risk remain well managed. Risk exposures are actively managed through
increased frequency of monitoring and in 2024, the Group has successfully
implemented central clearing to support increased derivative activity.
Description Mitigation Change during the year
Operational risk The Group has an Operational Risk Framework designed in accordance with the The Group uses the 'Standardised Approach' for assessing its operational risk
Operational risk is the risk that the Group may be exposed to direct or 'Principles for the Sound Management of Operational Risk' issued by the Basel capital, in recognition of the enhancements made to its framework and
indirect loss arising from inadequate or failed internal processes, personnel Committee on Banking Supervision. This framework defines and facilitates a embedding it across the Group. The Group continues to invest in resource,
and succession, technology/ infrastructure, or from external factors. range of activities, including: expertise and systems to support the effective management of operational risk.
· a Risk and Control Self-Assessment process to identify, assess and mitigate In 2024, the Group has continued to enhance these standards and has introduced
The scope of Operational risk is broad and includes business process, risks across all business units through improvements to the control several improvements to the control frameworks in place across its operational
operational resilience, environment; risks. Overall, the assessment is that the level of risk has remained stable.
third party risk, Change management, Human Resources, Information Security and · the governance arrangements for managing and reporting these risks;
IT risk, including Cyber risk. · risk appetite statements and associated thresholds and metrics; and
· an incident management process that defines how incidents should be managed
Progress: Stable and associated remediation, reporting and root-cause analysis.
The framework is designed to ensure appropriate governance is in place to
provide adequate and effective oversight of the Group's operational risks. The
governance framework includes the Non-Financial Risk, Executive Risk and Board
Risk Committees.
The Group has a defined set of qualitative and quantitative Operational risk
appetite measures. These measures cover all categories of operational risk and
are reported and monitored monthly.
In addition to the delivery of framework requirements, the Group has focused
on various thematic areas of operational risk in 2024, including operational
resilience where the Group is on track to meet the March 2025 regulatory
deadline, and the integration of Artificial Intelligence ('AI') risk into
existing Risk Frameworks and Policies.
The framework is designed to ensure appropriate governance is in place to
provide adequate and effective oversight of the Group's operational risks. The
governance framework includes the Non-Financial Risk, Executive Risk and Board
Risk Committees.
The Group has a defined set of qualitative and quantitative Operational risk
appetite measures. These measures cover all categories of operational risk and
are reported and monitored monthly.
In addition to the delivery of framework requirements, the Group has focused
on various thematic areas of operational risk in 2024, including operational
resilience where the Group is on track to meet the March 2025 regulatory
deadline, and the integration of Artificial Intelligence ('AI') risk into
existing Risk Frameworks and Policies.
The Group uses the 'Standardised Approach' for assessing its operational risk
capital, in recognition of the enhancements made to its framework and
embedding it across the Group. The Group continues to invest in resource,
expertise and systems to support the effective management of operational risk.
In 2024, the Group has continued to enhance these standards and has introduced
several improvements to the control frameworks in place across its operational
risks. Overall, the assessment is that the level of risk has remained stable.
Description Mitigation Change during the year
Model risk Whilst the Group is not within the scope of the PRA's Supervisory Statement The Group has made progress in formally implementing stronger Model Governance
Model risk is the potential for adverse consequences from model errors or the 1/23, it has aligned its model risk management practices to this standard and in 2024 and strengthening the scope, awareness and reporting of its model
inappropriate use of modelled outputs to inform business decisions. has a model risk management framework, defined risk appetite, a model inventory. The Group has clarified roles and responsibilities for model owners
Governance Committee, policies, procedures, model development standards and and has produced internal independent validation reports for a number of
The Group has multiple models that are used, amongst other things, to support model validation in place. higher risk models.
pricing, strategic planning, budgeting, forecasting, regulatory reporting,
credit risk management and provisioning.
Progress: Stable
Description Mitigation Change during the year
Compliance and Conduct risk The Group manages this risk through its Compliance and Conduct Risk Management The overall rating for the year is driven predominantly by the developments
The risk that the Group's products and services, and the way they are Framework. The Group takes a principle-based approach, which includes retail regarding historical motor finance commissions.
delivered, or the Group's failure to be compliant with all relevant regulatory and commercial customers in our definition of 'customer', with coverage across
requirements, result in poor outcomes for customers or markets in which we all business units and both regulated and unregulated activities. Following the Court of Appeal's rulings in October, the Group paused new
operate, or cause harm to the Group. This could be as a direct result of poor
consumer lending in Vehicle Finance to consider the implications of the ruling
or inappropriate execution of our business activities or behaviour from our Risk management activities follow the Enterprise-Wide Risk Management and commenced new business after three days with enhanced disclosures in place
employees. Framework, through identifying, assessing and managing risks, governance about commission arrangements between the Group and its Vehicle Finance
arrangements and reporting risks against Group risk appetite. Arrangements introducers. The Group is continuing to track developments in order to respond
Progress: Heightened include horizon-scanning of regulatory changes, oversight of regulatory when the implications for the industry become clearer.
incidents and assurance activities conducted by the three lines of defence,
including the second line Compliance Monitoring programme. Other Compliance and Conduct risk areas of focus during the year related to
the Group's review of its collections processes, procedures and policies in
The Group's horizon-scanning activities track industry and regulatory Vehicle Finance, following its formal discussions with the FCA on its BiFD
developments, including the implementation of the Basel 3.1 standards and the review. The Group is in the final stages of this review.
SDDT regime, Consumer Credit product sales data reporting and regulation of
Buy Now Pay Later.
Description Mitigation Change during the year
Financial Crime risk We operate in a constantly developing financial crime environment and are Enhancements to the Group's financial crime control environment have continued
The risk that the Group's products and services will be used to facilitate exposed to financial crime risks of varying degrees across all areas of the with a focus on Authorised Push Payment Reimbursement policy requirements. We
financial crime, resulting in harm to its customers, the Group or third Group. The Group is focused on maintaining effective systems and controls, are closely monitoring changes to financial crime regulation and guidance, and
parties, and the Group fails to protect them by not having effective systems alongside vigilance against all forms of financial crime and meeting our responding to them.
and controls. Financial Crime includes anti-money laundering, terrorist regulatory obligations.
financing, proliferation financing, sanctions restrictions, modern slavery,
human trafficking, fraud, the failure to prevent fraud and the facilitation of The Group has a Financial Crime Framework designed to meet regulatory and
tax evasion. The Group may incur significant remediation costs to rectify legislative obligations, which includes:
issues, reimburse losses incurred by customers and address regulatory censure
· mandatory annual colleague training and awareness initiatives;
and penalties. · regular reviews of our suite of financial crime policies, standards and
procedures, checking they remain up to date and addressing any
Progress: Stable legislative/regulatory change and emerging risks;
· detection, transaction monitoring and screening technologies;
· extensive recruitment policy to screen potential and existing employees;
· horizon-scanning and regular management information production and
analysis conducted to identify emerging threats, trends and typologies, as
well as preparing for new legislation and regulation;
· financial crime-focused governance with risk committees providing senior
management oversight, challenge and risk escalation; and
· intelligence shared through participating in key industry events such as
those hosted by UK Finance and other networks.
Enhancements to the Group's financial crime control environment have continued
with a focus on Authorised Push Payment Reimbursement policy requirements. We
are closely monitoring changes to financial crime regulation and guidance, and
responding to them.
Description Mitigation Change during the year
Climate Change risk The Group has established processes to monitor our risk exposure to both the The Group's direct exposure to the physical impacts of climate change remains
Climate change, and society's response to it, present risks to the UK potential 'physical' impacts of climate change and the 'transitional' risks limited, given its footprint and areas of operation. However, it has
financial services sector, with some of these only fully crystallising over an from the UK's adjustment towards a carbon neutral economy. The Group approach maintained robust controls and oversight, designed to manage the associated
extended period. The Group is exposed to physical and transition risks arising to climate risk is proportionate to its scale and nature of its activities. risks and continues to develop its business plans, as the risks mature.
from climate change. This has enabled the Group to align both its business and climate objectives. Disclosures are made within the Climate-related financial disclosures section
Climate change and its management are a key part of the Group's Environmental, of the Annual Report and Accounts in line with the guidance from the 'Task
Progress: Stable Social and Governance strategy. Force on Climate-Related Financial Disclosures', where we are now fully
aligned.
The Group continues to undertake stress testing aligned to climate change
scenarios, individually, across each of our key businesses. The tests are Specific detail on each of the key risks identified and mitigation are covered
focused on the resilience of our portfolios and strategies, to manage the within the Strategy section of the Climate-related financial disclosures in
risks and opportunities of climate change. Further detail is provided within the 2024 Annual Report and Accounts. The Group continues to monitor the
the Climate-related financial disclosures section of the 2024 Annual Report evolving climate disclosure landscape and regulatory requirements and
and Accounts. expectations, including transition planning.
Strategic and emerging risks
The key strategic risk for the Group remains the macroeconomic environment in
the UK. The Group's operational footprint, lending exposures and funding
sources are all in the UK, therefore, overall performance is influenced by the
strength and performance of the UK economy. Given the specialist nature of the
Group's lending, it is not exposed across all areas and sectors of the UK
economy, however, key areas such as consumer confidence and affordability,
levels of economic activity and house prices will impact on levels of demand
for the Group's products and services. As well as performance of its credit
portfolios and achievable returns.
Whilst inflation pressures reduced significantly in 2024, this did not allow
for material reductions in the Bank of England Base Rate, which remains high
by recent standards. Whilst these issues have not presented at a portfolio
level given the prudent approach taken by the Group towards credit risk, these
factors are tracked closely through ongoing portfolio monitoring and required
changes in lending parameters are undertaken on a proactive basis.
The Group monitors the look forward strategic risk via regular analysis of
forecast economic data as part of its review of impairment assumptions and in
its annual ICAAP and ILAAP processes. In addition to direct economic factors,
the Group is also exposed to the general operating environment in the UK for a
regulated business.
The Group is tracking closely the potential legal and regulatory risk
associated with the Court of Appeal rulings and Supreme Court appeal about the
three historical motor commissions cases (see Note 29 to the Financial
Statements). The Group is awaiting the outcome of the Supreme Court appeal and
other legal developments, and the FCA's motor finance review to establish
whether and how its historical Vehicle Finance lending will be impacted.
In addition to these specific industry events, the Group is also tracking the
various consultation papers relating to regulatory change and engaging with
industry bodies to provide input into proposed changes, as well as tracking
potential impact.
Directors' responsibility statement
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each
financial year. Under that law the Directors are required to prepare the Group
Financial Statements in accordance with UK-adopted international accounting
standards. The Financial Statements also comply with International Financial
Reporting Standards ('IFRSs') as issued by the IASB. The Directors have also
chosen to prepare the Parent Company Financial Statements under UK-adopted
international accounting standards. Under company law the Directors must not
approve the Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of the profit or
loss of the Company for that period.
In preparing these Financial Statements, International Accounting Standard 1
requires that directors:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements
of the financial reporting framework are insufficient to enable users to
understand the impact of particular transactions, other events and conditions
on the entity's financial position and financial performance; and
· make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Responsibility statement
Each of the Directors who are in office at the date of this report and whose
names and roles are listed on pages 71 to 73 of the 2024 Annual Report and
Accounts confirm that to the best of their knowledge:
· the Financial Statements, prepared in accordance with the relevant financial
reporting framework, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole;
· the Management Report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face; and
· the Annual Report and Financial Statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
Consolidated statement of comprehensive income
For the year ended 31 December 2024
Note 2024 2023
£million £million
Income statement
Continuing operations
Interest income and similar income 4.1 366.0 304.0
Interest expense and similar charges 4.1 (181.1) (136.5)
Net interest income 4.1 184.9 167.5
Fee and commission income 4.2 19.2 17.3
Fee and commission expense 4.2 (0.2) (0.1)
Net fee and commission income 4.2 19.0 17.2
Operating income 203.9 184.7
Net impairment charge on loans and advances to customers 16 (61.9) (43.2)
Other (losses)/gains (0.3) 0.3
Fair value and other gains on financial instruments 5 1.2 0.5
Operating expenses 6 (103.8) (99.7)
Profit before income tax from continuing operations before exceptional items 39.1 42.6
Exceptional items 8 (9.9) (6.5)
Profit before income tax from continuing operations 29.2 36.1
Income tax expense 9 (9.5) (9.7)
Profit for the year from continuing operations 19.7 26.4
Discontinued operations
Loss before income tax from discontinued operations 10 - (2.7)
Income tax credit 10 - 0.6
Loss for the year from discontinued operations 10 - (2.1)
Profit for the year 19.7 24.3
Other comprehensive income
Items that may be reclassified to the income statement
Cash flow hedge reserve movements (0.8) -
Reclassification to the income statement 1.3 0.6
Taxation (0.2) (0.1)
Other comprehensive income for the year, net of income tax 0.3 0.5
Total other comprehensive income 20.0 24.8
Profit attributable to equity holders of the Company 19.7 24.3
Total comprehensive income attributable to equity holders of the Company 20.0 24.8
Earnings per share for profit attributable to the equity holders of the
Company during the year (pence per share)
Basic earnings per ordinary share 11.1 103.4 129.6
Diluted earnings per ordinary share 11.2 101.4 126.1
Basic earnings per ordinary share - continuing operations 103.4 140.8
Diluted earnings per ordinary share - continuing operations 101.4 137.0
Consolidated and Company statement of financial position
As at 31 December 2024
Group Company
Note 2024 2023 2024 2023
£million £million £million £million
ASSETS
Cash and Bank of England reserve account 445.0 351.6 445.0 351.6
Loans and advances to banks 13 24.0 53.7 23.6 53.0
Loans and advances to customers 14, 15 3,608.5 3,315.3 3,608.5 3,315.3
Fair value adjustment for portfolio hedged risk 17 (6.8) (3.9) (6.8) (3.9)
Derivative financial instruments 17 14.3 25.5 14.3 25.5
Investment property 18 - - 0.9 0.9
Property, plant and equipment 19 9.9 10.8 6.0 6.3
Right-of-use assets 20 1.6 1.8 1.4 1.6
Intangible assets 21 5.0 5.9 2.9 3.5
Investments in group undertakings 22 - - 6.1 5.9
Current tax assets 0.2 0.1 1.0 -
Deferred tax assets 23 3.3 4.3 3.3 4.3
Other assets 24 11.7 12.9 13.0 14.4
Total assets 4,116.7 3,778.0 4,119.2 3,778.4
LIABILITIES AND EQUITY
Liabilities
Due to banks 25 365.8 402.0 365.8 402.0
Deposits from customers 26 3,244.9 2,871.8 3,244.9 2,871.8
Fair value adjustment for portfolio hedged risk 17 (3.4) (1.4) (3.4) (1.4)
Derivative financial instruments 17 10.0 22.0 10.0 22.0
Current tax liabilities - - - 0.3
Lease liabilities 27 1.8 2.3 1.6 2.1
Other liabilities 28 32.5 37.7 41.1 44.7
Provisions for liabilities and charges 29 11.3 6.0 11.3 5.6
Subordinated liabilities 30 93.3 93.1 93.3 93.1
Total liabilities 3,756.2 3,433.5 3,764.6 3,440.2
Equity attributable to owners of the parent
Share capital 7.6 7.6 7.6 7.6
Share premium 84.0 83.8 84.0 83.8
Other reserves (2.2) (1.7) (2.2) (1.7)
Retained earnings 271.1 254.8 265.2 248.5
Total equity 360.5 344.5 354.6 338.2
Total liabilities and equity 4,116.7 3,778.0 4,119.2 3,778.4
Consolidated and Company statement of changes in equity
Group Company
Equity attributable to equity holders of the parent Equity attributable to equity holders of the parent
Share Share Other reserves Retained Total Share Share Other reserves Retained Total
capital
premium
earnings
capital
premium
earnings
£million
£million
£million £million £million £million £million £million
Cash flow hedge reserve Own Cash flow hedge reserve Own
shares
shares
£million
£million
£million £million
Balance at 1 January 2024 7.6 83.8 (0.3) (1.4) 254.8 344.5 7.6 83.8 (0.3) (1.4) 248.5 338.2
Profit for 2024 - - - - 19.7 19.7 - - - - 20.1 20.1
Other comprehensive income for the year, net of income tax - - 0.3 - - 0.3 - - 0.3 - - 0.3
Total comprehensive income for the year - - 0.3 - 19.7 20.0 - - 0.3 - 20.1 20.4
Purchase of own shares - - - (1.4) - (1.4) - - - (1.4) - (1.4)
Sale of own shares - - - 0.6 - 0.6 - - - 0.6 - 0.6
Loss on sale of own shares - - - - (0.5) (0.5) - - - - (0.5) (0.5)
Issue of shares - 0.2 - - - 0.2 - 0.2 - - - 0.2
Dividends paid - - - - (5.2) (5.2) - - - - (5.2) (5.2)
Share-based payments - - - - 2.3 2.3 - - - - 2.3 2.3
Balance at 31 December 2024 7.6 84.0 - (2.2) 271.1 360.5 7.6 84.0 - (2.2) 265.2 354.6
Balance at 1 January 2023 7.5 82.2 (0.8) (0.3) 237.8 326.4 7.5 82.2 (0.8) (0.3) 230.2 318.8
Profit for 2023 - - - - 24.3 24.3 - - - - 25.6 25.6
Other comprehensive income for the year, net of income tax - - 0.5 - - 0.5 - - 0.5 - - 0.5
Total comprehensive income for the year - - 0.5 - 24.3 24.8 - - 0.5 - 25.6 26.1
Purchase of own shares - - - (1.2) - (1.2) - - - (1.2) - (1.2)
Sale of own shares - - - 0.1 - 0.1 - - - 0.1 - 0.1
Issue of shares 0.1 1.6 - - - 1.7 0.1 1.6 - - - 1.7
Dividends paid - - - - (8.4) (8.4) - - - - (8.4) (8.4)
Share-based payments - - - - 1.1 1.1 - - - - 1.1 1.1
Balance at 31 December 2023 7.6 83.8 (0.3) (1.4) 254.8 344.5 7.6 83.8 (0.3) (1.4) 248.5 338.2
Consolidated statement of cash flows
For the year ended 31 December 2024
Note 2024 2023
£million £million
Cash flows from operating activities
Profit for the year 19.7 24.3
Adjustments for:
Income tax expense 9 9.5 9.1
Depreciation of property, plant and equipment 19 1.0 0.9
Depreciation of right-of-use assets 20 1.0 0.7
Amortisation of intangible assets 21 1.4 1.2
Loss on disposal of property, plant and equipment, right-of-use assets and - 0.2
intangible assets
Impairment charge on loans and advances to customers 61.9 43.2
Share-based compensation 34 2.3 1.1
Provisions for liabilities and charges 29 9.8 8.5
Other non-cash items included in profit before tax (0.6) (0.8)
Cash flows from operating profits before changes in operating assets and 106.0 88.4
liabilities
Changes in operating assets and liabilities:
Loans and advances to customers (354.8) (439.0)
Loans and advances to banks 5.0 (1.3)
Other assets 1.4 0.4
Deposits from customers 373.1 357.2
Provisions for liabilities and charges utilisation (4.7) (4.7)
Other liabilities (5.5) (37.8)
Income tax paid (8.8) (8.6)
Net cash inflow/(outflow) from operating activities 111.7 (45.4)
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets 19,21 (1.0) (2.7)
Net cash outflow from investing activities (1.0) (2.7)
Cash flows from financing activities
Issue of subordinated debt 30 - 70.0
Redemption of subordinated debt 30 - (28.8)
Drawdown/(repayment) of amounts due to banks 0.8 (0.9)
Drawdown of Index Long-Term Repos 125.0 -
Repayment of Term Funding Scheme with additional incentives for SMEs (160.0) -
Purchase of own shares (1.4) (1.2)
Issue of shares 0.2 1.7
Dividends paid 12 (5.2) (8.4)
Repayment of lease liabilities 27 (1.4) (0.9)
Net cash (outflow)/inflow from financing activities (42.0) 31.5
Net increase/(decrease) in cash and cash equivalents 68.7 (16.6)
Cash and cash equivalents at 1 January 400.3 416.9
Cash and cash equivalents at 31 December 35 469.0 400.3
Company statement of cash flows
For the year ended 31 December 2024
Note 2024 2023
£million £million
Cash flows from operating activities
Profit for the year 20.1 25.6
Adjustments for:
Income tax expense 9 6.2 6.7
Depreciation of property, plant and equipment 19 0.6 0.6
Depreciation of right-of-use assets 20 0.8 0.6
21 1.1 1.0
Amortisation of intangible assets
Loss on disposal of property, plant and equipment - 0.1
Impairment charge on loans and advances to customers 62.0 43.2
Share-based compensation 34 2.1 0.9
Dividends received from subsidiaries (9.5) (10.2)
Provisions for liabilities and charges 29 10.1 7.2
Other non-cash items included in profit before tax (1.2) 1.4
Cash flows from operating profits before changes in operating assets and 92.3 77.1
liabilities
Changes in operating assets and liabilities:
Loans and advances to customers (354.9) (439.0)
Loans and advances to banks 5.0 (1.3)
Other assets 11.3 8.7
Deposits from customers 373.1 357.2
Provisions for liabilities and charges utilisation (4.6) (3.3)
Other liabilities (3.9) (38.6)
Income tax paid (6.7) (5.9)
Net cash inflow/(outflow) from operating activities 111.6 (45.1)
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets 19, 21 (0.8) (2.2)
Net cash outflow from investing activities (0.8) (2.2)
Cash flows from financing activities
Issue of subordinated debt 30 - 70.0
Redemption of subordinated debt 30 - (28.8)
Drawdown/(repayment) of amounts due to banks 0.8 (0.9)
Drawdown of Index Long-Term Repos 125.0 -
Repayment of Term Funding Scheme with additional incentives for SMEs (160.0) -
Purchase of own shares (1.4) (1.2)
Issue of shares 0.2 1.7
Dividends paid 12 (5.2) (8.4)
Repayment of lease liabilities 27 (1.2) (0.8)
Net cash (outflow)/inflow from financing activities (41.8) 31.6
Net increase/(decrease) in cash and cash equivalents 69.0 (15.7)
Cash and cash equivalents at 1 January 399.6 415.3
Cash and cash equivalents at 31 December 35 468.6 399.6
Notes to the consolidated financial statements
1. Accounting policies
The material accounting policies applied in the preparation of these
consolidated financial statements are set out below, and if applicable,
directly under the relevant note to the consolidated financial statements.
These policies have been consistently applied to all of the years presented,
unless otherwise stated.
1.1. Reporting entity
Secure Trust Bank PLC is a public limited company incorporated in England and
Wales in the United Kingdom (referred to as the 'Company') and is limited by
shares. The Company is registered in England and Wales and has the registered
number 00541132. The registered address of the Company is Yorke House,
Arleston Way, Solihull B90 4LH. The consolidated financial statements of the
Company as at, and for, the year ended 31 December 2024 comprise Secure Trust
Bank PLC and its subsidiaries (together referred to as the 'Group' and
individually as 'subsidiaries'). The Group is primarily involved in the
provision of banking and financial services.
1.2. Basis of presentation
The figures shown for the year ended 31 December 2024 are not statutory
accounts within the meaning of section 435 of the Companies Act 2006. The
statutory accounts for the year ended 31 December 2024 on which the auditors
have given an unqualified audit report and did not contain an adverse
statement under section 498(2) or 498(3) of the Companies Act 2006 will be
delivered to the Registrar of Companies after the Annual General Meeting. The
figures shown for the year ended 31 December 2023 are not statutory accounts.
A copy of the statutory accounts has been delivered to the Registrar of
Companies, which contained an unqualified audit report and did not contain an
adverse statement under section 498(2) or 498(3) of the Companies Act 2006.
This announcement has been agreed with the Company's auditors for release.
1.3. Consolidation
Subsidiaries
Subsidiaries are all investees controlled by the Group. The Group controls an
investee when it is exposed, or has rights, to variable returns from its
involvement with the investee, and has the ability to affect those returns
through its power over the investee. Subsidiaries are fully consolidated from
the date on which control is transferred to the Group.
The acquisition method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred
or assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any
non-controlling interest. The excess of the cost of acquisition, excluding
directly attributable costs, over the fair value of the Group's share of the
identifiable net assets acquired is recorded as goodwill. If the cost of
acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognised directly in the income statement.
The parent company's investments in subsidiaries are recorded at cost less,
where appropriate, provision for impairment. The fair value of the underlying
business of the Company's only material investment was significantly higher
than carrying value, and, therefore, no impairment was required.
Intercompany transactions, balances and unrealised gains and losses on
transactions between Group companies are eliminated.
Accounting policies of subsidiaries have been changed, where necessary, to
ensure consistency with the policies adopted by the Group.
Subsidiaries are de-consolidated from the date that control ceases.
Discontinued operations
Discontinued operations are a component of an entity that has been disposed of
and represents a major line of business and/or is part of a single
co-ordinated disposal plan.
1.4. Financial assets and financial liabilities accounting policy
Financial assets (with the exception of derivative financial instruments) accounting policy
The Group classifies its financial assets at inception into three measurement
categories: 'amortised cost', 'Fair Value Through Other Comprehensive Income'
('FVOCI') and 'Fair Value Through Profit or Loss' ('FVTPL'). A financial asset
is measured at amortised cost if both the following conditions are met and it
has not been designated as at FVTPL:
· the asset is held within a business model whose objective is to hold the asset
to collect its contractual cash flows; and
· the contractual terms of the financial asset give rise to cash flows on
specified dates that are Solely Payments of Principal and Interest ('SPPI').
The Group's current business model for all financial assets, with the
exception of derivative financial instruments, is to hold to collect
contractual cash flows, and all assets held give rise to cash flows on
specified dates that represent SPPI on the outstanding principal amount. All
of the Group's financial assets are, therefore, currently classified as
amortised cost, except for derivative financial instruments. Loans are
recognised when funds are advanced to customers and are carried at amortised
cost using the Effective Interest Rate ('EIR') method.
A debt instrument would be measured at FVOCI only if both the below conditions
are met and it has not been designated as FVTPL:
· the asset is held within a business model whose objective is achieved by both
collecting its contractual cash flows and selling the financial asset; and
· the contractual terms of the financial asset give rise to cash flows on
specified dates that represent SPPI on the outstanding principal amount.
The Group currently has no financial instruments classified as FVOCI.
See below for further details of the business model assessment and the SPPI
test.
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
other comprehensive income. This election would be made on an
investment-by-investment basis. The Group currently holds no such investments.
All other assets are classified as FVTPL.
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. The Group has not reclassified any financial assets during
the reporting period.
Assessment whether contractual cash flows are SPPI
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 cost of funds 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. 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 the condition.
In making the assessment, the Group considers:
· contingent events that would change the amount and timing of cash flows;
· prepayments and extension terms;
· terms that limit the Group's claim to cash flows from specific assets (e.g.
non-recourse asset arrangements); and
· features that modify consideration of the time value of money (e.g. periodical
reset of interest rate).
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 is provided to management. The information
considered includes:
· the stated policies and objectives for the portfolio and the operation of
those policies in practice. In particular, whether management's strategy
focuses on managing the portfolio in order to collect contractual cash flows
or whether it is managed in order to trade to realise fair value changes;
· how the performance of the portfolio is evaluated and reports to management;
· the risks that affect the performance of the business model (and the financial
assets held within that business model) and how those risks are managed; and
· the frequency, volume and timing of sales in prior periods, the reasons for
such sales and its expectations about future sales activity. However,
information about sales activity is not considered in isolation, but as part
of an overall assessment of how the Group's stated objective for managing the
financial assets is achieved and how cash flows are realised.
Financial assets that are held for trading or managed and whose performance is
evaluated on a fair value basis are classified as FVTPL because they are
neither held to collect contractual cash flows nor held both to collect
contractual cash flows and to sell financial assets.
The Group currently has no financial instruments classified as FVTPL.
Amortised cost measurement
The amortised cost of a financial asset or financial liability is the amount
at which the financial asset or financial liability is measured at initial
recognition, plus or minus the cumulative amortisation using the EIR, which is
the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument, minus any reduction for
impairment.
Derecognition of financial assets
Financial assets are derecognised when the rights to receive cash flows from
the financial assets have expired or where the Group has transferred
substantially all of the risks and rewards of ownership or in the event of a
substantial modification. There have not been any instances where assets have
only been partially derecognised.
Modification of loans
A customer's account may be modified to assist customers who are in, or have
recently overcome, financial difficulties and have demonstrated both the
ability and willingness to meet the current or modified loan contractual
payments. Substantial loan modifications result in the derecognition of the
existing loan, and the recognition of a new loan at the new origination EIR
based on the expected future cash flows at origination. Determination of the
origination Probability of Default ('PD') for the new loan is required, based
on the PD as at the date of the modification, which is used for the
calculation of the impairment provision against the new loan. Any deferred
fees or deferred interest, and any difference between the carrying value of
the derecognised loan and the new loan, is written-off to the income statement
on recognition of the new loan.
Where the modification is not considered to be substantial, neither the
origination EIR nor the origination probability of default for the modified
loan changes. The net present value of changes to the future contractual cash
flows adjusts the carrying amount of the original asset with the difference
immediately being recognised in profit or loss. The adjusted carrying amount
is then amortised over the remaining term of the modified loan using the
original EIR.
Financial liabilities (with the exception of derivative financial instruments)
The Group classifies its financial liabilities as measured at amortised cost.
Such financial liabilities are recognised when cash is received from
depositors and carried at amortised cost using the EIR method. Financial
liabilities are derecognised when they are extinguished (i.e. when the
obligation specified in the contract is discharged, cancelled or expires).
Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are not offset in the consolidated
financial statements unless the Group has both a legally enforceable right and
intention to offset.
1.5. Foreign currencies
Transactions in foreign currencies are initially recorded at the rates of
exchange prevailing on the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies are retranslated into the
Company's functional currency at the rates prevailing on the consolidated
statement of financial position date. Exchange differences arising on the
settlement of monetary items, and on the retranslation of monetary items, are
included in the income statement for the period.
2. Critical accounting judgements and key sources of estimation uncertainty
2.1. Judgements
No critical judgements have been identified.
2.2. Key sources of estimation uncertainty
Estimations that could have a material impact on the Group's financial
results, and, are therefore, considered to be key sources of estimation
uncertainty. Key sources of estimation can be found in:
· Note 16. Allowances for impairment of loans and advances to customers;
· Note 29. Provisions for liabilities and charges.
3. Operating segments
The Group is organised into four operating segments, which consist of the
different products available, as disclosed below.
Consumer Finance
· Retail Finance: a market-leading online e-commerce service to retailers,
providing unsecured lending products to prime UK customers to facilitate the
purchase of a wide range of consumer products, including bicycles, musical
instruments and equipment, furniture, outdoor/leisure, electronics, dental,
jewellery, home improvements and football season tickets.
· Vehicle Finance: hire purchase lending for used cars to prime and near-prime
customers and Personal Contract Purchase lending into the consumer prime
credit market, both secured against the vehicle financed. In addition, a
Stocking Funding product is also offered, whereby funds are advanced and
secured against dealer forecourt used car stock, sourced from auctions, part
exchanges or trade sources.
Business Finance
· Real Estate Finance: lending secured against property assets to a maximum 70%
loan-to-value ratio, on fixed or variable rates over a term of up to five
years.
· Commercial Finance: lending is predominantly against receivables, typically
releasing 90% of qualifying invoices under invoice discounting facilities.
Other assets can also be funded either long or short term and for a range of
loan-to-value ratios alongside these services.
Other
This principally includes interest receivable from central banks, interest
receivable and payable on derivatives and interest payable on deposits from
customers, amounts due to banks and subordinated liabilities, and operating
expenses, which are not recharged to the operating segments.
The Group's chief operating decision maker, the Executive Committee, regularly
reviews these segments by looking at the operating income, size of the loan
books and impairments.
Interest expense is charged to the operating segments in accordance with the
Group's internal funds transfer pricing policy. Operating expenses reflect
costs incurred directly, and costs incurred centrally that are reallocated to
the operating segment to which they can be directly attributed.
Additionally, no balance sheet items are allocated to segments other than
loans and advances to customers.
All of the Group's operations are conducted wholly within the United Kingdom
and geographical information is, therefore, not presented.
Retail Finance Vehicle Finance Real Estate Finance Commercial Finance Other Group
£million £million £million £million £million £million
31 December 2024
Interest income and similar income 140.7 69.2 87.1 29.8 39.2 366.0
Interest expense and similar charges (53.9) (21.6) (54.5) (17.6) (33.5) (181.1)
Net interest income 86.8 47.6 32.6 12.2 5.7 184.9
Fee and commission income 3.2 0.9 0.4 14.6 0.1 19.2
Fee and commission expense - (0.1) - (0.1) - (0.2)
Net fee and commission income 3.2 0.8 0.4 14.5 0.1 19.0
Operating income 90.0 48.4 33.0 26.7 5.8 203.9
Net impairment charge on loans and advances to customers (13.3) (38.7) (4.0) (5.9) - (61.9)
Other gains/(losses) - 0.1 - - (0.4) (0.3)
Fair value gains on financial instruments - - - - 1.2 1.2
Operating expenses (26.1) (31.6) (10.0) (8.1) (28.0) (103.8)
Profit/(loss) before income tax before exceptional items 50.6 (21.8) 19.0 12.7 (21.4) 39.1
Exceptional items - - - - (9.9) (9.9)
Profit/(loss) before income tax 50.6 (21.8) 19.0 12.7 (31.3) 29.2
Loans and advances to customers 1,357.8 558.3 1,341.4 351.0 - 3,608.5
A new presentation layout for operating segments has been adopted in the
current year to provide information in a format aligned to the layout of the
primary financial statements.
Prior year data is also presented using the same format to aid comparability.
This is intended to provide more clear analysis of how each segment
contributes to the Group's performance.
Retail Finance Vehicle Finance Real Estate Finance Commercial Finance Other Group
£million £million £million £million £million £million
31 December 2023
Interest income and similar income 106.5 59.1 74.4 27.2 36.8 304.0
Interest expense and similar charges (33.4) (15.0) (44.7) (14.0) (29.4) (136.5)
Net interest income 73.1 44.1 29.7 13.2 7.4 167.5
Fee and commission income 3.2 1.8 0.9 11.4 - 17.3
Fee and commission expense - - - (0.1) - (0.1)
Net fee and commission income 3.2 1.8 0.9 11.3 - 17.2
Operating income 76.3 45.9 30.6 24.5 7.4 184.7
Net impairment charge on loans and advances to customers (15.9) (14.8) (4.5) (8.0) - (43.2)
Other gains - 0.3 - - - 0.3
Fair value gains on financial instruments - - - - 0.5 0.5
Operating expenses (26.7) (28.2) (10.2) (7.7) (26.9) (99.7)
Profit/(loss) before income tax before exceptional items 33.7 3.2 15.9 8.8 (19.0) 42.6
Exceptional items - - - - (6.5) (6.5)
Profit/(loss) before income tax 33.7 3.2 15.9 8.8 (25.5) 36.1
Loans and advances to customers 1,223.2 467.2 1,243.8 381.1 - 3,315.3
4. Operating income
All items below arise from financial instruments measured at amortised cost
unless otherwise stated.
4.1. Net interest income
2024 2023
£million £million
Loans and advances to customers 326.7 267.0
Cash and Bank of England reserve account 22.5 17.5
349.2 284.5
Income on financial instruments hedging assets 16.8 19.5
Interest income and similar income 366.0 304.0
Deposits from customers (136.0) (88.2)
Due to banks (18.5) (18.7)
Subordinated liabilities (11.9) (10.7)
Other (0.1) (0.1)
(166.5) (117.7)
Expense on financial instruments hedging liabilities (14.6) (18.8)
Interest expense and similar charges (181.1) (136.5)
Interest income and expense accounting policy
For all financial instruments measured at amortised cost, the EIR method is
used to measure the carrying value and allocate interest income or expense.
The EIR is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial instrument to:
· the gross carrying amount of the financial asset; or
· the amortised cost of the financial liability.
In calculating the EIR for financial instruments, other than assets that were
credit impaired on initial recognition, the Group estimates cash flows
considering all contractual terms of the financial instrument (for example,
early redemption penalty charges and broker commissions) and anticipated
customer behaviour but does not consider future credit losses.
The calculation of the EIR includes all fees received and paid that are an
integral part of the loan, transaction costs and all other premiums or
discounts. Transaction costs include incremental costs that are directly
attributable to the acquisition or issue of a financial instrument.
For financial assets that are not considered to be credit-impaired ('Stage 1'
and 'Stage 2' assets), interest income is recognised by applying the EIR to
the gross carrying amount of the financial asset. For financial assets that
become credit-impaired subsequent to initial recognition ('Stage 3' assets),
from the next reporting period onwards interest income is recognised by
applying the EIR to the amortised cost of the financial asset. The credit risk
of financial assets that become credit-impaired are not expected to improve
such that they are no longer considered credit-impaired, however, if this were
to occur, the calculation of interest income would revert back to the gross
basis. The Group's definition of Stage 1, Stage 2 and Stage 3 assets is set
out in Note 16.
For financial assets that were credit-impaired on initial recognition ('POCI'
assets), income is calculated by applying the credit adjusted EIR to the
amortised cost of the asset. Collection activity costs are not included in the
amortised cost of the assets, but are included in operating expenses in the
income statement, and are recognised as incurred, in common with other
businesses in the sector. For such financial assets the calculation of
interest income will never revert to a gross basis, even if the credit risk of
the asset improves.
Further details regarding when an asset becomes credit-impaired subsequent to
initial recognition is provided within Note 16.
4.2. Net fee and commission income
2024 2023
£million £million
Fee and disbursement income 18.1 16.4
Commission income 1.1 0.9
Fee and commission income 19.2 17.3
Other expenses (0.2) (0.1)
Fee and commission expense (0.2) (0.1)
Fees and commission income is all recognised under IFRS 15 Revenue from
contracts to customers and consists principally of the following:
· Commercial Finance - discounting, service and arrangement fees.
· Retail Finance - principally comprises of account management fees received
from customers and referral fees received from third parties.
· Vehicle Finance - primarily relates to vehicle collection and damage charges
made to customers and loan administration fees charged to dealers in respect
of the Stock Funding product.
Fee and commission accounting policy
Fees and commission income that is not considered an integral part of the EIR
of a financial instrument are recognised under IFRS 15 when the Group
satisfies performance obligations by transferring promised services to
customers and presented in the income statement as fee and commission income.
All of the Group's fees and commissions relate to performance obligations that
are recognised at a point in time.
Fees and commission income and expenses that are an integral part of the EIR
of a financial instrument are included in the EIR and presented in the income
statement as interest income or expense.
No significant judgements are made in evaluating when a customer obtains
control of promised goods or services.
5. Fair value and other gains on financial instruments
2024 2023
£million £million
Fair value movement during the year - Interest rate derivatives 1.6 (6.1)
Fair value movement during the year - Hedged items (1.5) 6.2
Hedge ineffectiveness recognised in the income statement 0.1 0.1
Inception and amortisation adjustment(1) 0.6 -
Gains/(losses) recognised on derivatives not in hedge relationships 0.5 (0.8)
Extinguishment gain on redemption of subordinated debt - 1.2
1.2 0.5
1. The inception and amortisation adjustment relates to amortisation of macro
fair value hedge accounting relationships derecognised and the amortisation of
the fair value adjustment of underlying hedged items at the time hedge
accounting relationships commenced or were redesignated. Over the life of the
hedged items these adjustments are expected to off-set gains/losses on
derivatives taken for hedging purposes before and after they are designated in
hedge relationships.
The extinguishment gain on redemption of subordinated debt relates to the
redemption during 2023 at a discount to par of the £50 million 6.75% Fixed
Rate Reset Callable Subordinated Notes due in 2028.
As a part of its risk management strategy, the Group uses derivatives to
economically hedge financial assets and liabilities. For further information
on the Group's risk management strategy for market risk see the Group's
Strategic Report in the 2024 Annual Report and Accounts.
Hedge accounting is employed by the Group to minimise the accounting
volatility associated with the change in fair value of derivative financial
instruments. This volatility does not reflect the economic reality of the
Group's hedging strategy, the Group only uses derivatives for the hedging of
risks.
5.1. Fair value gain recognised in other comprehensive income
2024 2023
£million £million
Cash flow hedges
Fair value movement in year - Interest rate derivatives (0.8) -
Interest reclassified to the income statement during the year 1.3 0.6
Fair value gain recognised in other comprehensive income 0.5 0.6
Although the Group uses interest rate derivatives exclusively to hedge
interest rate risk exposures, income statement volatility can still arise due
to hedge accounting ineffectiveness or because hedge accounting is not
achievable. Where such volatility arises, it will net to zero over the life of
the hedging relationship. All derivatives held by the Group have been highly
effective in the year, resulting in minimal hedge accounting ineffectiveness
recognised in the income statement. Future ineffectiveness may arise as a
result of:
· differences between the expected and actual volume of prepayments, as the
Group hedges to the expected repayment date taking into account expected
prepayments based on past experience; or
· differences in the timing of cash flows for the hedged item and the hedging
instrument.
How fair value and cash flow hedge accounting affect the consolidated
financial statements and the main sources of the residual hedge
ineffectiveness remaining in the income statement are set out below. Further
information on the current derivative portfolio and the allocation to hedge
accounting types is included in Note 17.
Derivative financial instruments accounting policy
The Group enters into derivatives to manage exposures to fluctuations in
interest rates. Derivatives are not used for speculative purposes. Derivatives
are carried at fair value, with movements in fair value recognised in the
income statement or other comprehensive income. Derivatives are valued by
discounted cash flow models using yield curves based on Overnight Indexed Swap
('OIS') rates. All derivatives are carried as assets where fair value is
positive and as liabilities when fair value is negative. Derivatives are not
offset in the consolidated financial statements unless the Group has both a
legally enforceable right and intention to offset. The Group does not hold
contracts containing embedded derivatives.
Where cash collateral is received, to mitigate the risk inherent in the
amounts due to the Group, it is included as a liability within the due to
banks line within the statement of financial position. Where cash collateral
is given, to mitigate the risk inherent in amounts due from the Group, it is
included as an asset in the loans and advances to banks line within the
statement of financial position.
Hedge accounting
Following the implementation of IFRS 9, the Group elected to apply IAS 39 for
all of its hedge accounting requirements. When transactions meet specified
criteria the Group can apply two types of hedge accounting:
· hedges of the fair value of recognised assets or liabilities or firm
commitments (fair value hedges); and
· hedges of highly probable future cash flows attributable to a recognised asset
or liability (cash flow hedges).
The Group does not have hedges of net investments.
At inception of a hedge, the Group formally documents the relationship between
the hedged items and hedging instruments, as well as its risk management
objective and strategy for undertaking various hedge transactions. The Group
also documents its assessment, both at hedge inception and on an ongoing
basis, of whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values of the hedged items
(i.e. the fair value offset between the hedged item and hedging instrument is
within the 80%-125% range).
When the European Union adopted IAS 39 in 2004, it removed certain hedge
accounting requirements, commonly referred to as the EU carve-out. The relaxed
requirements under the carve-out allow the Group to apply the 'bottom up'
method when calculating macro-hedge ineffectiveness. This option is not
allowed under full IFRS. The Group has applied the EU carve-out accordingly.
Fair value hedge accounting
Fair value hedge accounting results in the carrying value of the hedged item
being adjusted to reflect changes in fair value attributable to the hedged
risk, thereby offsetting the effect of the related movement in the fair value
of the derivative. Changes in the fair value of derivatives and hedged items
that are designated and qualify as fair value hedges are recorded in the
income statement.
In a one-to-one hedging relationship, in which a single derivative hedges a
single hedged item, the carrying value of the underlying asset or liability
(the hedged item) is adjusted for the hedged risk to offset the fair value
movement of the related derivative. In the case of a portfolio hedge, an
adjustment is included in the fair value adjustments for portfolio hedged risk
line in the statement of financial position to offset the fair value movements
in the related derivative. The Group currently only designates portfolio
hedges.
If the hedge no longer meets the criteria for hedge accounting, expires or is
terminated, the cumulative fair value adjustment to the carrying amount of a
hedged item is amortised to the income statement over the period to maturity
of the previously designated hedge relationship and recorded as net interest
income. If the underlying item is sold or repaid, the unamortised fair value
adjustment is immediately recognised in the income statement.
Cash flow hedge accounting
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges are recognised in other
comprehensive income and presented in the cash flow hedge reserve in equity.
Any ineffective portion of changes in the fair value of the derivative is
recognised immediately in the income statement. Amounts recognised in the cash
flow hedge reserve are subsequently reclassified to the income statement when
the underlying asset or liability being hedged impacts the income statement,
for example, when interest payments are recognised, and are recorded in the
same income statement line in which the income or expense associated with the
related hedged item is reported.
When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time remains in equity and is recognised in the periods when
the hedged item affects the income statement. When a forecast transaction is
no longer expected to occur (for example, the recognised hedged item is
disposed of), the cumulative gain or loss previously recognised in other
comprehensive income is immediately reclassified to the income statement.
The cash flow hedge reserve represents the cumulative amount of gains and
losses on hedging instruments deemed effective in cash flow hedges. The
cumulative deferred gain or loss on the hedging instrument is recognised in
profit or loss only when the hedged transaction impacts the profit or loss, or
is included directly in the initial cost or other carrying amount of the
hedged non-financial items (basis adjustment).
6. Operating expenses
2024 2023
£million £million
Employee costs, including those of Directors:
Wages and salaries 52.5 49.5
Social security costs 5.7 5.6
Pension costs 2.0 1.8
Share-based payment transactions 2.3 1.1
Depreciation of property, plant and equipment (Note 19) 1.0 0.9
Depreciation of lease right-of-use assets (Note 20) 1.0 0.7
Amortisation of intangible assets (Note 21) 1.4 1.2
Operating lease rentals 0.8 0.7
Other administrative expenses 37.1 40.9
Total operating expenses 103.8 102.4
Of which:
Continuing 103.8 99.7
Discontinued (Note 10) - 2.7
Post-retirement obligations accounting policy
The Group contributes to defined contribution schemes for the benefit of
certain employees. The schemes are funded through payments to insurance
companies or trustee-administered funds at the contribution rates agreed with
individual employees. The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised as an employee
benefit expense when they are due. There are no post-retirement benefits other
than pensions.
Remuneration of the Auditor and its associates, excluding VAT, was as follows:
2024 2023
£million £million
Fees payable to the Company's Auditor for the audit of the Company's annual 1.3 1.0
accounts
Fees payable to the Company's Auditor for other services:
Other assurance services 0.1 0.2
1.4 1.2
Other assurance services related to the interim independent review report and
profit certification (2023: interim independent review report, profit
certification and a comfort letter in relation to the Tier 2 capital
issuance).
7. Average number of employees
2024 2023
Number Number
Directors 2 2
Other senior management 23 23
Other employees 890 849
915 874
8. Exceptional items
2024 2023
£million £million
Motor finance commissions
Redress 5.2 -
Costs 1.7 -
6.9 -
BiFD Vehicle Finance collections review
Redress 0.2 2.0
Costs 1.3 2.7
1.5 4.7
Organisational redesign 1.5 -
Corporate activity - 1.8
Total exceptional items 9.9 6.5
Costs associated with these activities are outside the normal course of
business and are treated as exceptional.
Motor finance commissions
During 2024, the Group recognised costs of £6.9 million (2023: £nil), of
which £6.4 million was recognised as a provision. Further details about the
provision can be found in Note 29.
Organisational redesign
During 2024, the Group undertook an organisational redesign where
product-specific teams were amalgamated under a single management structure.
In addition, there were changes within Finance and the Risk functions to
ensure they were configured to support the business in the most effective way.
As a consequence, the Group incurred redundancy costs of £1.5 million (2023:
£nil).
Borrowers in Financial Difficulty ('BiFD') Vehicle Finance collections review
Following the Financial Conduct Authority's review of BiFD across the
industry, and in response to the specific feedback we received on our own
collection activities, in 2023, we engaged external support to assist us and,
where necessary, enhanced our approach, which included offering a wider range
of forbearance options to our customers. In 2023, we incurred or provided for
costs of £4.7 million relating to processes, procedures and policies in our
Vehicle Finance collections operations. In 2024, a further £1.5 million was
incurred or provided.
Income tax on exceptional items
Income tax on exceptional items amount to £1.0 million credit (2023: £0.6
million credit).
Exceptional items accounting policy
Exceptional items are expenses that do not relate to the Group's core
activities, which are material in the context of the Group's performance.
9. Income tax expense
2024 2023
£million £million
Current taxation
Corporation tax charge - current year 8.4 8.0
Corporation tax charge/(credit) - prior year adjustments 0.3 (0.1)
8.7 7.9
Deferred taxation
Deferred tax charge - current year 1.2 1.3
Deferred tax credit - prior year adjustments (0.4) (0.1)
0.8 1.2
Income tax expense 9.5 9.1
Of which:
Continuing 9.5 9.7
Discontinued (Note 10) - (0.6)
Tax reconciliation
Profit before tax 29.2 33.4
Tax at 25.00% (2023: 23.50%) 7.3 7.8
Permanent differences on exceptional items 1.5 0.9
Other permanent differences 0.1 0.3
Rate change on deferred tax assets 0.5 0.1
Other adjustments including prior year adjustments 0.1 -
Income tax expense for the year 9.5 9.1
The tax has been calculated at the current statutory rate, which is 25.0% for
the year ended 31 December 2024 (2023: 23.5%). For the year ended 31 December
2023, the Corporation Tax rate increased from 19% to 25%, with effect from 1
April 2023. At the same time, the banking surcharge reduced from 8% to 3% and
the surcharge allowance available to a banking group increased from £25
million to £100 million. These changes were enacted prior to the start of
2023, and so opening and closing deferred asset values were calculated from
expected future tax relief based on these enacted rates.
Income tax accounting policy
Current income tax, which is payable on taxable profits, is recognised as an
expense in the period in which the profits arise.
Deferred tax is provided in full on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the
consolidated financial statements. Deferred tax is determined using tax rates
and laws that have been enacted or substantially enacted by the statement of
financial position date and are expected to apply when the related deferred
tax asset is realised or the deferred tax liability is settled.
10. Discontinued operations
The Group sold Debt Managers (Services) Limited's portfolio of loans during
2022. As the Group has exited this market, the results of the Debt Management
business have been presented as discontinued operations.
Income statement 2024 2023
£million
£million
Operating expenses - (2.7)
Loss before income tax from discontinued operations - (2.7)
Income tax credit - 0.6
Loss for the year from discontinued operations - (2.1)
Basic earnings per ordinary share - discontinued operations - (11.2)
Diluted earnings per ordinary share - discontinued operations - (10.9)
Operating expenses above relate to the costs of winding down the business.
Net cash flows 2024 2023
£million
£million
Operating - (2.7)
Net cash outflow - (2.7)
11. Earnings per ordinary share
11.1. Basic
Basic earnings per ordinary share are calculated by dividing the profit
attributable to equity holders of the parent by the weighted average number of
ordinary shares as follows:
2024 2023
Profit attributable to equity holders of the parent (£million) 19.7 24.3
Weighted average number of ordinary shares (number) 19,057,161 18,751,059
Earnings per share (pence) 103.4 129.6
11.2. Diluted
Diluted earnings per ordinary share are calculated by dividing the profit
attributable to equity holders of the parent by the weighted average number of
ordinary shares in issue during the year, as noted above, as well as the
number of dilutive share options in issue during the year, as follows:
2024 2023
Weighted average number of ordinary shares 19,057,161 18,751,059
Number of dilutive shares in issue at the year-end 363,751 515,782
Fully diluted weighted average number of ordinary shares 19,420,912 19,266,841
Dilutive shares being based on:
Number of options outstanding at the year-end 1,395,045 1,210,544
Weighted average exercise price (pence) 215 225
Average share price during the year (pence) 525 719
Diluted earnings per share (pence) 101.4 126.1
12. Dividends
Paid 2024 2023
£million £million
2024 interim dividend - 11.3 pence per share Sep-24 2.1 -
2023 final dividend - 16.2 pence per share May-24 3.1 -
2023 interim dividend - 16.0 pence per share Sep-23 - 3.0
2022 final dividend - 29.1 pence per share May-23 - 5.4
5.2 8.4
The Directors recommend the payment of a final dividend of 22.5 pence per
share (2023: 16.2 pence per share). The final dividend, if approved by
members at the Annual General Meeting, will be paid on 22 May 2025, with an
associated record date of 25 April 2025.
The EBT has waived its right to receive future dividends on shares held in the
trust. Dividends waived on shares held in the EBT in 2024 were £0.1 million
(2023: £nil).
Dividends accounting policy
Final dividends on ordinary shares are recognised in equity in the period in
which they are approved by shareholders. Interim dividends on ordinary shares
are recognised in equity in the period in which they are paid.
13. Loans and advances to banks
Moody's long-term ratings are as follows:
Group Group Company Company
2024
2023
2024
2023
£million £million £million £million
Aaa-Aa3 - 4.8 - 4.8
A1 24.0 48.9 23.6 48.2
24.0 53.7 23.6 53.0
None of the loans and advances to banks are either past due or impaired.
Loans and advances to banks includes £nil (2023: £5.0 million), which the
Group and Company does not have access to.
Where the Group and Company does not have access to cash, it is excluded from
cash and cash equivalents. See Note 35.1 for a reconciliation to cash and cash
equivalents.
14. Loans and advances to customers
Group and Company
2024 2023
£million £million
Gross loans and advances 3,720.3 3,403.4
Less: allowances for impairment of loans and advances (Note 16) (111.8) (88.1)
3,608.5 3,315.3
The fair value of loans and advances to customers is shown in Note 41. Loans
and advances to customers includes finance lease receivables of £548.4
million (2023: £450.3 million). See Note 15 for further details.
Retail Finance assets of £1,088.2 million (2023: £1,004.9 million) were
pre-positioned under the Bank of England's liquidity support operations and
Term Funding Scheme with additional incentives for SMEs and are available for
use as collateral within the schemes.
The Real Estate Finance loan book of £1,341.4 million (2023: £1,243.8
million) is secured upon real estate, which had a loan-to-value of 56% at 31
December 2024 (2023: 57%).
Under its credit policy, the Real Estate Finance business lends to a maximum
loan-to-value of:
· 70% for investment loans;
· 60% for residential development loans(1);
· 65% for certain residential higher leveraged development loans1, which is
subject to an overall cap on such lending agreed by management according to
risk appetite; and
· 65% for commercial development loans(1).
All property valuations at loan inception, and the majority of development
stage valuations, are performed by independent Chartered Surveyors, who
perform their work in accordance with the Royal Institution of Chartered
Surveyors Valuation - Professional Standards.
Of cash collateral, £0.3 million has been received as at 31 December 2024 in
respect of certain loans and advances (2023: £1.7 million).
The accounting policy for loans and advances to customers is included in Note
1.4 Financial assets and financial liabilities accounting policy.
1. Based on gross development value.
15. Finance lease receivables
Group and Company
Loans and advances to customers include finance lease receivables as follows:
2024 2023
£million £million
Gross investment in finance lease receivables:
- Not more than one year 228.1 186.2
- Later than one year but no later than five years 535.4 446.1
763.5 632.3
Unearned future finance income on finance leases (215.1) (182.0)
Net investment in finance leases 548.4 450.3
The net investment in finance leases may be analysed as follows:
- Not more than one year 135.3 113.3
- Later than one year but no later than five years 413.1 337.0
548.4 450.3
Finance lease receivables include Vehicle Finance loans to consumers.
Lessor accounting policy
The present value of the lease payments on assets leased to customers under
agreements that transfer substantially all the risks and rewards of ownership,
with or without ultimate legal title, are recognised as a receivable. The
difference between the gross receivable and the present value of the
receivable is recognised as unearned finance income. Lease income is
recognised over the term of the lease using the net investment method, which
reflects a constant periodic rate of return.
16. Allowances for impairment of loans and advances
Group and Company
Not credit-impaired Credit-impaired
Stage 1: Stage 2: Stage 3: Total provision Gross loans and advances to customers Provision coverage
Subject to
Subject to lifetime ECL
Subject to lifetime ECL
12-month ECL
£million £million %
£million £million
£million
31 December 2024
Consumer Finance:
Retail Finance 13.5 6.5 10.1 30.1 1,387.9 2.2%
Vehicle Finance:
Voluntary termination provision 5.4 1.5 - 6.9
Other impairment 9.8 7.4 44.3 61.5
15.2 8.9 44.3 68.4 626.7 10.9%
Business Finance:
Real Estate Finance 0.4 0.3 11.8 12.5 1,353.9 0.9%
Commercial Finance 0.5 0.2 0.1 0.8 351.8 0.2%
29.6 15.9 66.3 111.8 3,720.3 3.0%
Not credit-impaired Credit-impaired
Stage 1: Stage 2: Stage 3: Total provision Gross loans and advances to customers Provision coverage
Subject to
Subject to
Subject to
12-month ECL
lifetime ECL
lifetime ECL £million £million %
£million £million £million
31 December 2023
Consumer Finance:
Retail Finance 12.0 11.8 8.3 32.1 1,255.3 2.6%
Vehicle Finance:
Voluntary termination provision 6.7 - - 6.7
Other impairment 10.0 5.6 23.6 39.2
16.7 5.6 23.6 45.9 513.1 8.9%
Business Finance:
Real Estate Finance 0.3 0.7 7.0 8.0 1,251.8 0.6%
Commercial Finance 0.5 0.1 1.5 2.1 383.2 0.5%
29.5 18.2 40.4 88.1 3,403.4 2.6%
The impairment charge disclosed in the income statement can be analysed as
follows:
2024 2023
£million £million
Expected credit losses ('ECL'): impairment charge 61.9 37.3
Charge/(credit) for off-balance sheet loan commitments (Note 29) 0.1 (0.3)
Loans written-off directly to the income statement(1) 0.7 6.2
Unwind of discount (0.8) -
61.9 43.2
1. The impairment charge for 2023 included a £7.2 million charge relating to
a single long-running debt case, of which £6.3 million was written off
directly to the income statement.
Total provisions above include expert credit judgements as follows:
2024 2023
£million £million
Specific underlays held against credit-impaired secured assets held within the (0.7) (1.0)
Business Finance portfolio
Management judgement in respect of:
- Vehicle Finance LGD (4.5) (2.1)
Other (0.5) 1.9
Expert credit judgements over the IFRS 9 model results (5.7) (1.2)
The specific underlays for Business Finance have been estimated on an
individual basis by assessing the recoverability and condition of the secured
asset, along with any other recoveries that may be made.
Reconciliations of the opening to closing allowance for impairment of loans
and advances are presented below:
Not credit-impaired Credit-impaired
Stage 1: Stage 2: Stage 3: Total
Subject to
Subject to lifetime ECL
Subject to lifetime ECL
12-month ECL
£million
£million £million
£million
At 1 January 2024 29.5 18.2 40.4 88.1
(Decrease)/increase due to change in credit risk
Transfer to Stage 2 (11.7) 38.6 (1.4) 25.5
Transfer to Stage 3 (0.2) (24.1) 48.8 24.5
Transfer to Stage 1 7.8 (20.8) - (13.0)
Passage of time (6.3) 4.6 14.8 13.1
New loans originated 16.2 - - 16.2
Matured and derecognised loans (2.1) (1.6) (0.5) (4.2)
Changes to credit risk parameters (2.3) (0.5) (2.9) (5.7)
Other adjustments 4.0 1.5 - 5.5
Charge/(credit) to income statement 5.4 (2.3) 58.8 61.9
Allowance utilised in respect of write-offs (5.3) - (32.9) (38.2)
31 December 2024 29.6 15.9 66.3 111.8
Not credit-impaired Credit-impaired
Stage 1: Stage 2: Stage 3: Total
Subject to
Subject to
Subject to
12-month ECL
lifetime ECL
lifetime ECL £million
£million £million £million
At 1 January 2023 24.3 28.6 25.1 78.0
(Decrease)/increase due to change in credit risk
Transfer to Stage 2 (10.4) 56.1 - 45.7
Transfer to Stage 3 (0.1) (30.6) 41.9 11.2
Transfer to Stage 1 10.2 (35.3) - (25.1)
Passage of time (9.1) 3.5 3.7 (1.9)
New loans originated 20.5 - - 20.5
Matured and derecognised loans (2.3) (4.6) (4.7) (11.6)
Changes to credit risk parameters (5.3) 0.5 0.3 (4.5)
Other adjustments 3.0 - - 3.0
Charge/(credit) to income statement 6.5 (10.4) 41.2 37.3
Allowance utilised in respect of write-offs (1.3) - (25.9) (27.2)
31 December 2023 29.5 18.2 40.4 88.1
These tables have been prepared based on monthly movements in the ECL.
Passage of time represents the impact of accounts maturing through their
contractual life, the associated reduction in PDs and the unwind of the
discount applied in calculating the ECL.
Changes to credit risk parameters represent movements that have occurred due
to the Group updating model inputs. This would include the impact of, for
example, updating the macroeconomic scenarios applied to the models.
Other adjustments represents the movement in the Vehicle Finance voluntary
termination provision.
Stage 1 write-offs arise on Vehicle Finance accounts where borrowers have
exercised their right to voluntarily terminate their agreements.
A breakdown of the gross receivable by internal credit risk rating is shown
below:
2024
Stage 1 Stage 2 Stage 3 Total
£million £million £million £million
Business Finance:
Strong 29.6 - - 29.6
Good 1,051.5 54.2 1.4 1,107.1
Satisfactory 298.6 141.5 25.8 465.9
Weak - 20.1 83.0 103.1
1,379.7 215.8 110.2 1,705.7
2023
Stage 1 Stage 2 Stage 3 Total
£million £million £million £million
Business Finance:
Strong 57.9 - - 57.9
Good 1,087.8 4.5 - 1,092.3
Satisfactory 236.5 82.0 28.8 347.3
Weak - 59.3 78.2 137.5
1,382.2 145.8 107.0 1,635.0
2024
Stage 1 Stage 2 Stage 3 Total
£million £million £million £million
Consumer Finance:
Good 921.6 4.9 - 926.5
Satisfactory 768.1 32.4 - 800.5
Weak 135.2 75.9 76.5 287.6
1,824.9 113.2 76.5 2,014.6
2023
Stage 1 Stage 2 Stage 3 Total
£million £million £million £million
Consumer Finance:
Good 706.0 58.9 10.1 775.0
Satisfactory 596.5 54.4 18.4 669.3
Weak 266.8 38.7 18.6 324.1
1,569.3 152.0 47.1 1,768.4
Internal credit risk rating is based on the most recent credit risk score of a
customer.
Impairment of financial assets and loan commitments accounting policy
The Group recognises loss allowances for Expected Credit Losses ('ECL') on all
financial assets carried at amortised cost, including lease receivables and
loan commitments. Credit loss allowances on Stage 1 assets are measured as an
amount equal to 12-month ECL and credit loss allowances on Stage 2, and Stage
3 assets are measured as an amount equal to lifetime ECL.
Stage 1 assets
Stage 1 assets comprise of the following.
· Financial assets determined to have low credit risk at the reporting date.
· Financial assets that have not experienced a significant increase in credit
risk since their initial recognition.
· Financial assets that have experienced a significant increase in credit risk
since their initial recognition, but have subsequently met the Group's cure
policy, as set out below.
A low credit risk asset is considered to have low credit risk when its credit
risk rating is equivalent to the widely understood definition of 'investment
grade' assets. This is not applicable to loans and advances to customers, but
the Group has assessed all its debt securities, which represents UK Treasury
bills, to be low credit risk.
Stage 2 assets
Loans and advances to customers that have experienced a significant increase
in credit risk since their initial recognition and have not subsequently met
the Group's cure policy are classified as Stage 2 assets.
The Group's definitions of a significant increase in credit risk and default
are set out below.
For Consumer Finance, the credit risk of a financial asset is considered to
have experienced a significant increase in credit risk since initial
recognition where there has been a significant increase in the remaining
lifetime probability of default of the asset. The Group may also use its
expert credit judgement, and where possible, relevant historical and current
performance data, including bureau data, to determine that an exposure has
undergone a significant increase in credit risk.
For Business Finance, the credit risk of a financial asset is considered to
have experienced a significant increase in credit risk where certain early
warning indicators apply. These indicators may include notification of county
court judgements or, specifically for the Real Estate Finance portfolio, cost
over-runs and timing delays experienced by borrowers.
As a backstop, the Group considers that a significant increase in credit risk
occurs no later than when an asset is more than 30 days past due for all
portfolios.
Stage 3 assets
At each reporting date, the Group assesses whether financial assets carried at
amortised cost are credit-impaired or defaulted (Stage 3). A financial asset
is considered to be credit-impaired when an event or events that have a
detrimental impact on estimated future cash flows have occurred, or have other
specific unlikeliness to pay indicators. Evidence that a financial asset is
credit-impaired includes the following observable data.
· Initiation of bankruptcy proceedings.
· Notification of bereavement.
· Identification of loan meeting debt sale criteria.
· Initiation of repossession proceedings.
· Customer on an Individual Voluntary Arrangement or Debt Management Plan.
· A material covenant breach that has remained unremedied for more than 90 days.
In addition, a loan that is 90 days or more past due is considered
credit-impaired for all portfolios. The credit risk of financial assets that
become credit-impaired will be monitored in-line with the curing policy.
For Commercial Finance facilities that do not have a fixed-term or repayment
structure, evidence that a financial asset is credit-impaired includes:
· the client ceasing to trade; or
· unpaid debtor balances that are dated at least six months past their normal
recourse period.
Cure policy
The credit risk of a financial asset may improve such that it is no longer
considered to have experienced a significant increase in credit risk if it
meets the Group's cure policy. The Group's cure policy from stage 2 to stage 1
for all portfolios requires sufficient payments to be made to bring an account
back within less than 30 days past due and such payments need to be maintained
for six consecutive months in Vehicle Finance and three months in Retail
Finance. In addition, an account can cure from stage 2 to stage 1 if the
significant increase in credit risk since their initial recognition is not
triggered anymore due to improvement in their credit quality (e.g. loan credit
bureau score).
The Group's cure policy from stage 3 to 2 for all portfolios requires
sufficient payments to be made to bring an account back within less than 30
days past due. For Vehicle Finance and Retail Finance such non-defaulted
status need to be maintained for three consecutive months. For Real Estate
Finance such payments need to be maintained for 12 consecutive months.
Calculation of expected credit loss ('ECL')
ECL are probability weighted estimates of credit losses that are measured as
the present value of all cash shortfalls. Specifically, this is the difference
between the contractual cash flows due and the cash flows expected to be
received, discounted at the original effective interest rate. For undrawn loan
commitments, ECL is measured as the difference between the contractual cash
flows due if the commitment is drawn and the cash flows expected to be
received.
Lifetime ECL is the ECL that results from all possible default events over the
expected life of a financial asset.
12-month ECL is the portion of lifetime ECL that results from default events
on a financial asset that are possible within 12 months after the reporting
date.
ECL are calculated by multiplying three main components: the Probability of
Default ('PD'), Exposure At Default ('EAD') and Loss Given Default ('LGD')
discounted at the original effective interest rate of an asset. These
variables are derived from internally developed statistical models and
historical data, adjusted to reflect forward-looking information and are
discussed in turn further below. Management adjustments are made to modelled
output to account for situations, where known, or expected risk factors that
have not been reflected in the modelled outcome.
Probability of Default ('PD') and credit risk grades
Credit risk grades are a primary input into the determination of the PD for
exposures. The Group allocates each exposure to a credit risk grade at
origination and at each reporting period to predict the risk of default.
Credit risk grades are determined using qualitative and quantitative factors
that are indicative of the risk of default e.g. arrears status and loan credit
bureau score. These factors vary for each loan portfolio. Exposures are
subject to ongoing monitoring, which may result in an exposure being moved to
a different credit risk grade. In monitoring exposures information, such as
payment records and forecast changes in economic conditions are considered for
Consumer Finance. Additionally, for Business Finance portfolios information
obtained during periodic client reviews, for example, audited financial
statements, management accounts, budgets and projections are considered,
with particular focus on key ratios, compliance with covenants and changes in
senior management teams.
Emergence curves modelling is used in the production of forward-looking
lifetime PDs. This method defines the way that debt emerges for differing
quality accounts and their time on the books creating a clean relationship to
best demonstrate the movement in default rates as macroeconomic variables are
changed. These models are extrapolated to provide PD estimates for the future,
based on forecasted economic scenarios.
Exposure at Default ('EAD')
EAD represents the expected exposure in the event of a default. EAD is derived
from the current exposure and potential changes to the current amount allowed
under the terms of the contract, including amortisation overpayments and early
terminations. The EAD of a financial asset is its gross carrying amount. For
loan commitments, the EAD includes the amount drawn, as well as potential
future amounts that may be drawn under the terms of the contract, estimated
based on historical observations and forward-looking forecasts.
For Commercial Finance facilities that have no specific term, an assumption is
made that accounts close 36 months after the reporting date for the purposes
of measuring lifetime ECL. This assumption is based on industry experience of
average client life. These facilities do not have a fixed-term or repayment
structure, but are revolving and increase or decrease to reflect the value of
the collateral i.e. receivables or inventory. The Group can cancel the
facilities with immediate effect, although this contractual right is not
enforced in the normal day-to-day management of the facility. Typically,
demand would only be made on the failure of a client business or in the event
of a material event of default, such as a fraud. In the normal course of
events, the Group's exposure is recovered through receipt of remittances from
the client's debtors rather than from the client itself.
The ECL for such facilities is estimated taking into account the credit risk
management actions that the Group expects to take to mitigate against losses.
These include a reduction in advance rate and facility limits or application
of reserves against a facility to improve the likelihood of full recovery of
exposure from the debtors.
Alternative recovery routes mitigating ECL would include refinancing by
another funding provider, taking security over other asset classes or secured
personal guarantees from the client's principals.
Loss Given Default ('LGD')
LGD is the magnitude of the likely loss in the event of default. This takes
into account recoveries either through curing or, where applicable, through
the auction sale of repossessed collateral and debt sale of the residual
shortfall amount. For loans secured by real estate property, loan-to-value
ratios are key parameters in determining LGD. LGDs are calculated on a
discounted cash flow basis using the financial instrument's origination
effective interest rate as the discount factor.
Incorporation of forward-looking data
The Group incorporates forward-looking information into both its assessment of
whether the credit risk of a financial asset has increased significantly since
initial recognition and its measurement of ECL. This is achieved by developing
a number of potential economic scenarios and modelling ECLs for each scenario.
To ensure material non-linear relationships between economic factors and
credit losses are reflected in the calculation of ECL, a severe stress
scenario is used as one of these scenarios. The outputs from each scenario are
combined using the estimated likelihood of each scenario occurring to derive a
probability weighted expected credit loss. The four scenarios adopted and
probability weighting applied are set out below.
The Group considers that the key drivers of credit risk and credit losses
included in the macroeconomic scenarios are annual unemployment rate growth,
annual house price index growth, consumer price index ('CPI'), Bank of England
Base Rate, and debt service ratio. Base case assumptions applied for each of
these variables have been sourced from external consensus or Bank of England
forecasts. Further details of the assumptions applied to other scenarios are
presented below.
Expert credit judgements
The impairment charge comprises modelled ECLs and expert credit judgements.
Where the ECL modelled output does not reflect the level of credit risk,
judgement is used to calculate expert credit judgements, which are overlaid on
to the output from the models.
Presentation of loss allowance
Loss allowances for ECLs and expert credit judgements are presented in the
statement of financial position as follows with the loss recognised in the
income statement:
· Financial assets measured at amortised cost: as a deduction from the gross
carrying amount of the assets.
· Other loan commitments: generally, as a provision.
For the Real Estate Finance and Commercial Finance portfolios, where a loan
facility is agreed that includes both drawn and undrawn elements and the Group
cannot identify the ECL on the loan commitment separately, a combined loss
allowance for both drawn and undrawn components of the loan is presented as a
deduction from the gross carrying amount of the drawn component, with any
excess of the loss allowance over the gross drawn amount presented as a
provision.
When a loan is uncollectible, it is written off against the related ECL
allowance. Such loans are written off after all necessary procedures have been
completed and the amount of the loss has been determined.
Vehicle Finance voluntary termination provision
In addition to recognising allowances for ECLs, the Group holds a provision
for Voluntary Terminations ('VT') for all Vehicle Finance financial assets. VT
is a legal right provided to customers who take out hire purchase agreements.
The provision is calculated by multiplying the probability of VT of an asset
by the expected shortfall on VT discounted back at the original effective
interest rate of the asset. VT allowances are not held against loans in
default (Stage 3 loans).
The VT provision is presented in the statement of financial position as a
deduction from the gross carrying amount of Vehicle Finance assets with the
loss recognised in the income statement.
Write off
Loans and advances to customers are written off partially or in full when the
Group has exhausted all viable recovery options. The majority of write-offs
arise from Debt Relief Orders, insolvencies, Individual Voluntary
Arrangements, deceased customers where there is no estate and vulnerable
customers in certain circumstances. Amounts subsequently recovered on assets
previously written off are recognised in the impairment charge in the income
statement.
Intercompany receivables
The parent company's expected credit loss on amounts due from related
companies is calculated by applying probability of default and loss given
default to the amount outstanding at the year-end. See Note 24 for further
details.
16.1. Key sources of estimation uncertainty
Estimations that could have a material impact on the Group's financial results
and are, therefore, considered to be key sources of estimation uncertainty all
relate to the impairment charge on loans and advances to customers and are,
therefore, set out below. The potential impact of the current macroeconomic
environment has been considered in determining reasonably possible changes in
key sources of estimation uncertainty that may occur in the next 12 months.
The determination of both the PD and LGD require estimation, which is
discussed further below.
16.1.1. Incorporation of forward-looking data
The Group incorporates forward-looking information into both its assessment of
whether the credit risk of a financial asset has increased significantly since
initial recognition and its measurement of expected credit loss by developing
a number of potential economic scenarios and modelling expected credit losses
for each scenario. The macroeconomic scenarios used were provided by external
economic advisers. The scenarios and weightings applied are summarised below:
December 2024 UK unemployment rate - Annual Average
Scenario Weightings 2025 2026 2027 5-Yr Average
% % % %
Upside 20% 4.0 3.6 3.6 3.7
Base 50% 4.4 4.3 4.2 4.2
Downside 25% 5.1 6.0 6.7 6.2
Severe 5% 5.5 6.7 7.4 6.8
UK HPI - movement from December 2024
Scenario Weightings 2025 2026 2027 5-Yr Average
% % % %
Upside 20% 3.7 7.8 13.4 4.2
Base 50% 1.7 3.4 6.2 2.9
Downside 25% (6.6) (9.6) (11.7) (0.5)
Severe 5% (12.3) (18.9) (24.7) (3.4)
UK CPI - movement from December 2024
Scenario Weightings 2025 2026 2027 5-Yr Average
% % % %
Upside 20% 3.8 7.3 10.1 2.8
Base 50% 3.0 5.4 7.6 2.3
Downside 25% 1.9 2.9 4.6 1.7
Severe 5% 1.0 1.1 2.6 1.2
December 2024 (continued) UK Base Rate - Annual Average
Scenario Weightings 2025 2026 2027 5-Yr Average
% % % %
Upside 20% 5.4 4.4 3.4 3.8
Base 50% 3.8 3.1 2.6 2.9
Downside 25% 3.0 1.8 1.8 2.0
Severe 5% 2.0 0.8 0.8 1.0
UK debt service ratio - Annual Average
Scenario Weightings 2025 2026 2027 5-Yr Average
% % % %
Upside 20% 5.6 5.3 4.8 4.9
Base 50% 4.9 4.6 4.5 4.5
Downside 25% 4.6 4.3 4.5 4.3
Severe 5% 4.6 3.6 3.8 3.8
December 2023 UK unemployment rate - Annual Average
Scenario Weightings 2024 2025 2026 5-Yr Average
% % % %
Upside 20% 4.2 3.9 3.8 3.9
Base 50% 4.5 4.4 4.1 4.1
Downside 25% 5.4 6.5 7.1 6.5
Severe 5% 5.7 7.0 7.6 7.0
UK HPI - movement from December 2023
Scenario Weightings 2024 2025 2026 5-Yr Average
% % % %
Upside 20% (0.7) 2.4 9.4 3.7
Base 50% (4.3) (3.3) 0.9 2.1
Downside 25% (10.4) (13.8) (14.3) (0.9)
Severe 5% (15.1) (21.8) (26.0) (3.5)
UK CPI - movement from December 2023
Scenario Weightings 2024 2025 2026 5-Yr Average
% % % %
Upside 20% 4.0 6.8 8.9 2.5
Base 50% 3.2 4.9 6.6 2.0
Downside 25% 2.0 2.2 3.5 1.4
Severe 5% 1.0 0.6 1.8 1.0
UK Bank of England Base Rate and debt service ratio were implemented into the
ECL allowance modelling during the year ended 31 December 2024 and, therefore,
do not have comparatives for the year ended 31 December 2023.
The sensitivity of the ECL allowance to reasonably possible changes in
scenario weighting (an increase in downside case weighting from the upside
case and an increase in severe stress case weighting from the base case) has
been assessed by the Group and computed as not material.
The Group recognised a total impairment charge of £61.9 million (2023: £43.2
million). Were each of the scenarios to be applied at 100%, rather than using
the weightings set out above, the increase/(decrease) in ECL provisions would
be as follows:
2024
Scenario Vehicle Finance £million Retail Finance £million Business Finance £million Total Group £million
Upside (0.6) (0.3) (1.3) (2.2)
Base (0.2) (0.1) (0.8) (1.1)
Downside 0.6 0.4 1.8 2.8
Severe 1.2 0.8 4.1 6.1
2023
Scenario Vehicle Finance £million Retail Finance £million Business Finance £million Total Group £million
Upside (0.4) (1.2) (0.3) (1.9)
Base (0.2) (0.5) (0.2) (0.9)
Downside 0.5 1.5 0.4 2.4
Severe 0.6 2.2 1.1 3.9
16.1.2. ECL modelled output: Estimation of PDs
Sensitivity to reasonably possible changes in PD could potentially result in
material changes in the ECL allowance for Vehicle Finance and Retail Finance.
A 15% change in the PD for Vehicle Finance would immediately impact the ECL
allowance by £4.0 million (2023: a 15% change impacted the ECL allowance by
£2.5 million).
A 15% change in the PD for Retail Finance would immediately impact the ECL
allowance by £3.4 million (2023: a 15% change impacted the ECL allowance by
£4.4 million).
The above sensitivities reflect the levels of defaults observed during the
year.
Due to the relatively low levels of provisions on the Business Finance books,
sensitivity to reasonably possible changes in PD are not considered material.
16.1.3. ECL modelled output: Vehicle Finance recovery rates
With the exception of the Vehicle Finance portfolio, the sensitivity of the
ECL allowance to reasonably possible changes in the LGD is not considered
material. The Vehicle Finance portfolio is particularly sensitive to changes
in LGD due to the range of outcomes that could crystallise, depending on
whether the Group is able to recover the vehicle as security. For the Vehicle
Finance portfolio, a 20% (2023: 20%) change in the recovery rate assumption in
the LGD is considered reasonably possible due to delays in the vehicle
collection process. A 20% (2023: 20%) reduction in the vehicle recovery rate
assumption element of the LGD for Vehicle Finance would increase the ECL by
£1.7 million (2023: £0.9 million). There has been no change in the vehicle
recovery rate assumption in the ECL model in either the current or prior year.
16.1.4. Climate-risk impact
The Group considers the impact of climate-related risks on the financial
statements on an annual basis, in particular, climate change negatively
impacting the value of the Group's Real Estate Finance business' security due
to the increased risk of flooding associated with climate change.
While the effects of climate change represent a source of uncertainty (in
respect of potential transitional risks, such as those that may arise from
changes in future government policy), the impact of all of the climate change
risks is considered to be low. Accordingly, the Group does not consider there
to be a material impact on its judgements and estimates from the physical,
transitional and other climate-related risks in the short term.
17. Derivative financial instruments
Group and Company
Interest rate derivatives are held for risk mitigation purposes. The table
below provides an analysis of the notional amount and fair value of
derivatives by hedge accounting relationship. The amount of ineffectiveness
recognised for each hedge type is shown in Note 5. Notional amount is the
amount on which payment flows are derived and does not represent amounts at
risk.
Notional Assets Liabilities Notional Assets Liabilities
2024 2024 2024 2023 2023 2023
£million £million £million £million £million £million
Interest rate derivatives designated in fair value hedges
In less than one year 965.5 3.1 (2.5) 783.7 6.9 (3.0)
More than one year but less than three years 941.4 10.1 (3.9) 859.4 13.2 (9.0)
More than three years but less than five years 432.9 1.1 (3.3) 494.0 5.3 (9.3)
2,339.8 14.3 (9.7) 2,137.1 25.4 (21.3)
Interest rate derivatives designated in cash flow hedges
In less than one year 9.4 - (0.1) 4.7 - (0.2)
More than one year but less than three years 2.4 - - 9.4 - (0.4)
More than three years but less than five years - - - 2.4 0.1 -
11.8 - (0.1) 16.5 0.1 (0.6)
Interest rate derivatives - not hedged(1)
In less than one year 15.0 - - - - -
More than one year but less than three years 42.5 - - - - -
57.5 - - - - -
Foreign exchange derivatives
In less than one year 25.7 - (0.2) 28.0 - (0.1)
2,434.8 14.3 (10.0) 2,181.6 25.5 (22.0)
1. Derivatives not in hedge relationships at the end of the reporting period
are will either enter a hedge relationship in the following month, or be in
the final month of maturity.
In order to manage interest rate risk arising from fixed-rate financial
instruments, the Group monitors its interest rate mismatch regularly
throughout each month, seeking to 'match' assets and liabilities in the first
instance and hedging residual risk using interest rate derivatives to maintain
adherence to risk appetites. Some residual risk remains due to timing
differences. The exposure from the portfolio frequently changes due to the
origination of new instruments, contractual repayments and early prepayments
made in each period. As a result, the Group adopts a dynamic hedging strategy
(sometimes referred to as 'macro' or 'portfolio' hedge) to hedge its exposure
profile by closing and entering into new interest rate derivative agreements.
The Group establishes the hedging ratio by matching the derivatives with the
principal of the portfolio being hedged.
The following table sets out details of the hedged exposures covered by the
Group's hedging strategies:
Carry amount of Accumulated amount Carry amount of Accumulated amount
hedged item
of fair value adjustments
hedged item
of fair value adjustments
in the hedged items
in the hedged items
asset/(liability)
asset/(liability)
(liability)/asset
(liability)/asset
2024
2023
2024
2023
£million
£million
£million £million
ASSETS
Interest rate fair value hedges
Loans and advances to customers
Fixed-rate Real Estate Finance loans 519.6 (5.2) 565.5 (3.5)
Fixed-rate Consumer Finance loans 723.4 (1.6) 523.5 (0.4)
1,243.0 (6.8) 1,089.0 (3.9)
Interest rate cash flow hedges
Cash and Bank of England reserve account
Bank of England reserve 11.8 N/A 16.5 N/A
1,254.8 (6.8) 1,105.5 (3.9)
LIABILITIES
Interest rate fair value hedges
Deposits from customers
Fixed-rate customer deposits (1,006.5) 3.1 (957.6) 3.6
Subordinated liabilities
Fixed-rate Tier 2 regulatory capital (90.0) 0.3 (90.0) (2.2)
(1,096.5) 3.4 (1,047.6) 1.4
The following table shows the impact of financial assets and financial
liabilities relating to transactions where:
· there is an enforceable master netting agreement in place, but the offset
criteria are not otherwise satisfied; and
· financial collateral is paid and received.
Gross amount reported on balance sheet Master Financial collateral Net amounts after
netting arrangements £million
offsetting
£million £million
£million
31 December 2024
Derivative financial assets
Interest rate derivatives 14.3 (9.8) (4.1) 0.4
14.3 (9.8) (4.1) 0.4
Derivative financial liabilities
Interest rate derivatives (9.8) 9.8 - -
Foreign exchange derivatives (0.2) - - (0.2)
(10.0) 9.8 - (0.2)
Gross amount reported on balance sheet Master Financial Net amounts
netting arrangements
collateral
after offsetting
£million
£million £million £million
31 December 2023
Derivative financial assets
Interest rate derivatives 25.5 (21.9) (3.5) 0.1
25.5 (21.9) (3.5) 0.1
Derivative financial liabilities
Interest rate derivatives (21.9) 21.9 - -
Foreign exchange derivatives (0.1) - 0.2 0.1
(22.0) 21.9 0.2 0.1
Master netting arrangements do not meet the criteria for offsetting in the
statement of financial position. This is because the arrangement creates an
agreement for a right of set-off of recognised amounts, which is enforceable
only following an event of default, insolvency or bankruptcy of the Group or
counterparties. Furthermore, the Group and its counterparties do not intend to
settle on a net basis or realise the assets and settle the liabilities
simultaneously.
Financial collateral consists of cash settled, typically daily or weekly, to
mitigate the credit risk on the fair value of derivatives.
18. Investment property
Company
£million
1 January 2023 1.0
Revaluation (0.1)
At 31 December 2023 0.9
Revaluation -
At 31 December 2024 0.9
The Company's investment property comprises 25 and 26 Neptune Court, Vanguard
Way, Cardiff CF24 5PJ, which is occupied by one of the Company's subsidiaries.
The Company's investment property was stated at fair value as at 31 December
2024, based on external valuations performed by professionally qualified
valuers Knight Frank LLP. These valuations have been undertaken in accordance
with the current editions of RICS Valuation - Global Standards, which
incorporate the International Valuations Standards, and the RICS UK National
Supplement. The valuations were carried out using the comparative and
investment methods, and were arrived at by reference to market evidence of the
transaction prices paid for similar properties, together with evidence of
demand within the vicinity of the subject properties. In estimating the fair
value of the properties, the valuers consider the highest and best use of the
properties. Knight Frank LLP were paid a fixed fee for the valuations. Knight
Frank LLP also undertakes some professional work in respect of the Group's
Real Estate Finance business, although this is limited in relation to the
activities of the Group as a whole.
Investment property accounting policy
Investment property, which is property held to earn rentals and for capital
appreciation, is measured initially at cost, including transaction costs.
Subsequent to initial recognition, investment property is measured at fair
value. External valuations are performed on a triennial basis. Gains or losses
arising from changes in the fair value of investment property are included in
the income statement in the period in which they arise.
An investment property is derecognised upon disposal or when the investment
property is permanently withdrawn from use and no future economic benefits are
expected from the disposal. Any gain or loss arising on derecognition of the
property (calculated as the difference between the net disposal proceeds and
the carrying amount of the asset) is included in the income statement in the
period in which the property is derecognised.
19. Property, plant and equipment
Group Company
Freehold land and buildings Computer Total Freehold land and buildings Computer Total
and other equipment
£million
and other equipment
£million
£million
£million £million
£million
Cost or valuation
At 1 January 2023 10.1 6.9 17.0 3.8 6.2 10.0
Additions - 2.2 2.2 - 2.1 2.1
Disposals - (1.4) (1.4) - (1.2) (1.2)
At 31 December 2023 10.1 7.7 17.8 3.8 7.1 10.9
Additions - 0.5 0.5 - 0.3 0.3
Impairment (0.4) - (0.4) - - -
At 31 December 2024 9.7 8.2 17.9 3.8 7.4 11.2
Accumulated depreciation
At 1 January 2023 (2.4) (4.9) (7.3) (0.1) (5.0) (5.1)
Depreciation charge (0.1) (0.8) (0.9) (0.1) (0.5) (0.6)
Disposals - 1.2 1.2 - 1.1 1.1
At 31 December 2023 (2.5) (4.5) (7.0) (0.2) (4.4) (4.6)
Depreciation charge (0.2) (0.8) (1.0) (0.1) (0.5) (0.6)
At 31 December 2024 (2.7) (5.3) (8.0) (0.3) (4.9) (5.2)
Net book amount
At 31 December 2023 7.6 3.2 10.8 3.6 2.7 6.3
At 31 December 2024 7.0 2.9 9.9 3.5 2.5 6.0
The Group's freehold properties, which are occupied by the Group, comprise:
· the Registered Office of the Company;
· One Arleston Way, Solihull B90 4LH; and
· 25 and 26 Neptune Court, Vanguard Way, Cardiff CF24 5PJ.
One Arleston Way was subject to an impairment in the year, which was
recognised within other (losses)/gains in the income statement.
The Company's freehold property comprises the Registered Office of the
Company.
The carrying value of freehold land, which is included in the total carrying
value of freehold land and buildings, and which is not depreciated at 31
December 2024 and 31 December 2023, was £1.5 million for the Group and £0.8
million for the Company.
Property, plant and equipment accounting policy
Property, plant and equipment is stated at historical cost less any
accumulated depreciation and any accumulated impairment losses. Historical
cost includes expenditure that is directly attributable to the acquisition of
the items. Pre-installed computer software licences are capitalised as part of
the computer hardware it is installed on. Depreciation is calculated using the
straight-line method to allocate their cost to their residual values over
their estimated useful lives, which are subject to regular review:
Land not depreciated
Freehold buildings 50 years
Leasehold improvements shorter of life of lease or seven years
Computer equipment three to five years
Other equipment five to ten years
The above useful economic lives have not changed since the prior year.
Gains and losses on disposals are determined by comparing proceeds with
carrying amounts. These are included in the income statement.
The Group applies IAS 36 to determine whether property, plant and equipment is
impaired.
20. Right-of-use assets
Group Company
Leasehold Leased motor vehicles Total Leasehold Leased motor vehicles Total
property
property
£million £million
£million £million
£million £million
Cost
At 1 January 2023 3.1 0.6 3.7 3.1 0.2 3.3
Additions 0.8 0.2 1.0 0.8 0.1 0.9
At 31 December 2023 3.9 0.8 4.7 3.9 0.3 4.2
Additions - 0.8 0.8 - 0.6 0.6
At 31 December 2024 3.9 1.6 5.5 3.9 0.9 4.8
Accumulated depreciation
At 1 January 2023 (2.0) (0.2) (2.2) (2.0) - (2.0)
Depreciation charge (0.5) (0.2) (0.7) (0.5) (0.1) (0.6)
At 31 December 2023 (2.5) (0.4) (2.9) (2.5) (0.1) (2.6)
Depreciation charge (0.5) (0.5) (1.0) (0.5) (0.3) (0.8)
At 31 December 2024 (3.0) (0.9) (3.9) (3.0) (0.4) (3.4)
Net book amount
At 31 December 2023 1.4 0.4 1.8 1.4 0.2 1.6
At 31 December 2024 0.9 0.7 1.6 0.9 0.5 1.4
Lessee accounting policy
The Group assesses whether a contract is, or contains, a lease at inception of
the contract. The Group recognises a right-of-use asset and a corresponding
lease liability with respect to all lease arrangements in which it is the
lessee, except for short-term leases (defined as leases with a lease term of
12 months or less) and leases of low-value assets. For these leases, the Group
recognises the lease payments as an operating expense on a straight-line basis
over the term of the lease unless another systematic basis is more
representative of the time pattern in which economic benefits from the leased
assets are consumed.
The lease liability is initially measured at the present value of the future
lease payments, discounted by using the rate implicit in the lease. If this
rate cannot be readily determined, the Group uses its incremental borrowing
rate. It is subsequently measured by increasing the carrying amount to reflect
interest on the lease liability (using the effective interest rate method) and
by reducing the carrying amount to reflect the lease payments made, and is
presented as a separate line in the consolidated statement of financial
position.
The right-of-use assets comprise the initial measurement of the corresponding
lease liability, lease payments made at, or before, the commencement day, less
any lease incentives received and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation and impairment
charges and are depreciated over the shorter of the lease term and useful life
of the underlying asset. The depreciation starts at the commencement date of
the lease. The right-of-use assets are presented as a separate line in the
consolidated statement of financial position. The Group applies IAS 36 to
determine whether a right-of-use asset is impaired and accounts for any
identified impairment loss as described in the 'Property, plant and equipment'
policy.
Rentals made under operating leases for less than 12 months in duration, and
operating leases on low-value items, are recognised in the income statement on
a straight-line basis over the term of the lease.
21. Intangible assets
Group
Goodwill Computer software Other Total
£million
£million
intangible
£million
assets
£million
Cost or valuation
At 1 January 2023 1.0 17.2 2.2 20.4
Additions - 0.5 - 0.5
At 31 December 2023 1.0 17.7 2.2 20.9
Additions - 0.5 - 0.5
Disposals - (0.1) - (0.1)
At 31 December 2024 1.0 18.1 2.2 21.3
Accumulated amortisation
At 1 January 2023 - (11.6) (2.2) (13.8)
Amortisation charge - (1.2) - (1.2)
At 31 December 2023 - (12.8) (2.2) (15.0)
Amortisation charge - (1.4) - (1.4)
Disposals - 0.1 - 0.1
At 31 December 2024 - (14.1) (2.2) (16.3)
Net book amount
At 31 December 2023 1.0 4.9 - 5.9
At 31 December 2024 1.0 4.0 - 5.0
Goodwill above relates to the V12 cash-generating unit, which is part of the
Retail Finance operating segment.
The recoverable amount of these cash-generating units are determined on a
value-in-use calculation, which uses cash flow projections based on financial
forecasts covering a three-year period, and a discount rate of 8% (2023: 8%).
Cash flow projections during the forecast period are based on the expected
rate of new business. A zero growth-based scenario is also considered. The
Directors believe that any reasonably possible change in the key assumptions
on which recoverable amount is based would not cause the aggregate carrying
amount to exceed the aggregate recoverable amount of the cash-generating unit.
Hence no impairment has been recognised.
Other intangible assets were recognised as part of the V12 Finance Group
acquisition, which are now fully amortised.
Company
Goodwill Computer software Total
£million £million £million
Cost or valuation
At 1 January 2023 0.3 12.5 12.8
Additions - 0.1 0.1
At 31 December 2023 0.3 12.6 12.9
Additions - 0.5 0.5
At 31 December 2024 0.3 13.1 13.4
Accumulated amortisation
At 1 January 2023 - (8.4) (8.4)
Amortisation charge - (1.0) (1.0)
At 31 December 2023 - (9.4) (9.4)
Amortisation charge - (1.1) (1.1)
At 31 December 2024 - (10.5) (10.5)
Net book amount
At 31 December 2023 0.3 3.2 3.5
At 31 December 2024 0.3 2.6 2.9
Goodwill above relates to the Retail Finance operating segment. The
recoverable amount is determined on the same basis as for the Group.
Intangible assets accounting policy
(a) Goodwill
Goodwill represents the excess of the cost of the acquisition over the fair
value of the Group's share of the net identifiable assets acquired at the date
of acquisition. Goodwill is held at cost less accumulated impairment charge
and is deemed to have an infinite life.
The Group reviews the goodwill for impairment at least annually or when events
or changes in economic circumstances indicate that impairment may have taken
place. An impairment charge is recognised in the income statement if the
carrying amount exceeds the recoverable amounts.
(b) Computer software
Acquired computer software licences are capitalised on the basis of the costs
incurred to acquire and bring to use the specific software.
Costs associated with developing or maintaining computer software programmes
are recognised as an expense as incurred unless the technical feasibility of
the development has been demonstrated, and it is probable that the expenditure
will enable the asset to generate future economic benefits in excess of its
originally assessed standard of performance, in which case they are
capitalised.
These costs are amortised on a straight-line basis over their expected useful
lives, which are between three to 10 years.
(c) Other intangible assets
The acquisition of subsidiaries has been accounted for in accordance with IFRS
3 'Business Combinations', which requires the recognition of the identifiable
assets acquired and liabilities assumed at their acquisition date fair values.
As part of this process,
it was necessary to recognise certain intangible assets that are separately
identifiable and are not included on the acquiree's balance sheet, which are
amortised over their expected useful lives, as set out above.
The Group applies IAS 36 to determine whether an intangible asset is impaired.
22. Investments in Group undertakings
Company
Cost and net book value 2024 2023
£million
£million
At 1 January 5.9 5.7
Equity contributions to subsidiaries in respect of share options 0.2 0.2
At 31 December 6.1 5.9
Shares in subsidiary undertakings of Secure Trust Bank PLC are stated at cost
less any provision for impairment. All subsidiary undertakings are unlisted
and none are banking institutions. The share capital of the subsidiary
undertakings comprises solely of ordinary shares and all are 100% owned by the
Company. The subsidiary undertakings were all incorporated in the UK and
wholly owned via ordinary shares. All subsidiary undertakings are included in
the consolidated financial statements and have an accounting reference date of
31 December.
Details are as follows:
Company number Principal activity
Owned directly
AppToPay Ltd 11204449 Non-trading
Debt Managers (Services) Limited 08092808 Debt management
Secure Homes Services Limited 01404439 Property rental
STB Leasing Limited 01648384 Non-trading
V12 Finance Group Limited 07498951 Holding company
Owned indirectly via an intermediate holding company
V12 Personal Finance Limited 05418233 Dormant
V12 Retail Finance Limited 04585692 Sourcing and servicing of unsecured loans
The registered office of the Company, and all subsidiary undertakings, is
Yorke House, Arleston Way, Solihull B90 4LH.
AppToPay Ltd, Debt Managers (Services) Limited, Secure Homes Services Limited,
STB Leasing Limited, V12 Finance Group Limited and V12 Personal Finance
Limited are exempt from the requirements of the Companies Act 2006 relating to
the audit of individual accounts by virtue of s479A, and the Company has given
guarantees accordingly under s479C in respect of the year ended 31 December
2024.
23. Deferred taxation
Group Group Company Company
2024 2023 2024 2023
£million £million £million £million
Deferred tax assets:
Other short-term timing differences 3.3 4.3 3.3 4.3
At 31 December 3.3 4.3 3.3 4.3
Deferred tax assets:
At 1 January 4.3 5.6 4.3 5.3
Income statement (0.8) (1.2) (0.8) (0.9)
Other comprehensive income (0.2) (0.1) (0.2) (0.1)
At 31 December 3.3 4.3 3.3 4.3
Deferred tax accounting policy
Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax assets and liabilities, and they
relate to taxes levied by the same tax authority on the same taxable entity,
or on different tax entities, when they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities will
be realised simultaneously.
Deferred tax assets are recognised where it is probable that future taxable
profits will be available, against which the temporary differences can be
utilised.
24. Other assets
Group Group Company Company
2024
2024
2023
2023
£million
£million £million
£million
Gross amounts due from related companies - - 4.2 4.8
Less: allowances for impairment of amounts due from related companies - - (1.9) (2.1)
Amounts due from related companies - - 2.3 2.7
Other receivables 2.0 2.4 1.7 2.3
Cloud software development prepayment 3.6 4.4 3.6 4.4
Other prepayments and accrued income 6.1 6.1 5.4 5.0
11.7 12.9 13.0 14.4
Cloud software development costs, principally relating to the Group's Motor
Transformation Programme, do not meet the intangible asset recognition
criteria and are, therefore, classified as a prepayment, which is expensed to
the income statement over the useful economic life of the software.
25. Due to banks
Group and Company
2024 2023
£million £million
Amounts due under the Bank of England's liquidity support operations
Term Funding Scheme with additional incentives for SMEs ('TFSME') 230.0 390.0
Index Long-Term Repos ('ILTR') 125.0 -
Amounts due to other credit institutions 6.9 6.8
TFSME accrued interest 3.2 5.2
ILTR accrued interest 0.7 -
365.8 402.0
Amounts due under TFSME bear interest at the Bank of England base rate and are
due for repayment during 2025.
The accounting policy for amounts due to banks is included in Note 1.4
Financial assets and financial liabilities accounting policy.
26. Deposits from customers
Group and Company
2024 2023
£million £million
Access accounts 805.2 521.3
Fixed term bonds 1,510.0 1,546.6
Notice accounts 72.4 174.3
ISAs 857.3 629.6
3,244.9 2,871.8
The accounting policy for deposits from customers is included in Note 1.4
Financial assets and financial liabilities accounting policy.
27. Lease liabilities
Group Group Company Company
2024 2023 2024 2023
£million £million £million £million
At 1 January 2.3 2.1 2.1 1.9
New leases 0.8 1.0 0.6 0.9
Lease termination - - - -
Payments (1.4) (0.9) (1.2) (0.8)
Interest expense 0.1 0.1 0.1 0.1
At 31 December 1.8 2.3 1.6 2.1
Lease liabilities - Gross
- No later than one year 1.1 0.9 1.0 0.9
- Later than one year but no later than five years 0.8 1.5 0.7 1.3
1.9 2.4 1.7 2.2
Less: Future finance expense (0.1) (0.1) (0.1) (0.1)
Lease liabilities - Net 1.8 2.3 1.6 2.1
Lease liabilities - Gross
- No later than one year 1.1 0.9 0.9 0.9
- Later than one year but no later than five years 0.7 1.4 0.7 1.2
1.8 2.3 1.6 2.1
The accounting policy for lease liabilities is included in Note 20 Lessee
accounting policy.
28. Other liabilities
Group Group Company Company
2024
2023
2024
2023
£million £million £million £million
Other payables 23.1 25.9 21.1 23.7
Amounts due to related companies - - 12.5 10.5
Accruals and deferred income 9.4 11.8 7.5 10.5
32.5 37.7 41.1 44.7
29. Provisions for liabilities and charges
Group
Group
ECL allowance on loan commitments
£million Other Total
£million £million
Balance at 1 January 2023 1.1 1.4 2.5
(Credit)/charge to income statement (0.3) 8.5 8.2
Utilised - (4.7) (4.7)
Balance at 31 December 2023 0.8 5.2 6.0
Charge to income statement 0.1 9.8 9.9
Utilised - (4.6) (4.6)
Balance at 31 December 2024 0.9 10.4 11.3
Company
Company
ECL allowance on loan commitments
£million Other Total
£million £million
Balance at 1 January 2023 1.1 0.9 2.0
(Credit)/charge to income statement (0.3) 7.2 6.9
Utilised - (3.3) (3.3)
Balance at 31 December 2023 0.8 4.8 5.6
Charge to income statement 0.1 10.1 10.2
Utilised - (4.5) (4.5)
Balance at 31 December 2024 0.9 10.4 11.3
ECL allowance on loan commitments
In accordance with the requirements of IFRS 9, the Group holds an ECL
allowance against loans it has committed to lend, but have not yet been drawn.
For the Real Estate Finance and Commercial Finance portfolios, where a loan
facility is agreed that includes both drawn and undrawn elements and the Group
cannot identify the ECL on the loan commitment separately, a combined loss
allowance for both drawn and undrawn components of the loan is presented as a
deduction from the gross carrying amount of the drawn component, with any
excess of the loss allowance over the gross drawn amount presented as a
provision. At 31 December 2024 and 31 December 2023, no provision was held for
losses in excess of drawn amounts.
Other
Other includes:
· provision for fraud, which relates to cases where the Group has reasonable
evidence of suspected fraud, but further investigation is required before the
cases can be dealt with appropriately;
· s75 Consumer Credit Act 1974 provision;
· provision for redundancy;
· costs and redress relating to the BiFD Vehicle Finance collections review (see
Note 8 for further details and historical motor commissions, see below for
further details); and
· costs and redress relating to further customer redress initiatives.
The Directors expect these provisions to be fully utilised within the next one
to two years.
Provisions for liabilities and charges accounting policy
A provision is recognised where there is a present obligation as a result of a
past event, it is probable that the obligation will be settled and it can be
reliably estimated.
29.1. Key sources of estimation uncertainty
In January 2024, the FCA launched a review of the historical use of
discretionary commission arrangements ('DCAs') in the motor finance industry.
The Vehicle Finance business sometimes operated these arrangements until June
2017, but stopped doing so well ahead of the FCA banning their use in January
2021. Only 4% (by value) of our historical motor commissions paid1 involved
these arrangements. The FCA will update firms on its next steps after the
Supreme Court decision (see below).
The October 2024, the Court of Appeal gave judgment in the cases of Hopcraft,
Wrench and Johnson had wider implications for the legality of both fixed and
DCA historical motor commissions. These cases are now being appealed to the
Supreme Court and one or more could be overturned, partially upheld or fully
upheld. Not all of the fact pattern of these cases is the same as how the
Group has operated.
A key feature of the fact pattern in these cases was the linked sale by a
dealer of the vehicle and the direct introduction of the finance by that same
dealer. Commission payments to dealers make up only 20% of our historical
motor commission payments(2), with the remainder involving brokers and various
other introducers, independent of the vehicle dealer, and with different sales
distribution arrangements and customer journeys. In the two relevant cases
considered by the Court of Appeal we did not, unlike that lender in those
cases, have a contractual right of first refusal to provide the lending. We
consider that we complied with the applicable law and regulation at the time.
Unless it is overturned, the Court of Appeal's judgment gives rise to a
disconnect between law and regulation at the time. The FCA has been given
permission to intervene in the Supreme Court appeal and we expect the FCA to
submit that the law should appropriately take into account regulation and
together they should be coherent.
These events could lead to redress being payable to customers and associated
operational costs. Due to the uncertain outcomes (including the nature, extent
and timing) of the FCA review, the Supreme Court appeal and related legal
developments, we have undertaken scenario analysis using different
assumptions, which have been probability weighted to estimate a potential
exposure. As a result, the Group has recognised a provision of £6.4 million.
This comprises potential goodwill/redress payments of £5.2 million, and £1.2
million of associated costs. As and when new information becomes available,
our scenarios and assumptions will be revised and so the provision could be
materially higher or lower.
This provision of £6.4 million has been recognised in addition to £0.5
million costs, totalling £6.9 million which are treated as exceptional items
(see Note 8 for further information).
1. From February 2009 (when we began our Vehicle Finance business) to June
2017 (when we ceased DCAs).
2. From February 2009 (when we began our Vehicle Finance business) to October
2024 (until we restarted lending after a short pause after the Court of
Appeal's judgment).
30. Subordinated liabilities
Group and Company
2024 2023
£million £million
Notes at par value 90.0 90.0
Unamortised issue costs (0.7) (0.9)
Accrued interest 4.0 4.0
93.3 93.1
The Fixed Rate Reset Callable Subordinated Notes due August 2033 are listed on
the International Securities Market of the London Stock Exchange. This
issuance is in line with the Group's funding strategy and supports the Group's
stated medium-term growth ambitions.
· The notes are redeemable for cash at their principal amount on fixed dates.
· The Company has a call option to redeem the notes early in the event of a 'tax
event' or a 'capital disqualification event', which is at the full discretion
of the Company.
· Interest payments are paid at six-monthly intervals and are mandatory.
· The notes give the holders' rights to the principal amount on the notes, plus
any unpaid interest, on liquidation. Any such claims are subordinated to
senior creditors, but rank pari passu with holders of other subordinated
obligations and in priority to holders of share capital.
The above features provide the issuer with a contractual obligation to deliver
cash or another financial asset to the holders, and, therefore, the notes are
classified as financial liabilities.
Transaction costs that are directly attributable to the issue of the notes and
are deducted from the financial liability and expensed to the income statement
on an effective interest rate basis over the expected life of the notes.
The notes are treated as Tier 2 regulatory capital, which is used to support
the continuing growth of the business taking into account increases in
regulatory capital buffers. The issue of the notes is part of an ongoing
programme to diversify and expand the capital base of the Group.
The Group paid interest of £11.7 million on subordinated liabilities during
the period (2023: £6.7 million), which is included in net cash
inflow/(outflow) from operating activities in the consolidated and company
statement of cash flows.
The accounting policy for subordinated liabilities is included in Note 1.4 -
Financial assets and financial liabilities accounting policy.
31. Contingent liabilities and commitments
31.1. Contingent liabilities
31.1.1. Laws and regulations
As a financial services business, the Group must comply with numerous laws and
regulations that significantly affect the way it does business. Whilst the
Group believes there are no material unidentified areas of failure to comply
with these laws and regulations, there can be no guarantee that all issues
have been identified.
31.2. Capital commitments
At 31 December 2024, the Group and Company had no capital commitments (2023:
£nil).
31.3. Credit commitments
Group and Company
Commitments to extend credit to customers were as follows:
2024 2023
£million £million
Consumer Finance
Retail Finance 112.2 91.6
Vehicle Finance 1.2 1.3
Business Finance
Real Estate Finance 39.5 58.9
Commercial Finance 110.3 149.5
263.2 301.3
32. Share capital
Number £million
At 1 January 2023 18,691,434 7.5
Issued during 2023 326,361 0.1
At 31 December 2023 19,017,795 7.6
Issued during 2024 53,613 -
At 31 December 2024 19,071,408 7.6
Share capital comprises ordinary shares with a par value of 40 pence each.
Equity instruments accounting policy
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issuance costs. Any amounts received over nominal
value are recorded in the share premium account, net of direct issuance costs.
Costs associated with the listing of shares are expensed immediately.
33. Other reserves
Group Group Company Company
2024
2023
2024
2023
£million £million £million £million
Cash flow hedge reserve - (0.3) - (0.3)
Own shares (2.2) (1.4) (2.2) (1.4)
(2.2) (1.7) (2.2) (1.7)
33.1. Own shares
Employee Benefit Trust ('EBT') 2024 Nominal 2023 Nominal
value
value
Number
2024 Number
2023
£million £million
At 1 January 216,472 0.1 37,501 -
Shares acquired 312,718 0.1 188,835 0.1
Shares disposed (94,381) - (9,864) -
At 31 December 434,809 0.2 216,472 0.1
Market value (£million) 1.6 1.5
Accounting value (£million) 2.2 1.4
Percentage of called up share capital 2.3% 1.1%
These shares are held in trust for the benefit of employees, who will be
exercising their options under the Group's share options schemes. The
trustee's expenses are included in the operating expenses of the Group. The
maximum number of shares held by the EBT during the year was 434,809 (2023:
226,336), which had a nominal value of £174,000 (2023: £91,000). Shares were
disposed of during the year for consideration of £37,000 (2023: £4,000).
Own shares accounting policy
The EBT qualifies for 'look-through' accounting, under which the EBT is
treated as, in substance, an extension of the sponsoring entity, which is
Secure Trust Bank PLC. Own shares represent the shares of the parent Company,
Secure Trust Bank PLC, that are held by the EBT. Own shares are recorded at
cost and deducted from equity.
34. Share-based payments
At 31 December 2024 and 31 December 2023, the Group had four share-based
payment schemes in operation:
· 2017 Long-Term Incentive Plan;
· 2017 Sharesave Plan;
· 2017 Deferred Bonus Plan; and
· 'Phantom' Share Option Scheme.
A summary of the movements in share options during the year is set out below:
Outstanding at Granted Forfeited Exercised Outstanding at Vested and exercisable at 31 December 2024 Vesting Weighted average remaining contractual life of options outstanding at 31 Weighted average exercise price of options outstanding at 31 December 2024 Weighted average exercise price of options outstanding at 31 December
during the year
lapsed and cancelled
during the year
December 2024
2023
1 January 2024
during the year
31 December 2024 Number dates
£
Number
Number
Years £
Number Number Number
Equity settled
2017 Long-Term Incentive Plan 718,098 423,111 (189,815) (58,773) 892,621 10,922 2025-2029 2.3 0.40 0.40
2017 Sharesave Plan 403,913 143,596 (87,559) (43,450) 416,500 - 2025-2027 1.9 6.27 5.93
2017 Deferred Bonus Plan 88,533 43,162 - (45,771) 85,924 3,338 2025-2027 1.6 0.40 0.40
1,210,544 609,869 (277,374) (147,994) 1,395,045 14,260 2.1 2.14 2.25
Weighted average exercise price 2.25 1.95 2.28 1.84 2.15 0.40
Cash settled
'Phantom' share option scheme 38,000 - - - 38,000 38,000 2019 - 25.00 25.00
Group Group Company Company
2024 2023 2024 2023
£million £million £million £million
Expense incurred in relation to share-based payments 2.3 1.1 2.3 0.9
34.1. Long-Term Incentive Plan ('LTIP')
The LTIP was established on 3 May 2017. Two separate awards to a number of
participants were made under this plan during the year, as set out below.
34.1.1. LTIP Restricted share award
During the year, 114,281 (2023: 63,975) options were awarded that were not
subject to any performance conditions. The awards will vest three years from
the date of grant. The original grant date valuation was determined using a
Black-Scholes model for the return on average equity, earnings per share and
risk management tranches (modified for probability of outturn), and a Monte
Carlo model for the total shareholder return tranche. Measurement inputs and
assumptions used for the grant date valuation were as follows:
Awarded during 2024 Awarded during
2023
Share price at grant date £6.90 £6.70
Exercise price £0.40 £0.40
Expected dividend yield 5.10% 5.20%
Expected stock price volatility 36.72% 42.93%
Risk free interest rate 4.35% 3.44%
Average expected life (years) 3.00 3.00
Original grant date valuation £5.57 £5.37
34.1.2. LTIP
During the year, 308,830 (2023: 217,307) options were awarded that are subject
to four performance conditions. Details of the performance conditions can be
found on page 104 of the 2024 Annual Report and Accounts.
The awards have a performance term of three years. The awards will vest on the
date on which the Board determines that these conditions have been met.
The original grant date valuation was determined using a Black-Scholes model
for the return on average equity, earnings per share and risk management
tranches (modified for probability of outturn), and a Monte Carlo model for
the total shareholder return tranche. Measurement inputs and assumptions used
for the grant date valuation were as follows:
Awarded during 2024 Awarded during 2024 Awarded during 2023 Awarded during 2023
No holding period
Two year
No holding period Two year
holding period
holding
period
Share price at grant date £6.90 £6.90 £6.70 £6.70
Exercise price £0.40 £0.40 £0.40 £0.40
Expected dividend yield 5.10% 5.10% 5.20% 5.20%
Expected stock price volatility 35.00% 35.00% 40.00% 40.00%
Risk free interest rate 4.51% 4.19% 3.49% 3.42%
Average expected life (years) 3.00 5.00 3.00 5.00
Original grant date valuation £4.40 £3.95 £2.98 £2.69
34.2. Sharesave Plan
The Sharesave Plan was established on 3 May 2017. This plan allows all
employees to save for three years, subject to a maximum monthly amount of
£250 (2023: £250), with the option to buy shares in Secure Trust Bank PLC
when the plan matures. Participants cannot change the amount that they have
agreed to save each month, but they can suspend payments for up to twelve
months. Participants can withdraw their savings at any time but, if they do
this before the completion date, they lose the option to buy shares at the
Option Price, and in most circumstances if participants cease to hold
plan-related employment before the third anniversary of the grant date, then
the options are also lost. The options ordinarily vest approximately three
years after grant date and are exercisable for a period of six months
following vesting.
The original grant date valuation was determined using a Black-Scholes model.
Measurement inputs and assumptions used were as follows:
Awarded during 2024 Awarded during 2023
Share price at grant date £8.14 £6.30
Exercise price £6.99 £5.43
Expected stock price volatility 37.22% 37.25%
Expected dividend yield 5.10% 5.20%
Risk free interest rate 3.75% 4.52%
Average expected life (years) 3.00 3.00
Original grant date valuation £2.07 £1.63
34.3. Deferred Bonus Plan
The Deferred Bonus Plan was established on 3 May 2017. In 2024 and 2023,
awards were granted to certain senior managers of the Group. The awards vest
in three equal tranches after one, two and three years following deferral.
Accordingly, the following awards remain outstanding under the plan, entitling
the members of the scheme to purchase shares in the Company:
Awards granted Awards granted Awards granted Awards
Vesting after
Vesting after
Vesting after
granted
one year
two years
three years
Total
Number
Number
Number
At 1 January 2023 12,779 17,119 19,909 49,807
Granted 13,315 13,315 13,323 39,953
Exercised (401) - (826) (1,227)
At 31 December 2023 25,693 30,434 32,406 88,533
Granted 14,385 14,385 14,392 43,162
Exercised (23,295) (16,179) (6,297) (45,771)
At 31 December 2024 16,783 28,640 40,501 85,924
Vested and exercisable 2,398 940 - 3,338
The original grant date valuation was determined using a Black-Scholes model.
Measurement inputs and assumptions used were as follows:
Granted in 2024 Granted in 2024 Granted in 2024
Awards vesting after one year Awards vesting after two years Awards vesting after three years
Share price at grant date £6.90 £6.90 £6.90
Exercise price £0.40 £0.40 £0.40
Expected dividend yield 5.10% 5.10% 5.10%
Expected stock price volatility 32.51% 38.89% 36.72%
Risk free interest rate 4.78% 4.52% 4.35%
Average expected life (years) 1.00 2.00 3.00
Original grant date valuation £6.18 £5.87 £5.57
Granted in 2023 Granted in 2023 Granted in 2023
Awards vesting after one years
Awards vesting after two years
Awards vesting after three years
Share price at grant date £6.70 £6.70 £6.70
Exercise price £0.40 £0.40 £0.40
Expected dividend yield 5.20% 5.20% 5.20%
Expected stock price volatility 44.41% 38.77% 42.93%
Risk free interest rate 3.97% 3.40% 3.44%
Average expected life (years) 1.00 2.00 3.00
Original grant date valuation £5.98 £5.66 £5.37
34.4. Cash settled share-based payments
On 16 March 2015, a four-year 'phantom' share option scheme was established in
order to provide effective long-term incentive to senior management of the
Group. Under the scheme, no actual shares would be issued by the Company, but
those granted awards under the scheme would be entitled to a cash payment. The
amount of the award is calculated by reference to the increase in the value of
an ordinary share in the Company over an initial value set at £25 per
ordinary share, being the price at which the shares resulting from the
exercise of the first tranche of share options under the share option scheme
were sold in the market in November 2014. The options vested during 2019 and
are exercisable for a period of 10 years after grant date.
As at 31 December 2024, using any reasonable range of inputs and assumptions,
the fair value of the 'phantom' options is £nil (2023: £nil). Accordingly,
no liability was recognised in the consolidated financial statements at 31
December 2024 or 31 December 2023.
For each award granted during the year, expected volatility was determined by
calculating the historical volatility of the Group's share price over the
period equivalent to the expected term of the options being granted. The
expected life used in the model has been adjusted, based on management's best
estimate, for the effects of non-transferability, exercise restrictions,
and behavioural considerations.
Share-based compensation accounting policy
The fair value of equity settled share-based payment awards are calculated at
grant date and recognised over the period in which the employees become
unconditionally entitled to the awards (the vesting period). The amount is
recognised in operating expenses in the income statement, with a corresponding
increase in equity. Further details of the valuation methodology are set out
above.
The fair value of cash settled share-based payments is recognised in operating
expenses in the income statement with a corresponding increase in liabilities
over the vesting period. The liability is remeasured at each reporting date
and at the settlement date based on the fair value of the options granted,
with a corresponding adjustment to operating expenses.
35. Cash flow statement
35.1. Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents
comprise the following balances with less than three months' maturity from the
date of acquisition.
Group Group Company Company
2024
2024
2023
2023
£million
£million
£million £million
Cash and Bank of England reserve account 445.0 351.6 445.0 351.6
Loans and advances to banks (Note 13) 24.0 53.7 23.6 53.0
Less:
Cash ratio deposit - (4.8) - (4.8)
Collateral margin account - (0.2) - (0.2)
- (5.0) - (5.0)
Cash and cash equivalents 469.0 400.3 468.6 399.6
The Group and Company has no access to the cash ratio deposit or the
collateral margin accounts, so these amounts do not meet the definition of
cash and cash equivalents, and accordingly, they are excluded from cash and
cash equivalents.
35.2. Changes in liabilities arising from financing activities
All changes in liabilities arising from financing activities arise from
changes in cash flows, apart from £0.1 million (2023: £0.1 million) of lease
liabilities interest expense, as shown in Note 27, and £0.2 million (2023:
£0.2 million) amortisation of issue costs on subordinated liabilities, as
shown in Note 30.
Cash and cash equivalents accounting policy
For the purpose of the statement of cash flows, cash and cash equivalents
comprise cash in hand and demand deposits, and cash equivalents, being highly
liquid investments, which are convertible into cash with an insignificant risk
of changes in value with a maturity of three months or less at the date of
acquisition, including certain loans and advances to banks and short-term
highly liquid debt securities.
36. Financial risk management strategy
By their nature, the Group's activities are principally related to the use of
financial instruments. The Directors and senior management of the Group have
formally adopted a Group risk appetite statement that sets out the Board's
attitude to risk and internal controls. Key risks identified by the Directors
are formally reviewed and assessed at least once a year by the Board. In
addition, key business risks are identified, evaluated and managed by
operating management on an ongoing basis by means of procedures, such as
physical controls, credit and other authorisation limits and segregation of
duties. The Board also receives regular reports on any risk matters that need
to be brought to its attention. Significant risks identified in connection
with the development of new activities are subject to consideration by the
Board. There are budgeting procedures in place and reports are presented
regularly to the Board detailing the results of each principal business unit,
variances against budget and prior year, and other performance data.
A more detailed description of the risk governance structure is contained,
above, in the Principal risks and uncertainties section.
Included within the principal financial risks inherent in the Group's business
are credit risk (Note 37), market risk (Note 38), liquidity risk (Note 39),
and capital risk (Note 40).
37. Credit risk
The Company and Group take on exposure to credit risk, which is the risk that
a counterparty will be unable to satisfy their debt servicing commitments when
due. Counterparties include the consumers to whom the Group lends on a secured
and unsecured basis and Small and Medium size Enterprises ('SMEs') to whom the
Group primarily lends on a secured basis, as well as the market counterparties
with whom the Group deals.
Impairment provisions are provided for expected credit losses at the statement
of financial position date. Significant changes in the economy could result in
losses that are different from those provided for at the statement of
financial position date. Management, therefore, carefully manages the Group's
exposures to credit risk as it considers this to be the most significant risk
to the business. Disclosures relating to collateral on loans and advances to
customers are disclosed in Note 14.
The Board monitors the ratings of the counterparties in relation to the
Group's loans and advances to banks. Disclosures of these at the year-end
are contained in Note 13. There is no direct exposure to the Eurozone and
peripheral Eurozone countries.
See Principal risks and uncertainties section, above, for further details on
the mitigation and change during the year of credit risk.
Group and Company
With the exception of loans and advances to customers, the carrying amount of
financial assets represents the maximum exposure to credit risk. The maximum
exposure to credit risk for loans and advances to customers by portfolio and
IFRS 9 stage without taking account of any collateral held or other credit
enhancements attached was as follows:
Stage 1 Stage 2 Stage 3 Total gross loans and advances to customers
£million
£million <= 30 days > 30 days Total £million
past due
past due
£million
£million £million
31 December 2024
Consumer Finance
Retail Finance 1,324.1 48.1 4.1 52.2 11.6 1,387.9
Vehicle Finance 500.7 40.0 21.0 61.0 65.0 626.7
Business Finance
Real Estate Finance 1,046.9 209.0 0.1 209.1 97.9 1,353.9
Commercial Finance 332.9 6.7 - 6.7 12.2 351.8
Total drawn exposure 3,204.6 303.8 25.2 329.0 186.7 3,720.3
Off balance sheet
Loan commitments 262.4 0.8 - 0.8 - 263.2
Total gross exposure 3,467.0 304.6 25.2 329.8 186.7 3,983.5
Less:
Impairment allowance (29.6) (8.6) (7.3) (15.9) (66.3) (111.8)
Provision for loan commitments (0.9) - - - - (0.9)
Total net exposure 3,436.5 296.0 17.9 313.9 120.4 3,870.8
Of collateral in the form of property, £110.1 million (2023: £117.8 million)
has been pledged as security for Real Estate Finance Stage 3 balances of
£86.1 million (2023: £84.0 million). Of collateral in the form of vehicles,
£37.4 million (2023: £21.0 million) has been pledged as security for
Vehicle Finance Stage 3 balances of £20.7 million (2023: £14.7 million).
Stage 1 Stage 2 Stage 3 Total gross
loans and advances to customers
£million
£million <= 30 days > 30 days Total Total
past due
past due
£million £million
£million £million
31 December 2023
Consumer Finance
Retail Finance 1,149.2 92.9 4.4 97.3 8.8 1,255.3
Vehicle Finance 420.1 34.3 20.4 54.7 38.3 513.1
Business Finance
Real Estate Finance 1,024.9 134.4 1.5 135.9 91.0 1,251.8
Commercial Finance 357.3 9.9 - 9.9 16.0 383.2
Total drawn exposure 2,951.5 271.5 26.3 297.8 154.1 3,403.4
Off balance sheet
Loan commitments 299.1 2.2 - 2.2 - 301.3
Total gross exposure 3,250.6 273.7 26.3 300.0 154.1 3,704.7
Less:
Impairment allowance (29.5) (10.5) (7.7) (18.2) (40.4) (88.1)
Provision for loan commitments (0.8) - - - - (0.8)
Total net exposure 3,220.3 263.2 18.6 281.8 113.7 3,615.8
A reconciliation of opening to closing allowance for impairment of loans and
advances to customers is presented in Note 16.
Company
In addition to the above, counterparties to the Company include subsidiary
undertakings. For the ECL on amounts due from related companies, see Note 24.
37.1. Concentration risk
Management assesses the potential concentration risk from geographic, product
and individual loan concentration. Due to the nature of the Group's lending
operations, the Directors consider the lending operations of the Group as a
whole to be well diversified. Details of the Group's loans and advances to
customers and loan commitments by product is provided in Notes 3 and 31,
respectively.
Geographical concentration
The Group's Real Estate Finance loan book is secured against UK property only.
The geographical concentration of these business loans and advances to
customers, by location of the security, is as follows:
Group and Company
2024 2023
£million £million
Central England 113.2 99.5
Greater London 691.5 709.5
Northern England 124.8 89.2
South East England (excl. Greater London) 273.5 233.3
South West England 54.4 40.7
Scotland, Wales and Northern Ireland 96.5 79.6
Gross loans and receivables 1,353.9 1,251.8
Allowance for impairment (12.5) (8.0)
Total 1,341.4 1,243.8
37.2. Forbearance
Consumer Finance
Throughout the year, the Group did not routinely reschedule contractual
arrangements where customers default on their repayments. In cases where it
offered the customer the option to reduce or defer payments for a short
period, in line with our responsibilities from a conduct perspective, the
loans retained the normal contractual payment due dates and were treated the
same as any other defaulting cases for impairment purposes. Arrears tracking
would continue on the account, with any impairment charge being based on the
original contractual due dates for all products.
All forbearance arrangements are formally discussed and agreed with the
customer in accordance with regulatory guidance on the support of customers.
By offering customers in financial difficulty the option of forbearance, the
Group potentially exposes itself to an increased level of risk through
prolonging the period of non-contractual payment. All forbearance arrangements
are reviewed and monitored regularly to assess the ongoing potential risk,
suitability and sustainability to the Group. As at the year end, the Consumer
Finance business approximately had the following cases (by volume) in
forbearance:
· Retail Finance 0.14% (2023: 0.15%); and
· Vehicle Finance: 0.59% (2023: 0.11%).
In respect of Vehicle Finance, where forbearance measures are not possible or
are considered not to be in the customer's best interests, or where such
measures have been tried and the customer has not adhered to the forbearance
terms that have been agreed, the Group will consider realising its security
and taking possession of the vehicle in order to sell it and clear the
outstanding debt. Where the sale of the vehicle does not cover all of the
remaining loan, normal credit collection procedures may be carried out in
order to recover the outstanding debt, or the debt may be sold to a third
party debt recovery agent, or in certain circumstances, the debt may be
written off.
Real Estate Finance
Where clients provided evidence of payment difficulties, they were supported
by the provision of extensions to loan maturity dates. A small number of
clients, who experienced difficulties in meeting their financial commitments,
were offered concessions (facility restructures or amendments) that Real
Estate Finance would not have provided under normal circumstances. As at 31
December 2024, 4.9% of accounts were classed as forborne (2023: 9.6%). Where
forbearance measures are not possible, or are considered not to be in the
client's best interests, or where such measures have been tried and the
customer has not adhered to the forbearance terms that have been agreed, the
Group will consider realising its security.
38. Market risk
The Group's market risk is primarily linked to interest rate risk. Interest
rate risk refers to the exposure of the Group's financial position to adverse
movements in interest rates.
When interest rates change, the present value and timing of future cash flows
change. This, in turn, changes the underlying value of the Group's assets,
liabilities and off-balance sheet instruments, and hence, its economic value.
Changes in interest rates also affect the Group's earnings by altering
interest-sensitive income and expenses, affecting its net interest income.
The principal currency in which the Group operates is Sterling, although a
small number of transactions are completed in US dollars, Euros and other
currencies in the Commercial Finance business. The Group has no significant
exposures to foreign currencies and hedges any residual currency risks to
Sterling. The Group does not operate a trading book.
See Principal risks and uncertainties section, above, for further details on
the mitigation and change during the year of market risk.
Interest rate risk
Group and Company
The Group seeks to 'match' interest rate risk between its assets and
liabilities in the first instance and hedges any material residual risks using
interest rate derivatives in accordance with the Group's risk appetite.
The Group monitors its exposure to interest rate risk on at least a weekly
basis, using market value sensitivity and earnings at risk, which were as
follows at 31 December:
2024 2023
£million £million
Market value sensitivity
+200bp parallel shift in yield curve 1.5 2.5
-200bp parallel shift in yield curve (1.6) (2.7)
Earnings at risk sensitivity
+100bp parallel shift in yield curve 1.5 1.2
-100bp parallel shift in yield curve (1.5) (1.2)
The Directors consider that 200bps in the case of market value sensitivity and
100bps in the case of earnings at risk are a reasonable approximation of
possible changes.
39. Liquidity and funding risk
Liquidity and funding risk is the risk that the Group is unable to meet its
obligations as they fall due or can only do so at excessive cost. The Group
maintains adequate liquidity resources and a prudent, stable funding profile
at all times to cover liabilities as they fall due in normal and stressed
conditions.
The Group manages its liquidity in line with internal and regulatory
requirements, and at least annually assesses the robustness of the liquidity
requirements as part of the Group's Internal Liquidity Adequacy Assessment
Process ('ILAAP').
See Principal risks and uncertainties section, above, for further details on
the mitigation and change during the year of liquidity and funding risk.
The tables below analyse the contractual undiscounted cash flows for financial
liabilities into relevant maturity groupings:
Carrying amount Gross nominal outflow Not more More than three months but less than one year More than More than
than three months
one year but less than five years
five years
£million £million
£million
£million £million £million
At 31 December 2024
Due to banks 365.8 374.1 52.6 321.5 - -
Deposits from customers 3,244.9 3,336.5 2,058.0 674.8 601.0 2.7
Subordinated liabilities 93.3 136.8 - 11.7 125.1 -
Lease liabilities 1.8 1.9 0.3 0.8 0.8 -
Other financial liabilities 23.1 23.1 23.1 - - -
3,728.9 3,872.4 2,134.0 1,008.8 726.9 2.7
Derivative financial liabilities 10.0 10.2 2.0 3.4 4.8 -
3,738.9 3,882.6 2,136.0 1,012.2 731.7 2.7
Carrying amount Gross nominal outflow Not more More than three months but less than one year More than More than
than three
one year but less than five years
five years
£million £million
months £million
£million £million
£million
At 31 December 2023
Due to banks 402.0 435.9 12.1 15.4 408.4 -
Deposits from customers 2,871.8 2,949.5 1,532.0 806.7 608.9 1.9
Subordinated liabilities 93.1 148.5 5.9 5.9 136.7 -
Lease liabilities 2.3 2.4 0.2 0.7 1.5 -
Other financial liabilities 25.9 25.9 25.9 - - -
3,395.1 3,562.2 1,576.1 828.7 1,155.5 1.9
Derivative financial liabilities 22.0 23.4 2.8 5.6 15.0 -
3,417.1 3,585.6 1,578.9 834.3 1,170.5 1.9
Company
The contractual undiscounted cash flows for financial liabilities of the
Company are the same as above except for the following:
Carrying amount Gross nominal outflow Not more More than three months but less than one year More than More than
than three months
one year but less than five years
five years
£million £million
£million
£million £million £million
At 31 December 2024
Lease liabilities 1.6 1.7 0.3 0.7 0.7 -
Other financial liabilities 33.6 33.6 33.6 - - -
Non-derivative financial liabilities 3,739.2 3,882.7 2,144.5 1,008.7 726.8 2.7
Total 3,749.2 3,892.9 2,146.5 1,012.1 731.6 2.7
Carrying amount Gross nominal outflow Not more More than three months but less than one year More than More than
than three
one year but less than five years
five years
£million £million
£million
months £million £million
£million
At 31 December 2023
Lease liabilities 2.1 2.1 0.2 0.7 1.2 -
Other financial liabilities 34.2 34.2 34.2 - - -
Non-derivative financial liabilities 3,403.2 3,570.2 1,584.4 828.7 1,155.2 1.9
Total 3,425.2 3,593.6 1,587.2 834.3 1,170.2 1.9
40. Capital risk (unaudited)
Capital risk is the risk that the Group will have insufficient capital
resources to absorb potential losses. The Group adopts a conservative approach
to managing its capital and at least annually assesses the robustness of the
capital requirements as part of the Group's Internal Capital Adequacy
Assessment Process ('ICAAP'). The Group has Tier 1 and Tier 2 capital
resources, noting the regulatory adjustments required in the table, below.
The following table, which is unaudited and, therefore, not in scope of the
Independent Auditor's Report, shows the regulatory capital resources for the
Group.
2024 2023
£million £million
(unaudited) (unaudited)
Common Equity Tier 1 ('CET 1')
Share capital 7.6 7.6
Share premium 84.0 83.8
Retained earnings 271.1 254.8
Own shares (2.2) (1.4)
IFRS 9 transition adjustment (See below for further details) 0.1 2.1
Goodwill (1.0) (1.0)
Intangible assets net of attributable deferred tax (4.0) (4.9)
CET 1 capital before foreseeable dividend 355.6 341.0
Foreseeable dividend (4.2) (3.1)
CET 1 and Tier 1 capital 351.4 337.9
Tier 2
Subordinated liabilities 89.3 89.1
Less ineligible portion (25.0) (29.4)
Total Tier 2 capital(1) 64.3 59.7
Own funds 415.7 397.6
Reconciliation to total equity:
IFRS 9 transition adjustment (0.1) (2.1)
Eligible subordinated liabilities (64.3) (59.7)
Cash flow hedge reserve - (0.3)
Goodwill and other intangible assets net of attributable deferred tax 5.0 5.9
Foreseeable dividend 4.2 3.1
Total equity 360.5 344.5
1. Tier 2 capital comprises solely subordinated debt, excluding accrued
interest, capped at 25% of the Pillar 1 and 2A requirements as set by the PRA.
The Group has elected to adopt the IFRS 9 transitional rules. In 2024, this
allowed for 25% (2023: 50%) of increases from 1 January 2020 in provisions on
non-defaulted accounts net of attributable deferred tax, to be added back to
eligible capital. This relief ends on 1 January 2025.
The Group's regulatory capital is divided into:
· CET 1 capital which comprises shareholders' funds (excluding employee benefit
trust own shares)
after adding back the IFRS 9 transition adjustment and deducting qualifying
intangible assets and prudent valuation adjustments. IFRS 9 transition
adjustment and intangible assets are both net of attributable deferred tax;
and
· Tier 2 capital which is solely subordinated debt net of unamortised issue
costs capped at 25% of the capital requirement.
The Group operates the standardised approach to credit risk, whereby risk
weightings are applied to the Group's on and off balance sheet exposures. The
weightings applied are those stipulated in the UK Capital Requirements
Regulation.
Further information on capital is included within our Pillar 3 disclosures,
which can be found on the Group's website (www.securetrustbank.com/pillar3).
See Principal risks and uncertainties section, above, for further details on
the mitigation and change during the year of capital risk.
The Group is subject to capital requirements imposed by the PRA on all
financial services firms. During the year, the Group complied with these
requirements.
41. Classification of financial assets and liabilities
Group
Total carrying amount Fair value Total carrying amount Fair value Fair value hierarchy level
£million £million Fair value £million £million 2023
2024 2024 hierarchy level 2023 2023
2024
Cash and Bank of England reserve account 445.0 445.0 Level 1 351.6 351.6 Level 1
Loans and advances to banks 24.0 24.0 Level 2 53.7 53.7 Level 2
Loans and advances to customers 3,608.5 3,612.3 Level 3 3,315.3 3,279.7 Level 3
Derivative financial instruments 14.3 14.3 Level 2 25.5 25.5 Level 2
Other financial assets 2.0 2.0 Level 3 2.4 2.4 Level 3
4,093.8 4,097.6 3,748.5 3,712.9
Due to banks 365.8 365.8 Level 2 402.0 402.0 Level 2
Deposits from customers 3,244.9 3,254.0 Level 3 2,871.8 2,850.1 Level 3
Derivative financial instruments 10.0 10.0 Level 2 22.0 22.0 Level 2
Lease liabilities 1.8 1.8 Level 3 2.3 2.3 Level 3
Other financial liabilities 23.1 23.1 Level 3 25.9 25.9 Level 3
Subordinated liabilities 93.3 90.2 Level 2 93.1 94.8 Level 3
3,738.9 3,744.9 3,417.1 3,397.1
All financial assets and liabilities at 31 December 2024 and 31 December 2023
were carried at amortised cost, except for derivative financial instruments
that are at fair value through profit and loss. Therefore, for these assets
and liabilities, the fair value hierarchy noted above relates to the
disclosure in this note only.
Company
Total carrying amount Fair value Fair value hierarchy level Total carrying amount Fair value Fair value hierarchy level
£million £million 2024 £million £million 2023
2024 2024 2023 2023
At 31 December 2024
Cash and Bank of England reserve account 445.0 445.0 Level 1 351.6 351.6 Level 1
Loans and advances to banks 23.6 23.6 Level 2 53.0 53.0 Level 2
Loans and advances to customers 3,608.5 3,612.3 Level 3 3,315.3 3,279.7 Level 3
Derivative financial instruments 14.3 14.3 Level 2 25.5 25.5 Level 2
Other financial assets 4.0 4.0 Level 3 5.0 5.0 Level 3
4,095.4 4,099.2 3,750.4 3,714.8
Due to banks 365.8 365.8 Level 2 402.0 402.0 Level 2
Deposits from customers 3,244.9 3,254.0 Level 3 2,871.8 2,850.1 Level 3
Derivative financial instruments 10.0 10.0 Level 2 22.0 22.0 Level 2
Lease liabilities 1.6 1.6 Level 3 2.1 2.1 Level 3
Other financial liabilities 33.6 33.6 Level 3 34.2 34.2 Level 3
Subordinated liabilities 93.3 90.2 Level 2 93.1 94.8 Level 3
3,749.2 3,755.2 3,425.2 3,405.2
All financial assets and liabilities at 31 December 2024 and 31 December 2023
were carried at amortised cost except for derivative financial instruments
that are valued at fair value through profit and loss. Therefore, for these
assets, the fair value hierarchy noted above relates to the disclosure in this
note only.
Fair value classification
The tables above include the fair values and fair value hierarchies of the
Group and Company's financial assets and liabilities. The Group measures fair
value using the following fair value hierarchy that reflects the significance
of the inputs used in making measurements.
· Level 1: Quoted prices in active markets for identical assets or liabilities.
· Level 2: Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
· Level 3: Inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
Loans and advances to customers and Deposits from customers
The fair value of the financial assets and liabilities is calculated based
upon the present value of the expected future principal and interest cash
flows. The rate used to discount the cash flows was a market rate of interest
at the balance sheet date. For loans and advances to customers, the same
assumptions regarding the risk of default were applied as those used to derive
the carrying value.
Derivative financial instruments
The fair value of derivative financial instruments is calculated based on the
present value of the expected future cash flows of the instruments. The rate
used to discount the cash flows was the SONIA forward curve at the balance
sheet date.
Subordinated liabilities
The fair value of subordinated liabilities is calculated based on quoted
market prices where available, or where an active market quote is not
available, it is calculated based on the present value of the expected future
cash flows of the instruments. The rate used to discount the cash flows was
the UK government five year bond plus the initial spread on the instruments.
For all remaining financial assets and liabilities, the fair value of
financial assets and liabilities is calculated to be equivalent to their
carrying value due to their short maturity dates.
42. Related party transactions
Related parties of the Company and Group include subsidiaries, key management
personnel, close family members of key management personnel and entities that
are controlled, jointly controlled or significantly influenced, or for which
significant voting power is held, by key management personnel or their close
family members.
No transactions greater than £0.1 million were entered into with key
management personnel or their close family members during the current or prior
year.
The Company undertook the following transactions with other companies in the
Secure Trust Bank Group:
2024 2023
£million £million
Interest income and similar income (30.3) (28.8)
Operating expenses (0.4) (0.4)
Allowances for impairment of amounts due from related companies 0.2 (2.1)
Investment income 9.5 10.2
(21.0) (21.1)
Equity contribution to subsidiaries re. share-based payments 0.2 0.2
The loans and advances with, and amounts receivable and payable to, related
companies are noted below:
Company Company
2024
2023
£million £million
Amounts receivable from subsidiary undertakings 2.3 2.7
Amounts due to subsidiary undertakings (12.5) (10.5)
(10.2) (7.8)
All amounts above are repayable on demand and the Company charged interest at
a variable rate on amounts outstanding.
Directors' remuneration
The Directors' emoluments (including pension contributions and benefits in
kind) for the year are disclosed in the Directors' Remuneration Report in the
2024 Annual Report and Accounts.
At the year-end the ordinary shares held by the Directors, holdings of share
options, as well as details of those share options exercised during the year
are disclosed in the Directors' Remuneration Report.
43. Immediate parent company and ultimate controlling party
The Company has no immediate parent company or ultimate controlling party.
44. Country-by-Country reporting
The Capital Requirements (Country-by-Country Reporting) Regulations 2013
introduced reporting obligations for institutions within the scope of CRD V.
The requirements aim to give increased transparency regarding the activities
of institutions. The Country-by-Country information is set out below:
Name Nature Location Turnover Average Profit before tax Tax paid
of activity
on profit
£million number of FTE £million
£million
employees
31 December 2024 Secure Trust Bank PLC Banking services UK 385.2 915 29.2 8.8
31 December 2023 Secure Trust Bank PLC Banking services UK 321.3 874 33.4 8.6
45. Post balance sheet events
There have been no significant events between 31 December 2024 and the date of
approval of these financial statements, which would require a change to or
additional disclosure in the financial statements.
Five-year summary (unaudited)
2024 2023 2022 2021 2020
£million £million £million £million £million
Profit for the year
Continuing operations
Interest and similar income 366.0 304.0 203.0 163.9 173.1
Interest expense and similar charges (181.1) (136.5) (50.4) (27.7) (39.4)
Net interest income 184.9 167.5 152.6 136.2 133.7
Net fee and commission income 19.0 17.2 17.0 12.7 10.8
Operating income 203.9 184.7 169.6 148.9 144.5
Net impairment charge on loans and advances to customers (61.9) (43.2) (38.2) (5.0) (41.4)
Other (losses)/gains (0.3) 0.3 1.1 1.5 (3.1)
Fair value and other gains/(losses) on financial instruments 1.2 0.5 (0.3) (0.1) -
Operating expenses (103.8) (99.7) (93.2) (89.4) (81.8)
Profit before income tax before exceptional items 39.1 42.6 39.0 55.9 18.2
Exceptional items (9.9) (6.5) - - -
Profit before income tax 29.2 36.1 39.0 55.9 18.2
Discontinued operations
(Loss)/profit before income tax - (2.7) 5.0 0.1 0.9
Total profit before income tax 29.2 33.4 44.0 56.0 19.1
Continuing Continuing Continuing Continuing Continuing 2020
2024 2023 2022 2021 £million
£million £million £million £million
Earnings per share for profit attributable to the equity holders of the
Company during the year (pence per share)
Basic earnings per ordinary share 103.4 140.8 158.5 244.1 82.7
2024 2023 2022 2021 2020
£million £million £million £million £million
Financial position
Cash and Bank of England reserve account 445.0 351.6 370.1 234.0 181.5
Loans and advances to banks 24.0 53.7 50.5 52.0 63.3
Debt securities - - - 25.0 -
Loans and advances to customers 3,608.5 3,315.3 2,919.5 2,530.6 2,358.9
Fair value adjustment for portfolio hedged risk (6.8) (3.9) (32.0) (3.5) 5.7
Derivative financial instruments 14.3 25.5 34.9 3.8 4.8
Other assets 31.7 35.8 36.6 44.0 47.0
Total assets 4,116.7 3,778.0 3,379.6 2,885.9 2,661.2
Due to banks 365.8 402.0 400.5 390.8 276.4
Deposits from customers 3,244.9 2,871.8 2,514.6 2,103.2 1,992.5
Fair value adjustment for portfolio hedged risk (3.4) (1.4) (23.0) (5.3) 4.7
Derivative financial instruments 10.0 22.0 26.7 6.2 6.1
Subordinated liabilities 93.3 93.1 51.1 50.9 50.8
Other liabilities 45.6 46.0 83.5 37.7 63.1
Total shareholders' equity 360.5 344.5 326.2 302.4 267.6
Total liabilities and shareholders' equity 4,116.7 3,778.0 3,379.6 2,885.9 2,661.2
Appendix to the Annual Report (unaudited)
Key performance indicators and other alternative performance measures
All key performance indicators are based on continuing operations and
continuing loans and advances to customers, unless otherwise stated.
(i) Continuing loans and advances to customers
A reconciliation of total loans and advances to customers to continuing
operations loans and advances to customers is set out below:
2024 2023 2022 2021 2020 2019
£million £million £million £million £million £million
Loans and advances to customers 3,608.5 3,315.3 2,919.5 2,530.6 2,358.9 2,450.1
Assets held for sale - loan portfolios - - - 1.3 - -
Total loans and advances to customers 3,608.5 3,315.3 2,919.5 2,531.9 2,358.9 2,450.1
Less discontinued loans and advances to customers:
Asset Finance (sold during 2021) - - - - (10.4) (27.7)
DMS (sold during 2022) - - - (79.6) (81.8) (82.4)
Consumer Mortgages (sold during 2021) - - - - (77.7) (105.9)
Other - - - (1.3) (4.1) (7.6)
Total discontinued operations loans and advances to customers - - - (80.9) (174.0) (223.6)
Continuing loans and advances to customers 3,608.5 3,315.3 2,919.5 2,451.0 2,184.9 2,226.5
(ii) Net interest margin, net revenue margin and risk adjusted margin ratios
Net interest margin is calculated as net interest income for the financial
year as a percentage of the average loan book. Risk adjusted margin is
calculated as risk adjusted income for the financial year as a percentage of
the average loan book. Net revenue margin is calculated as operating income
for the financial year as a percentage of the average loan book. The
calculation of the average loan book is the average of the monthly balance of
loans and advances to customers, net of provisions, over 13 months:
Group 2024 2023 2022 2021 2020
£million £million £million £million £million
Net interest income 184.9 167.5 152.6 136.2 133.7
Net fee and commission income 19.0 17.2 17.0 12.7 10.8
Operating income 203.9 184.7 169.6 148.9 144.5
Opening loan book 3,315.3 2,919.5 2,451.0 2,184.9 2,226.5
Closing loan book 3,608.5 3,315.3 2,919.5 2,451.0 2,184.9
Average loan book 3,413.9 3,099.4 2,699.3 2,240.5 2,197.8
Net revenue margin 6.0% 6.0% 6.3% 6.6% 6.6%
Net interest margin 5.4% 5.4% 5.7% 6.1% 6.1%
Retail Finance 2024 2023 2022 2021 2020
£million £million £million £million £million
Net interest income 86.8 73.1 61.2 56.1 57.7
Average loan book 1,285.9 1,143.4 898.8 692.9 663.4
Net interest margin 6.8% 6.4% 6.8% 8.1% 8.7%
Net interest income 86.8 73.1 61.2 56.1 57.7
Net fee and commission income 3.2 3.2 3.6 2.6 2.1
Net impairment charge on loans and advances to customers (13.3) (15.9) (14.8) (5.0) (14.5)
Other (losses)/gains: gains/(losses) on modification of financial assets - - 0.2 0.4 (0.6)
Risk adjusted income 76.7 60.4 50.2 54.1 44.7
Risk adjusted margin 6.0% 5.3% 5.6% 7.8% 6.7%
Vehicle Finance 2024 2023 2022 2021 2020
£million £million £million £million £million
Net interest income 47.6 44.1 38.9 32.2 37.5
Average loan book 505.4 429.6 325.1 245.8 292.1
Net interest margin 9.4% 10.3% 12.0% 13.1% 12.8%
Net interest income 47.6 44.1 38.9 32.2 37.5
Net fee and commission income 0.8 1.8 1.4 1.1 0.6
Net impairment charge on loans and advances to customers (38.7) (14.8) (21.3) (0.1) (20.7)
Other (losses)/gains: gains/(losses) on modification of financial assets 0.1 0.3 0.9 1.1 (2.5)
Risk adjusted income 9.8 31.4 19.9 34.3 14.9
Risk adjusted margin 1.9% 7.3% 6.1% 14.0% 5.1%
2024 2023 2022 2021 2020
£million £million £million £million £million
Real Estate Finance
Net interest income 32.6 29.7 29.7 31.5 30.4
Net fee and commission income 0.4 0.9 0.2 0.3 -
Operating income 33.0 30.6 29.9 31.8 30.4
Net impairment charge on loans and advances to customers (4.0) (4.5) (1.3) (0.1) (5.2)
Risk adjusted income 29.0 26.1 28.6 31.7 25.2
Average loan book 1,269.5 1,177.7 1,114.9 1,045.3 1,020.4
Net revenue margin 2.6% 2.6% 2.7% 3.0% 3.0%
Risk adjusted margin 2.3% 2.2% 2.6% 3.0% 2.5%
Commercial Finance 2024 2023 2022 2021 2020
£million £million £million £million £million
Net interest income 12.2 13.2 11.4 6.5 4.4
Net fee and commission income 14.5 11.3 11.6 8.4 7.7
Operating income 26.7 24.5 23.0 14.9 12.1
Net impairment (charge)/credit on loans and advances to customers (5.9) (8.0) (0.8) 0.2 (1.1)
Risk adjusted income 20.8 16.5 22.2 15.1 11.0
Average loan book 353.0 348.8 360.7 259.6 221.9
Net revenue margin 7.6% 7.0% 6.4% 5.7% 5.5%
Risk adjusted margin 5.9% 4.7% 6.2% 5.8% 5.0%
These ratios show the net return on our lending assets, with and without
adjusting for cost of risk.
(iii) Return on average equity
Total return on average equity is calculated as the total profit after tax for
the previous 12 months as a percentage of average equity. Adjusted return on
average equity is calculated as the adjusted profit after tax for the previous
12 months as a percentage of average equity. Average equity is calculated as
the average of the monthly equity balances.
2024 2023 2022 2021 2020
£million £million £million £million £million
Total profit after tax 19.7 24.3 33.7 45.6 15.4
Less:
Loss/(profit) for the year from discontinued operations - 2.1 (4.1) N/A N/A
Exceptional items after tax 8.9 5.9 - - -
Adjusted profit after tax 28.6 32.3 29.6 N/A N/A
Opening equity 344.5 326.4 302.2 267.6 252.0
Closing equity 360.5 344.5 326.4 302.2 267.6
Average equity 355.3 334.9 313.4 287.0 261.1
Total return on average equity 5.5% 7.3% 10.8% 15.9% 5.9%
Adjusted return on average equity 8.0% 9.6% 9.4% N/A N/A
Return on average equity is a measure of the Group's ability to generate
profit from the equity available to it.
(iv) Cost to income ratio
Statutory cost to income is calculated as total operating expenses for the
financial year as a percentage of operating income for the financial year.
Adjusted cost to income is calculated as adjusted operating expenses for the
financial year as a percentage of operating income for the financial year.
2024 2023 2022 2021 2020
£million £million £million £million £million
Total operating expenses 113.7 106.2 93.2 89.4 81.8
Less: Exceptional items (9.9) (6.5) - - -
Adjusted operating expenses 103.8 99.7 93.2 89.4 81.8
Operating income 203.9 184.7 169.6 148.9 144.5
Statutory cost to income ratio 55.8% 57.5% 55.0% 60.0% 56.6%
Adjusted cost to income ratio 50.9% 54.0% 55.0% 60.0% 56.6%
The cost to income ratio measures how efficiently the Group is utilising its
cost base to produce income.
(v) Cost of risk
Cost of risk is calculated as the total of the net impairment charge on loans
and advances to customers and gains and losses on modification of financial
assets for the financial year as a percentage of the average loan book
2024 2023 2022 2021 2020
£million £million £million £million £million
Net impairment charge on loans and advances to customers 61.9 43.2 38.2 5.0 41.5
Other (losses)/gains: (gains)/losses on modification of financial assets (0.1) (0.3) (1.1) (1.5) 3.1
Total 61.8 42.9 37.1 3.5 44.6
Average loan book 3,413.9 3,099.4 2,699.3 2,240.5 2,197.8
Cost of risk 1.8% 1.4% 1.4% 0.2% 2.0%
The cost of risk measures how effective the Group has been in managing the
credit risk of its lending portfolios.
(vi) Cost of funds
Cost of funds is calculated as the interest expense for the financial year
expressed as a percentage of average loan book.
2024 2023
£million £million
Interest expense and similar charges 181.1 136.5
Average loan book 3,413.9 3,099.4
Cost of funds 5.3% 4.4%
The cost of funds measures the cost of money being lent to customers.
(vii) Funding ratio and loan to deposit ratio
The funding ratio is calculated as the total funding at the year-end divided
by total loans and advances to customers at the year-end. The loans to deposit
ratio is calculated as total loans and advances to customers at the year-end
divided by deposits from customers at the year end:
2024 2023
£million £million
Deposits from customers 3,244.9 2,871.8
Borrowings under the Bank of England's liquidity support operations (including 358.9 395.1
accrued interest)
Tier 2 capital (including accrued interest) 93.3 93.1
Equity 360.5 344.5
Total funding 4,057.6 3,704.5
Total loans and advances to customers 3,608.5 3,315.3
Funding ratio 112.4% 111.7%
Loan to deposit ratio 111.2% 115.4%
The funding ratio and loan to deposit ratio measure the Group's excess of
funding that provides liquidity.
(viii) Profit before tax pre impairments
Profit before tax pre impairments is profit before tax, excluding impairment
charges and gains on modification of financial assets.
2024 2023
£million £million
Profit before income tax 29.2 36.1
Excluding: net impairment charge on loans and advances to customers 61.9 43.2
Excluding: Other (losses)/gains: gains on modification of financial assets (0.1) (0.3)
Profit before tax pre impairments 91.0 79.0
Exceptional items 9.9 6.5
Adjusted profit before tax pre impairments 100.9 85.5
Profit before tax pre impairments measures the operational performance of the
business.
(ix) Tangible book value per share
Tangible book value per share is calculated as the total equity less
intangible assets divided by the number of shares in issue at the end of the
year.
2024 2023
£million £million
Total equity 360.5 344.5
Less: Intangible assets (5.0) (5.9)
Tangible book value 355.5 338.6
Number of shares in issue at the end of the year 19,071,408 19,017,795
Tangible book value per share £18.64 £17.80
Tangible book value per share is a measure of the Group's value per share.
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