_________________________________
ANNUAL REPORT 2018
Welcome to Manx Financial Group PLC
Welcome to Manx Financial Group PLC
Welcome to Manx Financial Group PLC
Welcome to Manx Financial Group PLC
Integrity through independence and service
An independent banking group founded in 1935, domiciled in the
Isle of Man
Manx Financial Group PLC (“MFG”) is
an AIM-listed company (LSE: MFX.L)
which has subsidiaries engaged in a
suite of financial services based in the
Isle of Man and
the UK. These
companies offer financial services to
both retail and commercial customers.
MFG's strategy is to grow organically
and through strategic acquisition to
further augment the range of services it
offers.
Principal wholly owned subsidiaries: -
• Conister Bank Limited
• Edgewater Associates Limited
• Manx FX Limited
Conister Bank Limited (“the Bank”) is a
licensed independent bank, regulated by
the Financial Services Authority in the Isle
of Man, the Financial Conduct Authority in
the UK and is a full member of the
MasterCard® network and the Isle of
Man’s Association of Licensed Banks.
The Bank provides a variety of financial
products and services, including savings
accounts, asset
financing, personal
loans, loans to small and medium sized
enterprises, block discounting and other
specialist secured credit facilities to the
Isle of Man and the UK consumer and
business sectors.
Edgewater Associates Limited
(“EWA”) is the largest independent
financial adviser in the Isle of Man.
EWA provides a bespoke and
personal service to Isle of Man
residents and
the Group’s
to
business and personal customers
and advises on assets in excess of
£310 million.
EWA specialises in the areas of
wealth management, mortgages,
general insurance, and retirement
planning.
Manx FX Limited was formed in 2014
and provides specialist solutions and
access to competitive foreign exchange
and international payment processing
facilities.
CONTENTS
Chairman’s Statement
Business Model and Strategy
Risk Management
Corporate Governance Report
Directors, Officers and Advisers
Audit, Risk and Compliance Committee
Directors’ Remuneration Report
Directors’ Report
Annual Financial Statements’ Contents
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Company Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated and Company Statements of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Notes to the Consolidated Financial Statements
01
04
06
12
16
18
21
23
24
25
26
30
31
32
33
34
35
36
37
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
Shareholderssss
Dear Shareholder
Dear
Shareholder
Shareholder
Dear Dear
When I wrote to you in the Interim Results for 2018, I was
confident that the full year would continue our growth in
profitability. This has proved to be the case, but the effect of
the two positive initiatives undertaken during the second half
of the year has had a temporary impact on the Income
Statement. The first being the investment in the UK by opening
a new full-service UK Headquarters in Newbury, with a
satellite branch in Manchester. These offices will source new
business and manage our UK lending portfolio through our
subsidiary Conister Finance and Leasing Limited, thus
demonstrating our commitment to this increasingly important
segment of our business. Secondly, the increasing economic
uncertainty surrounding both the Isle of Man and the United
Kingdom has reinforced your Board’s decision to adopt an
the
to provisioning under
ultra-conservative approach
requirements of
International Financial Reporting
Standard 9 (“IFRS 9”) by recognising an additional buffer to
strengthen the Balance Sheet. I must emphasise that this
action does not represent a realized cash outlay and is there,
if ever required, solely to protect our future profitability. Indeed,
the quality of our underwriting is such that our actual ratio of
bad debts written off stands at an enviable 0.6% (2017: 0.5%).
the
As a consequence, our profit before tax is broadly similar to
2017 at £2.7 million (2017: £2.7 million). However, our total
assets have increased by 13.8% to £196.9 million (2017:
£173.0 million) and our total shareholder equity has increased
by a corresponding 14.3% to £19.7 million (2017: £17.3
million). Whilst the latter figure is gratifying, I am deeply aware
that as I write, our market capitalisation stands at only £11.5
million, being a discount of 42%. This discount is regrettable,
especially when ranked against our peer group.
Of our core businesses, Conister Bank has enjoyed excellent
new business generation, offset by the run-off by mutual
agreement of two discontinued lending streams, both nearly
complete, but representing a decrease of £14.8 million during
the year (2017: £12.7 million). Thus, the fall in interest income
to £19.1 million (2017: 19.9 million) belies a total new lending
of £102.1 million for 2018 (2017: £73.7 million). I discuss this
further below, but suffice to say, this bodes well for the future
by diversifying our risk profile. Manx FX Limited produced an
encouraging profit before tax of £0.5 million (2017: £0.3
million) and Edgewater Associates Limited, although
experiencing a market downturn during the last two months of
2018, produced a profit before tax of £0.3 million (2017: £0.7
million).
overnance
Corporate governance
Corporate g
overnance
overnance
Corporate g
Corporate g
It is important for shareholders to understand the emphasis
both I and the Board place upon corporate governance. In May
2018, we adopted the Quoted Companies Alliance corporate
governance code (“QCA”) with which we expect to be fully
compliant in our reporting for the year-end statutory accounts.
In essence, the code has ten principles to aid investors in their
understanding of our Group and to help build and develop long
term trust and maximise our relationship with shareholders. As
Chairman, it is my responsibility to make a clear statement on
corporate governance and the value we place upon this. Our
full year accounts will provide a detailed explanation of how
we observe the QCA, but meanwhile, I am keen for investors
to understand our strategic objectives both in the near and
longer term.
Our key objectives for 2019
Our key objectives for 2019
Our key objectives for 2019
Our key objectives for 2019
Your Board’s fundamental objective remains that of increasing
shareholder value, both in a prudent yet progressive manner.
Thus, our strategic concentration continues to be: -
Providing the highest quality service throughout our
operations to all customers, ensuring that their
treatment is both fair and appropriate;
Adopting a pro-active strategy of managing risk,
especially following the implementation of IFRS 9 in
full. In doing so, we are committed to regularly review
our loan book to allow for any credit impairment
resulting from observing strict Expected Credit Loss
criteria;
Concentrating on developing our core businesses by
increased prudential
considered acquisitions,
lending and augmenting the range of financial
services we offer;
Implementing an enhanced and scalable
infrastructure
to better service
requirements of a growing Group without
requirement
headcount;
IT
the operational
the
in
for a disproportionate
increase
Focusing on the liabilities side of our balance sheet
by introducing a new treasury management function
and structure; and
Managing our balance sheet to exceed, as far as
possible, the regulatory requirements for capital
adequacy.
We implemented the General Data Protection Regulation on
25 May 2018. Doing this required changes in policy,
procedures and technology across the Group to manage how
we process and secure data and protect the rights of
individuals. Both our Internal Audit and Compliance teams
have reviewed the process and will continue to be involved in
making sure that the post implementation requirements
continue to be met.
We have also instituted an important new position, that of
Head of Risk and Compliance, to enhance and monitor our
control functions, ensuring that these meet the highest
banking standards and are commensurate with the growth in
our operations.
Financial performance review
Financial performance review
Financial performance review
Financial performance review
Conister Bank Limited (the “Bank”)
Conister Bank Limited (the “Bank”)
Conister Bank Limited (the “Bank”)
Conister Bank Limited (the “Bank”)
Despite the shadow of economic uncertainty, all our lending
targets for the year were exceeded. We have been able to
make significant inroads into the UK commercial sector, while
increasing our lending in the Isle of Man. As I reported above,
net new lending increased by 38.4% to £102.1 million (2017:
£73.7 million), driven by a 41.9% uplift in lending on the Isle of
Man and a substantial increase in demand for our structured
product range in the UK. Thus, the net loan book growth of
21.0% to £148.3 million (2017: £122.5 million) has been
achieved with no deterioration in loan book quality as
performing loans remained at 97.2%. In anticipation of this
increase in UK demand, we have opened fully equipped new
offices in Newbury and in Manchester. We are confident that
we have invested in the most experienced teams available to
develop this important market segment.
Page | 1
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
I have previously explained that improving our technology is
of primary importance as we increase in scale. During 2018,
we successfully installed a new deposit system, representing
an investment of £1.0 million spread over five years. This has
helped manage the growth of our deposit base by 11.4% to
£158.5 million (2017: £142.3 million). One of our key efficiency
measures, our Loan to Deposit Ratio, improved by 7.5% to
93.6% (2017: 86.1%) which reflects the improved use of our
cash balances. We also continue to almost exactly match our
loan terms to our deposit maturities. We note, however, that
the average term of our loan book has marginally reduced,
reflecting the uncertainty in the market in response to the
current economic outlook.
initiative has continued
As I mentioned in my 2017 Chairman’s Report, we instituted a
policy to eliminate any reliance upon UK introducers where we
suffer a disproportionately adverse commission-sharing cost.
This
throughout 2018. Thus,
commission expense decreased by 27.4% to £6.1 million
(2017: £8.4 million). This movement resulted in net interest
income increasing by 13.1% to £12.8 million (2017: £11.3
million) despite interest expense increasing by 8.9% to £3.5
million following the increase in deposit balances. As a result
of these factors, trading income improved by 15.9% to £9.5
million (2017: £8.2 million) leading to a 16.3% increase in
operating income £9.8 million (2017: £8.4 million).
Although operating expenses decreased by £0.2 million to
£6.0 million (2017: £6.2 million), this masks the investment we
have made
in new personnel, systems and controls,
enhancing our skill set throughout the business. The increase
in impairment provision, to which I have already referred, to
£0.9 million (2017: £0.6 million) reflects a prudent buffer
against a potentially adverse outcome
following any
conclusion of the current economic uncertainty. It is important
to note that, despite our conservative approach to approving
advances, this figure still only represents 2.0% of the enlarged
gross loan book, with the total impairment provision in the
Balance Sheet standing at £3.4 million (2017: £2.7 million).
Other costs net to £0.2 million (2017: £0.0 million) as the gain
last year from the write-off an intercompany payable has not
been repeated. Thus, profit before tax improved by 26.0% to
£2.2 million (2017: £1.7 million) leading to a 24.0% increase in
post-tax profit contribution by the Bank to £2.0 million (2017:
£1.6 million).
Total assets, benefitting by a loan book growth of £25.6
million, part financed by the conversion of cash and debt
securities of £5.7 million, showed a 13.0% increase to £190.1
million (2017: £168.7 million). As a consequence, shareholder
equity improved by 25.0% to £21.1 million (2017: £16.9
million).
Included in the Balance Sheet is a VAT debtor amounting to
£1.1 million. This figure represents the VAT recovery relating
to a claim under the revised Partial Exemption Special
Method. Since the publication of our last financial statements,
the Court of the European Union determined in favour of
Volkswagen Financial Services Limited in a parallel dispute
against HM Revenue & Customs. This is an extremely
encouraging development and sets a precedent. Thus,
discussions with the Isle of Man Government Customs and
Excise Division have commenced regarding a full recovery of
this debtor.
During the year, as part of our drive to maximise new
business, the Group financed the issue of £2.4 million of new
ordinary shares by the Bank which, together with the increase
in retained earnings, improved total Tier 1 capital by 23.0% to
£19.8 million (2017: £16.1 million). This in turn improved total
regulatory capital expressed as a percentage of total risk-
weighted assets by 0.6% to 18.1% (2017: 17.5%), well above
our notification threshold of 15.0%.
Edgewater Associ
ates Limited (“EWA”)
Edgewater Associates Limited (“EWA”)
ates Limited (“EWA”)
ates Limited (“EWA”)
Edgewater Associ
Edgewater Associ
Although fee income appears to have remained steady at £2.6
million (2017: £2.6 million), an unexpected change in UK
legislation meant a temporary halt to our ability to service
pension transfers to the Isle of Man during the second half of
the year. Notwithstanding, all other fee-based services
showed encouraging growth. As a result, we were required to
make a final top-up payment of £0.1 million to the vendor of
our recent acquisitions. This, coupled with the effect of a full
year increase in administration costs, including investment in
improved systems, to £2.3 million (2017: £1.8 million) caused
the profit contribution to decline to £0.3 million (2017: £0.7
million).
Total assets reduced by 2.0% to £3.1 million (2017: £3.2
million), reflecting a decrease in debtors. However, creditors
also reduced, resulting in an improvement in net assets to £2.3
million (2017: £2.0 million). Shareholder equity increased by
12% to £2.3 million (2017: £2.0 million).
continues
The underlying business
to experience
considerable excess demand, but is limited by the difficulty of
recruiting suitably qualified advisors. Notwithstanding, EWA
remains the Isle of Man’s largest IFA. We remain encouraged
by the opportunities available for this important part of the
Group’s business and I am pleased to note that we have
already seen a meaningful improvement in profitability from
the beginning of 2019.
Manx FX Limited (“MFX”)
Manx FX Limited (“MFX”)
Manx FX Limited (“MFX”)
Manx FX Limited (“MFX”)
This business is still very much in its infancy. Because of the
low-cost structure, relatively small increases in income can
generate unusually positive consequences. For example, the
introduction of a hedging strategy for clients during the year
doubled turnover to £0.8 million (2017: £0.4 million). While this
level of income is not necessarily expected to be repeated in
2019, MFX continues to attract new clients, and now services
an active Isle of Man customer base of 87 (2017: 58). This
rapid growth means that we continue to develop and invest in
an enhanced operational
the
necessary
functions. As a
consequence, our administration expenses have increased to
£0.3 million (2017: £0.2 million), leading to a significant profit
contribution from MFX of £0.5 million (2017: £0.3 million).
in our control
infrastructure
to provide
resilience
Turning to the balance sheet, total assets increased to £0.6
million (2017: £0.2 million) and shareholder equity stands at
£0.6 million (2017: £0.1 million).
Page | 2
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
Outlook
Outlook
Outlook
Outlook
The widely reported current economic uncertainties and
potential changes in interest rates will have an impact on credit
markets both in the Isle of Man and the UK. Notwithstanding,
I believe that the Bank’s strategy of asset-backed lending to
carefully selected sectors will allow us to continue to grow. We
continue to develop new loan products to those entities with
significant balance sheets which demonstrate both
affordability and credit resilience. Thus
far, we have
experienced no downturn in demand in both the commercial
and consumer marketplace in both jurisdictions and are more
than able to maintain rigorous credit and risk control in our
underwriting.
In conjunction with this, the Bank continues to seek out
suitable acquisitions
for our strategy of consolidation,
particularly in the UK. So far this year, we have acquired 20%
of the issued share capital of Beer Swaps Limited, trading as
Ninkasi Brewkit Rentals, a relatively new company financing
brewery equipment, together with an option to acquire the
remaining shares by April 2021. We have also acquired 30%
of the issued share capital of PayItMonthly Limited which
provides web-based finance solutions to retailers without the
need for them to maintain an onerous compliance resource,
allowing their customers the ability to spread repayments over
one year, together with an option to acquire the remaining
shares after August 2021. Although these initiatives are
individually small in scale, they will be integrated to form our
own specialist
the synergies
introducer network using
available from central funding, systems, risk management and
controls, augmented with dedicated staff capable of
developing this important aspect of our portfolio.
Now that the businesses have fully integrated, EWA has the
real potential to grow financial advisory services, not only on
the Isle of Man but also within the UK, especially as the need
to finance a longer retirement becomes a necessity. We
continue to review suitable acquisitions capable of increasing
profitability. EWA not only has a strong new business pipeline,
but approximately half of its income derives from renewals.
Our only limitation to this growth is the recruitment of suitably
qualified advisors. To counter this, we are concentrating on an
internal program of staff development which is proving to be
extremely successful.
Jim MellonMellonMellonMellon
Jim
Jim
Jim
Executive Chairman
27 March 2019
MFX also has the potential for further growth and, conversely,
has the capability of benefitting from any uncertainties in the
financial environment as its clients seek the optimum solutions
to manage foreign currency exposures. Only a relatively few
Isle of Man businesses maintain in-house foreign exchange
expertise and the MFX proposition has limited competition.
In short, I believe that the Group as a whole is well placed to
achieve continued expansion. Each of our principal operations
are profitable and each has identified opportunities, yet
unrealised. It is this which will allow us to meet our 2019
strategic priorities. Whilst our organic growth continues to be
excellent, any significant growth will
further
acquisitions, strategic partnerships and the development of
specialist products to meet the ever-changing market needs.
Each solution we offer will be assessed in terms of risk profile
and subsequent reward. Clearly, those opportunities that
utilise technology to the full and fit well within our current
operations are of the greatest interest. Meanwhile, we remain
in an excellent position to report further success, both at the
Interims and the year-end.
require
I, and the Board, recognise the need to address the question
of shareholder return. As ever, the conflicting demands of
utilizing shareholder equity as the regulatory platform to
support growth versus the compounded cost of a dividend
payment are difficult to reconcile. As an example, currently for
every £1,000 paid as a dividend, the Group would forgo
£6,000 worth of new business with its attendant yield. Added
to which, as the Group utilises relatively expensive non-
dilutive term loans to augment regulatory capital, we would
effectively be undertaking additional borrowing to make
payment. Notwithstanding, we are considering potential
arrangements which will, we believe, be of benefit to
shareholders but without reducing our potential to reach the
scale whereby the Group becomes capable of self-generating
regulatory capital. It is unlikely that we will be able to
implement any scheme during 2019, but depending upon this
year’s outcome, we may be in a better position to implement a
scheme thereafter.
Finally, and as always, I would like to thank our shareholders
for your continued support, our customers and clients for their
loyalty, and also our excellent staff for their outstanding efforts
in continuing to develop the Group.
Page | 3
STRATEGIC REPORT
BUSINESS MODEL AND STRATEGY
Conister Bank
imited (the “Bank”)
Conister Bank LLLLimited (the “Bank”)
imited (the “Bank”)
imited (the “Bank”)
Conister Bank
Conister Bank
The Bank’s Board of Directors (the “Board”) has set strategic
objectives, aligned to its strategic plan. These objectives
provide the framework for setting risk appetite statements and
tolerances for all material risks. The strategic objectives set
are:-
• Maintain capital adequacy;
• Deliver stable earnings growth;
• Secure stable and efficient access to funding and
liquidity, and
• Maintain stakeholder confidence.
These strategic objectives provide the link between the Bank’s
strategic planning and its risk management framework, using
risk appetite statements, measures and tolerances to manage
risk on a day-to-day basis and are reviewed annually and
approved by the Board. Key in considering the Bank’s
judgement of appetites is its assessment of its regulatory
environment (both in the Isle of Man (“IOM”) and the United
Kingdom (“UK”); the IOM deposit market; access to regulatory
capital; the IOM and UK credit markets; the suitability of its
product range; concentrations of advances and historic
arrears. The aim is to deliver controlled growth, by providing
adequate returns with strong credit profiles. In addition, the
Bank has specifically assessed the impact of the Brexit on
both sides of its Balance Sheet.
Having considered the above, drawing on both internal and
external resources, the Bank continues to believe the credit
markets it operates within remains conducive to growth with
liquidity sourced from both its balance sheet the IOM’s
substantial deposit base. This growth will be achieved through
the expansion of existing products organically and through
acquisition. The Bank continues to explore opportunities with
both new products and new markets. This strategy can be
analysed by the two geographical areas the Bank operates
within, namely the IOM and the UK.
The Bank’s strategy for stable growth is underpinned by its
existing mix of products, both for the IOM and UK markets.
The Bank is proud of its heritage and remains heavily centric
in the IOM but recognises that as its UK loan book grows it will
need to create a UK presence to manage and grow this aspect
of its business. As such, in 2018, the Bank opened offices in
both Manchester and Newbury. The former is a base for the
Bank’s small but growing UK direct sales team and the latter
deals with all aspects of the Bank’s UK credit broker market.
These are two markets in which the Bank wishes to increase
its presence. Furthermore, growth is forecast from the Bank’s
Structured Products and a team, led by an experienced
banker, has been recruited to manage this product range
based in the Newbury office.
Sourcing reliable funding underpins the Bank’s growth
objectives. Through the Bank’s Class 1 Isle of Man Deposit
Taking licence it has access to £40.0 billion of deposits. The
Bank currently restricts itself to the retail market, of which it
has circa 1.0% market share, but the Bank recognises it has
an opportunity to increase its market share through the
reduction in competition experienced in this market and or by
increasing interest rates. Also, the Bank is considering
accessing other IOM deposit markets, for example, the
corporate deposit market where its systems, processes and
reputation may provide a competitive advantage over others.
As such, the Bank believes that it is armed with sufficient
reliable alternatives to be confident that it can raise the
necessary deposits when required.
The Bank’s acquisition strategy is to gain market share in
markets it already operates within or to gain access to a
desirable market through an existing reputable, profitable
operator.
Regarding the former, the Bank continues to enjoy a positive
lending experience within the UK credit broker market and
currently has circa £20.0 million of net loans outstanding. The
strategy for growth is both organic (through improving
customer service and increasing the number of brokers on its
roster) and acquisitive. The Bank is currently in negotiation
with an established credit broker with the view of acquiring its
non-regulated business during 2019.
Edgewater Associates
Limited (“EAL”)
Edgewater Associates Limited (“EAL”)
Limited (“EAL”)
Limited (“EAL”)
Edgewater Associates
Edgewater Associates
Edgewater Associates Limited is the largest Independent
Financial Advice firm in the Isle of Man and is regulated by the
Isle of Man Financial Services Authority. Our strategic
objective is to:
Grow and service our client base;
Increase assets under advice; and
Grow and develop our staff complement.
EAL is a generalist IFA practice with a diverse mix of clients
requiring a broad range of products and services covering:
First time buyers --- mortgages;
Newly qualified professionals --- protection,
savings, school fees;
Established clients --- wealth management,
retirement planning; and
General insurance clients --- home, car, travel,
commercial, specialist.
In 2016 EAL embarked on an aggressive and successful
acquisition programme covering a two year period; at the
outset we had a client base of approximately 4,600 clients.
After four acquisitions and an active data cleansing review, we
now have an active client base of approximately 11,800, with
associated assets under advice of £310 million ( up from £273
million in 2017 ).
Whilst we will continue to grow and develop our standard
business model, we will always be open to new opportunities.
We remain nimble and ready to move with economic and
regulatory changes as they arise; our team remains up to date
against industry standards and trends. We retain an appetite
for growth either through additional acquisition opportunities
that may arise, or via organic growth from our existing client
bank and business partners with whom we have built strong
relationships.
Diversification opportunities are also encouraged and
pursued, as per our successful programme to grow / build
Employee Benefit Group Schemes. This incorporates staff
pensions (including pension freedom), protection, private
medical cover, and death in service.
Page | 4
STRATEGIC REPORT
BUSINESS MODEL AND STRATEGY
To keep pace with our development we continue to train
talented young people to progress to rounded, professional
advisers who are able to fit into succession planning. To
supplement this, we also take the opportunity to recruit quality
experienced advisers and para-planners who can further
enhance our team.
Manx Manx Manx Manx FX Limited (“MFX”)
FX Limited (“MFX”)
FX Limited (“MFX”)
FX Limited (“MFX”)
Established in 2014, MFX has specialist knowledge of
currency operational requirements and has carefully selected
the best UK partners to provide market foreign exchange and
leading payment services. The strategic objectives of MFX
are:
To maintain and develop existing client relationship;
To increase the number of referrals to our foreign
exchange business partners with a view of on-
boarding new clients; and
To raise MFX’s profile and build a professional
reputation on the Isle of Man (“IOM”).
We believe the foreign exchange and international payment
offering via our UK partners is second to none. With our
upfront agreed foreign exchange margins the customer has
complete pricing transparency. Our business partners have
been carefully selected to ensure they are able to obtain the
best possible pricing from the market.
The international payments fees offer outstanding value, at
hugely reduced fees compared to any local high street bank.
At MFX, we realise that often our clients just need a facility to
send urgent payments quickly and efficiently so we provide
access to a FX and payments online system with straight
through processing to make these tasks as effortless as
possible.
For the next 12 months, MFX will concentrate its efforts in the
IOM. The IOM offers large potential having a diverse range of
industries.
A small but dedicated team know and understand the
importance of offering excellent service and has pride and
integrity when dealing with both existing clients and new
prospects. Our professional reputation is important to our
business and our colleagues attend local industry events
which serves two purposes; to enforce and raise the profile of
MFX and support IOM businesses.
Maintaining a close working relationship with our UK partners
is core to our business. Regular conference calls and
quarterly face-to-face meetings are held to discuss new
opportunities, changes to product offering, industry updates
and just as importantly a chance to develop the personal
working relationship.
Page | 5
RISK AND GOVERNANCE
RISK MANAGEMENT
Risk Risk Risk Risk mmmmanagement
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anagement
anagement
Effective risk management is crucial to MFG’s sustainability.
The Board
the effective
governance of risk management. The Board maintains its
oversight and responsibilities in terms of the three lines of
defence risk governance model set out below.
is ultimately accountable
for
Determining the Group’s risk tolerance and appetite through
enterprise risk management is a key element of MFG’s
corporate governance framework. This framework has been
enhanced during 2018 and sets out the governance principles,
practices and guidance to facilitate effective and efficient
management of the Group’s business. It is primarily designed
to assist the Group in enhancing its corporate governance
framework and intended to reinforce the key elements of
widely accepted and long established Quoted Companies
Alliance (“QCA”) corporate governance principles.
its
through
(“ICAAP”))
A fundamental principle contained in the code, is for effective
risk management: MFG has in place a Risk Management
Framework and a Capital Management Framework
Internal Capital Adequacy
(undertaken
Assessment Process
the
implementation of some of the principles of the MFG
Governance Framework at subsidiary
level. The Risk
Management Framework was also significantly enhanced in
2018 and ensures that MFG conducts its business in the
correct way and manages its financial resources responsibly
to safeguard the interests of all its stakeholders. It further
supports the Board and senior management in fulfilling their
respective duties in relation to the sustainable operation of the
business. The risk management system is supported by
support
to
policies, processes and activities relating to the taking,
management and reporting of risk.
Management and accountability
Management and accountability
Management and accountability
Management and accountability
The Audit, Risk and Compliance Committee (“ARCC”) is
operated at a group level and currently comprises of two
experienced non-executive directors who are both qualified
accountants. Only members of the ARCC have the right to
attend ARCC meetings to allow for independence. However,
other individuals representing Risk, Compliance and Internal
Audit are always invited by the Chairman of the Committee to
attend all or part of any meeting as and when appropriate.
The main objectives of the ARCC are to review operations and
ensure that they are conducted to the highest possible
standards. This is accomplished by providing an independent
objective assurance function specifically for, but not limited to:
Internal Controls and Risk Management Systems;
Whistleblowing and Fraud; Risk and Compliance; Internal
Audit; and External Audit.
It provides oversight of compliance with all legislation,
regulation and applicable codes of practice in the jurisdictions
that MFG conducts business; and
reviews policies,
procedures and processes to effectively identify, quantify and
manage all material risks and to advise on best practice.
GovGovGovGovernance framework
ernance framework
ernance framework
ernance framework
The following overview of the key governance components
that make up the MFG system of governance illustrates the
crucial role of risk management:
Page | 6
RISK AND GOVERNANCE
RISK MANAGEMENT
Culture
Culture
Culture
Culture
The risk culture, which forms part of MFG’s overall culture,
encompasses the tone at the top and a set of shared attitudes,
values, behaviours and practices that characterise how
individuals at MFG consider risk in their day-to-day business
activities. Learnings are taken from previous incidents and
ongoing assessment to ensure continuous improvement in the
management of risk.
All individuals understand the importance of effective risk
management and ensure that risks associated with their role
are appropriately understood, managed and
reported.
Individuals at all levels communicate risk related insights in a
timely, transparent and honest manner.
This culture is driven from the top by the Board and Executive
Management through how they communicate, make decisions
and motivate the business. Managers and leaders ensure that
in all their actions and behaviours they continually reinforce
the culture that the effective management of risk is critical to
MFG’s success and that every individual plays a role in the
management of risk.
Appetite
Appetite
Appetite
Appetite
Risk appetites are currently only set at subsidiary level and set
out the maximum amount of risk that it is prepared to accept
in the pursuit of delivering on business objectives. The risk
appetite covers all the risk types (e.g. strategic and business
risk, market risk, credit risk, liquidity risk, operational risk,
conduct risk and compliance & legal risk) and is reviewed
annually and as the operating environment changes it is
constantly measured against stated appetite
take
appropriate action.
to
Risk identification, measurement & control
Risk identification, measurement & control
Risk identification, measurement & control
Risk identification, measurement & control
Improving a robust understanding of the risks to which the
business is exposed is crucial to ensure that all material risks
are appropriately monitored, managed and reported on. Each
individual within the Group in conjunction with their manager
is responsible for understanding the risks associated with their
role. An understanding of risk is developed through the
identification,
appropriate,
measurement of risks to which the business is exposed.
and where
assessment
These processes are performed as part of strategy setting,
strategy execution and day-to-day operations and are referred
to as risk and control assessments. The Risk team provides
tools to aid managers and individuals in developing an
understanding of risk within
their respective business
responsibilities.
The risk and control assessment process of understanding
risk and reviewing the adequacy and effectiveness of related
controls and risk mitigation approaches is generally performed
on a regular basis, at least annually, as part of a continuous
risk management cycle.
Three lines of
efence and key assurance functions
Three lines of ddddefence and key assurance functions
efence and key assurance functions
efence and key assurance functions
Three lines of
Three lines of
As part of its overall governance framework, MFG has adopted
best practice monitoring and control mechanisms by
implementing the three lines of defence governance and
combined assurance model. This means that responsibility for
the
governance and oversight
is allocated
throughout
organisation according
principles.
to
the
‘three
lines of defence’
The three lines of defence governance model is regarded as
international best practice for ensuring good governance
(including governance within risk and capital management)
across an organisation. The emphasis is placed on ownership,
responsibility,
independence, assurance, communication,
oversight and transparency across MFG governance.
The term ‘key assurance function’ refers to a properly
authorised function, whether in the form of a person, unit or
department, serving as a control or ‘checks and balances’
function from a governance perspective, and which carries out
such activities. These functions typically are second and third
line of defence functions.
First
efence
ine of ddddefence
First lllline of
efence
efence
ine of
ine of
First
First
The first line of defence e.g. business management is primarily
risk origination and
accountable
management in accordance with risk policy and strategy. This
includes
implementing
responses.
identifying, assessing risks and
the day-to-day
for
efence
ine of ddddefence
Second lllline of
Second
efence
efence
ine of
ine of
Second
Second
The second line of defence is responsible for the development
and maintenance of the frameworks and policies. The second
line provides oversight of, and challenge to, the first line of
defence and drives the implementation of the frameworks and
policies.
Third
efence
ine of ddddefence
Third lllline of
efence
efence
ine of
ine of
Third
Third
The third line of defence is the independent assurance
function providing overall assurance
the Board on
governance, risk management, and internal controls. The third
line of defence comprises of internal audit, external audit and
other independent assurance providers. The third line of
defence is completely independent from the management of
the day-to-day business activities
to
MFG MFG MFG MFG aaaassurance
unctions
ssurance ffffunctions
unctions
unctions
ssurance
ssurance
MFG has effective systems of risk management and internal
control. The tasks, processes and obligations of the key
assurance functions are transparent and clearly defined, with
regular exchange of information between the functions. Each
of the functions is structured to ensure that the function has
the necessary authority, independence, resources, expertise
and access to the Board and all relevant employees and
information to exercise its authority. The minimum assurance
functions within MFG include:
Risk management function;
Compliance function; and
Internal Audit function.
The head of each of these key functions possesses the
necessary skills, experience and knowledge required for the
specific positions they exercise, and meet all suitability or ‘fit
and proper’ requirements. Written guidelines for these
functions are in place, and compliance with them is assured
on a regular basis. All of the key functions within MFG have
a direct reporting line to the Board.
Page | 7
RISK AND GOVERNANCE
RISK MANAGEMENT
MFG is developing a combined assurance model to effectively
manage the organisation’s significant risks and material
matters through a combination of the assurance service
providers and functions described above.
Risk st
verview
rategy & ooooverview
Risk strategy &
verview
verview
rategy &
rategy &
Risk st
Risk st
Risk Risk Risk Risk pppplanlanlanlan
The Board has set strategic objectives, aligned to its strategic
plan. These objectives provide the framework for setting risk
appetite statements and tolerances for all material risks. The
strategic objectives set are:-
Maintain capital adequacy;
Deliver stable earnings growth;
Secure stable and efficient access to funding and
liquidity, and
Maintain stakeholder confidence.
its
These strategic objectives provide the link between the
Group’s strategic planning and
risk management
framework, using risk appetite statements, measures and
tolerances to manage risk on a day-to-day basis and are
reviewed annually and approved by the Board. Key to
considering
its
assessment of its regulatory environment (both in the IOM and
the UK); the IOM deposit market; access to regulatory capital;
the IOM and UK credit markets; the suitability of its product
range; concentrations of advances and historic arrears. In
addition, the Group has specifically considered the impact of
a ‘hard’ Brexit on both sides of its Balance Sheet.
judgement of appetites
the Group’s
is
Strategic risk plans are developed at subsidiary level with the
intent of improving the risk frameworks and embedding these
into a developing risk culture for the Group.
Key deliveries of the Risk Management Framework are split
between ‘Risk infrastructure’ and ‘Risk management cycle’:
The risk infrastructure is the establishment of a consistent
foundation and approach to enterprise requirements and
supporting components in managing risks. The cycle of risk
management is adaptable and continuously progressing and
responding to the changing internal and external environment.
This work has resulted in:
The
redesign
of Management Committee
frameworks, including roles and responsibilities to
ensure that all material risks are captured and
formally considered prior to presentation to the
ARCC and the Board;
A reclassification of the policies within the policy
framework to ensure that the relevant Management
Committee is accountable for the policies that
support their risk, and to reduce the workload for the
ARCC and Board, enabling them to focus on
overseeing and challenging the risk management
framework;
The development of more detailed Board approved
risk appetite statements, and the design of an
underlying risk appetite measures framework, to be
owned and monitored by the relevant Management
Committee;
The design of a risk management framework which
looks to adopt a common language across the
lines of
combined assurance model (and all
defence), with a supporting risk catalogue and
classification matrix; and
A high level risk assessment to identify the top risks
enabling work to progress in a risk focused manner
on completing risk and control assessments, in order
to build a key controls monitoring programme.
Principal r
isks
Principal risks
isksisks
Principal r
Principal r
The Group has exposure to the following key risks:
Strategic risk;
Credit risk (including counterparty credit risk);
Liquidity risk;
Operational risk (including regulatory risk);
Market risk (including interest rate risk);
Concentration risk; and
Reputation risk.
The Group has considered the above key risks that it faces
and the mitigating controls against those risks:
Strategic rrrriskiskiskisk
Strategic
Strategic
Strategic
Strategic risk is the risk to the Group’s revenue as set within
the budget and the medium term plans arising through sub
optimal implementation of the strategic plan due to either
internal or external factors faced by its subsidiaries.
Controls and
itigation
Controls and mmmmitigation
itigation
itigation
Controls and
Controls and
The Group controls and mitigates this risk via a number of
measures:
Subsidiaries generally commence
formal
planning process in September for the forthcoming
year, to inform the budget submitted to the Group
Boards for approval. In reality, the planning process
is continuous and responsive to change in the
internal and external environment.
their
Barriers to delivering the strategic plan, and changes
to planned activity are captured in the various
subsidiary ‘Managing Director’s Reports’ which are
submitted to their respective Boards and then
ultimately reported to the Group Board at each Board
meeting. The reports will take account of input from
the Group Executive Directors and current financial
performance versus budget and seek to highlight
strategic responses for the related subsidiary.
Key strategic projects are managed under formal
project governance with progress of key projects
tracked, and communicated and discussed at regular
project meetings.
The impact of limited capital, liquidity, operational
capacity and regulator restriction on the achievement
of strategy is captured by the planning process, with
exceptional items dealt with under the relevant risk
category, where the impact on risk appetite and
mitigating actions will be formally recorded.
Page | 8
RISK AND GOVERNANCE
RISK MANAGEMENT
risk
risk
risk
risk
(including
(including
(including
(including
counterparty,
counterparty,
counterparty,
counterparty,
concentration,
concentration,
concentration,
concentration,
Credit
Credit
Credit
Credit
underwriting and credit migration risks)
underwriting and credit migration risks)
underwriting and credit migration risks)
underwriting and credit migration risks)
Credit risk is defined as the risk that counterparties fail to fulfil
their contractual obligations. A material decline in credit
quality, or the failure of a counterparty could result in higher
levels of arrears and ultimately in increased provisions and
write-offs, which impacts upon profitability, potentially eroding
the capital position for the Group’s subsidiaries.
itigation
Controls and mmmmitigation
Controls and
itigation
itigation
Controls and
Controls and
individual
Delegated authorities: The Group operates to a
schedule of delegated authorisation limits linked to
an
and
experience. This is bolstered by validations of all
significant credit exposures over set limits and
ongoing monitoring of credit positions of key
suppliers and intermediary networks.
underwriter’s
knowledge
Distribution strategy: The Group actively monitors
and controls the credit risk of all business written to
ensure that it is treating customers fairly and as a
safeguard against the failure of any business
relationship. Mitigation of counterparty credit risk is
undertaken
the maintenance, where
appropriate, of cash reserves and loss pools to fund
any buy-back
indemnity. Comprehensive due
diligence processes are also undertaken.
through
Monitoring of credit quality exposure: The Group
monitors its credit risk exposures via an internal
credit risk grading methodology that assigns each
individual exposure with one of three credit grades
based upon the probability of default at product and
distribution channel level. This allows for better
monitoring of credit quality and impairment of its
current book as well as forecast and stress test on a
more accurate basis.
Concentration
the
risk: To protect against
exposures where
build-up
unintentional
deterioration
the
impact
could materially
sustainability and profitability, the Group seeks to
maintain a diverse portfolio of products across a
variety of geographical regions, customers, sectors
and asset classes. This diversity protects the Group
against any deterioration in a particular geographical
region,
the economic environment, commercial
sector etc.
Accounting standards: Finally, the introduction of
IFRS 9, effective from 2018, necessitated the move
to an expected loss provisioning methodology rather
than an incurred loss. This will provide an additional
credit risk buffer.
of
Operational risk (including conduct)
Operational risk (including conduct)
Operational risk (including conduct)
Operational risk (including conduct)
Operational risk is the risk of loss resulting from human error,
inadequate or failed internal processes or controls, system
failure, improper conduct, fraud or external events.
The principal operational risks for the Group arise from the
following areas:
Resilience of the IT environment: The IT environment
is under constant review to identify and implement
efficiencies to enable increased customer service
through the provision of additional services and
products and to automate manual tasks wherever
possible to minimise the potential for human error.
The Group implemented an IT Steering Committee
during 2017 to review and monitor current service
standards, highlight any deficiencies and mitigate
accordingly. There are a number of exception reports
and scheduled tasks on a daily basis to ensure that
any controls within systems are being reported on
adequately.
Third Party administration services: The key
operational controls ensure that partners are fulfilling
their legal, regulatory obligations in accordance with
their service-level agreement with the Group. The
Group has an outsourcing policy
to ensure
obligations are monitored and met. Internal reviews
and audits are conducted on counterparties to
ensure terms agreed are being adhered to.
itigation
Controls and mmmmitigation
Controls and
itigation
itigation
Controls and
Controls and
Adherence to internal limits and approval processes
through:
o Delegated authorities: The Group operates
to a schedule of delegated credit
authorisation limits and payment approval
limits, linked to an individual’s knowledge
and experience.
o Segregation of Duties: There is appropriate
segregation between
those authorising
transactions and those executing them, with
four eyes principals
in place where
required.
o Exception
reporting
reporting: Daily
ensures that any regulatory and internal
the
limits are
appropriate Management team.
regularly by
reviewed
o New Business approval policy: All material
new business is approved in line with a
formally approved policy, with ultimate
decision making resting with the applicable
EXCO.
Change control: The Group ensures that both
changes to existing products and services and new
products and services are delivered in a controlled
manner with the appropriate checks and controls in
place.
A comprehensive on-boarding process in place for
new outsourced partners in the UK.
Due diligence checks: The operational risk from the
Group’s third party administrators is mitigated by a
comprehensive due diligence process which
includes a take-on due diligence and a full review of
the partner’s policies, procedures and financial
stability.
Key Operational Controls: Key controls are
monitored through a combination of management
oversight, Risk and Compliance monitoring and
Internal Audit reviews.
New Business Policy and Process – new business
and material business change is outlined in a formal
policy, which
that a sequence of
assessment and approval is followed. This will
ensure that all relevant input is included and material
risks considered.
requires
Exception reports: Exception reporting allows the
Group to identify weaknesses in processes and
controls which in turn allows for adequate training
and the bolstering of systems and processes.
Page | 9
RISK AND GOVERNANCE
RISK MANAGEMENT
Conduct risk
Conduct risk
Conduct risk
Conduct risk
The Group is exposed to conduct risk through its operations
and interactions with consumers, either directly or through
third parties (brokers, or counter-parties). The risk exposure
is regulatory in nature for the Group’s UK based operations
and consideration of any local jurisdiction guidance on good
practice.
Controls and m
itigation
Controls and mitigation
itigation
itigation
Controls and m
Controls and m
The Group has an outsourcing policy to ensure that adherence
to conduct and regulatory standards is contracted, and
compliance with standards is appropriately monitored through
the collection and assessment of relevant data, partner
attestation, and onsite audits where appropriate.
General conduct and particularly Treating Customers Fairly
(“TCF”) principles are applied across the Group’s activities.
Liquidity risk
Liquidity risk
Liquidity risk
Liquidity risk
Financial institutions are subject to liquidity risk as an inherent
part of their business. Liquidity risk is the risk that the Group
may not hold sufficient liquid funds meaning it would be unable
to meet its contractual liabilities as they fall due.
Liquidity risk arises where the Group, through its subsidiaries,
has contractual credit obligations that can be placed under
stress during
illiquidity. The Group generally
accesses wholesale funding markets or builds a core portfolio
of liquid assets or buffers as additional sources of liquidity that
can be utilised during such times.
times of
Controls and
itigation
Controls and mmmmitigation
itigation
itigation
Controls and
Controls and
Overall the Group’s liquidity profile is resistant to stress as the
Group:
Has no contractual credit obligation. The Group has
no absolute credit line obligations to its customers
meaning that in times of liquidity stress, it is able to
reduce its lending appetite accordingly;
Has a matched funding profile and does not engage
in maturity transformation which means that on a
cumulative mismatch position the Group is forecast
to be able to meet all liabilities as they fall due;
Maintains an adequate liquidity buffer; and
Has no exposure to the interbank lending market.
The Group’s liquidity position is monitored on a daily basis
against internal and external agreed limits. The Group also
has a Liquidity Contingency Policy and Liquidity Contingency
Committee should a liquidity crisis or potential liquidity
disruption event occur.
Reputation risk
Reputation risk
Reputation risk
Reputation risk
Reputational Risk is the risk of loss resulting from damages to
the Group’s reputation, in lost revenue or increased costs; or
destruction of shareholder value.
Controls and
itigation
Controls and mmmmitigation
itigation
itigation
Controls and
Controls and
The Group mitigates this risk by ensuring that its key risks are
identified and managed, with an impact assessment of any
potential or actual issues considering the impact to the
Group’s reputation. The Group actively seeks to minimise the
occurrence of events or issues which could give rise to loss or
negative feedback, and actively manages the impact should
issues occur.
Interest rate risk
Interest rate risk
Interest rate risk
Interest rate risk
The principal potential interest rate risk that the Group is
exposed to is the risk that the fixed interest rate and term
profile of its deposit base differs materially from the fixed
interest rate and term profile of its asset base, or basis and
term structure risk.
itigation
Controls and mitigation
Controls and m
itigation
itigation
Controls and m
Controls and m
Funding profile: Interest rate risk for the Group is not
deemed to be material currently due to the Group’s
matched funding profile. In a rising interest rate
environment due to the nature of the Group’s
products and its matched funded profile, it should
theoretically be able to increase its lending rate to
match any corresponding rise in its cost of funds.
The Group attempts to efficiently match its deposit
taking to its funding requirements.
The decay of the Group’s loan book through staged
repayments means interest risk is difficult to hedge
effectively so the Group does not currently hedge
against this risk, and is therefore not exposed to any
additional market interest rate risk in this respect.
Funding cost: The Group would be exposed to
potential risk if its cost of funds, which is linked to the
cost of retail deposits, and ultimately the UK base
rate, was to increase and it was unable, due to a
competitive lending environment, to raise its lending
rate correspondingly. The Group’s three year plan
allows for an increase in its cost of funds, but the
Group accepts that these assumptions may not
reflect the timing of any interest rate rise or the
quantum of the increase(s).
Regulatory risk
Regulatory risk
Regulatory risk
Regulatory risk
Regulatory risk is the risk of material breach of regulation.
The Group holds a Class 1 (1) Banking Licence and is
accordingly regulated by the FSA. The Group also holds
permissions with the FCA pertaining to regulated credit
activities, and other specified regulated products and services
in the UK.
The risk of regulatory breach arises through a failure to
identify, assess and apply applicable regulation; or a failure to
adhere to the applicable regulation as applied.
Monitoring and complying with the requirements of existing
regulation across numerous regulatory bodies, along with the
rapid pace and volume of regulatory change is a key risk. The
risk is compounded due to the size of the Group, and the need
to maintain a manageable cost of compliance.
Controls and
itigation
Controls and mmmmitigation
itigation
itigation
Controls and
Controls and
The Group remains well placed to meet the regulatory
challenges that bring change to the macro environment. In
order to strengthen the Risk and Compliance department, the
ARCC and Board have increased the headcount in 2018 and
have appointed an experienced Head of Risk and
Compliance.
Page | 10
RISK AND GOVERNANCE
RISK MANAGEMENT
Regulatory risks continue to be mitigated by themed and ad-
hoc compliance monitoring reviews which are driven using a
risk based approach to ensure resource is directed to areas of
potential material risk. The monitoring plan is approve
annually by ARCC. Monitoring reviews are supplemented by
ongoing staff training and guidance.
Wherever possible, legislative and regulatory requirements
are built into relevant administration systems, with appropriate
monitoring and exception reporting processes in place to
monitor compliance.
The Group maintains a watching brief on the regulatory
environment and, as active members of a number of IOM and
UK trade bodies, it receives additional regulatory updates and
guidance on proposed legislative and regulatory issues.
Upstream regulatory changes are tracked and assessed for
impact by the Compliance Department and material items
reported to ARCC.
Internal Capital Adequacy Assessment Process
Internal Capital Adequacy Assessment Process
Internal Capital Adequacy Assessment Process
Internal Capital Adequacy Assessment Process
Overview
Overview
Overview
Overview
ICAAP is a key strategic and risk management tool for the
Bank. It is a key component of the Bank’s planning process
during the short and medium term. The Bank’s lead regulator,
the FSA, requires the Bank to establish and maintain an
internal adequacy assessment process which is appropriate
to the nature and scale of its business and review that process
annually and evidence that review.
Methodology
Methodology
Methodology
Methodology
The Bank’s ICAAP process is as follows:
Formulation of the Bank’s strategy and budget
Formulation of the Bank’s strategy and budget
Formulation of the Bank’s strategy and budget
Formulation of the Bank’s strategy and budget
Strategic plans are prepared annually for the forthcoming
year, which will consider the Bank’s risk appetite, key market
sectors to target, products to leverage/introduce, headcount,
operational and capital investment required.
Risk assessment
Risk assessment
Risk assessment
Risk assessment
The Executive Team will liaise with the Risk and Compliance
department to determine the material risks in the Bank based
on incidents and breaches, Internal Audit reports, Risk and
Compliance report findings and issues raised at the Board and
Committee meetings.
Stress testing and reverse stress testing
Stress testing and reverse stress testing
Stress testing and reverse stress testing
Stress testing and reverse stress testing
The Finance department use Bank of England market
assumptions for stress testing and stress the five-year
forecasts to identify any capital deficiencies. Reverse stress
testing is also used based on the assumption that the Bank
ceases to trade, coupled with a run-off scenario to determine
the capital distribution.
Reverse stress testing is used to explore the vulnerabilities of
the Bank’s strategy and plans to extreme adverse events that
would cause the business to fail in order to facilitate
contingency planning.
Calculation of capital requirement and buffers
Calculation of capital requirement and buffers
Calculation of capital requirement and buffers
Calculation of capital requirement and buffers
Following the setting of strategy, risk assessment and stress
tests, the Bank will then calculate its capital requirements by
considering the following areas:
Pillar I – The calculation is based on the minimum
regulatory requirement under Pillar I of 10.0% of risk
weighted assets for material risks;
Pillar II – Assessment of any additional business risks
not covered by the minimum Pillar I requirement, plus
an assessment of Pillar II risks based upon the
current material risk assessment and stress tests, to
determine whether any additional capital buffers are
deemed appropriate. An assessment of Pillar II and
applicable capital add-ons have been assessed in
Appendix 1; and
Pillar III – Pillar III establishes measures to make
better use of market discipline. Pillar III applies only
at the top consolidated level of a banking group and
is therefore generally not considered to be applicable
to IOM incorporated banks as per FSA ICAAP
guidance.
Buffers – The Bank assesses its position to industry
standard for regulatory buffers and calculates its
position based on its overall exposures to different
jurisdictions.
Review, challenge and adoption of the ICAAP
Review, challenge and adoption of the ICAAP
Review, challenge and adoption of the ICAAP
Review, challenge and adoption of the ICAAP
The ICAAP is prepared by the Finance department in
conjunction with the Risk and Compliance department, and
reviewed by the Bank’s Executive Team, Risk Management
Committee, ARCC, Internal Audit and the External Auditor
prior to approval by the Board. It is used to measure and
benchmark the Bank’s risk appetite and to forecast capital
usage under both stressed and normal conditions. The ICAAP
is challenged at all stages of the review process and presented
to the Board by ARCC for approval prior to being submitted to
the FSA. The ICAAP is regularly reviewed and updated
throughout the year by management and referred to the ARCC
and Board.
ICAAP Results
ICAAP Results
ICAAP Results
ICAAP Results
The Bank has completed its ICAAP testing for 2018 in
compliance with regulatory requirements. Despite the severity
of the risk scenarios modelled, the Bank satisfied the capital
and leverage requirements for the purpose of the stress test.
The Bank did not require taking of any capital action as a result
of the test.
Page | 11
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
to comply with
Corporate
eport
overnance rrrreport
Corporate ggggovernance
eport
eport
overnance
overnance
Corporate
Corporate
The Manx Financial Group Board (the “Board”) is committed
to best practice in corporate governance. Directors have
agreed
the Quoted
Companies Alliance (“QCA”) Corporate Governance Code for
Small and Mid-Size Quoted Companies to the extent which is
appropriate to its nature and scale of operations. This report
illustrates how Manx Financial Group PLC (the “Group”)
complies with those principles.
the provisions of
QCA Principle 1: Establish a strategy and business model
QCA Principle 1: Establish a strategy and business model
QCA Principle 1: Establish a strategy and business model
QCA Principle 1: Establish a strategy and business model
value for shareholders
which promote long----termtermtermterm value for shareholders
which promote long
value for shareholders
value for shareholders
which promote long
which promote long
The immediate strategy and business operations of the Group
are set out in the Strategic Report on pages 4 and 5.
The Group’s strategy and business model and amendments
thereto, are developed by the Chief Executive Officer and his
senior management team, and approved by the Board. The
management team, led by the Chief Executive Officer, is
responsible for implementing the strategy and managing the
business at an operational level.
The Group’s overall strategic objective is to capitalise on its
unique position as owning the only independent Bank within
the British Crown Dependencies by developing core
financial services sector, both
businesses within
organically and by considered acquisitions.
the
The Group has a balanced portfolio of regulated and
unregulated operations, all of which are managed on a risk-
based and prudential approach. The principal activities
include: deposit taking; lending to consumer and commercial
markets in the IOM and the UK; the provision of dedicated
financial advice, especially in the areas of pensions and
general insurance; and foreign currency advisory. Ultimately,
the Directors believe that this approach will deliver significant
long-term value for Shareholders.
The Group has adopted a portfolio approach to its strategic
assets and is not dependent on one particular platform
technology. The Directors believe that this approach helps to
mitigate any concentration risk.
The Group largely operates in an inherently heavily regulated
sector and this is reflected in the emphasis on compliance and
the provision of excellent customer service.
In executing the Group’s strategy and operational plans,
management will typically confront a range of day-to-day
challenges associated with risks and uncertainties, and will
seek to deploy the identified mitigation steps to manage these
risks as they manifest themselves.
QCA Principle 2: Seek to understand and meet
shareholder
QCA Principle 2: Seek to understand and meet shareholder
shareholder
shareholder
QCA Principle 2: Seek to understand and meet
QCA Principle 2: Seek to understand and meet
needs and expectations
needs and expectations
needs and expectations
needs and expectations
The Group, via the Chief Executive Officer, seeks to maintain
a regular dialogue with both existing and potential new
Shareholders in order to communicate the Group’s strategy
and progress and to understand the needs and expectations
of Shareholders.
Beyond the Annual General Meeting, the Chief Executive
Officer and, where appropriate, other members of the senior
management team will meet with investors and analysts to
provide them with updates on the Group’s business and to
obtain feedback regarding the market’s expectations of the
Group.
The Group’s investor relations activities encompass dialogue
with both institutional and private investors. From time to time,
the Company attends private investor events, providing an
opportunity for those investors to meet with representatives
from the Group in a more informal setting.
QCA Principal 3: Take into account wider stakeholder and
QCA Principal 3: Take into account wider stakeholder and
QCA Principal 3: Take into account wider stakeholder and
QCA Principal 3: Take into account wider stakeholder and
social responsibilities and their implications for long
term
social responsibilities and their implications for long----term
term
term
social responsibilities and their implications for long
social responsibilities and their implications for long
success
success
success
success
suppliers,
employees,
The Group is aware of its corporate social responsibilities and
the need to maintain effective working relationships across a
range of stakeholder groups. These include not only the
Group’s
regulatory
partners,
authorities, but also customers, be they depositors, borrowers
or seeking financial advice. The Group’s operations and
working methodologies take account of the need to balance
the needs of all of these stakeholder groups while maintaining
focus on the Board’s primary responsibility to promote the
success of the Group for the benefit of its members as a whole.
The Group endeavours to take account of feedback received
to working
from stakeholders, making amendments
arrangements and operational plans where appropriate and
where such amendments are consistent with the Group’s
longer-term strategy.
The Group takes due account of any impact that its activities
may have on the environment and seeks to minimise this
impact wherever possible. Through the various procedures
and systems it operates, the Group ensures full compliance
with regulatory, health and safety, and environmental
legislation relevant to its activities.
QCA Principal 4: Embed effective
risk management,
risk management,
QCA Principal 4: Embed effective
risk management,
QCA Principal 4: Embed effective
risk management,
QCA Principal 4: Embed effective
considering both opportunities and threats, throughout the
considering both opportunities and threats, throughout the
considering both opportunities and threats, throughout the
considering both opportunities and threats, throughout the
organisation
organisation
organisation
organisation
The Board is responsible for the systems of risk management
and internal control and for reviewing their effectiveness by a
series of committees, overseen by the Audit, Risk and
Compliance Committee (“ARCC”), and reviewed by Internal
Auditors. The internal controls are designed to manage rather
than eliminate risk and provide reasonable but not absolute
assurance against material misstatement or loss. Through the
activities of the ARCC, which meets at least six times per year,
is formally
the effectiveness of these
reviewed four times per year.
internal controls
A comprehensive budgeting process is completed once a year
and is reviewed and approved by the Board. The Group’s
results, compared with the budget, are reported to the Board
on a monthly basis.
The Group maintains appropriate insurance cover in respect
of actions taken against the Directors because of their roles,
as well as against material loss or claims against the Group.
The insured values and type of cover are comprehensively
reviewed on at least an annual basis.
Page | 12
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
The senior management team (“Executive Committee”) meets
weekly to consider new risks and opportunities presented to
the Group, making recommendations to the Board and/or
ARCC as appropriate.
QCA Principal 5: Maintain the board as a well
functioning,
QCA Principal 5: Maintain the board as a well---- functioning,
functioning,
functioning,
QCA Principal 5: Maintain the board as a well
QCA Principal 5: Maintain the board as a well
team led by the chair
balanced team led by the chair
balanced
team led by the chair
team led by the chair
balanced
balanced
various external advisers on a number of corporate
governance matters.
Directors’ service contracts or appointment letters make
provision for a Director to seek personal advice in furtherance
of his or her duties and responsibilities, normally via the
Company Secretary.
The Group’s Board currently comprises four Non-executive
Directors and three Executive Directors.
QCA Principal 7
Evaluate board performance based on clear
QCA Principal 7:::: Evaluate board performance based on clear
Evaluate board performance based on clear
Evaluate board performance based on clear
QCA Principal 7
QCA Principal 7
and relevant objectives, seeking continuous improvement
and relevant objectives, seeking continuous improvement
and relevant objectives, seeking continuous improvement
and relevant objectives, seeking continuous improvement
All of the Directors are subject to election by Shareholders at
the first Annual General Meeting after their appointment to the
Board and will continue to seek re-election at least once every
three years.
Directors’ biographies are set out on pages 16 and 17.
The Board is responsible to the Shareholders for the proper
management of the Group and meets at least four times a year
to set the overall direction and strategy of the Group, to review
operational and financial performance, and to advise on
management appointments. All key operational and
investment decisions are subject to Board approval.
The Board considers itself to be sufficiently independent. The
QCA Code suggests that a board should have at least two
independent non-executive directors. The Board considers
that
two Non-executive Directors, namely Alan Clark
(Chairman of ARCC) and David Gibson, are regarded as
independent under the QCA Code’s guidance for determining
such independence.
Non-executive Directors receive their fees in the form of a
basic cash emolument. Only the Chief Financial Officer holds
options over the Group’s shares. The number and terms are
found on page 23.
The option grant concerned is not deemed to be significant,
either for the individual executive Director or in aggregate. The
current remuneration structure for the Board’s Non-executive
Directors is deemed to be proportionate.
QCA Principal 6
re that between them the directors have
QCA Principal 6:::: EnsuEnsuEnsuEnsure that between them the directors have
re that between them the directors have
re that between them the directors have
QCA Principal 6
QCA Principal 6
date experience, skills and capabilities
the necessary up----totototo----date experience, skills and capabilities
the necessary up
date experience, skills and capabilities
date experience, skills and capabilities
the necessary up
the necessary up
The Board considers that all of the Non-executive Directors
are of sufficient competence and calibre to add strength and
objectivity to its activities, and bring considerable experience
in regulatory, financial and operational development within the
financial service sector in both the IOM and the UK.
The Directors’ biographies are set out on pages 16 and 17.
The Board regularly reviews the composition of the Board to
ensure that it has the necessary breadth and depth of skills to
support the ongoing development of the Group.
The Chairman, in conjunction with the Company Secretary,
ensures that the Directors’ knowledge is kept up to date on key
its
issues and developments pertaining to the Group,
operational environment and to the Directors’ responsibilities
as members of the Board. During the course of the year,
Directors receive updates from the Company Secretary and
The Board has an internal process for evaluation of its own
performance, that of its committees and individual Directors,
including the Chairman. This process is conducted annually
and last took place in March 2018, with no substantive issues
arising. Going forward, the Board intends to utilise the services
of an independent third-party organisation to manage the
future evaluation process, analyse the results and report back
to the Board for subsequent follow-up. Evaluation criteria
include Controls and Procedures, Strategic Aims,
Entrepreneurial Leadership and Communications and
Relationships.
The Board may utilise the results of the evaluation process
when considering the adequacy of the composition of the
Board and for succession planning.
QCA Principal 8
ote a corporate culture that is based on
QCA Principal 8:::: PromPromPromPromote a corporate culture that is based on
ote a corporate culture that is based on
ote a corporate culture that is based on
QCA Principal 8
QCA Principal 8
ethical values and behaviours
ethical values and behaviours
ethical values and behaviours
ethical values and behaviours
The Board seeks to maintain the highest standards of integrity
and probity in the conduct of the Group’s operations. These
values are enshrined in the written policies and working
practices adopted by all employees in the Group. An open
culture
the Group, with regular
communications to staff regarding progress and staff feedback
regularly sought. The Executive Committee regularly monitors
the Group’s cultural environment and seeks to address any
concerns that may arise, escalating these to Board level as
necessary.
is encouraged within
The Group is committed to providing a safe environment for its
staff and all other parties for which the Group has a legal or
moral responsibility in this area. This is enshrined in the
Group’s health and safety policy.
QCA Principal 9
Maintain governance structures and
QCA Principal 9:::: Maintain governance structures and
Maintain governance structures and
Maintain governance structures and
QCA Principal 9
QCA Principal 9
processes that are fit for purpose and support good decision
processes that are fit for purpose and support good decision----
processes that are fit for purpose and support good decision
processes that are fit for purpose and support good decision
making by the board
making by the board
making by the board
making by the board
ole of the Board
The The The The rrrrole of the Board
ole of the Board
ole of the Board
The Board is collectively responsible for the long-term success
of the organisation. Its principal function is to determine the
strategy and policies of the Group within an effective control
framework which enables risk to be assessed and managed.
The Board ensures that the necessary financial and human
resources are in place for the Group to meet its objectives and
that business and management performances are reviewed.
Furthermore, the Board ensures that the Group operates within
its constitution, relevant legislation and regulation and that
proper accounting records and effective systems of business
control are established, maintained, documented and audited.
Page | 13
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
There are at least four formal Board meetings each year. All
Board members have the benefit, at the Group’s expense, of
liability insurance in respect of their responsibilities as
Directors and have access to independent legal or other
professional advice if required. The Board has a formal
schedule of matters which are reserved for its consideration
and it has established three committees to consider specific
issues in greater detail, being the ARCC and Nomination
Committee. The Terms of Reference for each of these
Committees are published on the Group’s website.
There is a clear separation of the roles of Chief Executive
Officer and Executive Chairman.
Chairman
Chairman
Chairman
Chairman
The Chairman is responsible for leading the Board, ensuring
its effectiveness in all aspects of its role, promoting a culture of
openness of debate and communicating with the Group’s
members on behalf of the Board. The Chairman sets the
direction of the Board and promotes a culture of openness and
debate by facilitating the effective contribution of Non-
executive Directors and ensuring constructive relations
between Executive and Non-executive Directors. The
Chairman also ensures that Directors receive accurate, timely
and clear information. In doing so, this fosters a positive
corporate governance culture throughout the Group.
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
The Chief Executive Officer is responsible for managing the
Group’s business and operations within the parameters set by
the Board.
NonNonNonNon----executive Directors
executive Directors
executive Directors
executive Directors
The Non-executive Directors are responsible for bringing
independent judgement to the discussions held by the Board,
using their breadth of experience and understanding of the
business. Their key responsibilities are to constructively
challenge and contribute to strategic proposals, and to monitor
performance,
resources, and standards of conduct,
compliance and control, whilst providing support to executive
management in developing the Group.
The Board has established an ARCC, a Remuneration
Committee and a Nominations Committee with formally
delegated duties and responsibilities. Alan Clarke chairs both
ARCC and the Remuneration Committee.
information disclosed
ARCC
ARCC
ARCCARCC
ARCC meets at least six times each year and comprises two
Nonexecutive Directors, currently Alan Clarke (Chairman) and
David Gibson, Executive Directors. Representatives from
Compliance and Risk along with the internal and external
Auditor attend by invitation. Its role is to be responsible for
reviewing the integrity of the financial statements and the
the accompanying
balance of
Directors’ Report, to review the effectiveness of internal
controls and risk management systems, to monitor and review
the effectiveness of the internal audit function and to consider
and recommend to the Board (for approval by the members)
the appointment or re-appointment of the external auditor. The
ARCC reviews and monitors the external auditor’s objectivity,
competence, effectiveness and independence, ensuring that
if it or its associates are invited to undertake non-audit work it
will not compromise auditor objectivity and independence.
in
Remuneration Committee
Remuneration Committee
Remuneration Committee
Remuneration Committee
The Remuneration Committee meets at least twice a year and
comprises of two Non-executive Directors, with the Executive
Directors, Head of Human Resources and external advisers
attending by invitation when appropriate. It is chaired by Alan
Clarke, and is responsible for determining the remuneration of
the Executive Directors, the Company Secretary and other
members of the management. Committee members do not
take part in discussions concerning their own remuneration.
The Directors believe that the above disclosures constitute
sufficient disclosure to meet the QCA Code’s requirement for
a Remuneration Committee Report. However, a separate
Remuneration Committee Report will be presented in the
Group’s next audited Financial Statements.
Nomination Committee
Nomination Committee
Nomination Committee
Nomination Committee
The Nomination Committee is comprised of the whole Board.
It is chaired by the Chairman of the Board and is responsible
for making recommendations to the Board on matters relating
to the composition of the Board, including Executive and Non-
executive Director succession planning, the appointment of
new Directors throughout the Group and re-election of existing
Directors.
Appointments to the Board
Appointments to the Board
Appointments to the Board
Appointments to the Board
The principal purpose of the Nomination Committee is to
undertake the assessment of the balance of skills, experience,
independence and knowledge on the Board and subsidiary
boards against the requirements of the business, with a view
to determining whether any shortages exist. Having completed
the assessment, the Committee makes recommendations to
the board accordingly. Appointments to the Board are made on
merit, with due regard to the benefits of diversity. Within this
context, the paramount objective is the selection of the best
candidate, irrespective of background, and it is the view of the
Board that establishing quotas or targets for the diversity of the
Board is not appropriate.
All Group Director appointments must be approved by the
Company’s Nominated Adviser, as required under the AIM
Rules, before they are appointed to the Group Board.
Prior to appointment, Non-executive Directors are required to
demonstrate that they are able to allocate sufficient time to
undertake their duties.
ReReReRe----election
election
election
election
The Group’s Rules require that all Directors are submitted for
election at the AGM following their first appointment to the
Board and one third of the Directors are subject to retirement
by rotation on an annual basis to refresh the Board,
irrespective of performance.
The Group will establish a separate Corporate Governance
Committee.
The Corporate Governance Memorandum also contains a
schedule of matters specifically reserved for Board decision or
approval and sets out the Company’s share dealing code and
its public interest disclosure (“whistle-blowing”) policy and
procedures.
Page | 14
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
Board and committee attendance
Board and committee attendance
Board and committee attendance
Board and committee attendance
The number of formal scheduled Board and committee
meetings held and attended by Directors during the year was
as follows: -
Jim Mellon
John Banks
Denham Eke
Alan Clarke
David Gibson
Douglas Grant
Gregory Bailey*
Board
3/6
3/6
6/6
6/6
6/6
6/6
3/6
ARCC
-
-
-
8/8
8/8
-
-
REMCO
-
-
-
4/4
4/4
-
-
* Gregory Bailey appointed to the Board on 7 February 2018
QCA Principal 10: Communicate how the company is
QCA Principal 10: Communicate how the company is
QCA Principal 10: Communicate how the company is
QCA Principal 10: Communicate how the company is
governed and is performing by maintaining a dialogue with
governed and is performing by maintaining a dialogue with
governed and is performing by maintaining a dialogue with
governed and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
shareholders and other relevant stakeholders
shareholders and other relevant stakeholders
shareholders and other relevant stakeholders
The Group places a high priority on regular communications
with its various stakeholder groups and aims to ensure that all
communications concerning the Group’s activities are clear,
fair and accurate. The Group’s website is regularly updated
and users can register to be alerted when announcements or
details of presentations and events are posted onto the
website.
Notices of General Meetings of the Company can be found on:
https://www.mfg.im/investor-centre/regulatory-news
The results of voting on all resolutions in future general
meetings will be posted to the Group’s website, including any
actions to be taken as a result of resolutions for which votes
against have been received from at least 20 per cent of
independent Shareholders.
Approval
Approval
Approval
Approval
This report was approved by the Board of Directors on 27
March 2019 and signed on its behalf by: -
Jim Mellon
Executive Chairman
27 March 2019
Page | 15
RISK AND GOVERNANCE
DIRECTORS, OFFICERS AND ADVISERS
Executive Directors
Jim Mellon (62)‡
Executive Chairman
Jim Mellon
is a well-known and successful
entrepreneur, author and economic commentator,
starting his career in fund management and now
including biopharma, property, mining and
information
technology amongst his many
investments. He holds directorships in a number of
publicly quoted companies, many of which are in
the financial services sector. He is the beneficial
owner of Burnbrae Group Limited which, in turn,
indirectly holds approximately 16% of Manx
Financial Group PLC. He is the founder, principal
shareholder and chairman of the Regent Pacific
Group, quoted on the Hong Kong Stock Exchange.
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 2 November 2007 and
appointed as Executive Chairman on 12 February
2009.
Non-executive Directors
Denham Eke (67) ‡
Chief Executive Officer
Denham Eke is the Managing Director of Burnbrae
Group Limited, a private
international asset
management company. He began his career in
stockbroking with Sheppards & Chase before
moving into corporate planning for Hogg Robinson
plc, a major multinational insurance broker. He is a
director of many years standing of both public and
private companies
financial
involved
services, property, mining, and manufacturing
sectors.
the
in
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 2 November 2007 and
appointed as Chief Executive on 12 February 2009.
Douglas Grant (54) ‡
Group Finance Director
Douglas Grant has over 30 years’ experience
working in finance, initially with Scottish Power,
before moving to the industrial sector to work
with ICI and then Allenwest. Prior to joining
Manx Financial Group PLC, he was the group
financial controller and later financial director of
various UK and Isle of Man private sector
companies and has extensive capital markets
experience.
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 14 January 2010. He
is Managing Director of Conister Bank Limited.
Alan Clarke (68)‡†* ≠
Non-executive Director
David Gibson (71) ‡†* ≠
Non-executive Director
John Banks (50) ‡
Non-executive Director
Alan Clarke is a chartered accountant and former
senior partner of Ernst & Young during which time
he worked closely with HSBC offshore operations in
both the Channel Islands and the Isle of Man.
Currently, he specialises in corporate finance and
strategic consultancy, advising a variety of both
listed and private companies. He holds several non-
executive directorships and is a past President of
ICAEW Manchester. He is also a registered auditor,
being the senior partner of Downham Mayer Clarke.
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 2 November 2007.
Chairman of the Audit, Risk and Compliance
Committee and Chairman of the Remuneration
Committee.
David Gibson qualified as a certified accountant
whilst holding posts with Shell-Mex and BP and
CIBA-Geigy throughout the UK and abroad, before
transferring into treasury management in senior
positions with Turner and Newall and Westland
Helicopters where he qualified as a corporate
treasurer. He joined the Trustee Savings Bank of
the Channel Islands as finance director, prior to
becoming general manager finance at TSB Retail
Bank where he gained his formal qualifications as
a banker. Prior to retiring from executive life for
family reasons, he was group finance director of
Portman Building Society for 9 years. He is
currently deputy chairman of commercial property
investment companies Chellbrook Properties plc
and Mountstephen Investments Limited.
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 12 February 2009. He is
Chairman of Conister Bank Limited.
John Banks is a solicitor qualified in both
England and Wales and Hong Kong. He has
worked in private practice with Lovells, in both
England and Hong Kong and as an in house
counsel for Standard Chartered Bank in Hong
Kong. He joined Group Direct Limited, later part
of Brightside Group PLC as group legal counsel
in 2006, where he worked on the group’s
joined
admission
Southern Rock Insurance Company Limited
and Eldon Insurance Services Limited in 2013
and is a director of both companies.
trading on AIM. He
to
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 5 August 2014.
Page | 16
RISK AND GOVERNANCE
DIRECTORS, OFFICERS AND ADVISERS
Non-executive Directors
Company Secretary
* Member of the Audit, Risk and
Compliance Committee
† Member of the Remuneration Committee
‡ Member of the Nominations Committee
≠ Independent Non-executive Director
Gregory Bailey (63) ‡
Non-executive Director
Rachel Bradley (33)
Company Secretary
Gregory Bailey, founded Palantir Group Inc which made
successful investments in bio-tech company start-ups
and financings, and is currently chairman of Portage
Biotech Inc, a CSE-traded drug development company,
and non-executive director of AIM-traded SalvaRx Group
Plc. Along with comprehensive experience in finance
and healthcare, he has served on many public company
boards and brings to the Group an extensive involvement
in corporate governance.
Rachel Bradley qualified to the Bar of the Isle of Man
in February 2012 and has a broad range of
the
regulatory and compliance experience
financial services industry, both in the UK and Isle
of Man. Prior to joining Manx Financial Group PLC,
she worked in the United States of America for two
years in the legal profession and prior to that, she
worked with several
local corporate services
providers on the Isle of Man.
in
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 7 February 2018.
Appointment
Appointment
Appointment
Appointment
Appointed as Company Secretary on 15 June 2018.
Advisers
Advisers
Advisers
Advisers
Registered Office
Registered Office
Registered Office
Registered Office
Clarendon House
Victoria Street
Douglas
Isle of Man IM1 2LN
Registered Agent
Registered Agent
Registered Agent
Registered Agent
CW Corporate Services Limited
Bank Chambers
15-19 Athol Street
Douglas
Isle of Man IM1 1LB
Legal Advisers
Legal Advisers
Legal Advisers
Legal Advisers
As to Isle of Man law
Long & Humphrey
The Old Courthouse
Athol Street
Douglas
Isle of Man IM1 1LD
As to English law
Hill Dickinson LLP
The Broadgate Tower
20 Primrose Street
London EC21 2EW
Independent Auditor
Independent Auditor
Independent Auditor
Independent Auditor
KPMG Audit LLC
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
Principal Bank
Principal Bankersersersers
Principal Bank
Principal Bank
Royal Bank of Scotland
135 Bishopsgate
London EC2M 3UR
Consulting Actuaries
Consulting Actuaries
Consulting Actuaries
Consulting Actuaries
Boal & Co Ltd
Marquis House
Isle of Man Business Park
Douglas
Isle of Man IM2 2QZ
Pension Fund
Pension Fund
Pension Fund
Pension Fund
Investment Manager
Investment Manager
Investment Manager
Investment Manager
Thomas Miller Investment
(Isle of Man) Limited
Level 2
Samuel Harris House
5-11 St George’s Street
Douglas
Isle of Man IM1 1AJ
Nominated Advisor
Nominated Advisor
Nominated Advisor
Nominated Advisor
and Broker
and Broker
and Broker
and Broker
Beaumont Cornish
Limited
10th Floor
30 Crown Place
London EC2A 4EB
Registrar
Registrar
Registrar
Registrar
Computershare Investor
Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey JE1 1ES
Presentation of Annual
Presentation of Annual
Presentation of Annual
Presentation of Annual
Report and Accounts
Report and Accounts
Report and Accounts
Report and Accounts
Presented here are the
and
Annual
Accounts
Manx
Financial Group PLC.
Report
of
Company Information
Company Information
Company Information
Company Information
The Annual and Interim
Reports, along with other
supplementary
information of interest to
Shareholders,
are
included on our website.
The address of
the
website
is www.mfg.im
investor
includes
which
relations information and
contact details.
Page | 17
RISK AND GOVERNANCE
AUDIT, RISK AND COMPLIANCE COMMITEE
Dear
Shareholderssss
Dear Shareholder
Shareholder
Shareholder
Dear Dear
I am pleased to set out below an account of the ARCC’s role
and activities during 2018 and up to the date of publication of
this Annual Report.
the Nomination Committee,
Membership
Membership
Membership
Membership
Members of the ARCC are appointed by the Board, on the
recommendation of
in
consultation with the Chairman of the Committee. The
Committee is made up of at least 2 members. All members of
the Committee shall be Non-executive Directors and at least
one of whom shall have recent and relevant financial
experience with a professional qualification from one of the
professional accountancy bodies. The Chairman of the Board
shall not be a member of the Committee.
Appointments to the Committee shall be for a period of up to
3 years, which may be extended by the Board for a further 3-
year period (or, in exceptional circumstances, two further 3
year periods), provided the Director remains independent.
The Board may approve annual extensions to any Director
who has served 3 consecutive terms.
The Board shall appoint the Chairman of the Committee who
shall be a Non-executive Director. In the absence of the
Chairman of the Committee and/or an appointed deputy, the
remaining members present shall elect one of themselves to
chair the meeting.
The Committee shall meet at least six times a year. Of these,
two will be held to review the annual and interim financial
statements. Outside of the formal meeting programme, the
Chairman of the Committee will maintain a dialogue with key
individuals involved in the Company’s governance.
Members
Members
Members
Members
Appointed
Appointed
Appointed
Appointed
Alan Clarke (Chairman) 2 February 2007
David Gibson
13 February 2009
Number of
Number of
Number of
Number of
meetings
meetings
meetings
meetings
attended
attended
attended
attended
8/8
8/8
Only members of the Committee have the right to attend
Committee meetings. However other individuals may be
invited by the Chairman of the Committee to attend all or part
of any meeting as and when appropriate.
The ARCC holds separate meetings with the Head of Internal
Audit, Head of Risk and Compliance and our external auditor,
KPMG Audit LLC.
The Chairman of the Board, the executive directors and
executive management are invitees to meetings of ARCC but
are excluded from the separate meetings held between the
ARCC and the external auditor.
Execution of functions
Execution of functions
Execution of functions
Execution of functions
The ARCC has executed its duties and responsibilities during
the year in accordance with its terms of reference as it relates
to auditor independence, assisting the Board in its evaluation
of our control environment and internal controls including
information systems and accounting practices.
Due to its adoption of the QCA Corporate Governance
standard, the committee reassessed the adequacy of its terms
of reference and its function bearing in mind the requirements
of this standard.
During the year under review, the Committee considered
among other matters, the following:
Financial reporting and annual financial statements:
Financial reporting and annual financial statements:
Financial reporting and annual financial statements:
Financial reporting and annual financial statements:
Considered the annual financial statements with the
external
and
management and reviewed the appropriateness of
significant judgements, estimates and accounting
policies;
auditor, Executive Directors
Reviewed and recommended to the Board for
approval:
o Unaudited condensed interim results for the
period ended 30 June 2018;
o Audited MFG plc Group and subsidiary
annual financial statements for the year-
ended 31 December 2018; and
Reviewed changes to impairment model due to
adoption of IFRS 9 effective 1 January 2018;
Discussed any significant and unusual accounting
matters including key audit matters identified by the
external auditor.
External audit:
External audit:
External audit:
External audit:
Monitored and assessed the independence of the
external auditors based on reports received, inquiries
made into work performed;
Determined the nature and extent of non-audit
services performed by the external auditors;
Reviewed and assessed the significance of non-
audit fees compared to audit fees;
Reviewed and agreed the external audit plan in
advance for the year-end audit which set out the
scope of audit, significant risks, areas of audit focus
and audit timetable.
Received a presentation of the external auditor
for
from execution of audit plan
findings on
discussion; and
Satisfied itself as to the expertise experience and
independence of the engagement partner.
Internal audit
Internal audit
Internal audit
Internal audit
Reviewed and approved the internal audit plan;
Reviewed Internal Audit’s findings including the
design and operating effectiveness of the internal
control environment and control activities; and
Reviewed Internal Audit’s findings on the adequacy
and reliability of management information.
pliance
Risk and compliance
Risk and com
pliance
pliance
Risk and com
Risk and com
Assessed the effectiveness of the Group Risk and
Compliance function;
Reviewed
the Group Risk and Compliance
department findings on the effectiveness of the
Group’s regulatory controls;
Recommend a revision of the Risk and Compliance
policies for Board approval; and
Recommend a revision of the Internal Capital
Adequacy Assessment Process for Board approval.
Page | 18
RISK AND GOVERNANCE
AUDIT, RISK AND COMPLIANCE COMMITEE
External auditor
s independence
External auditor’’’’s independence
s independence
s independence
External auditor
External auditor
The external auditor, KPMG Audit LLC, has been the Group’s
auditor since 2007.
Consideration was given to the non-audit work performed by
the external auditor. The ratio of non-audit fees to audit fees
for the year was 0.08 to 1 (2017: 0.03 to 1). Non audit services
related to tax adversary services. Services were performed by
a separate team to the audit team to safeguard against the
self-review threat to independence.
The ARCC obtained assurance from the external auditor that
internal governance processes within KPMG Audit LLC
support and demonstrate its claim of independence. This
assurance was provided through the receipt of an ISA 260
letter.
The ARCC is satisfied with the independence of KPMG Audit
LLC and is recommending that KPMG Audit LLCS be
reappointed as the Group’s auditor at the 2018 Annual
General Meeting.
Key accounting matters
Key accounting matters
Key accounting matters
Key accounting matters
The ARCC considered key accounting matters in relation to
the Group’s financial statements and disclosures. The primary
areas in relation to 2018 and how they were addressed are
detailed below:
Key accounting matter
Key accounting matter
Key accounting matter
Key accounting matter
impairment
Loan impairment
Loan
impairment
impairment
Loan
Loan
Impairments cover loans specifically identified as impaired and
a collective impairment of all other loans for those impairments
incurred but not yet specifically identified.
ARCC response
ARCC response
ARCC response
ARCC response
The ARCC satisfied itself that the internal control environment
and control activities are appropriately designed and
implemented. This was supported by review of Internal and
External audit reports and findings.
Loan impairment provisions reflect estimates of the amount and
timing of future recoveries which require an assessment of
matters such as future economic conditions and the value of
collateral. Estimates, by their nature, give rise to a higher risk
of material misstatement due to error or fraud.
The effect of these matters is that, as part of our risk
assessment, we determined that the impairment provision has
a high degree of estimation uncertainty, with a potential range
of reasonable outcomes greater than our materiality for the
financial statements as a whole, and possibly many times that
amount.
Impairment of goodwill and intangible assets
Impairment of goodwill and intangible assets
Impairment of goodwill and intangible assets
Impairment of goodwill and intangible assets
Goodwill and
the
estimated recoverable amount of these balances is subjective
due to the inherent uncertainty involved in forecasting and
discounting future cash flows.
intangible assets are significant and
is significant and
receivable exposure
VAT receivable
VAT receivable
VAT receivable
VAT receivable
The VAT
its
recoverability rests on the outcome of discussions with the
Isle of Man Government Customs and Excise Division (“IOM
C&E”), which in turn will take into account the final assessment
by UK Customs and Excise of the impact of the recent ruling by
the Court of Justice of the European Union regarding the
dispute between Volkswagen Financial Services (UK) Limited
vs HM Revenue & Customs.
The effect of these matters is that, as part of our risk
assessment, we determined that the impact of the final
assessment of the amount of VAT to be recovered has a high
degree of estimation uncertainty, with a potential range of
reasonable outcomes greater than our materiality for the
financial statements as a whole, and possibly many times that
amount.
The ARCC reviewed reports from executive management on
the implementation of IFRS 9 and key changes to internal
processes and controls. The ARCC reviewed
the key
assumptions used by management such as Loss given default,
Loss rates, Probability of default on initial implementation at 30
June 2018 and at year ended 31 December 2018.
The ARCC satisfied itself that the internal control environment
and control activities are appropriately designed and
implemented. This was supported by review of Internal and
External audit reports and findings.
The ARCC reviewed management’s assessment of Goodwill
and intangible asset impairment and concluded that the
recoverable amount is appropriate.
The ARCC satisfied itself that the internal control environment
and control activities are appropriately designed and
implemented. This was supported by review of Internal and
External audit reports and findings.
The ARCC reviewed management’s assessment of VAT
receivable impairment and concluded that the recoverable
amount is appropriate..
Page | 19
RISK AND GOVERNANCE
AUDIT, RISK AND COMPLIANCE COMMITEE
Key accounting matter
Key accounting matter
Key accounting matter
Key accounting matter
Carrying value of Parent Company’s subordinated loans and
Carrying value of Parent Company’s subordinated loans and
Carrying value of Parent Company’s subordinated loans and
Carrying value of Parent Company’s subordinated loans and
investment in subsidiaries
investment in subsidiaries
investment in subsidiaries
investment in subsidiaries
The carrying value of the Parent Company’s subordinated
loans to and investment in subsidiaries represents 93% (2017:
98%) of the Parent Company’s total assets. The assessment of
carrying value is not at a high risk of significant misstatement
or subject to significant judgement as the carrying value is
supported by the audited net asset value of the subsidiaries.
However, due to its materiality in the context of the Parent
Company financial statements, this is considered to be the area
that had the greatest effect on our overall Parent Company
audit.
ARCC response
ARCC response
ARCC response
ARCC response
The ARCC is satisfied that the going concern assessment over
the Group provides sufficient assurance over the recoverability
of the Parent Company’s subordinated loans and investment in
subsidiaries.
The ARCC has complied with and discharged its responsibilities as set out in its Terms of reference.
Alan Clarke
Chairman
27 March 2019
Page | 20
RISK AND GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
Dear Shareholderssss
Dear Shareholder
Dear Shareholder
Dear Shareholder
it reflects our culture and values; and
there is full transparency of the Group’s Remuneration
On behalf of the Board, I am pleased to report the Directors’
Remuneration Report for the year ended 31 December 2018.
Policy.
Membership
Membership
Membership
Membership
Members of the Remuneration Committee are appointed by
the Board, on the recommendation of the Nomination
Committee
the
Committee. The Committee is made up of at least 2 members.
All members of the Committee shall be Non-executive
Directors. The Chairman of the Board shall not be a member
of the Committee.
in consultation with
the Chairman of
Appointments to the Committee shall be for a period of up to
3 years, which may be extended by the Board for a further 3-
year period (or, in exceptional circumstances, two further 3
year periods), provided the Director remains independent.
The Board may approve annual extensions to any Director
who has served 3 consecutive terms.
The Board shall appoint the Chairman of the Committee who
shall be a Non-executive Director. In the absence of the
Chairman of the Committee and/or an appointed deputy, the
remaining members present shall elect one of themselves to
chair the meeting.
The Committee shall meet at least twice a year and at such
other times as the Chairman of the Committee shall require.
Membership
Membership
Membership
Membership
Appointed
Appointed
Appointed
Appointed
Alan Clarke (Chairman) 13 February 2009
David Gibson
12 December 2010
Number of
Number of
Number of
Number of
meetings
meetings
meetings
meetings
attended
attended
attended
attended
4/4
4/4
Only members of the Committee have the right to attend
Committee meetings. However, other individuals may be
invited by the Chairman of the Committee to attend all or part
of any meeting as and when appropriate.
Areas of focus for 2018
Areas of focus for 2018
Areas of focus for 2018
Areas of focus for 2018
During the year, the Committee considered the following:
• Reviewed the overall pay increase of Executive
Directors;
• Reviewed
the overall non-discretionary annual
performance related pay scheme for Group staff; and
• Reviewed and approved all new staff appointments
with packages over £50,000.
Remuneration policy
Remuneration policy
Remuneration policy
Remuneration policy
The Group’s Remuneration Policy reflects the Group’s
business strategy and objectives as well as sustained and
long-term value creation for shareholders. In addition, the
policy aims to be fair and provide equality of opportunity,
ensuring that:
the Group is able to attract, develop and retain high-
performing and motivated employees in the competitive
local IOM and wider UK markets;
employees are offered a competitive remuneration
package to encourage enhanced performance and are, in
a fair and responsible manner, rewarded for their individual
contribution to the success of the Group;
In line with the Board’s approach, which reflects that adopted
within other comparable organisations,
the Group’s
Remuneration Policy provides for the reward of Executive
Directors through salaries and other benefits.
Executive Directors’ Emoluments
Executive Directors’ Emoluments
Executive Directors’ Emoluments
Executive Directors’ Emoluments
The remuneration for Executive Directors reflects their
It comprises basic salary, performance
responsibilities.
related variable pay when this is considered appropriate, and
various benefits detailed below.
Performance related payments are not pensionable and are
not contracted.
As with staff generally, whose salaries are subject to annual
reviews, basic salaries payable to Executive Directors are
reviewed each year with reference to jobs carrying similar
responsibilities in comparable financial organisations, market
conditions generally and local employment competition in view
of the Group’s geographical position.
The Group operates a non-contractual discretionary annual
performance related pay scheme based on the trading
performance of the Group and the individual employee’s
performance assessed for the period under review in a
manner which promotes sound risk management and does not
promote excessive risk taking.
The non-contractual discretionary annual performance related
pay scheme may be paid in one year but that does not confer
any entitlement in future years.
to
Performance assessments are conducted annually
determine
the performance rating of each employee’s
achievements against a mix of targets set and agreed at the
beginning of each year between the employee and their
manager. No incentives are paid to employees or executives
where the performance rating reflects below an agreed
expected level for the role employed.
The non-contractual discretionary annual performance related
pay scheme may be disbursed as a cash payment through
payroll, share based instruments (including share options) or
a mixture of both. An element of deferment to align the
interests of the employee to the longer term performance of
the Group may also be included.
the Advisor’s client base and
EWA’s Financial Advisors are salaried and commission is
calculated on a pre-agreed percentage over target which is set
at between 2 to 3 times annual gross salary depending on the
size of
their historical
performance. Each Financial Advisor is set objectives at the
beginning of the year including a 100% pass in all compliance
requirements. Where indemnified commission is paid and the
underlying client policy lapses and the commission is clawed
back then this is reviewed by an Executive Director in order to
monitor trends and is then clawed back from the relevant
Financial Advisor.
Page | 21
RISK AND GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
Where
the Group operates contractually guaranteed
performance related pay, the contractual conditions must be
considered by the Remuneration Committee.
Executive Directors’ Contractual Terms
Executive Directors’ Contractual Terms
Executive Directors’ Contractual Terms
Executive Directors’ Contractual Terms
In keeping with current recommended practice, the standard
term for Executive Director appointments, which have a
contractual notice period, is 6 months.
NonNonNonNon----executive Directors’ Remuneration
executive Directors’ Remuneration
executive Directors’ Remuneration
executive Directors’ Remuneration
Non-executive Directors do not receive any benefits other than
their fees and travelling expenses for which they are
reimbursed. The level of fees payable to Non-executive
Directors is assessed using benchmarks from a group of
comparable financial organisations.
The Procedure for Determining Remuneration
emoluments
Directors’ emoluments
Directors’
emoluments
emoluments
Directors’
Directors’
Remuneration/
Fees
£
Performance
Related Pay
£
Executives
Executives
Executives
Executives
Jim Mellon
Denham Eke
Douglas Grant
Juan Kelly1
NonNonNonNon----executives
executives
executives
executives
Alan Clarke
Gregory Bailey
John Banks
Neil Duggan2
David Gibson
Aggregate
emoluments
25,000
25,000
191,458
-
241,458
42,917
22,400
25,000
-
55,000
145,317
-
-
50,000
-
50,000
-
-
-
-
-
-
The Remuneration Committee, comprising two Non-executive
Directors, is responsible for setting the remuneration of the
Executive Directors and is chaired by Alan Clarke. Committee
members do not take part in discussions concerning their own
remuneration. The basic Non-executive Director fee is set by
the Group Chairman. The Chairman of the Committee reports
at the Board meeting following a Committee meeting.
Implementation report
Implementation report
Implementation report
Implementation report
It is the view of the Committee that Directors’ remuneration
awarded across the Group for the year has been in
accordance with the Group’s stated Remuneration Policy and,
on behalf of the Committee I recommend that you endorse this
Group report. An analysis of Directors’ emoluments is as
follows: -
Pension
£
-
-
19,146
-
19,146
-
-
-
-
-
-
2018
2018
20182018
Total
Total
Total
Total
££££
25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
260,604
260,604
260,604
260,604
----
310,604
310,604
310,604
310,604
42,917
42,917
42,917
42,917
22,400
22,400
22,400
22,400
25,000
25,000
25,000
25,000
----
55,000
55,000
55,000
55,000
145,317
145,317
145,317
145,317
2017
Total
£
25,000
25,000
222,986
47,718
320,704
43,000
-
25,000
20,000
47,500
135,500
374,375
50,000
19,146
443,521
443,521
443,521
443,521
456,204
1Juan Kelly resigned on 28 March 2017.
2 Neil Duggan retired on 30 June 2017.
Approval
Approval
Approval
Approval
This report was approved by the Board of Directors on 27 March 2019 and signed on its behalf by: -
Alan Clarke
Alan Clarke
Alan Clarke
Alan Clarke
Chairman of the Remuneration Committee
27 March 2019
Page | 22
RISK AND GOVERNANCE
DIRECTORS’ REPORT
The Directors present their annual report and the audited
financial statements for the year ended 31 December 2018.
Directors and Directors’ share interests
Directors and Directors’ share interests
Directors and Directors’ share interests
Directors and Directors’ share interests
Details of current Directors are set out on pages 16 and 17.
Principal regulated activities
Principal regulated activities
Principal regulated activities
Principal regulated activities
The principal activities of Manx Financial Group PLC (the
“Company” or “MFG”) and its subsidiaries (together referred to
as the “Group”) are the provision of asset and personal finance,
investing activities, Foreign Exchange brokerage services and
wealth management.
The Bank, a wholly owned subsidiary of the Company, holds a
Class 1(1) deposit taking licence issued under Part 2 of the Isle
of Man Financial Services Act 2008. Deposits made with the
Bank are covered by the Isle of Man Depositors’ Compensation
Scheme contained in the Banking Business (Compensation of
Depositors) Regulations 1991.
EWA is authorised by the Isle of Man Financial Services
Authority under section 7 of the Financial Services Act 2008 to
conduct investment business as a Class 2, sub-classes (3), (6)
and (7) licence holder.
Results and dividends
Results and dividends
Results and dividends
Results and dividends
The proposed transfers to and from reserves are as set out in
the Statement of Changes in Equity on page 34. The Directors
do not recommend the payment of a dividend (2017: nil).
Share capital
Share capital
Share capital
Share capital
Particulars of the authorised and issued share capital of the
Company are set out in note 31 to the financial statements.
Significant shareholdings
Significant shareholdings
Significant shareholdings
Significant shareholdings
The number of shares held and the percentage of the issued
shares which that number represented as at 26 March 2019 are:
% of % of % of % of
issued capital
issued capital
issued capital
issued capital
29.10
16.39
13.60
7.44
3.22
3.02
Rene Nominees (IOM) Limited1
Jim Mellon2
Gregory Bailey3
Lynchwood Nominees Limited
Island Farms Limited
Rock (Nominees) Limited
Number
Number
Number
Number
38,153,158
21,492,232
17,835,750
9,752,879
4,222,319
3,955,663
1 Arron Banks, a former Director of the Group is beneficially
interested in 38,153,158 Ordinary Shares. This holding includes
26,288,992 Ordinary Shares held by Rene Nominees (IOM)
limited (“Rene”) in trust for Southern Rock Insurance Company
Ltd (“SR”), 9,777,166 for ICS Risk Solutions Limited (“ICS”) and
2,087,000 for MW SIPP Trustees Ltd. John Banks, a Director of
MFG is also a director of SR and ICS.
2 Burnbrae Limited holds 19,164,250 Ordinary Shares. Burnbrae
Limited is beneficially owned by Jim Mellon. Denham Eke, CEO
of MFG is also a director of Burnbrae Limited. Pershing
Nominees Limited holds 968,666 Ordinary Shares, Vidacos
Nominees holds 666,666 Ordinary Shares in trust for Jim Mellon
and 692,650 Ordinary Shares are held in his own name.
3 Vidacos Nominees Limited holds 17,835,750 Ordinary Shares
in trust for Gregory Bailey.
The number of shares held by the current Directors is as follows:
Jim Mellon4
Gregory Bailey5
John Banks6
David Gibson7
Douglas Grant
Alan Clarke
Number
Number
Number
Number
26262626/0/0/0/03333/19/19/19/19
21,492,232
21,492,232
21,492,232
21,492,232
17,835,750
17,835,750
17,835,750
17,835,750
----
1,721,433
1,721,433
1,721,433
1,721,433
505,821
505,821
505,821
505,821
52,149
52,149
52,149
52,149
Number
Number
Number
Number
31/12/18
31/12/18
31/12/18
31/12/18
21,492,232
21,492,232
21,492,232
21,492,232
17,835,750
17,835,750
17,835,750
17,835,750
----
1,721,433
1,721,433
1,721,433
1,721,433
505,821
505,821
505,821
505,821
52,149
52,149
52,149
52,149
Number
31/12/17
21,492,232
17,835,750
1,433,833
1,721,433
505,821
52,149
4 Burnbrae Limited holds 19,164,250 Ordinary Shares. Jim
Mellon, Executive Chairman of Manx Financial Group PLC, is a
Director of Burnbrae Limited. Burnbrae Limited is beneficially
owned by Jim Mellon. Denham Eke, CEO of MFG, is also a
director of Burnbrae Limited. Pershing Nominees Limited holds
968,666 Ordinary Shares and Vidacos Nominees holds 666,666
Ordinary Shares for the benefit of Jim Mellon.
5 Vidacos Nominees Limited holds 17,835,750 Ordinary Shares
in trust for Gregory Bailey.
6 On the 19 June 2018, 1,443,833 of the Company’s ordinary
shares were transferred and are now held by Rene in trust for
ICS. Following the transfer, John Banks no longer has an
interest in the issued ordinary share capital of the Company
7 Comprises 1,721,433 Ordinary Shares held by Interactive
Investor Services Limited for the benefit of David Gibson.
The number of share options held by the current Directors is as
follows:
Douglas Grant
Number
Number
Number
Number
26262626/0/0/0/03333/19/19/19/19
1,042,466
1,042,466
1,042,466
1,042,466
Number
Number
Number
Number
31/12/18
31/12/18
31/12/18
31/12/18
1,042,466
1,042,466
1,042,466
1,042,466
Number
31/12/17
1,042,466
Directors’ liability insurance
Directors’ liability insurance
Directors’ liability insurance
Directors’ liability insurance
The Group maintains insurance cover for Directors’ potential
liability.
Fixed and intangible assets
Fixed and intangible assets
Fixed and intangible assets
Fixed and intangible assets
The movement in fixed and intangible assets during the year are
set out in notes 24 and 25 respectively to the financial
statements.
StaffStaffStaffStaff
At 31 December 2018, there were 113 members of staff (2017:
91), of whom 11 were part-time (2017: 13).
in subsidiaries
Investment in subsidiaries
Investment
in subsidiaries
in subsidiaries
Investment
Investment
Investments in the Company’s subsidiaries are disclosed in
note 32 to the financial statements.
Auditor
Auditor
Auditor
Auditor
KPMG Audit LLC, being eligible, has expressed its willingness
to continue in office.
Page | 23
ANNUAL FINANCIAL STATEMENTS
CONTENTS
Assurance
Assurance
Assurance
Assurance
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Consolidated and company financial statements
Consolidated and company financial statements
Consolidated and company financial statements
Consolidated and company financial statements
Consolidated statement of profit or loss and other
comprehensive income
Company statement of profit or loss and other
comprehensive income
Consolidated statement of financial position
Company statement of financial position
Consolidated and company statement of changes in equity
Consolidated statement of cash flows
Company statement of cash flows
Notes to the consolidated and company financial statements
Notes to the consolidated and company financial statements
Notes to the consolidated and company financial statements
Notes to the consolidated and company financial statements
Basis of preparation
Basis of preparation
Basis of preparation
Basis of preparation
1. Reporting entity
2. Basis of accounting
3. Functional and presentation currency
4. Use of judgements and estimates
5. Change in accounting policies
Financial risk review and fair value
Financial risk review and fair value
Financial risk review and fair value
Financial risk review and fair value
6. Classification of financial assets and liabilities
7. Fair value of financial instruments
8. Financial risk review
Performance for the year
Performance for the year
Performance for the year
Performance for the year
9. Operating segments
10. Net interest income
11. Net fee and commission income
12. Terminal funding
13. Personnel expenses
14. Other expenses
15. Impairment on loans and advances to customers
16. Profit before tax payable
17. Income tax expense
18. Earnings per share
Assets
Assets
Assets
Assets
19. Cash and cash equivalents
20. Debt securities
21. Trading assets
22. Loans and advances to customers
23. Trade and other receivables
24. Property, plant and equipment
25. Intangible assets
24
25
29
30
31
32
33
34
35
36
36
36
36
36
38
39
40
47
48
48
49
49
49
49
50
50
51
52
52
52
52
53
54
55
Liabilities and equity
Liabilities and equity
Liabilities and equity
Liabilities and equity
26. Deposits from customers
27. Creditors and accrued charges
28. Block creditors
29. Loan notes
30. Pension liability
31. Called up share capital
Group composition
Group composition
Group composition
Group composition
32. Investment in Group undertakings
Other information
Other information
Other information
Other information
33. Related parties transactions
34. Operating leases
35. Subsequent events
36. Financial risk management
Accounting policies
Accounting policies
Accounting policies
Accounting policies
37. Basis of measurement
38. Significant accounting policies
39. Standards issued but not yet adopted
56
56
56
56
57
59
60
62
63
63
63
67
67
77
Page | 24
ANNUAL FINANCIAL STATEMENTS
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
responsible
The Directors are
for keeping adequate
accounting records that are sufficient to show and explain the
Parent Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Parent
Company and enable them to ensure that its financial
statements comply with the Isle of Man Companies Act 2006.
They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether
due to fraud or error, and have general responsibility for taking
such steps as are reasonably open to them to safeguard the
assets of the Group and to prevent and detect 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 Isle of Man
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors are responsible for preparing the Annual Report
and the Group and Parent Company financial statements in
accordance with applicable law and regulations.
The Directors are required to prepare Group and Parent
Company financial statements for each financial year. As
required by the AIM Rules of the London Stock Exchange they
are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
as adopted by the EU (IFRSs as adopted by the EU), as
applicable to an Isle of Man Company and applicable law and
have elected to prepare the Parent Company financial
statements on the same basis.
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 Group and Parent Company and of
their profit or loss for that period. In preparing each of the
Group and Parent Company
the
Directors are required to: -
select suitable accounting policies and then apply them
financial statements,
consistently;
make judgements and estimates that are reasonable,
relevant and reliable;
state whether they have been prepared in accordance
with IFRSs as adopted by the EU;
assess the Group and Parent Company’s ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern; and
use the going concern basis of accounting unless they
either intend to liquidate the Group or the Parent
Company or to cease operations or have no realistic
alternative but to do so.
Page | 25
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
1 Our opinion is unmodified
1 Our opinion is unmodified
1 Our opinion is unmodified
1 Our opinion is unmodified
We have audited the financial statements of Manx Financial Group
PLC (“the Company”) for the year ended 31 December 2018 which
comprise the Consolidated and Parent Company Statements of Profit
or Loss and Other Comprehensive Income, the Consolidated and
Parent Company Statements of Financial Position, the Consolidated
and Parent Company Statements of Cash Flows and the Consolidated
and Parent Company Statements of Changes in Equity, and the related
notes, including the accounting policies in note 3.
In our opinion the financial statements:
give a true and fair view of the state of the Group’s and of
the Parent Company’s affairs as at 31 December 2018 and
of the Group’s and Parent Company’s profit for the year then
ended;
have been properly prepared
in accordance with
International Financial Reporting Standards as adopted by
the European Union (IFRSs as adopted by the EU), as
applicable to an Isle of Man Company; and
have been prepared in accordance with the requirements of
the Isle of Man Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
are described below. We have fulfilled our ethical responsibilities
under, and are independent of the Group in accordance with, UK
ethical requirements including the FRC Ethical Standard. We believe
that the audit evidence we have obtained is a sufficient and
appropriate basis for our opinion.
2 Key audit matters: our assessment of risks of material misstatement
2 Key audit matters:
2 Key audit matters:
2 Key audit matters:
Key audit matters are those matters that, in our professional judgment,
were of most significance in the audit of the financial statements and
include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by us, including those which
had the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters. In arriving
at our audit opinion above, the key audit matters, in decreasing order
of audit significance, are set out below. These are unchanged from
2017, with the exception of the inclusion this year of a key audit matter
with respect to the carrying value of the Parent Company’s
subordinated loans to and investment in subsidiaries.
Key audit matter
Key audit matter
Key audit matter
Key audit matter
Loan impairment
Loan impairment
Loan impairment
Loan impairment
Loans
to
customers £148,278,000 (2017:
£122,546,000)
advances
and
Impairment
£3,394,000 (2017:
£2,687,000).
Provision
Refer to the Audit, Risk and
Compliance Report (“ARCC”),
note 4 (Use of Judgements and
Estimates - Assumptions and
Estimation Uncertainties), note
8(A) (Credit Risk), note 15
(Impairment on Loans and
Advances to Customers), note
22 (Loans and Advances to
Customers),
(B)
(Financial Risk Management –
Credit risk) and note 38(I)(vii)
for
(Accounting
Impairment
Financial
Instruments).
Policy
note
36
of
The risk
The risk
The risk
The risk
Subjective estimate
Subjective estimate
Subjective estimate
Subjective estimate
Impairments cover loans specifically identified as
impaired and a collective impairment of all other
loans for those impairments incurred but not yet
specifically identified.
Loan impairment provisions reflect estimates of the
amount and timing of future recoveries which require
an assessment of matters such as future economic
conditions and the value of collateral. Estimates, by
their nature, give rise to a higher risk of material
misstatement due to error or fraud.
The effect of these matters is that, as part of our risk
assessment, we determined that the impairment
provision has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater
the
financial statements as a whole, and possibly many
times that amount.
than our materiality
for
Auditor’s
response
Auditor’s response
response
response
Auditor’s
Auditor’s
Our procedures included:
---- Control design and operating effectiveness:
Control design and operating effectiveness:
Control design and operating effectiveness:
Control design and operating effectiveness:
Understanding and testing the controls in respect of
the Group’s loan impairment process such as the
timely recognition of impairment provisions, the
completeness and accuracy of reports used in the
loan impairment process and management review
processes over the calculation of collective and
specific provisions.
in
the
Test of details: We agreed the specific provisions
---- Test of details:
Test of details:
Test of details:
included
to
financial
management’s provisioning schedule and vouched
that this schedule was correctly extracted from the
loans and advances system, including the arrears
information.
statements
towards
Test of details: We tested a sample of specific
---- Test of details:
Test of details:
Test of details:
provisions, weighted
those against
individually significant impaired loans. This included
the
challenging management’s assessment of
specific provision, taking into account such factors
as: the number of repayments in arrears; the known
whereabouts of the hirer/lessor and of the assets
under finance; and the amounts received under
scheduled
agreed
repayments under the original agreement are no
longer being met.
repayment plans, where
in collective
Historical comparison: We challenged the inputs
---- Historical comparison:
Historical comparison:
Historical comparison:
impairment models and
used
considered whether those inputs reflected default
and recovery experience across each of the loan
finance categories.
Assessing transparency: Assessing the adequacy
---- Assessing transparency:
Assessing transparency:
Assessing transparency:
of the Group’s disclosures about the degree of
estimation uncertainty involved at arriving at the
provisions.
Page | 26
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC (CONTINUED)
2 Key audit matters: our assessment of risks of material misstatement (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
Key audit matter
Key audit matter
Key audit matter
Key audit matter
Impairment of goodwill and
Impairment of goodwill and
Impairment of goodwill and
Impairment of goodwill and
intangible assets
intangible assets
intangible assets
intangible assets
The risk
The risk
The risk
The risk
based valuation
Forecast----based valuation
Forecast
based valuation
based valuation
Forecast
Forecast
Goodwill
£2,344,000 (2017: £2,344,000)
and Intangibles Assets
£1,952,000 (2017: £1,719,000).
Goodwill and intangible assets are significant and
the estimated recoverable amount of these balances
is subjective due to the inherent uncertainty involved
in forecasting and discounting future cash flows.
in
Refer to the ARCC report, note
4 (Use of Judgements and
Estimates
-Assumptions and
Estimation Uncertainties), note
25 (Intangible Assets), note 32
(Investment
Group
Undertakings), 38(A) (Basis for
Consolidation of Subsidiaries
Financial
and
the Parent
Statements of
Company),
38(M)
(Goodwill and Intangibles) and
note 38(N) (Impairment of Non-
Financial Assets)
Separate
note
Auditor’s
response
Auditor’s response
response
response
Auditor’s
Auditor’s
Our procedures included:
---- Control design and operating effecti
veness:
Control design and operating effectiveness:
veness:
veness:
Control design and operating effecti
Control design and operating effecti
Understanding and testing the controls in respect of
the Group’s goodwill and
intangibles assets
impairment review process such as the timely
recognition of
the
completeness and accuracy of reports used in the
impairment review process.
impairment provisions and
the
Benchmarking assumptions: Comparing
---- Benchmarking assumptions:
Benchmarking assumptions:
Benchmarking assumptions:
forecasts and assumptions
the
in
calculations of net present value used by the client
for impairment testing to historical data, including the
profit history of the businesses/groups of assets
concerned.
included
the
Sensitivity analysis: Assessing the reasonableness
---- Sensitivity analysis:
Sensitivity analysis:
Sensitivity analysis:
of
by
sensitivity
management, using higher discount rates, by
considering whether
the higher discount rates
factored in sufficient downside risk.
performed
analysis
VAT receivable
VAT receivable
VAT receivable
VAT receivable
Uncertainty over recoverability
Uncertainty over recoverability
Uncertainty over recoverability
Uncertainty over recoverability
VAT
£1,049,000 (2017: £930,000).
receivable
exposure
Refer to the ARCC report, note
4 (Use of Judgements and
Estimates - Assumptions and
Estimation Uncertainties) and
note 23
(Trade and Other
Receivables).
The VAT receivable exposure is significant and its
recoverability rests on the outcome of discussions
with the Isle of Man Government Customs and
Excise Division (“IOM C&E”), which in turn will take
into account the final assessment by UK Customs
and Excise of the impact of the recent CJEU ruling
regarding
the dispute between Volkswagen
Financial Services (UK) Limited (“VWFS”) v
HM Revenue & Customs.
The effect of these matters is that, as part of our risk
assessment, we determined that the impact of the
final assessment of the amount of VAT to be
recovered has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater
the
financial statements as a whole, and possibly many
times that amount.
than our materiality for
---- Assessing transparency:
Assessing transparency: Assessing the adequacy
Assessing transparency:
Assessing transparency:
of the Group’s disclosures about the degree of
estimation uncertainty involved in performing the
impairment assessments.
Our procedures included:
---- Our tax expertise:
Our tax expertise: Use of our own tax specialists to
Our tax expertise:
Our tax expertise:
assist in our assessment of the latest position
regarding both the VWFS case and discussions
between the Group and IOM C&E and our knowledge
and experience of the application of relevant tax
legislation.
---- Test of details:
Test of details: Use of our own tax specialist to
Test of details:
Test of details:
assist in our testing of the calculations prepared by
the Group based on the revised VAT recoverable
calculation.
---- Assessing transparency:
Assessing transparency: Assessing the adequacy
Assessing transparency:
Assessing transparency:
of the Group’s disclosures about the degree of
estimation uncertainty involved in assessing the
recoverability of this balance.
Page | 27
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC (CONTINUED)
2 Key audit matters: our assessment of risks of material misstatement (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
Key audit matter
Key audit matter
Key audit matter
Key audit matter
Carrying
of Parent
of Parent
value
Carrying
value
of Parent
value
Carrying
of Parent
value
Carrying
Company’s subordinated loans
Company’s subordinated loans
Company’s subordinated loans
Company’s subordinated loans
to
in
in
to
in
to
in
to
subsidiaries
subsidiaries
subsidiaries
subsidiaries
investment
investment
investment
investment
and
and
and
and
loans
Subordinated
to
subsidiaries £7,778,000 (2017:
£5,778,000) and investment in
subsidiaries £16,172,000 (2017:
£13,772,000)
(Investment
Refer to the ARCC report, note
in Group
32
Undertakings) and note 38(A)(v)
(Separate Financial Statements
of the Company).
The risk
The risk
The risk
The risk
High value
High value
High value
High value
Auditor’s
response
Auditor’s response
response
response
Auditor’s
Auditor’s
Our procedures included:
The carrying value of
the Parent Company’s
subordinated loans to and investment in subsidiaries
represents 93.0% (2017: 98.0%) of the Parent
Company’s total assets. The assessment of carrying
value is not at a high risk of significant misstatement
or subject to significant judgement as the carrying
value is supported by the audited net asset value of
the subsidiaries. However, due to its materiality in
the context of
financial
statements, this is considered to be the area that had
the greatest effect on our overall Parent Company
audit.
the Parent Company
the
loans
Tests of detail:
to and
Tests of detail: Assessing
Tests of detail:
Tests of detail:
investment in subsidiaries to identify, with reference
to
the subsidiaries’ accounts, whether each
subsidiary has sufficient assets to repay the debt
owed and support
the
investment.
the carrying value of
Assessing subsidiary audits:
Assessing subsidiary audits: A full scope audit of the
Assessing subsidiary audits:
Assessing subsidiary audits:
accounts of the subsidiaries by the group audit
engagement team.
3 Our application of materiality and an overview of the scope of our
3 Our application of materiality and an overview of the scope of our
3 Our application of materiality and an overview of the scope of our
3 Our application of materiality and an overview of the scope of our
audit
audit
audit
audit
Materiality for the Group and Parent Company financial statements as
a whole was set at £130,000 (2017: £140,000), determined with
reference to a benchmark of Group profit before tax, of which it
represents approximately 5.0%.
We agreed to report to the Audit, Risk and Compliance Committee any
corrected or uncorrected identified misstatements exceeding £7,000
(2017: £7,000) for both the Group and Parent Company financial
statements, in addition to other identified misstatements that warranted
reporting on qualitative grounds.
The Group’s subsidiaries were subjected to full scope statutory audit
by the Group audit team and subject to a lower level of materiality
based on their individual financial statements.
4 We have nothing to report on going concern
4 We have nothing to report on going concern
4 We have nothing to report on going concern
4 We have nothing to report on going concern
The Directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Company or the
Group or to cease their operations, and as they have concluded that
the Company’s and the Group’s financial position means that this is
realistic. They have also concluded that there are no material
uncertainties that could have cast significant doubt over their ability to
continue as a going concern for at least a year from the date of
approval of the financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of the
Directors’ conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this audit report.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with
judgements that were reasonable at the time they were made, the
absence of reference to a material uncertainty in this auditor's report is
not a guarantee that the group or the company will continue in
operation.
4 We have nothing to report on going concern (continued)
4 We have nothing to report on going concern (continued)
4 We have nothing to report on going concern (continued)
4 We have nothing to report on going concern (continued)
In our evaluation of the Directors’ conclusions, we considered the
inherent risks to the Group’s and Company’s business model, and
analysed how those risks might affect the Group’s and Parent
Company’s financial resources or ability to continue operations over
the going concern period. We evaluated those risks and concluded
that they were not significant enough to require us to perform additional
audit procedures.
Based on this work, we are required to report to you if we have
concluded that the use of the going concern basis of accounting is
inappropriate or there is an undisclosed material uncertainty that may
cast significant doubt over the use of that basis for a period of at least
a year from the date of approval of the financial statements.
We have nothing to report in these respects, and we did not identify
going concern as a key audit matter.
5 We have nothing to report on the other information in the Annual
5 We have nothing to report on the other information in the Annual
5 We have nothing to report on the other information in the Annual
5 We have nothing to report on the other information in the Annual
Report
Report
Report
Report
The Directors are responsible for the other information presented in
the Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that work
we have not identified material misstatements in the other information.
Page | 28
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC (CONTINUED)
6 Respective responsibilities
6 Respective responsibilities
6 Respective responsibilities
6 Respective responsibilities
Directors’ responsibilities
Directors’ responsibilities
Directors’ responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 25, the
Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Group and Parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting unless
they either intend to liquidate the Group or the Parent Company or
to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Auditor’s responsibilities
Auditor’s responsibilities
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor’s report. Reasonable assurance is a high level
of assurance, but does not guarantee that an audit conducted in
ISAs (UK) will always detect a material
accordance with
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
7 The purpose of our audit work and to whom we owe our
7 The purpose of our audit work and to whom we owe our
7 The purpose of our audit work and to whom we owe our
7 The purpose of our audit work and to whom we owe our
responsibilities
responsibilities
responsibilities
responsibilities
This report is made solely to the Company’s members, as a body, in
accordance with Section 80(c) of the Isle of Man Companies Act
2006. Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
28 March 2019
Page | 29
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
For the year ended 31 December
Notes
Interest income
Interest expense
Net interest income
Net interest income
Net interest income
Net interest income
Fee and commission income
Fee and commission expense
Net trading income
Net trading income
Net trading income
Net trading income
Other operating income
Loss on trading assets
Realised gains on debt securities
Terminal funding
Operating income
Operating income
Operating income
Operating income
Personnel expenses
Other expenses
Impairment on loans and advances to customers
Depreciation
Amortisation and impairment of intangibles
Share of profit of equity accounted investees, net of tax
VAT recovery
Profit before tax payable
Profit before tax payable
Profit before tax payable
Profit before tax payable
Income tax expense
Profit for the year
Profit for the year
Profit for the year
Profit for the year
Other comprehensive income: ----
Other comprehensive income:
Other comprehensive income:
Other comprehensive income:
Items that will be reclassified to profit or loss
Items that will be reclassified to profit or loss
Items that will be reclassified to profit or loss
Items that will be reclassified to profit or loss
Unrealised gain/(losses) on debt securities
Items that will never be
reclassified to profit or loss
Items that will never be reclassified to profit or loss
reclassified to profit or loss
reclassified to profit or loss
Items that will never be
Items that will never be
Actuarial (losses)/gains on defined benefit pension scheme taken to equity
Total comprehensive income for the period attributable to owners
Total comprehensive income for the period attributable to owners
Total comprehensive income for the period attributable to owners
Total comprehensive income for the period attributable to owners
Basic earnings per share (pence)
Diluted earnings per share (pence)
The notes on pages 37 to 78 form part of these financial statements.
The Directors believe that all results derive from continuing activities.
10
11
11
21
20
12
13
14
15
24
25
32
23
16
17
20
30
18
18
2018
2018
20182018
£000
£000
£000£000
19,115
19,115
19,115
19,115
(3,547)
(3,547)
(3,547)
(3,547)
Restated
(Note 5)
2017
£000
19,893
(3,256)
15,568
15,568
15,568
15,568
16,637
3,371
3,371
3,371
3,371
(6,109)
(6,109)
(6,109)
(6,109)
3,115
(8,413)
12,830
12,830
12,830
12,830
11,339
131131131131
(4)(4)(4)(4)
135135135135
74747474
91
(21)
36
90
13,166
13,166
13,166
13,166
11,535
(5,703)
(5,703)
(5,703)
(5,703)
(3,4(3,4(3,4(3,465656565))))
(857
(857))))
(857(857
(184)
(184)
(184)
(184)
(396)
(396)
(396)
(396)
30303030
119119119119
2,2,2,2,710710710710
(2(2(2(243434343))))
2,467
2,467
2,467
2,467
44444444
(50)
(50)
(50)
(50)
2,2,2,2,461461461461
1.881.881.881.88
1.541.541.541.54
(4,783)
(3,152)
(585)
(134)
(286)
38
65
2,698
(240)
2,458
(93)
30
2,395
2.17
1.70
Page | 30
ANNUAL FINANCIAL STATEMENTS
COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
For the year ended 31 December
Notes
Interest income
Operating income
Operating income
Operating income
Operating income
Personnel expenses
Administration expenses
Depreciation expense
Profit before tax payable
Profit before tax payable
Profit before tax payable
Profit before tax payable
Tax payable
Profit for the year
Profit for the year
Profit for the year
Profit for the year
Total comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income for the year
The notes on pages 37 to 78 form part of these financial statements.
The Directors believe that all results derive from continuing activities.
16
2018
2018
20182018
£000
£000
£000£000
466466466466
466466466466
(177)
(177)
(177)
(177)
(132)
(132)
(132)
(132)
(41)
(41)
(41)
(41)
116116116116
----
116116116116
116116116116
2017
£000
-
-
(22)
(112)
(40)
(174)
-
(174)
(174)
Page | 31
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December
Notes
Assets
Assets
Assets
Assets
Cash and cash equivalents
Debt securities
Trading asset
Loans and advances to customers
Trade and other receivables
Property, plant and equipment
Intangible assets
Goodwill
Investment in associate
Total assets
Total assets
Total assets
Total assets
Liabilities
Liabilities
Liabilities
Liabilities
Deposits from customers
Creditors and accrued charges
Block creditors
Loan notes
Pension liability
Deferred tax liability
liabilities
Total liabilities
Total
liabilities
liabilities
Total
Total
Equity
Equity
Equity
Equity
Called up share capital
Profit and loss account
Total equity
Total equity
Total equity
Total equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
19
20
21
22
23
24
25
32
32
26
27
28
29
30
17
31
Restated
(Note 5)
2017
£000
Restated
(Note 5)
2016
£000
9,745
34,272
24
122,546
1,908
450
1,719
2,344
38
173,046
142,272
3,164
751
8,995
560
42
155,784
6,129
23,991
70
115,929
2,064
719
1,316
2,344
-
152,562
125,952
2,975
1,390
8,545
614
40
139,516
2018
2018
20182018
££££000000000000
9,753
9,753
9,753
9,753
30,534
30,534
30,534
30,534
20202020
148,278787878
148,2
148,2
148,2
2,491
2,491
2,491
2,491
1,384
1,384
1,384
1,384
1,952
1,952
1,952
1,952
2,344
2,344
2,344
2,344
158158158158
196,914914914914
196,
196,196,
158,500
158,500
158,500
158,500
2,012,012,012,010000
138138138138
15,871
15,871
15,871
15,871
584584584584
88888888
177,191191191191
177,
177,177,
20,732
20,732
20,732
20,732
(1,0(1,0(1,0(1,009090909))))
19,19,19,19,723723723723
20,732
(3,470)
17,262
18,933
(5,887)
13,046
196,914
196,914
196,914
196,914
173,046
152,562
The financial statements were approved by the Board of Directors on 27 March 2019 and signed on its behalf by: -
Jim Mellon
Jim Mellon
Jim Mellon
Jim Mellon
Executive Chairman
Denham Eke
Denham Eke
Denham Eke
Denham Eke
Chief Executive Officer
Douglas Grant
Douglas Grant
Douglas Grant
Douglas Grant
Group Finance Director
The notes on pages 37 to 78 form part of these financial statements.
Page | 32
ANNUAL FINANCIAL STATEMENTS
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December
Notes
Assets
Assets
Assets
Assets
Cash and cash equivalents
Trade and other receivables
Amounts due from Group undertakings
Property, plant and equipment
Investment in Group undertakings
Subordinated loans
Total assets
Total assets
Total assets
Total assets
Liabilities
Liabilities
Liabilities
Liabilities
Creditors and accrued charges
Amounts due to Group undertakings
Loan notes
Total liabilities
Total liabilities
Total liabilities
Total liabilities
Equity
Equity
Equity
Equity
Called up share capital
Profit and loss account
Total equity
Total equity
Total equity
Total equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
19
23
32
24
32
32
27
32
29
31
The notes on pages 37 to 78 form part of these financial statements.
2018
2018
20182018
££££000000000000
1,646
1,646
1,646
1,646
32323232
----
126126126126
16,172
16,172
16,172
16,172
7,778
7,778
7,778
7,778
25,754
25,754
25,754
25,754
94949494
1,370
1,370
1,370
1,370
15,871
15,871
15,871
15,871
17,335
17,335
17,335
17,335
2017
£000
200
22
16
166
13,772
5,778
19,954
139
2,517
8,995
11,651
20,732
20,732
20,732
20,732
(12,313)
(12,313)
(12,313)
(12,313)
8,419
8,419
8,419
8,419
25,754
25,754
25,754
25,754
20,732
(12,429)
8,303
19,954
Page | 33
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY
GroupGroupGroupGroup
Balance as at 1
January 2017 (as originally stated)
Balance as at 1 January 2017 (as originally stated)
January 2017 (as originally stated)
January 2017 (as originally stated)
Balance as at 1
Balance as at 1
Retrospective impact on initial application of IFRS 9 (see note 5)
Restated balance at 1 January 2017
Profit for the year (See note 8.A.(iv))
Other comprehensive income
Transactions with owners: -
Share-based payment expense (see notes 16 and 31)
Shares issued
Restated Balance as at 31 December 2017
Profit for the year
Other comprehensive income
Transactions with owners: -
Share-based payment expense (see notes 16 and 31)
Share
Share
Share
Share
capital
capital
capital
capital
££££000000000000
18,933
-
18,933
-
-
-
1,799
20,732
-
-
-
Profit and
Profit and
Profit and
Profit and
loss account
loss account
loss account
loss account
££££000000000000
(5,763)
(124)
(5,887)
2,458
(63)
22
-
(3,470)
2,467
(6)
-
Total
Total
Total
Total
equity
equity
equity
equity
£000
£000
£000£000
13,170
(124)
13,046
2,458
(63)
22
1,799
17,262
2,467
(6)
-
Balance as at 31 December 2018
Balance as at 31 December 2018
Balance as at 31 December 2018
Balance as at 31 December 2018
20,732
20,732
20,732
20,732
(1,0(1,0(1,0(1,009090909))))
19,19,19,19,723723723723
Company
Company
Company
Company
Balance as at 1 January 2017
Loss for the year
Transactions with owners: -
Share-based payment expense (see notes 16 and 31)
Shares issued
Balance as at 31 December 2017
Profit for the year
Transactions with owners:
Transactions with owners: ----
Transactions with owners:
Transactions with owners:
Share-based payment expense (see notes 16 and 31)
Share
Share
Share
Share
Capital
Capital
Capital
Capital
££££000000000000
Profit and
Profit and
Profit and
Profit and
loss account
loss account
loss account
loss account
££££000000000000
18,933
(12,277)
-
(174)
-
1,799
20,732
-
----
22
-
(12,429)
116
----
Total
Total
Total
Total
equity
equity
equity
equity
££££000000000000
6,656
(174)
22
1,799
8,303
116
----
Balance as at 31 December 2018
Balance as at 31 December 2018
Balance as at 31 December 2018
Balance as at 31 December 2018
20,732
20,732
20,732
20,732
(12,313)
(12,313)
(12,313)
(12,313)
8,419
8,419
8,419
8,419
The notes on pages 37 to 78 form part of these financial statements.
Page | 34
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Notes
2018
2018
20182018
£000
£000
£000£000
2017
£000
Profit before tax
Adjustments for:
Depreciation
Amortisation and impairment of intangibles
Realised gains on debt securities
Share in net assets of associate
Equity settled share-based payment transactions
Changes in:
Trading asset
Trade and other receivables
Creditors and accrued charges
Net cash flow from trading activities
Changes in:
Loans and advances to customers
Deposits from customers
Pension contribution
Cash (outflow)/inflow from operating activities
Cash (outflow)/inflow from operating activities
Cash (outflow)/inflow from operating activities
Cash (outflow)/inflow from operating activities
CASH FLOW STATEMENT
CASH FLOW STATEMENT
CASH FLOW STATEMENT
CASH FLOW STATEMENT
Cash from operating activities
Cash from operating activities
Cash from operating activities
Cash from operating activities
Cash (outflow)/inflow from operating activities
Income taxes paid
Net cash (outflow)/inflow from operating activities
Net cash (outflow)/inflow from operating activities
Net cash (outflow)/inflow from operating activities
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Cash flows from investing activities
Cash flows from investing activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Sale of tangible fixed assets
Acquisition of associate
Sales/(Purchase) of debt securities at FVOCI
Purchase of debt securities at amortised cost
Net cash inflow/(outflow) from investing activities
Net cash inflow/(outflow) from investing activities
Net cash inflow/(outflow) from investing activities
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Cash flows from financing activities
Cash flows from financing activities
Cash flows from financing activities
Receipt of loan notes
Increase in share capital
(Decrease) in borrowings from block creditors
Net cash inflow from financing activities
Net cash inflow from financing activities
Net cash inflow from financing activities
Net cash inflow from financing activities
Net increase in cash and cash equivalents
Net increase in cash and cash equivalents
Net increase in cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Cash and cash equivalents at 31 December
Cash and cash equivalents at 31 December
Cash and cash equivalents at 31 December
Included in cash flows are: ----
Included in cash flows are:
Included in cash flows are:
Included in cash flows are:
Interest received – cash amounts
Interest paid – cash amounts
The notes on pages 37 to 78 form part of these financial statements.
24
25
20
32
16, 31
21
30
24
25
32
20
20
29
28
2,2,2,2,710710710710
2,698
184184184184
396396396396
(135)
(135)
(135)
(135)
(30)
(30)
(30)
(30)
----
134
286
(36)
(38)
22
3,3,3,3,125125125125
3,066
4444
(583)
(583)
(583)
(583)
(1,1(1,1(1,1(1,169696969))))
1,31,31,31,377777777
(25,732323232))))
(25,7
(25,7
(25,7
16,228
16,228
16,228
16,228
(26)
(26)
(26)
(26)
(8,153)
(8,153)
(8,153)
(8,153)
(8,153)
(8,153)
(8,153)
(8,153)
(182)
(182)
(182)
(182)
(8,335)
(8,335)
(8,335)
(8,335)
(1,118)
(1,118)
(1,118)
(1,118)
(629)
(629)
(629)
(629)
----
(90)
(90)
(90)
(90)
3,917
3,917
3,917
3,917
----
2,080
2,080
2,080
2,080
6,876
6,876
6,876
6,876
----
(613)
(613)
(613)
(613)
6,263
6,263
6,263
6,263
8888
9,745
9,745
9,745
9,745
9,753
9,753
9,753
9,753
46
156
(21)
3,247
(6,617)
16,320
(24)
12,926
12,926
(28)
12,898
(122)
(452)
20
-
(4,806)
(5,532)
(10,892)
450
1,799
(639)
1,610
3,616
6,129
9,745
18,362
18,362
18,362
18,362
(3,434)
(3,434)
(3,434)
(3,434)
19,109
(3,152)
Page | 35
ANNUAL FINANCIAL STATEMENTS
COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Notes
2018
2018
20182018
£000
£000
£000£000
2017
£000
Profit before tax
Adjustments for:
- Depreciation
- Share-based payment expense
Changes in:
Amounts due from group undertakings
Trade and other receivables
Creditors and accrued charges
Amounts due to group undertakings
Cash (outflow)/inflow from operating activities
CASH FLOW STATEMENT
CASH FLOW STATEMENT
CASH FLOW STATEMENT
CASH FLOW STATEMENT
Cash from operating activities
Cash from operating activities
Cash from operating activities
Cash from operating activities
Cash (outflow)/inflow from operating activities
Income taxes paid
Net cash (outflow)/inflow from operating activities
Net cash (outflow)/inflow from operating activities
Net cash (outflow)/inflow from operating activities
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Cash flows from investing activities
Cash flows from investing activities
Cash flows from investing activities
Increase in investment in group undertakings
Issue of subordinated loans
Net cash outflow from investing activities
Net cash outflow from investing activities
Net cash outflow from investing activities
Net cash outflow from investing activities
Cash flows from financing activities
Cash flows from financing activities
Cash flows from financing activities
Cash flows from financing activities
Receipt of loan notes
Increase in share capital
activities
Net cash inflow from financing activities
Net cash inflow from financing
activities
activities
Net cash inflow from financing
Net cash inflow from financing
Net increase in cash and cash equivalents
Net increase in cash and cash equivalents
Net increase in cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Cash and cash equivalents at 31 December
Cash and cash equivalents at 31 December
Cash and cash equivalents at 31 December
The notes on pages 37 to 78 form part of these financial statements.
24
32
32
32
29
116116116116
41414141
----
157157157157
16161616
(10)
(10)
(10)
(10)
(45)
(45)
(45)
(45)
(1,147)
(1,147)
(1,147)
(1,147)
(1,029)
(1,029)
(1,029)
(1,029)
(1,029)
(1,029)
(1,029)
(1,029)
----
(1,029)
(1,029)
(1,029)
(1,029)
(2,400)
(2,400)
(2,400)
(2,400)
(2,000)
(2,000)
(2,000)
(2,000)
(4,400)
(4,400)
(4,400)
(4,400)
6,875
6,875
6,875
6,875
----
6,875
6,875
6,875
6,875
1,446
1,446
1,446
1,446
200200200200
1,646
1,646
1,646
1,646
(174)
41
22
(111)
280
7
57
18
251
251
-
251
(1,700)
(600)
(2,300)
450
1,799
2,249
200
-
200
Page | 36
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
1.1.1.1. Reporting entity
Reporting entity
Reporting entity
Reporting entity
Manx Financial Group PLC is a company incorporated in the Isle of Man. The consolidated financial statements of Manx Financial
Group PLC (the “Company”) for the year ended 31 December 2018 comprise the Company and its subsidiaries (the “Group”).
2.2.2.2. Basis of
accounting
Basis of accounting
accounting
accounting
Basis of
Basis of
The consolidated and the separate financial statements of the Company have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and International Financial Reporting
Interpretations Committee (“IFRIC”) interpretations applicable to companies reporting under IFRS, including International Accounting
Standards (“IAS”).
This is the first set of the Group’s annual financial statements in which IFRS 9 Financial Instruments and IFRS 15 Revenue from
Contracts with Customers have been applied. Changes to significant accounting policies are described in Note 5.
3.3.3.3. Functional and presentation currency
Functional and presentation currency
Functional and presentation currency
Functional and presentation currency
These financial statements are presented in pounds sterling, which is the Group’s functional currency. All amounts have been rounded
to the nearest thousand, unless otherwise indicated. All subsidiaries of the Group have pounds sterling as their functional currency.
4.4.4.4. Use of judgements and estimates
Use of judgements and estimates
Use of judgements and estimates
Use of judgements and estimates
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised and in any future periods affected.
Assumptions and estimation uncertainties
Assumptions and estimation uncertainties
Assumptions and estimation uncertainties
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties at year-end that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities in the next financial year is included in the following notes:-
Note 23 – measurement of VAT receivable: key assumptions underlying carrying amount;
Note 30 – measurement of defined benefit obligations: key actuarial assumptions;
Note 25 and 32 – impairment test of intangible assets and goodwill: key assumptions underlying recoverable amounts; and
Note 38(I)(vii) – measurement of ECL allowance for loans and advances to customers and assessment of specific impairment
allowances where loans are in default or arrears: key assumptions in determining the weighted-average loss rate.
5.5.5.5. Changes in accounting policies
Changes in accounting policies
Changes in accounting policies
Changes in accounting policies
A number of other new standards are also effective from 1 January 2018 but they do not have a material effect on the Group’s financial
statements.
Except for the changes below, the Group has consistently applied the accounting policies as set out in Note 38 to all periods presented
in these financial statements.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments
IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell
non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The requirements of IFRS
9 represent a significant change from IAS 39. The new standard brings fundamental changes to the accounting for financial assets
and to certain aspects of the accounting for financial liabilities.
The key changes to the Group’s accounting policies resulting from the Group’s adoption of IFRS 9 are summarised below. The full
impact of adopting the standard is set out in Note 6 and 8.
Classification of financial assets and financial liabilities
Classification of financial assets and financial liabilities
Classification of financial assets and financial liabilities
Classification of financial assets and financial liabilities
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other
comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). IFRS 9 classification is generally based on the business
model in which a financial asset is manged and its contractual cash flows. The standard eliminates the previous IAS 39 categories of
held-to-maturity, loans and receivables and available-for-sale.
Page | 37
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
accounting policies (continued)
Changes in accounting policies (continued)
5.5.5.5. Changes in
accounting policies (continued)
accounting policies (continued)
Changes in
Changes in
Classification of financial assets and financial liabilities (continued)
Classification of financial assets and financial liabilities (continued)
Classification of financial assets and financial liabilities (continued)
Classification of financial assets and financial liabilities (continued)
IFRS 9 largely retains the existing requirements in IAS 39 for classification of financial liabilities. However, although under IAS 39 all
fair value changes of liabilities designated under the fair value option were recognised in profit or loss, under IFRS 9 fair value changes
are generally presented as follows:
the amount of change in fair value that is attributable to changes in the credit risk of the liability is presented in Other
Comprehensive Income (“OCI”); and
the remaining amount of change in the fair value is presented in profit or loss.
For an explanation of how the Group classifies financial assets and liabilities under IFRS 9, See Note 38(I)(ii).
Impairment of financial assets
Impairment of financial assets
Impairment of financial assets
Impairment of financial assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model.
Under IFRS 9, credit losses are recognised earlier than under IAS 39. For an explanation of how the Group applies the impairment
requirements of IFRS 9, see Note 38(I)(vii).
Transition
Transition
Transition
Transition
Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively,
For more information and details on the changes and implications resulting from the adoption of IFRS 9, see note 6 and 8(A)(iv).
B. IFRS 15 Revenue from Contracts with Customers
B. IFRS 15 Revenue from Contracts with Customers
B. IFRS 15 Revenue from Contracts with Customers
B. IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced
IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.
The Group initially applied IFRS 15 on 1 January 2018 retrospectively in accordance with IAS 8 without any practical expedients. The
timing or amount of the Group’s fee income from contracts with customers was not impacted by the adoption of IFRS 15.
Page | 38
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
6. Classification of financial assets and financial liabilities
6. Classification of financial assets and financial liabilities
6. Classification of financial assets and financial liabilities
6. Classification of financial assets and financial liabilities
For description of how the Group classifies financial assets and liabilities, see Note 38(I)(ii)
The following table provides reconciliation between line items in the statement of financial position and categories of financial
instruments.
Mandatorily
Mandatorily
Mandatorily
Mandatorily
at FVTPL
at FVTPL
at FVTPL
at FVTPL
Designated
Designated
Designated
Designated
as at FVTPL
as at FVTPL
as at FVTPL
as at FVTPL
FVOCI ––––
FVOCI
FVOCI
FVOCI
ddddebt ebt ebt ebt
instruments
instruments
instruments
instruments
FVOCI ––––
FVOCI
FVOCI
FVOCI
equity
equity
equity
equity
instruments
instruments
instruments
instruments
Amortised
Amortised
Amortised
Amortised
cost
cost
cost
cost
31 December 2018
31 December 2018
31 December 2018
31 December 2018
Cash and cash equivalents
Debt securities
Trading assets
Loans and advances to customers
Trade and other receivables
financial assets
Total financial assets
Total
financial assets
financial assets
Total
Total
Deposits from customers
Creditor and accrued charges
Block creditors
Loan notes
liabilities
Total financial liabilities
Total financial
liabilities
liabilities
Total financial
Total financial
31 December 2017
Cash and cash equivalents
Debt securities
Trading assets
Loans and advances to customers
Trade and other receivables
Total financial assets
Deposits from customers
Creditor and accrued charges
Block creditors
Loan notes
Total financial liabilities
-
20
-
----
20202020
----
-
-
-
----
-
-
-
----
----
----
-
-
-
----
30,534
-
-
----
30,534
30,534
30,534
30,534
----
-
-
-
----
-
-
-
-
----
-
-
-
-
----
Mandatorily
at FVTPL
Designated
as at FVTPL
-
-
24
-
-
24
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
FVOCI –
debt
instruments
-
28,740
-
-
-
28,740
FVOCI –
equity
instruments
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
Total
Total
Total
carrying
carrying
carrying
carrying
amount
amount
amount
amount
9,753
30,534
20
148,278
2,491
191,076767676
191,0
191,0
191,0
158,500
2,010
138
15,871
9,753
-
-
148,278
2,491
160,522222222
160,5
160,5
160,5
158,500
2,010
138
15,871
176,519191919
176,5
176,5
176,5
176,519191919
176,5
176,5
176,5
Amortised
cost
9,745
5,532
-
122,546
1,908
139,731
142,272
3,164
751
8,995
Total
carrying
amount
9,745
34,272
24
122,546
1,908
168,495
142,272
3,164
751
8,995
155,182
155,182
The following table shows the original measurement categories in accordance with IAS 39 and the new measurement categories
under IFRS 9 for the Group’s financial assets and liabilities at 1 January 2017.
1 January 2017
Cash and cash equivalents
Trading assets
Debt securities
Debt securities – Certificates of
Deposit
Loans and advances to customers
Trade and other receivables
Original
classification under
IAS 39
Loans and
receivables
FVTPL
Available-for-sale
Amortised cost
Amortised cost
Loans and
receivables
New classification
under IFRS 9
Amortised cost
FVTPL
(Mandatory)
FVOCI
Amortised cost
Amortised cost
Amortised cost
Original carrying
amount under IAS
39
6,129
New carrying
amount under
IFRS 9
6,129
70
23,991
-
116,053
2,064
70
23,991
-
115,929
2,064
Total financial assets
148,307
148,183
Page | 39
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
6. Classification of financial assets and financial liabilities (continued)
6. Classification of financial assets and financial liabilities (continued)
6. Classification of financial assets and financial liabilities (continued)
6. Classification of financial assets and financial liabilities (continued)
1 January 2017
Deposits from customers
Creditor and accrued charges
Block creditors
Loan notes
Total financial liabilities
Original
classification under
IAS 39
Amortised cost
Amortised cost
Amortised cost
Amortised cost
New classification
under IFRS 9
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Original carrying
amount under IAS
39
125,952
2,975
1,390
8,545
New carrying
amount under
IFRS 9
125,952
2,975
1,390
8,545
138,862
138,862
In applying IFRS 9 both in the current period and retrospectively in previous periods, there were no reclassifications in the
measurement category. As a result, there has been no financial adjustment in transitioning to IFRS 9 with respect to adopting the
revised measurement categories.
7. Fair value of financial instruments
7. Fair value of financial instruments
7. Fair value of financial instruments
7. Fair value of financial instruments
For description of the Group’s fair value measurement accounting policy, see Note 38(I)(vi).
The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy
into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial
position.
31 December 2018
31 December 2018
31 December 2018
31 December 2018
Debt securities
Trading assets
31 December 2017
Investment securities
Debt securities
Trading assets
Level 1
Level 1
Level 1
Level 1
££££000000000000
Level 2
Level 2
Level 2
Level 2
££££000000000000
Level 3
Level 3
Level 3
Level 3
££££000000000000
Total
Total
Total
Total
££££000000000000
30,534
30,534
30,534
30,534
20202020
30,554
30,554
30,554
30,554
----
----
----
----
----
----
Level 1
£000
Level 2
£000
Level 3
£000
28,740
24
28,764
-
-
-
5,532
-
5,532
30,534
30,534
30,534
30,534
20202020
30,554
30,554
30,554
30,554
Total
£000
34,272
24
34,296
Financial instruments not measured at
fair value
Financial instruments not measured at fair value
fair value
fair value
Financial instruments not measured at
Financial instruments not measured at
The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the
fair value hierarchy into which each fair value measurement is categorised: -
31 December 2018
31 December 2018
31 December 2018
31 December 2018
Assets
Assets
Assets
Assets
Cash and cash equivalents
Loans and advances to customers
Investment in associate
Trade and other receivables
Liabilities
Liabilities
Liabilities
Liabilities
Deposits from customers
Creditors and accrued charges
Block creditors
Loan notes
Level 1
Level 1
Level 1
Level 1
££££000000000000
Level 2
Level 2
Level 2
Level 2
££££000000000000
Level 3
Level 3
Level 3
Level 3
££££000000000000
----
----
----
----
----
----
----
----
----
----
9,753
9,753
9,753
9,753
----
----
----
9,753
9,753
9,753
9,753
158,500
158,500
158,500
158,500
----
----
----
158,500
158,500
158,500
158,500
----
148,278787878
148,2
148,2
148,2
158158158158
2,491
2,491
2,491
2,491
150,927272727
150,9
150,9
150,9
----
2,012,012,012,010000
138138138138
15,871
15,871
15,871
15,871
18,018,018,018,019191919
Total fair
Total fair
Total fair
Total fair
values
values
values
values
££££000000000000
9,753
9,753
9,753
9,753
148,278787878
148,2
148,2
148,2
158158158158
2,491
2,491
2,491
2,491
160,680808080
160,6
160,6
160,6
158,500
158,500
158,500
158,500
2,012,012,012,010000
138138138138
15,871
15,871
15,871
15,871
176,519191919
176,5
176,5
176,5
Total
Total
Total
Total
carrying
carrying
carrying
carrying
amount
amount
amount
amount
££££000000000000
9,753
9,753
9,753
9,753
148,278787878
148,2
148,2
148,2
158158158158
2,491
2,491
2,491
2,491
160,680808080
160,6
160,6
160,6
158,500
158,500
158,500
158,500
2,012,012,012,010000
138138138138
15,871
15,871
15,871
15,871
176,519191919
176,5
176,5
176,5
Page | 40
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
7. Fair value of financial instruments (continued)
7. Fair value of financial instruments (continued)
7. Fair value of financial instruments (continued)
7. Fair value of financial instruments (continued)
Financial instruments not measured at fair value (continued)
Financial instruments not measured at fair value (continued)
Financial instruments not measured at fair value (continued)
Financial instruments not measured at fair value (continued)
31 December 2017
Assets
Cash and cash equivalents
Debt securities – certificates of deposit
Loans and advances to customers
Investment in associate
Trade and other receivables
Liabilities
Deposits from customers
Creditors and accrued charges
Block creditors
Loan notes
Level 1
£000
Level 2
£000
Level 3
£000
-
-
-
-
-
-
-
-
-
-
-
9,745
-
-
-
-
9,745
142,272
-
-
-
142,272
-
5,532
122,546
24
1,908
130,010
-
3,164
751
8,995
12,910
Total fair
values
£000
9,745
5,532
122,546
24
1,908
139,755
142,272
3,164
751
8,995
155,182
Total
carrying
amount
£000
9,745
5,532
122,546
24
1,908
139,755
142,272
3,164
751
8,995
155,182
The fair value of loans and advances is estimated using valuation models, such as discounted cash flow techniques. Input into the
valuation techniques includes expected lifetime credit losses, interest rates, prepayment rates. For collateral-dependent impaired
loans, the fair value is measured based on the value of the underlying collateral. Input into the models may include data from third
party brokers based on over the counter trading activity, and information obtained from other market participants, which includes
observed primary and secondary transactions.
8. Financial risk review
8. Financial risk review
8. Financial risk review
8. Financial risk review
Risk management
Risk management
Risk management
Risk management
This note presents information about the Group’s exposure to financial risks and the Group’s management of capital. For information
on the Group’s financial risk management framework, see Note 36.
A. Credit risk
A. Credit risk
A. Credit risk
A. Credit risk
For definition of credit risk and information on how credit risk is mitigated by the Group, see Note 36.
i. Credit quality analysis
i. Credit quality analysis
i. Credit quality analysis
i. Credit quality analysis
Loans and advances to customers
Loans and advances to customers
Loans and advances to customers
Loans and advances to customers
Explanation of the terms ‘Stage 1’, ‘Stage 2’ and ‘Stage 3’ is included in Note 38 (I)(vii).
An analysis of the credit risk on loans and advances to customers is as follows: -
Grade A1
Grade B
Grade C
Gross value
Allowance for impairment
Carrying value
Stage 1
£000
139,695
760
-
140,455
(125)
140,330
Stage 2
£000
Stage 3
£000
2018
2018
20182018
£000
£000
£000£000
139,695
139,695
139,695
139,695
6,153
6,153
6,153
6,153
5,824
5,824
5,824
5,824
2017
£000
118,373
3,090
3,770
-
85
4,078
4,163
151,672
151,672
151,672
151,672
125,233
(3,126)
1,037
(3,(3,(3,(3,394394394394))))
148,278787878
148,2
148,2
148,2
(2,687)
122,546
-
5,308
1,746
7,054
(143)
6,911
1 Loans are graded A to C depending on the level of risk. Grade C relates to agreements with the highest of risk, Grade B with medium risk and Grade A relates to
agreements with the lowest risk.
Page | 41
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
A. Credit risk (continued)
A. Credit risk (continued)
A. Credit risk (continued)
A. Credit risk (continued)
i. Credit quality analysis (continued)
i. Credit quality analysis (continued)
i. Credit quality analysis (continued)
i. Credit quality analysis (continued)
(continued)
Loans and advances to customers (continued)
Loans and advances to customers
(continued)
(continued)
Loans and advances to customers
Loans and advances to customers
The following table sets out information about the overdue status of loans and advances to customers in Stage 1, 2 and 3.
31 December
Current
Overdue < 30 days
Overdue > 30 days
Stage 1
£000
137,196
2,499
760
140,455
Debt securities, Cash and cash equivalents
Debt securities, Cash and cash equivalents
Debt securities, Cash and cash equivalents
Debt securities, Cash and cash equivalents
The following table sets out the credit quality of liquid assets:
31 December
Government bonds and treasury bills
Government bonds and treasury bills
Government bonds and treasury bills
Government bonds and treasury bills
Rated A to A+
Corporate bonds
Corporate bonds
Corporate bonds
Corporate bonds
Rated A to A+
Cash and cash
equivalents
Cash and cash equivalents
equivalents
equivalents
Cash and cash
Cash and cash
Rated A to A+
Stage 2
£000
Stage 3
£000
-
-
7,054
7,054
-
-
4,163
2018
2018
20182018
£000
£000
£000£000
137,196
137,196
137,196
137,196
2,499
2,499
2,499
2,499
11,977777
11,97
11,97
11,97
2017
£000
115,267
3,106
6,860
4,163
151,672222
151,67
151,67
151,67
125,233
2018
2018
20182018
£000
£000
£000£000
2017
£000
30,534
30,534
30,534
30,534
28,740
----
5,532
9,754
9,754
9,754
9,754
9,745
40,288
40,288
40,288
40,288
44,017
The analysis has been based on Standard & Poor’s ratings.
ii. Collateral and other credit enhancements
ii. Collateral and other credit enhancements
ii. Collateral and other credit enhancements
ii. Collateral and other credit enhancements
The Group holds collateral in the form of the underlying assets (typically private and commercial vehicles, plant and machinery) to
loan arrangements as security for HP, finances leases, vehicle stocking plans, block discounting, wholesale funding arrangements,
integrated wholesale funding arrangements and secured commercial loan balances, which are sub-categories of loans and advances
to customers. In addition, the commission share schemes have an element of capital indemnified. During 2018, 37.9% of loans and
advances fell into this category (2017: 41.7%).
Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except
when a loan is individually assessed as impaired. At the time of granting credit within the sub-categories listed above, the loan
balances due are secured over the underlying assets held as collateral.
iii. Amounts arising from ECL
iii. Amounts arising from ECL
iii. Amounts arising from ECL
iii. Amounts arising from ECL
See accounting policy in Note 38(I)(vii)
IFRS 9 significantly overhauled the requirements and methodology used to assess credit impairments by transitioning to a forward-
looking approach based on an expected credit loss model. The new impairment model applies to financial assets measured at
amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit
losses are recognised earlier than under IAS 39.
After a detailed review, the Group devised and implemented an impairment methodology in light of the IFRS 9 requirements outlined
above noting the following:
A SICR is always deemed to occur when the borrower is 30 days past due on its contractual payments. If the Group becomes
aware ahead of this time of non-compliance or financial difficulties of the borrower, such as loss of employment, avoiding
contact with the Group then a SICR has also deemed to occur.
Page | 42
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
A. Credit risk (continued)
A. Credit risk (continued)
A. Credit risk (continued)
A. Credit risk (continued)
iii. Amounts arising from ECL (continued)
iii. Amounts arising from ECL (continued)
iii. Amounts arising from ECL (continued)
iii. Amounts arising from ECL (continued)
A receivable is always deemed to be in default and credit-impaired when the borrower is 90 days past due on its contractual
payments or earlier if the Group becomes aware of severe financial difficulties such as bankruptcy, IVA, abscond or
disappearance, fraudulent activity and other similar events.
The ECL was derived by reviewing the Group’s loss rate and loss given default over the past 8 years by product and
geographical segment.
The Group has assumed that the future economic conditions will broadly mirror the current environment and therefore the
forecasted loss levels in the next 3 years will match the Group’s experience in recent years.
For portfolios where the Group has never had a default in its history or has robust credit enhancements such as credit
insurance or default indemnities for the entire portfolio, then no IFRS 9 provision is made.
If the Group holds objective evidence through specifically assessing a credit-impaired receivable and believes it will go on
to completely recover the debt due to the collateral held and cooperation with the borrower, then no IFRS 9 provision is
made.
iv. Reconciliation of the primary statements from IAS 39 to IFRS 9
iv. Reconciliation of the primary statements from IAS 39 to IFRS 9
iv. Reconciliation of the primary statements from IAS 39 to IFRS 9
iv. Reconciliation of the primary statements from IAS 39 to IFRS 9
As a result of the change to the Group’s accounting policy in regards to credit-impairments, it has restated the previous periods in
accordance with IFRS 9. A reconciliation of the primary statements is as follows:
Consolidated Income Statement
Consolidated Income Statement
Consolidated Income Statement
Consolidated Income Statement
31 December 2017
Profit for the year
Increase to provision for impairment on loan assets
Restated profit for the year
Reduction in basic earnings per share (pence)
Reduction in diluted earnings per share (pence)
Consolidated Statement of Other Comprehensive Income
Consolidated Statement of Other Comprehensive Income
Consolidated Statement of Other Comprehensive Income
Consolidated Statement of Other Comprehensive Income
31 December 2017
Total comprehensive income for the year attributable to owners
Increase to provision for impairment on loan assets
Restated Total comprehensive income for the year attributable to owners
Reduction in basic earnings per share (pence)
Reduction in diluted earnings per share (pence)
Impact of
adopting IFRS 9
at 31 December
£000
2,508
(50)
2,458
(0.04)
(0.03)
Impact of
adopting IFRS 9
at 31 December
£000
2,445
(50)
2,395
(0.04)
(0.03)
Page | 43
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
A. Credit risk (continued)
A. Credit risk (continued)
A. Credit risk (continued)
A. Credit risk (continued)
iv. Reconciliation of the primary statements from IAS 39 to IFRS 9 (continued)
iv. Reconciliation of the primary statements from IAS 39 to IFRS 9 (continued)
iv. Reconciliation of the primary statements from IAS 39 to IFRS 9 (continued)
iv. Reconciliation of the primary statements from IAS 39 to IFRS 9 (continued)
Statement of Financial Position
Consolidated Statement of Financial Position
Consolidated
Statement of Financial Position
Statement of Financial Position
Consolidated
Consolidated
Assets
Loans and advances to customers
Increase to provision for impairment on loan assets
Restated loans and advances to customers
Equity
Profit and loss account
Increase to provision for impairment on loan assets
Restated profit and loss account
Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
Impact of
adopting IFRS 9
at 31 December
2017
£000
Impact of
adopting IFRS 9
at 31 December
2016
£000
122,720
(174)
122,546
(3,296)
(174)
(3,470)
116,053
(124)
115,929
(5,763)
(124)
(5,887)
Total cash flows from operating, investing and financing activities remains unchanged due to the increase in impairments on loan
assets being a non-cash item.
Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity
For an analysis of the retrospective impact of IFRS 9, see the Consolidated Statement of Changes in Equity which analyses in each
year the effect of adopting IFRS 9 for that year.
v. Concentration of credit risk
v. Concentration of credit risk
v. Concentration of credit risk
v. Concentration of credit risk
Geographical
Lending is restricted to individuals and entities with Isle of Man, UK or Channel Islands addresses.
Segmental
The Bank is exposed to credit risk with regard to customer loan accounts, comprising HP and finance lease balances, unsecured
personal loans, secured commercial loans, block discounting, vehicle stocking plan loans and wholesale funding agreements. In
addition, the Bank lends via significant introducers into the UK. There was one introducer that accounted for more than 20% of the
Bank’s total lending portfolio at the end of 31 December 2018 (2017: one introducer).
B. Liquidity risk
B. Liquidity risk
B. Liquidity risk
B. Liquidity risk
For the definition of liquidity risk and information on how liquidity risk is manged by the Group see Note 36.
i. Exposure to liquidity risk
i. Exposure to liquidity risk
i. Exposure to liquidity risk
i. Exposure to liquidity risk
The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers and short-
term funding. For this purpose, ‘net liquid assets’ includes cash and cash equivalents and investment-grade debt securities for which
there is an active and liquid market.
Details of the reported Group ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period
were as follows:
At 31 December
Average for the period
Maximum for the period
Minimum for the period
2018
2018
20182018
25%25%25%25%
32%32%32%32%
40%40%40%40%
25%25%25%25%
2017
27%
26%
30%
23%
Page | 44
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
financial assets
ii. Maturity analysis for financial liabilities and financial assets
ii. Maturity analysis for financial liabilities and
financial assets
financial assets
ii. Maturity analysis for financial liabilities and
ii. Maturity analysis for financial liabilities and
The table below shows the Group’s financial liabilities classified by their earliest possible contractual maturity, on an undiscounted
basis including interest due at the end of the deposit term. Based on historical data, the Group’s expected actual cash flow from these
items vary from this analysis due to the expected re-investment of maturing customer deposits.
Residual contractual maturities of financial liabilities as at the reporting date (undiscounted)
Residual contractual maturities of financial liabilities as at the reporting date (undiscounted)
Residual contractual maturities of financial liabilities as at the reporting date (undiscounted)
Residual contractual maturities of financial liabilities as at the reporting date (undiscounted)
31 December 2018
31 December 2018
31 December 2018
31 December 2018
££££000000000000
Sight
Sight----
SightSight
8 days
8 days
8 days
8 days
>8 days
>8 days
>8 days
>8 days
---- 1 month
1 month
1 month
1 month
££££000000000000
>1 month
>1 month
>1 month
>1 month
---- 3 months
3 months
3 months
3 months
££££000000000000
>3 months
>3 months
>3 months
>3 months
---- 6 months
6 months
6 months
6 months
££££000000000000
>6 months
>6 months
>6 months
>6 months
---- 1 year
1 year
1 year
1 year
££££000000000000
>1 year
>1 year
>1 year
>1 year
---- 3 years
3 years
3 years
3 years
££££000000000000
>3 years
>3 years
>3 years
>3 years
---- 5 years
5 years
5 years
5 years
££££000000000000
>5 years
>5 years
>5 years
>5 years
££££000000000000
Total
Total
Total
Total
££££000000000000
Deposits from
customers
Other liabilities
Total liabilities
Total liabilities
Total liabilities
Total liabilities
31 December 2017
Deposits from
customers
Other liabilities
Total liabilities
1,754
1,754
1,754
1,754
2,061
2,061
2,061
2,061
3,815
3,815
3,815
3,815
5,012
5,012
5,012
5,012
200200200200
5,212
5,212
5,212
5,212
14,397
14,397
14,397
14,397
230230230230
14,627
14,627
14,627
14,627
34,028
34,028
34,028
34,028
216216216216
34,244
34,244
34,244
34,244
35,032
35,032
35,032
35,032
928928928928
35,960
35,960
35,960
35,960
56,643
56,643
56,643
56,643
8,705
8,705
8,705
8,705
65,348
65,348
65,348
65,348
11,634
11,634
11,634
11,634
8,063
8,063
8,063
8,063
19,697
19,697
19,697
19,697
----
584584584584
584584584584
158,500
158,500
158,500
158,500
20,987
20,987
20,987
20,987
179,487
179,487
179,487
179,487
Sight-
8 days
£000
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months
- 6 months
£000
>6 months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Total
£000
2,579
3,094
5,673
3,136
89
3,225
12,710
318
13,028
24,241
1,540
25,781
30,207
1,754
31,961
60,820
3,326
12,567
3,322
64,146
15,889
-
560
560
146,260
14,003
160,263
Maturity of assets and liabilities at the reporting date
Maturity of assets and liabilities at the reporting date
Maturity of assets and liabilities at the reporting date
Maturity of assets and liabilities at the reporting date
Sight
Sight----
SightSight
8 days
8 days
8 days
8 days
££££000000000000
>8 days
>8 days
>8 days
>8 days
---- 1 month
1 month
1 month
1 month
££££000000000000
>1 month
>1 month
>1 month
>1 month
---- 3 months
3 months
3 months
3 months
££££000000000000
>3 months
>3 months
>3 months
>3 months
---- 6 months
6 months
6 months
6 months
££££000000000000
>6 months
>6 months
>6 months
>6 months
---- 1 year
1 year
1 year
1 year
££££000000000000
>1 year
>1 year
>1 year
>1 year
---- 3 years
3 years
3 years
3 years
££££000000000000
>3 >3 >3 >3 years
years
years
years
---- 5 years
5 years
5 years
5 years
££££000000000000
>5 years
>5 years
>5 years
>5 years
££££000000000000
Total
Total
Total
Total
££££000000000000
31 December 2018
31 December 2018
31 December 2018
31 December 2018
Assets
Assets
Assets
Assets
Cash & cash
equivalents
Debt securities
Loans and advances to
customers
Other assets
9,753
9,753
9,753
9,753
----
5,273
5,273
5,273
5,273
20202020
----
17,995
17,995
17,995
17,995
1,047
1,047
1,047
1,047
225225225225
----
5,989
5,989
5,989
5,989
9,724
9,724
9,724
9,724
145145145145
----
----
15,977
15,977
15,977
15,977
----
15,977
15,977
15,977
15,977
----
----
35,246
35,246
35,246
35,246
----
35,246
35,246
35,246
35,246
----
----
64,099
64,099
64,099
64,099
----
64,099
64,099
64,099
64,099
----
6,550
6,550
6,550
6,550
16,16,16,16,910910910910
----
23,423,423,423,460606060
----
----
2222
7,959
7,959
7,959
7,959
7,961
7,961
7,961
7,961
9,753
9,753
9,753
9,753
30,534
30,534
30,534
30,534
148,278787878
148,2
148,2
148,2
8,349
8,349
8,349
8,349
196,914914914914
196,
196,196,
Total assets
Total assets
Total assets
Total assets
15,046
15,046
15,046
15,046
19,267
19,267
19,267
19,267
15,858
15,858
15,858
15,858
Liabilities
Liabilities
Liabilities
Liabilities
Deposits from
customers
Other liabilities
Total liabilities
Total liabilities
Total liabilities
Total liabilities
1,754
1,754
1,754
1,754
2,098
2,098
2,098
2,098
3,852
3,852
3,852
3,852
5,012
5,012
5,012
5,012
146146146146
5,158
5,158
5,158
5,158
14,397
14,397
14,397
14,397
92929292
14,489
14,489
14,489
14,489
34,028
34,028
34,028
34,028
----
34,028
34,028
34,028
34,028
35,032
35,032
35,032
35,032
500500500500
35,532
35,532
35,532
35,532
56,643
56,643
56,643
56,643
7,690
7,690
7,690
7,690
11,634
11,634
11,634
11,634
7,581
7,581
7,581
7,581
64,333
64,333
64,333
64,333
19,215
19,215
19,215
19,215
----
584584584584
583583583583
158,500
158,500
158,500
158,500
18,18,18,18,691691691691
177,191191191191
177,
177,177,
Page | 45
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
ii. Maturity analysis for financial liabilities and financial assets (continued)
ii. Maturity analysis for financial liabilities and financial assets (continued)
ii. Maturity analysis for financial liabilities and financial assets (continued)
ii. Maturity analysis for financial liabilities and financial assets (continued)
ilities at the reporting date (continued)
Maturity of assets and liabilities at the reporting date (continued)
Maturity of assets and liab
ilities at the reporting date (continued)
ilities at the reporting date (continued)
Maturity of assets and liab
Maturity of assets and liab
31 December 2017
Assets
Cash & cash
equivalents
Debt securities
Loans and advances to
customers
Other assets
Total assets
Liabilities
Deposits from
customers
Other liabilities
Total liabilities
Sight-
8 days
£000
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months-
6 months
£000
>6 months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Total
£000
9,745
-
3,708
103
-
1,998
3,649
194
-
16,983
7,945
192
-
8,524
10,808
-
-
-
-
-
-
6,767
-
-
9,745
34,272
25,849
-
54,872
-
15,695
-
21
5,994
122,546
6,483
13,556
5,841
25,120
19,332
25,849
54,872
22,462
6,015
173,046
2,570
3,086
5,656
3,105
55
3,160
12,654
234
12,888
24,112
169
24,281
29,716
3,333
33,049
57,711
2,945
60,656
12,404
3,130
15,534
-
560
560
142,272
13,512
155,784
iii. Liquidity reserves
iii. Liquidity reserves
iii. Liquidity reserves
iii. Liquidity reserves
The following table sets out the components of the Group’s liquidity reserves.
Balances with other banks
Unencumbered debt securities issued by sovereigns
Total liquidity reserves
2018
2018
20182018
Carrying
Carrying
Carrying
Carrying
amount
amount
amount
amount
£000
£000
£000£000
9,753
9,753
9,753
9,753
30,534
30,534
30,534
30,534
40,287
40,287
40,287
40,287
2018
2018
2018
2018
Fair Fair Fair Fair
value
value
value
value
£000
£000
£000£000
9,753
9,753
9,753
9,753
30,534
30,534
30,534
30,534
40,287
40,287
40,287
40,287
2017
Carrying
amount
£000
9,745
34,272
44,017
2017
Fair value
£000
9,745
34,272
44,017
C. Market risk
C. Market risk
C. Market risk
C. Market risk
For the definition of market risk and information on how the Group manages the market risks of trading and non-trading portfolios,
see Note 36.
The following table sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios.
31 December 2018
31 December 2018
31 December 2018
31 December 2018
Assets subject to market risk
Assets subject to market risk
Assets subject to market risk
Assets subject to market risk
Trading assets
Debt securities
Total
Total
Total
Total
31 December 2017
Assets subject to market risk
Assets subject to market risk
Assets subject to market risk
Assets subject to market risk
Trading assets
Debt securities
Total
Carrying
Carrying
Carrying
Carrying
amount
amount
amount
amount
£000
£000
£000£000
20202020
30,534
30,534
30,534
30,534
30,554
30,554
30,554
30,554
Carrying
amount
£000
24
34,272
34,296
Market risk measure
Market risk measure
Market risk measure
Market risk measure
Trading
Trading
Trading
Trading
portfolios
portfolios
portfolios
portfolios
£000
£000
£000£000
NonNonNonNon----trading
trading
trading
trading
portfolios
portfolios
portfolios
portfolios
£000
£000
£000£000
20202020
----
20202020
----
30,534
30,534
30,534
30,534
30,534
30,534
30,534
30,534
Market risk measure
Trading
portfolios
£000
Non-trading
portfolios
£000
24
-
24
-
34,272
34,272
Page | 46
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
C. Market risk (continued)
C. Market risk (continued)
C. Market risk (continued)
C. Market risk (continued)
trading portfolio
i. Exposure to interest rate risk –––– NonNonNonNon----trading portfolio
i. Exposure to interest rate risk
trading portfolio
trading portfolio
i. Exposure to interest rate risk
i. Exposure to interest rate risk
The following tables present the interest rate mismatch position between assets and liabilities over the respective maturity dates. The
maturity dates are presented on a worst-case basis, with assets being recorded at their latest maturity and deposits from customers
at their earliest.
31 December 2018
31 December 2018
31 December 2018
31 December 2018
Sight----
Sight
SightSight
1 month
1 month
1 month
1 month
££££000000000000
>1month
>1month
>1month
>1month
---- 3months
3months
3months
3months
££££000000000000
>3months
>3months
>3months
>3months
---- 6months
6months
6months
6months
££££000000000000
>6months
>6months
>6months
>6months
---- 1 year
1 year
1 year
1 year
££££000000000000
>1 year
>1 year
>1 year
>1 year
---- 3 years
3 years
3 years
3 years
££££000000000000
>3 years
>3 years
>3 years
>3 years
---- 5 years
5 years
5 years
5 years
££££000000000000
>5 years
>5 years
>5 years
>5 years
££££000000000000
Int.
NonNonNonNon----Int.
Int.
Int.
Bearing
Bearing
Bearing
Bearing
££££000000000000
Total
Total
Total
Total
££££000000000000
Assets
Assets
Assets
Assets
Cash & cash equivalents
Debt securities
Loans and advances to customers
Other assets
9,753
9,753
9,753
9,753
17,995
17,995
17,995
17,995
6,319
6,319
6,319
6,319
245245245245
----
5,989
5,989
5,989
5,989
9,724
9,724
9,724
9,724
145145145145
----
----
15,977
15,977
15,977
15,977
----
----
----
35,247
35,247
35,247
35,247
----
----
----
64,099
64,099
64,099
64,099
----
----
6,550
6,550
6,550
6,550
16,16,16,16,910910910910
----
Total assets
Total assets
Total assets
Total assets
34,312
34,312
34,312
34,312
15,858
15,858
15,858
15,858
15,977
15,977
15,977
15,977
35,247
35,247
35,247
35,247
64,099
64,099
64,099
64,099
23,423,423,423,460606060
Liabilities and equity
Liabilities and equity
Liabilities and equity
Liabilities and equity
Deposits from customers
Other liabilities
Total equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
Interest rate sensitivity gap
Cumulative
Cumulative
Cumulative
Cumulative
6,766
6,766
6,766
6,766
2,22,22,22,244444444
----
9,09,09,09,010101010
25,25,25,25,302302302302
25,25,25,25,302302302302
14,397
14,397
14,397
14,397
92929292
----
14,489
14,489
14,489
14,489
1,369
1,369
1,369
1,369
26,626,626,626,671717171
34,028
34,028
34,028
34,028
----
----
34,028
34,028
34,028
34,028
(18,051
(18,051
(18,051
(18,051
))))
35,032
35,032
35,032
35,032
500500500500
----
56,643
56,643
56,643
56,643
7,690
7,690
7,690
7,690
----
11,634
11,634
11,634
11,634
7,581
7,581
7,581
7,581
----
35,532
35,532
35,532
35,532
64,333
64,333
64,333
64,333
19,215
19,215
19,215
19,215
----
----
2222
----
2222
----
584584584584
----
584584584584
----
----
----
7,959
7,959
7,959
7,959
9,753
9,753
9,753
9,753
30,534
30,534
30,534
30,534
148,278787878
148,2
148,2
148,2
8,349
8,349
8,349
8,349
7,959
7,959
7,959
7,959
196,914914914914
196,
196,196,
----
----
19,19,19,19,723723723723
19,656
19,656
19,656
19,656
158,500
158,500
158,500
158,500
18,691
18,691
18,691
18,691
19,19,19,19,723723723723
196,914914914914
196,
196,196,
(285)
(285)
(285)
(285)
(234)
(234)
(234)
(234)
4,24,24,24,245454545
(582)
(582)
(582)
(582)
(11,764764764764))))
(11,
(11,
(11,
8,8,8,8,620620620620
8,8,8,8,335335335335
8,8,8,8,101101101101
12,12,12,12,346346346346
11,711,711,711,764646464
----
Sight-
1 month
£000
>1month
-3months
£000
>3months
- 6months
£000
>6months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Non-Int.
Bearing
£000
----
----
Total
£000
31 December 2017
Assets
Cash & cash equivalents
Debt securities
Loans and advances to customers
Other assets
Total assets
Liabilities and equity
Deposits from customers
Other liabilities
Total equity
Total liabilities and equity
Interest rate sensitivity gap
Cumulative
5,675
3,141
-
8,816
10,580
10,580
9,745
1,998
7,356
297
-
16,983
7,945
192
-
8,524
10,808
-
-
-
25,849
-
-
-
54,872
-
-
6,766
15,695
-
19,396
25,120
19,332
25,849
54,872
22,461
12,654
234
-
12,888
24,112
169
-
24,281
29,716
3,333
-
33,049
57,711
2,945
-
60,656
12,404
3,130
-
15,534
-
-
22
-
22
-
560
-
560
-
-
-
5,994
9,745
34,427
122,547
6,483
5,994
173,046
-
-
17,262
17,262
142,272
13,512
17,262
173,046
12,232
(4,949)
(7,200)
(5,784)
6,927
(538)
(11,268)
22,812
17,863
10,663
4,879
11,806
11,268
-
-
-
The Bank monitors the impact of changes in interest rates on interest rate mismatch positions using a method consistent with the
FSA required reporting standard. The methodology applies weightings to the net interest rate sensitivity gap in order to quantify the
impact of an adverse change in interest rates of 2.0% per annum (2017: 2.0%). The following tables set out the estimated total impact
of such a change based on the mismatch at the reporting date: -
31 December 2018181818
31 December 20
31 December 20
31 December 20
Interest rate sensitivity gap
Weighting
£000
Sight
Sight----
SightSight
1 month
1 month
1 month
1 month
££££000000000000
>1month
>1month
>1month
>1month
----3months
3months
3months
3months
££££000000000000
>3months
>3months
>3months
>3months
---- 6months
6months
6months
6months
££££000000000000
>6months
>6months
>6months
>6months
---- 1 year
1 year
1 year
1 year
££££000000000000
>1 year
>1 year
>1 year
>1 year
---- 3 years
3 years
3 years
3 years
££££000000000000
>3 years
>3 years
>3 years
>3 years
---- 5 years
5 years
5 years
5 years
££££000000000000
>5 years
>5 years
>5 years
>5 years
££££000000000000
NonNonNonNon----Int.
Int.
Int.
Int.
Bearing
Bearing
Bearing
Bearing
££££000000000000
25,25,25,25,302302302302
0.000
0.000
0.000
0.000
----
1,369
1,369
1,369
1,369
(18,051)
(18,051)
(18,051)
(18,051)
0.003
0.003
0.003
0.003
4444
0.007
0.007
0.007
0.007
(126)
(126)
(126)
(126)
(285)
(285)
(285)
(285)
0.014
0.014
0.014
0.014
(4)(4)(4)(4)
(234)
(234)
(234)
(234)
0.027
0.027
0.027
0.027
(6)(6)(6)(6)
4,24,24,24,245454545
0.054
0.054
0.054
0.054
222222229999
(582)
(582)
(582)
(582)
(11,764764764764))))
(11,
(11,
(11,
0.115
0.115
0.115
0.115
(67)
(67)
(67)
(67)
0.000
0.000
0.000
0.000
----
Total
Total
Total
Total
££££000000000000
----
----
30303030
Page | 47
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
C. Market risk (continued)
C. Market risk (continued)
C. Market risk (continued)
C. Market risk (continued)
trading portfolio (continued)
i. Exposure to interest rate risk –––– NonNonNonNon----trading portfolio (continued)
i. Exposure to interest rate risk
trading portfolio (continued)
trading portfolio (continued)
i. Exposure to interest rate risk
i. Exposure to interest rate risk
31 December 2017
Sight-
1 month
£000
>1month
-3months
£000
>3months
-6months
£000
>6months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Non-Int.
Bearing
£000
Interest rate sensitivity gap
10,580
Weighting
£000
0.000
-
12,232
0.003
37
(4,949)
(7,200)
(5,784)
0.007
(35)
0.014
(101)
0.027
(156)
6,927
0.054
374
(538)
(11,268)
0.115
(62)
0.000
-
Total
£000
-
-
57
D. Capital Management
D. Capital Management
D. Capital Management
D. Capital Management
i. Regulatory capital
i. Regulatory capital
i. Regulatory capital
i. Regulatory capital
The lead regulatory of the Group’s wholly owned subsidiary, Conister Bank Limited (‘Bank’), is the Isle of Man Financial Services
Authority (‘FSA’). The FSA sets and monitors capital requirements for the Bank.
The Bank’s regulatory capital consists of the following elements.
Common Equity Tier 1 (CET1) capital, which includes ordinary share capital, retained earnings and reserves after adjustment
for deductions for goodwill, intangible assets, intercompany receivable.
Tier 2 capital, which includes qualifying subordinated liabilities and any excess of impairment over expected losses.
The lead FSA’s approach to the measurement of capital adequacy is primarily based on monitoring the relationship of the capital
resources requirement to available capital resources. The FSA sets individual capital guidance (ICG) for the Bank in excess of the
minimum capital resources requirement. A key input to the ICG setting process is the Bank’s internal capital adequacy assessment
process (ICAAP).
The Bank is also regulated by the Financial Conduct Authority in the United Kingdom for credit and brokerage related activities.
ii. Capital allocation
ii. Capital allocation
ii. Capital allocation
ii. Capital allocation
Management uses regulatory capital ratios to monitor its capital base. The allocation of capital between specific operations and
activities is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The amount of capital allocated
to each operation or activity is based primarily on regulatory capital requirements.
9. Operating segments
9. Operating segments
9. Operating segments
9. Operating segments
Segmental information is presented in respect of the Group’s business segments. The Directors consider that the Group currently
operates in one geographic segment comprising of the Isle of Man, UK and Channel Islands. The primary format, business segments,
is based on the Group’s management and internal reporting structure. The Directors consider that the Group operates in five (2017:
five) product orientated segments in addition to its investing activities: Asset and Personal Finance (including provision of HP
contracts, finance leases, personal loans, commercial loans, block discounting, vehicle stocking plans and wholesale funding
agreements); Manx Incahoot; Conister Card Services; Edgewater Associates; and Manx FX.
For the year ended 31
For the year ended 31
For the year ended 31
For the year ended 31
December 2018
December 2018
December 2018
December 2018
Net interest income
Operating income /(loss)
Profit / (loss) before tax
Profit / (loss) before tax
Profit / (loss) before tax
Profit / (loss) before tax
payable
payable
payable
payable
Capital expenditure
Total assets
Total assets
Total assets
Total assets
Asset and
Asset and
Asset and
Asset and
Personal
Personal
Personal
Personal
Finance
Finance
Finance
Finance
££££000000000000
15,568
9,306
2,22,22,22,267676767
1,589
190,923232323
190,9
190,9
190,9
Manx Manx Manx Manx
Incahoot
Incahoot
Incahoot
Incahoot
££££000000000000
Conister
Conister
Conister
Conister
CardCardCardCard
Services
Services
Services
Services
££££000000000000
Edgewater
Edgewater
Edgewater
Edgewater
Associates
Associates
Associates
Associates
££££000000000000
Manx FX
Manx FX
Manx FX
Manx FX
££££000000000000
Investing
Investing
Investing
Investing
Activities
Activities
Activities
Activities
££££000000000000
-
12
(189)
(189)
(189)
(189)
1
78787878
-
-
(3)(3)(3)(3)
-
----
-
2,562
245245245245
150
3,153
3,153
3,153
3,153
-
493
490490490490
6
608608608608
Total
Total
Total
Total
£000
£000
£000£000
15,568
13,166
-
-
(100)
(100)
(100)
(100)
2,2,2,2,710710710710
1
1,747
2,152
2,152
2,152
2,152
196,914914914914
196,
196,196,
Page | 48
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
9. Operating segments (continued)
9. Operating segments (continued)
9. Operating segments (continued)
9. Operating segments (continued)
For the year ended 31
December 2017
Asset and
Personal
Finance
£000
Manx
Incahoot
£000
Conister
Card
Services
£000
Edgewater
Associates
£000
Net interest income
Operating income /(loss)
Profit / (loss) before tax
payable
Capital expenditure
Total assets
10. Net interest income
10. Net interest income
10. Net interest income
10. Net interest income
16,637
8,298
1,910
254
168,052
-
44
(293)
1
307
-
(104)
(104)
-
18
-
2,625
742
319
2,252
Interest income
Interest income
Interest income
Interest income
Loans and advances to customers
Total interest income calculated using the
effective interest method
Total interest income calculated using the effective interest method
effective interest method
effective interest method
Total interest income calculated using the
Total interest income calculated using the
Other interest income
Total interest income
Total interest income
Total interest income
Total interest income
Interest expense
Interest expense
Interest expense
Interest expense
Deposits from customers
Subordinated liabilities
Block funders
interest expense
Total interest expense
Total
interest expense
interest expense
Total
Total
Net interest income
Net interest income
Net interest income
Net interest income
11. Net fee and commission income
11. Net fee and commission income
11. Net fee and commission income
11. Net fee and commission income
Manx
FX
£000
-
447
249
-
181
Investin
g
Activitie
s
£000
Total
£000
-
-
16,637
11,310
(186)
2,318
-
574
2,236
173,046
2018
2018
20182018
£000
£000
£000£000
2017
£000
19,037
19,037
19,037
19,037
19,037
19,037
19,037
19,037
78787878
19,115
19,115
19,115
19,115
(2,744)
(2,744)
(2,744)
(2,744)
(773)
(773)
(773)
(773)
(30)
(30)
(30)
(30)
(3,547)
(3,547)
(3,547)
(3,547)
19,839
19,839
54
19,893
(2,690)
(495)
(71)
(3,256)
15,568
15,568
15,568
15,568
16,637
A. Disaggregation of fee and commission income
A. Disaggregation of fee and commission income
A. Disaggregation of fee and commission income
A. Disaggregation of fee and commission income
In the following table, fee and commission income from contracts with customers in the scope of IFRS 15 is disaggregated by major
type of services. The table includes a reconciliation of the disaggregated fee and commission income with the Group’s reportable
segments.
Major service lines
Major service lines
Major service lines
Major service lines
Independent financial advice income
FX trading income
Fee and commission income
Fee and commission income
Fee and commission income
Fee and commission income
Fee and commission expense
Net fee and commission expense
Net fee and commission expense
Net fee and commission expense
Net fee and commission expense
2018
2018
20182018
£000
£000
£000£000
2,547
2,547
2,547
2,547
824824824824
3,371
3,371
3,371
3,371
2017
£000
2,625
490
3,115
(6,109)
(6,109)
(6,109)
(6,109)
(8,413)
(2,738)
(2,738)
(2,738)
(2,738)
(5,298)
Page | 49
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
12. Terminal funding
12. Terminal funding
12. Terminal funding
12. Terminal funding
In September 2014, the Bank discontinued funding handheld payment devices (referred to as Terminal Funding) due to the volume
of write offs. Ever since, the book is being run off whilst the Bank vigorously pursues historical write off. A decision was made by the
Board during 2016 to cease funding and run-off the book upon the final repayment date of August 2019.
Interest income
Fee and commission expense
Provision for impairment on loan assets
13. Personnel expenses
13. Personnel expenses
13. Personnel expenses
13. Personnel expenses
Gross salaries
Executive Directors’ remuneration
Non-executive Directors’ fees
Executive Directors’ pensions
Executive Directors’ performance related pay
Pension costs
National insurance and payroll taxes
Training and recruitment costs
expenses
14. Other expenses
14. Other
expenses
expenses
14. Other
14. Other
Professional and legal fees
Marketing costs
IT costs
Establishment costs
Communication costs
Travel costs
Bank charges
Insurance
Irrecoverable VAT
Other costs
15. Impairment on loans and advances to customers
15. Impairment on loans and advances to customers
15. Impairment on loans and advances to customers
15. Impairment on loans and advances to customers
The charge in respect of specific allowances for impairment comprises: -
Specific impairment allowances made
Reversal of allowances previously made
Total charge for specific provision for impairment
Total charge for specific provision for impairment
Total charge for specific provision for impairment
Total charge for specific provision for impairment
2018
2018
20182018
££££000000000000
181181181181
(5)(5)(5)(5)
(102)
(102)
(102)
(102)
74747474
2018
2018
20182018
££££000000000000
(4,233)
(4,233)
(4,233)
(4,233)
(241)
(241)
(241)
(241)
(145)
(145)
(145)
(145)
(19)
(19)
(19)
(19)
(50)
(50)
(50)
(50)
(259)
(259)
(259)
(259)
(527)
(527)
(527)
(527)
(229)
(229)
(229)
(229)
(5,703)
(5,703)
(5,703)
(5,703)
2018
2018
20182018
££££000000000000
(1,(1,(1,(1,067067067067))))
(237
(237))))
(237(237
(567)
(567)
(567)
(567)
(434)
(434)
(434)
(434)
(146
(146))))
(146(146
(174)
(174)
(174)
(174)
(119)
(119)
(119)
(119)
(141)
(141)
(141)
(141)
(303)
(303)
(303)
(303)
(277)
(277)
(277)
(277)
(3,465))))
(3,465
(3,465
(3,465
2018
2018
20182018
££££000000000000
(1,2(1,2(1,2(1,246464646))))
410410410410
(8(8(8(836363636))))
2017
£000
377
(92)
(195)
90
2017
£000
(3,479)
(214)
(185)
(21)
(36)
(226)
(432)
(190)
(4,783)
2017
£000
(848)
(211)
(528)
(376)
(137)
(149)
(142)
(133)
(180)
(448)
(3,152)
2017
£000
(1,295)
776
(519)
Page | 50
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
(continued)
15. Impairment on loans and advances to customers (continued)
15. Impairment on loans and advances to customers
(continued)
(continued)
15. Impairment on loans and advances to customers
15. Impairment on loans and advances to customers
The charge in respect of collective allowances for impairment comprises: -
Collective impairment allowances made
Release of allowances previously made
Total charge for collective allowances for impairment
Total charge for collective allowances for impairment
Total charge for collective allowances for impairment
Total charge for collective allowances for impairment
Total charge for allowances for impairment
Total charge for allowances for impairment
Total charge for allowances for impairment
Total charge for allowances for impairment
16. Profit before tax payable
16. Profit before tax payable
16. Profit before tax payable
16. Profit before tax payable
The profit before tax payable for the year is stated after charging: -
2018
2018
20182018
££££000000000000
(49)
(49)
(49)
(49)
28282828
(21)
(21)
(21)
(21)
(8(8(8(857575757))))
Share options expense
Auditor’s remuneration: -
as Auditor current year
non-audit services
Pension cost defined benefit scheme
Operating lease rentals for property
17. Income tax expense
17. Income tax expense
17. Income tax expense
17. Income tax expense
Current tax expense
Current tax expense
Current tax expense
Current tax expense
Current year
Changes to estimates for prior years
Deferred tax expense
Deferred tax expense
Deferred tax expense
Deferred tax expense
Origination and reversal of temporary differences
Utilisation of previously recognised tax losses
Changes to estimates for prior years
GroupGroupGroupGroup
Company
Company
Company
Company
2018
2018
20182018
££££000000000000
----
(108)
(108)
(108)
(108)
(7)(7)(7)(7)
(17)
(17)
(17)
(17)
(251)
(251)
(251)
(251)
2017
£000
(22)
(90)
(37)
(17)
(220)
2018
2018
20182018
££££000000000000
----
----
----
----
----
2018
2018
20182018
££££000000000000
(1(1(1(197979797))))
----
(1(1(1(197979797))))
(46)
(46)
(46)
(46)
----
----
(46)
(46)
(46)
(46)
2017
£000
(78)
12
(66)
(585)
2017
£000
(22)
-
-
-
-
2017
£000
(226)
(12)
(238)
(2)
-
-
(2)
Tax expense
Tax expense
Tax expense
Tax expense
(2(2(2(243434343))))
(240)
Reconciliation of effective tax rate
Reconciliation of effective tax rate
Reconciliation of effective tax rate
Reconciliation of effective tax rate
Profit before tax
Tax using the Bank’s domestic tax rate
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Tax exempt income
Timing difference in current year
Origination and reversal of temporary differences in deferred tax
Changes to estimates for prior years
Tax expense
Tax expense
Tax expense
Tax expense
2018
2018
20182018
££££000000000000
2,2,2,2,710710710710
(2(2(2(271717171))))
----
(33)
(33)
(33)
(33)
8888
7777
46464646
----
(2(2(2(243434343))))
(10.0)%
(1.6)%
(1.0)%
2.4%
1.8%
(0.1)%
(0.4)%
(8.9)%
2017
£000
2,698
(270)
(44)
(28)
67
49
(2)
(12)
(240)
(10.0)%
(10.0)%
(10.0)%
(10.0)%
0.0 %0.0 %0.0 %0.0 %
(1.(1.(1.(1.2222)%)%)%)%
0.3 %0.3 %0.3 %0.3 %
0.3 %0.3 %0.3 %0.3 %
1.7 %1.7 %1.7 %1.7 %
0.0 %0.0 %0.0 %0.0 %
(9.0)%(9.0)%(9.0)%(9.0)%
Page | 51
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
(continued)
17. Income tax expense (continued)
17. Income tax expense
(continued)
(continued)
17. Income tax expense
17. Income tax expense
The main rate of corporation tax in the Isle of Man is 0.0% (2017: 0.0%). However the profits of the Group’s Isle of Man banking
activities are taxed at 10.0% (2017: 10.0%). The profits of the Group’s subsidiaries that are subject to UK corporation tax are taxed
at a rate of 19.0% (2017: 19.0%).
The value of tax losses carried forward reduced to nil and there is now a timing difference related to accelerated capital allowances
resulting in a £88,000 liability (2017: £42,000 liability). This resulted in an expense of £50,000 (2017: £2,000) to the consolidated
income statement.
18. Earnings per share
18. Earnings per share
18. Earnings per share
18. Earnings per share
A. Basic and diluted earnings per share
A. Basic and diluted earnings per share
A. Basic and diluted earnings per share
A. Basic and diluted earnings per share
The calculation of basic earnings per share has been based on the profit for the year and the weighted average number of ordinary
shares outstanding.
The calculation of diluted earnings per share has been based on the profit for the year and the weighted average number of ordinary
shares outstanding after adjustment for the effects of all dilutive potential ordinary shares.
Total comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income for the year
Weighted average number of ordinary shares in issue
Basic earnings per share (pence)
Diluted earnings per share (pence)
B. Reconciliation of earnings between basic and diluted earnings
B. Reconciliation of earnings between basic and diluted earnings
B. Reconciliation of earnings between basic and diluted earnings
B. Reconciliation of earnings between basic and diluted earnings
Total comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income for the year
As per basic earnings per share – total comprehensive income
Interest expense saved if all convertible loan notes were exchanged for equity (note 29)
As per dilutive earnings per share
2018
2018
20182018
2017
,000
£2,£2,£2,£2,461461461461,000
,000,000
£2,395,000
131,096,235
131,096,235
131,096,235
131,096,235
1.81.81.81.88888
1.541.541.541.54
110,880,711
2.17
1.70
2018
2018
20182018
2017
£2,£2,£2,£2,461461461461,000
,000
,000,000
£196,150
£196,150
£196,150
£196,150
,150
£2,£2,£2,£2,657657657657,150
,150,150
£2,395,000
£196,150
£2,591,150
outstanding between basic and diluted
C. Reconciliation of weighted average number of ordinary shares outstanding between basic and diluted
C. Reconciliation of weighted average number of ordinary shares
outstanding between basic and diluted
outstanding between basic and diluted
C. Reconciliation of weighted average number of ordinary shares
C. Reconciliation of weighted average number of ordinary shares
Reconciliation of weighted average number of ordinary shares in issue between basic and
Reconciliation of weighted average number of ordinary shares in issue between basic and
Reconciliation of weighted average number of ordinary shares in issue between basic and
Reconciliation of weighted average number of ordinary shares in issue between basic and
diluted earnings per share
diluted earnings per share
diluted earnings per share
diluted earnings per share
As per basic earnings per share
Number of shares issued if all convertible loan notes were exchanged for equity (note 29)
Dilutive element of share options if exercised (note 31)
As per dilutive earnings per share
2018
2018
20182018
2017
131,096,235
131,096,235
131,096,235
131,096,235
41,666,667
41,666,667
41,666,667
41,666,667
10,366
10,366
10,366
10,366
110,880,711
41,666,667
-
172,773,268
172,773,268
172,773,268
172,773,268
152,547,378
Page | 52
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
19. Cash and cash equivalents
19. Cash and cash equivalents
19. Cash and cash equivalents
19. Cash and cash equivalents
Cash at bank and in hand
Group
Company
2018
2018
20182018
££££000000000000
9,753
9,753
9,753
9,753
9,753
9,753
9,753
9,753
2017
£000
9,745
9,745
2018
2018
20182018
££££000000000000
1,646
1,646
1,646
1,646
1,646
1,646
1,646
1,646
2017
£000
200
200
Cash at bank includes an amount of £561,000 (2017: £63,000) representing receipts which are in the course of transmission.
20. Debt securities
20. Debt securities
20. Debt securities
20. Debt securities
Financial assets at
FVOCI:
Financial assets at FVOCI:
FVOCI:
FVOCI:
Financial assets at
Financial assets at
UK Government Treasury Bills
Financial assets at amortised cost:
Financial assets at amortised cost:
Financial assets at amortised cost:
Financial assets at amortised cost:
UK Certificates of Deposit
Group
2018
2018
20182018
££££000000000000
2017
£000
Company
2018
2018
20182018
££££000000000000
2017
£000
30,534
30,534
30,534
30,534
28,740
28,740
28,740
28,740
----
30,534
30,534
30,534
30,534
5,532
5,532
5,532
5,532
34,272
34,272
34,272
34,272
----
----
----
-
-
-
UK Government Treasury Bills are stated at fair value and unrealised changes in the fair value are reflected in other comprehensive
income. There were £135,000 (2017: £36,000) realised gains and £44,000 unrealised gains (2017: unrealised losses £93,000) during
the year.
21. Trading asset
21. Trading asset
21. Trading asset
21. Trading asset
The investment represents shares in a UK quoted company, elected to be classified as a financial asset at fair value through profit or
loss. The investment is stated at market value and is classified as a level 1 investment in the IFRS 13 fair value hierarchy. The cost
of the shares was £471,000. The unrealised difference between cost and market value has been taken to the income statement.
Dividend income of £355,000 (2017: £350,000) and £24,000 (2017: £24,000) of sale proceeds have been received from this
investment since it was made. The investment made a net loss of £4,000 (2017: £21,000) during the year.
22. Loans and advances to customers
22. Loans and advances to customers
22. Loans and advances to customers
22. Loans and advances to customers
GroupGroupGroupGroup
HP balances
Finance lease balances
Unsecured personal loans
Vehicle stocking plans
Wholesale funding arrangements
Block discounting
Secured commercial loans
Secured personal loans
GrossGrossGrossGross
Amount
Amount
Amount
Amount
££££000000000000
59,038
59,038
59,038
59,038
27,238
27,238
27,238
27,238
14,806
14,806
14,806
14,806
1,486
1,486
1,486
1,486
22,944
22,944
22,944
22,944
17,316
17,316
17,316
17,316
1,967
1,967
1,967
1,967
6,877
6,877
6,877
6,877
151,672
151,672
151,672
151,672
2018
2018
20182018
Impairment
Impairment
Impairment
Impairment
Allowance
Allowance
Allowance
Allowance
££££000000000000
(1,416)
(1,416)
(1,416)
(1,416)
(1,5(1,5(1,5(1,551515151))))
(382)
(382)
(382)
(382)
----
----
----
(45)
(45)
(45)
(45)
----
(3,(3,(3,(3,394394394394))))
Carrying
Carrying
Carrying
Carrying
Value
Value
ValueValue
££££000000000000
57,622
57,622
57,622
57,622
25,625,625,625,687878787
14,424
14,424
14,424
14,424
1,486
1,486
1,486
1,486
22,944
22,944
22,944
22,944
17,316
17,316
17,316
17,316
1,922
1,922
1,922
1,922
6,877
6,877
6,877
6,877
148,278787878
148,2
148,2
148,2
Gross
Amount
£000
59,909
20,088
10,521
1,613
5,830
13,523
659
13,090
125,233
2017
Impairment
Allowance
£000
(1,327)
(1,101)
(255)
-
-
-
(4)
-
(2,687)
Carrying
Value
£000
58,582
18,987
10,266
1,613
5,830
13,523
655
13,090
122,546
Collateral is held in the form of underlying assets for HP, finance leases, vehicles stocking plans, block discounting, secured
commercial and personal loans and wholesale funding arrangements. An estimate of the fair value of collateral on past due or
impaired loans and advances is not disclosed as it would be impractical to do so.
Specific allowance for impairment
Specific allowance for impairment
Specific allowance for impairment
Specific allowance for impairment
Balance at 1 January
Specific allowance for impairment made
Release of allowances previously made
Write-offs
Balance at 31 December
Balance at 31 December
Balance at 31 December
Balance at 31 December
2018
2018
20182018
££££000000000000
2,440
2,440
2,440
2,440
1,1,1,1,291291291291
(410)
(410)
(410)
(410)
(195)
(195)
(195)
(195)
3,13,13,13,126262626
2017
£000
2,099
1,295
(776)
(178)
2,440
Page | 53
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
(continued)
22. Loans and advances to customers (continued)
22. Loans and advances to customers
(continued)
(continued)
22. Loans and advances to customers
22. Loans and advances to customers
Collective allowance for impairment
Collective allowance for impairment
Collective allowance for impairment
Collective allowance for impairment
Balance at 1 January
Collective allowance for impairment made
Release of allowances previously made
Balance at 31 December
Balance at 31 December
Balance at 31 December
Balance at 31 December
impairment
Total allowances for impairment
Total allowances for
impairment
impairment
Total allowances for
Total allowances for
2018
2018
20182018
££££000000000000
247247247247
49494949
(28)
(28)
(28)
(28)
268268268268
3,3,3,3,394394394394
2017
£000
57
202
(12)
247
2,687
Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2018 £389,005 (2017:
£347,328) had been lent on this basis. In the Group’s ordinary course of business, advances may be made to Shareholders but all
such advances are made on normal commercial terms.
As detailed below, at the end of the current financial year 15 loan exposures (2017: 3) exceeded 10.0% of the capital base of the
Bank: -
Exposure
Exposure
Exposure
Exposure
Block discounting facility
Wholesale funding agreement
Outstanding
Outstanding
Outstanding
Outstanding
Balance
Balance
Balance
Balance
2018
2018
20182018
£000
£000
£000£000
14,211
14,211
14,211
14,211
21,423
21,423
21,423
21,423
Outstanding
Balance
2017
£000
9,487
-
HP and finance lease receivables
HP and finance lease receivables
HP and finance lease receivables
HP and finance lease receivables
Loans and advances to customers include the following HP and finance lease receivables: -
Less than one year
Between one and five years
Gross investment in HP and finance lease receivables
Gross investment in HP and finance lease receivables
Gross investment in HP and finance lease receivables
Gross investment in HP and finance lease receivables
The investment in HP and finance lease receivables net of unearned income comprises: -
Facility
Facility
Facility
Facility
limit
limit
limit
limit
£000
£000
£000£000
23,500
23,500
23,500
23,500
24,500
24,500
24,500
24,500
2017
£000
36,227
60,576
96,803
2017
£000
29,317
50,680
79,997
2018
2018
20182018
££££000000000000
42,532
42,532
42,532
42,532
60,184
60,184
60,184
60,184
102,716
102,716
102,716
102,716
2018
2018
20182018
££££000000000000
37,508
37,508
37,508
37,508
49,289
49,289
49,289
49,289
86,797
86,797
86,797
86,797
Less than one year
Between one and five years
Net investment in HP and finance lease receivables
23. Trade and other receivables
23. Trade and other receivables
23. Trade and other receivables
23. Trade and other receivables
Prepayments
VAT recoverable
Other debtors
Group
Company
2018
2018
20182018
££££000000000000
382382382382
936936936936
1,173
1,173
1,173
1,173
2,491
2,491
2,491
2,491
2017
£000
285
817
806
1,908
2018
2018
20182018
££££000000000000
32323232
----
----
32323232
2017
£000
22
-
-
22
Included in trade and other receivables is an amount of £936,000 (2017: £817,000) relating to a reclaim of VAT. The Bank, as the
Group VAT registered entity, has for some time considered the VAT recovery rate being obtained by the business was neither fair nor
reasonable, specifically regarding the attribution of part of the residual input tax relating to the HP business not being considered as
a taxable supply. Queries have been raised with the Isle of Man Government Customs & Excise Division (“C&E”), and several reviews
of the mechanics of the recovery process were undertaken by the Company’s professional advisors.
Page | 54
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
23. Trade and other receivables (continued)
23. Trade and other receivables (continued)
23. Trade and other receivables (continued)
23. Trade and other receivables (continued)
The decision of the First-Tier Tax Tribunal released 18 August 2011 in respect of Volkswagen Financial Services (UK) Limited
(“VWFS”) v HM Revenue & Customs (TC01401) (“VWFS Decision”) added significant weight to the case put by the Bank and a
request for a revised Partial Exemption Special Method was submitted in December 2011. The proposal put forward by the Bank was
that the revised method would allocate 50.0% of costs in respect of HP transactions to a taxable supply and 50.0% to an exempt
supply. In addition, a Voluntary Disclosure was made as a retrospective claim for input VAT under-claimed in the last 4 years. A
secondary claim was also made to cover periods Q4 2012 to Q1 2016 for the value of £230,000 and an amount of £249,000 has been
accrued to cover periods Q2 2016 to Q4 2018.
In November 2012, it was announced that the HMRC Upper Tribunal had overturned the First-Tier Tribunal in relation to the VWFS
Decision. VWFS has subsequently been given leave to appeal and this was scheduled to be heard in October 2013. However, this
was delayed and the case was heard by the Court of Appeal on 17 April 2015 who overturned the Upper Tribunal’s decision ruling in
favour of VWFS. HMRC have appealed this decision to the Supreme Court, which has referred the issue to the European Court of
Justice.
The Court of Justice of the European Union (“CJEU”) has published its determination concerning the Volkswagen Financial Services
(UK) Limited (“VWFS”) vs HMRC case. The judgement addressed all specific questions referred and agreed with VWFS on all material
points. Specifically, the judgment clarifies that a partial exemption method must reflect the taxable sale of the goods, even where
general costs are commercially passed on as part of the exempt supplies of credit. We have approached Customs and Excise with a
view of commencing conversations to finalise our historic claims, rolling up the claim to date and agreeing a new partial exempt
method going forward.
The Bank’s total exposure in relation to this matter increased to £1,049,000, comprising the debtor balance referred to above plus an
additional £113,000 VAT reclaimed under the partial Exemption Special Method, in the period from Q4 2011 to Q3 2012 (from Q4
2012 the Bank reverted back to the previous method). On the basis of the discussions and correspondence which have taken place
between the Bank and C&E, in addition to the VWFS case, the Directors are confident that the VAT claim referred to above will be
secured.
24. Property, plant and equipment
24. Property, plant and equipment
24. Property, plant and equipment
24. Property, plant and equipment
GroupGroupGroupGroup
CostCostCostCost
As at 1 January 2018
Additions
Disposals
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
Accumulated
depreciation
Accumulated depreciation
depreciation
depreciation
Accumulated
Accumulated
As at 1 January 2018
Charge for year
Disposals
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2017
Leasehold
Leasehold
Leasehold
Leasehold
Improvements
Improvements
Improvements
Improvements
££££000000000000
ITITITIT
Equipment
Equipment
Equipment
Equipment
££££000000000000
Furniture &
Furniture &
Furniture &
Furniture &
Equipment
Equipment
Equipment
Equipment
££££000000000000
MotorMotorMotorMotor
Vehicles1
Vehicles
Vehicles
Vehicles
££££000000000000
443
66
----
509509509509
189
60
-
249249249249
260260260260
254
294
41
----
335335335335
152
61
-
213213213213
122122122122
142
646
18
----
664664664664
599
13
-
612612612612
52525252
47
10
993
----
1,003
1,003
1,003
1,003
3
50
-
53535353
950950950950
7
Total
Total
Total
Total
££££000000000000
1,393
1,118
----
2,511
2,511
2,511
2,511
943
184
-
1,127
1,127
1,127
1,127
1,384
1,384
1,384
1,384
450
1Motor vehicles relate to operating leases with the Group as lessor.
Page | 55
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
(continued)
24. Property, plant and equipment (continued)
24. Property, plant and equipment
(continued)
(continued)
24. Property, plant and equipment
24. Property, plant and equipment
Company
Company
Company
Company
CostCostCostCost
As at 1 January 2018
Additions
Disposals
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
Accumulated depreciation
Accumulated depreciation
Accumulated depreciation
Accumulated depreciation
As at 1 January 2018
Charge for year
Disposals
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2017
25. Intangible assets
25. Intangible assets
25. Intangible assets
25. Intangible assets
GroupGroupGroupGroup
CostCostCostCost
As at 1 January 2018
Additions
Acquisition of MBL
Disposals
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
Accumulated amortisation
Accumulated amortisation
Accumulated amortisation
Accumulated amortisation
As at 1 January 2018
Charge for year / impairment (note 32)
Disposals
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
As at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2018
Carrying value at 31 December 2017
Leasehold
Leasehold
Leasehold
Leasehold
Improvements
Improvements
Improvements
Improvements
££££000000000000
ITITITIT
Equipment
Equipment
Equipment
Equipment
££££000000000000
Furniture &
Furniture &
Furniture &
Furniture &
Equipment
Equipment
Equipment
Equipment
££££000000000000
234
-
-
234234234234
92
39
-
131131131131
103103103103
142
13
-
-
13131313
2
1
-
3333
10101010
11
15
1
-
16161616
2
1
-
3333
13131313
13
Customer
Customer
Customer
Customer
Contracts & Lists
Contracts & Lists
Contracts & Lists
Contracts & Lists
££££000000000000
Intellectual
Intellectual
Intellectual
Intellectual
Property Rights
Property Rights
Property Rights
Property Rights
££££000000000000
IT Software and
IT Software and
IT Software and
IT Software and
Website
Website
Website
Website
Development
Development
Development
Development
££££000000000000
1,284
-
133
-
1,417
1,417
1,417
1,417
130
65
-
195195195195
1,222
1,222
1,222
1,222
1,154
388
-
-
-
388388388388
162
150
-
312312312312
76767676
226
1,550
496
-
-
2,046
2,046
2,046
2,046
1,211
181
-
1,392
1,392
1,392
1,392
654654654654
339
Total
Total
Total
Total
££££000000000000
262
1
-
263263263263
96
41
-
137137137137
126126126126
166
Total
Total
Total
Total
££££000000000000
3,222
496
133
-
3,851
3,851
3,851
3,851
1,503
396
-
1,899
1,899
1,899
1,899
1,952
1,952
1,952
1,952
1,719
On 23 December 2016, the Company acquired the majority of the Isle of Man’s IFA business held by Knox Financial Services Limited
("KFSL"). The initial acquisition included approximately 4,000 clients together with 6 members of staff. The basis of consideration was
contingent, as it is determined by 4 times renewal income received in the first 12 months of ownership, reduced by any clawbacks in
the same period. The final value could not fall below £800,000. The Company entered into a loan agreement with Conister Bank
Limited (see note 32 for terms) and paid the non-refundable minimum of £800,000 and a further £200,000 into an escrow account
until the final valuation was determined. When the value was finalised, any surplus or shortfall was settled.
At acquisition, by reference to the renewal income received by KFSL in the 12 months prior to disposal, an estimate of £236,906 was
assumed for income over the preceding 12 months, which would have generated a consideration sum of £947,624. Therefore, EWA
accounted for this transaction by recognising an intangible asset of £947,624 and a receivable of £52,376 of the monies held in
escrow. Subsequent to acquisition this estimate was updated to an estimated purchase price of £989,400 as at 31 December 2017.
Consequently, the receivable from escrow was reduced to £10,600. The final consideration for the purchase was determined to be
£1,101,000. As acquisition accounting was finalised prior to final settlement, the £111,600 additional cost was recognised as an
expense in the profit and loss during 2018. The fair value of the assets acquired was considered to be of the same amount as the
sum estimated to be paid and principally relates to customer contracts. The period over which these contracts are to be amortised is
estimated to be 18.75 years given the average duration of EWA’s existing portfolio for renewal income.
Page | 56
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
(continued)
25. Intangible assets (continued)
25. Intangible assets
(continued)
(continued)
25. Intangible assets
25. Intangible assets
In tandem, both parties entered into an option agreement, exercisable within three months from the transaction date, for EWA to
acquire the remainder of the vendor's IFA business which included approximately 150 clients. This option was exercised on 18
January 2017. The price of the acquisition was calculated by four times the renewal income received over the 12-month period
subsequent to completion. The purchase price was estimated to be £198,300 with £75,000 paid upon exercise of the option. During
the year, the final purchase consideration was determined to be £231,759. The Company made a final settlement of £156,760 during
the year in addition to the £75,000 option price paid during the prior year. This has resulted in a valuation adjustment of £33,403.
On 7 September 2018, the Company acquired a book of insurance and financial services clients from Westwinds Financial Services
Limited for a final consideration of £100,000.
26. Deposits from customers
26. Deposits from customers
26. Deposits from customers
26. Deposits from customers
Retail customers: term deposits
Corporate customers: term deposits
27. Creditors and accrued charges
27. Creditors and accrued charges
27. Creditors and accrued charges
27. Creditors and accrued charges
Commission creditors
Other creditors and accruals
Taxation creditors
28. Block creditors
28. Block creditors
28. Block creditors
28. Block creditors
2018
2018
20182018
££££000000000000
153,735
153,735
153,735
153,735
4,765
4,765
4,765
4,765
158,500
158,500
158,500
158,500
2017
£000
137,399
4,873
142,272
Group
Company
2018
2018
20182018
££££000000000000
758758758758
897897897897
355355355355
2,012,012,012,010000
2017
£000
2,042
774
348
3,164
2018
2018
20182018
££££000000000000
----
94949494
----
94949494
2018
2018
20182018
££££000000000000
----
138138138138
138138138138
2017
£000
-
139
-
139
2017
£000
95
656
751
2017
£000
1,750
1,200
460
250
3,660
5,335
8,995
Drawdown 2 – repayable 25/07/2018, interest payable at 5.8%, secured on assets of MFL
Drawdown 3 – repayable 08/03/2019, interest payable at 6.5%, secured on assets of MFL
29. Loan notes
29. Loan notes
29. Loan notes
29. Loan notes
Related parties
Related parties
Related parties
Related parties
J Mellon
Burnbrae Limited
Southern Rock Insurance Company Limited
Life Science Developments Limited
Unrelated parties
Unrelated parties
Unrelated parties
Unrelated parties
Group
Company
NotesNotesNotesNotes
JMJMJMJM
BLBLBLBL
SRSRSRSR
LSLSLSLS
UPUPUPUP
2018
2018
20182018
££££000000000000
1,750
1,750
1,750
1,750
1,200
1,200
1,200
1,200
460460460460
----
3,410
3,410
3,410
3,410
12,461
12,461
12,461
12,461
15,871
15,871
15,871
15,871
2017
£000
1,750
1,200
460
250
3,660
5,335
8,995
2018
2018
20182018
££££000000000000
1,750
1,750
1,750
1,750
1,200
1,200
1,200
1,200
460460460460
----
3,410
3,410
3,410
3,410
12,461
12,461
12,461
12,461
15,871
15,871
15,871
15,871
JMJMJMJM – Two loans, one of £500,000 maturing on 31 July 2022 with interest payable of 5.0% per annum, and one of £1,250,000 maturing
on 26 February 2020, paying interest of 6.5% per annum. Both loans are convertible at the rate of 7.5 pence and 9 pence respectively.
Page | 57
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
(continued)
29. Loan notes (continued)
29. Loan notes
(continued)
(continued)
29. Loan notes
29. Loan notes
BLBLBLBL – One loan consisting of £1,200,000 maturing on 31 July 2022 with interest payable of 5.0% per annum. Jim Mellon is the beneficial
owner of BL and Denham Eke is also a director. The loan is convertible at a rate of 7.5 pence.
SRSRSRSR – One loan consisting of £460,000 maturing on 26 February 2020 with interest payable of 6.5% per annum. The loan is convertible
at a rate of 9 pence. John Banks, a Non-executive Director, is also a director of SR and Arron Banks is a major shareholder of SR.
LSLSLSLS – One loan of £nil (2017: £250,000) which matured on 3 January 2018 with interest payable of 5.0% per annum. Denham Eke is
a director of LS. The loan was repaid on maturity.
UPUPUPUP – Thirty-three loans consisting of an average £377,606 with a weighted average interest payable of 5.4% per annum. The earliest
maturity date is 20 January 2019 and the latest maturity is 10 October 2023.
With respect to the convertible loans, the interest rate applied was deemed by the Directors to be equivalent to the market rate at
the time with no conversion option.
30. Pension liability
30. Pension liability
30. Pension liability
30. Pension liability
The Conister Trust Pension and Life Assurance Scheme (“Scheme”) operated by the Company is a funded defined benefit
arrangement which provides retirement benefits based on final pensionable salary. The Scheme is closed to new entrants and the
last active member of the Scheme left pensionable service in 2011.
The Scheme is approved in the Isle of Man by the Assessor of Income Tax under the Income Tax (Retirement Benefit Schemes) Act
1978 and must comply with the relevant legislation. In addition, it is registered as an authorised scheme with the FSA in the Isle of
Man under the Retirement Benefits Scheme Act 2000. The Scheme is subject to regulation by the FSA but there is no minimum
funding regime in the Isle of Man.
The Scheme is governed by two corporate trustees, Conister Bank Limited and Boal & Co (Pensions) Limited. The trustees are
responsible for the Scheme’s investment policy and for the exercise of discretionary powers in respect of the Scheme’s benefits.
The rules of the Scheme state: - “Each Employer shall pay such sums in each Scheme Year as are estimated to be required to provide
the benefits of the Scheme in respect of the Members in its employ”.
Exposure to risk
Exposure to risk
Exposure to risk
Exposure to risk
The Company is exposed to the risk that additional contributions will be required in order to fund the Scheme as a result of poor
experience. Some of the key factors that could lead to shortfalls are: -
investment performance – the return achieved on the Scheme’s assets may be lower than expected; and
mortality – members could live longer than foreseen. This would mean that benefits are paid for longer than expected, increasing
the value of the related liabilities.
In order to assess the sensitivity of the Scheme’s pension liability to these risks, sensitivity analyses have been carried out. Each
sensitivity analysis is based on changing one of the assumptions used in the calculations, with no change in the other assumptions.
The same method has been applied as was used to calculate the original pension liability and the results are presented in comparison
to that liability. It should be noted that in practice it is unlikely that one assumption will change without a movement in the other
assumptions; there may also be some correlation between some of these assumptions. It should also be noted that the value placed
on the liabilities does not change on a straight line basis when one of the assumptions is changed. For example, a 2.0% change in
an assumption will not necessarily produce twice the effect on the liabilities of a 1.0% change.
No changes have been made to the method or to the assumptions stress-tested for these sensitivity analyses compared to the
previous period. The investment strategy of the Scheme has been set with regard to the liability profile of the Scheme. However, there
are no explicit asset-liability matching strategies in place.
Restriction of assets
Restriction of assets
Restriction of assets
Restriction of assets
No adjustments have been made to the statement of financial position items as a result of the requirements of IFRIC 14 issued by
IASB’s International Financial Reporting Interpretations Committee.
Scheme amendments
Scheme amendments
Scheme amendments
Scheme amendments
There have not been any past service costs or settlements in the financial year ending 31 December 2018 (2017: none).
Page | 58
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
30. Pension liability (continued)
30. Pension liability (continued)
30. Pension liability (continued)
30. Pension liability (continued)
Funding policy
Funding policy
Funding policy
Funding policy
The funding method employed to calculate the value of previously accrued benefits is the Projected Unit Method. Following the
cessation of accrual of benefits when the last active member left service in 2011, regular future service contributions to the Scheme
are no longer required. However, additional contributions will still be required to cover any shortfalls that might arise following each
funding valuation.
The most recent triennial full actuarial valuation was carried out at 1 April 2016, which showed that the market value of the Scheme’s
assets was £1,379,000 representing 80.7% of the benefits that had accrued to members, after allowing for expected future increases
in earnings. As required by IAS 19 this valuation has been updated by the actuary as at 31 December 2018.
The amounts recognised in the Consolidated Statement of Financial Position are as follows: -
Total underfunding in funded plans recognised as a liability
Total underfunding in funded plans recognised as a liability
Total underfunding in funded plans recognised as a liability
Total underfunding in funded plans recognised as a liability
Fair value of plan assets
Present value of funded obligations
Movement in the liability for defined benefit obligations
Movement in the liability for defined benefit obligations
Movement in the liability for defined benefit obligations
Movement in the liability for defined benefit obligations
Opening defined benefit obligations at 1 January
Benefits paid by the plan
Interest on obligations
Actuarial (gain)/loss
Liability for defined benefit obligations at 31 December
Liability for defined benefit obligations at 31 December
Liability for defined benefit obligations at 31 December
Liability for defined benefit obligations at 31 December
Movement in plan assets
Movement in plan assets
Movement in plan assets
Movement in plan assets
Opening fair value of plan assets at 1 January
Expected return on assets
Contribution by employer
Actuarial (loss)/gain
Benefits paid
Closing fair value of plan assets at 31 December
Closing fair value of plan assets at 31 December
Closing fair value of plan assets at 31 December
Closing fair value of plan assets at 31 December
Expense recognised in income statement
Expense recognised in income statement
Expense recognised in income statement
Expense recognised in income statement
Interest on obligation
Expected return on plan assets
Total included in personnel costs
Total included in personnel costs
Total included in personnel costs
Total included in personnel costs
Actual return on plan assets
Actual return on plan assets
Actual return on plan assets
Actual return on plan assets
Actuarial gain recognised in other comprehensive income
Actuarial gain recognised in other comprehensive income
Actuarial gain recognised in other comprehensive income
Actuarial gain recognised in other comprehensive income
Actuarial (loss)/gain on plan assets
Actuarial gain/(loss) on defined benefit obligations
2018
2018
20182018
££££000000000000
1,361
1,361
1,361
1,361
(1,945)
(1,945)
(1,945)
(1,945)
(584)
(584)
(584)
(584)
2018
2018
20182018
££££000000000000
2,029
2,029
2,029
2,029
(65)
(65)
(65)
(65)
52525252
(71)
(71)
(71)
(71)
1,945
1,945
1,945
1,945
2018
2018
20182018
££££000000000000
1,469
1,469
1,469
1,469
37373737
41414141
(121)
(121)
(121)
(121)
(65)
(65)
(65)
(65)
1,361
1,361
1,361
1,361
2018
2018
20182018
££££000000000000
52525252
(37)
(37)
(37)
(37)
15151515
(53)
(53)
(53)
(53)
2018
2018
20182018
££££000000000000
(121)
(121)
(121)
(121)
71717171
50505050
2017
£000
1,469
(2,029)
(560)
2017
£000
2,034
(68)
54
9
2,029
2017
£000
1,420
37
41
39
(68)
1,469
2017
£000
54
(37)
17
76
2017
£000
39
(9)
30
Page | 59
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
30. Pension liability (continued)
30. Pension liability (continued)
30. Pension liability (continued)
30. Pension liability (continued)
Plan assets consist of the following
Plan assets consist of the following
Plan assets consist of the following
Plan assets consist of the following
Equity securities
Corporate bonds
Government bonds
Cash
Other
The actuarial assumptions used to calculate Scheme liabilities under
The actuarial assumptions used to calculate Scheme liabilities under
The actuarial assumptions used to calculate Scheme liabilities under
The actuarial assumptions used to calculate Scheme liabilities under
IAS19 are as follows: ----
IAS19 are as follows:
IAS19 are as follows:
IAS19 are as follows:
Rate of increase in pension in payment: -
Service up to 5 April 1997
Service from 6 April 1997 to 13 September 2005
Service from 14 September 2005
Rate of increase in deferred pensions
Discount rate applied to scheme liabilities
Inflation
2018
2018
20182018
%%%%
45454545
19191919
28282828
4444
4444
100100100100
2017
%
48
18
25
5
4
100
2018
2018
20182018
%%%%
2017
%
2016
%
----
3.03.03.03.0
2.12.12.12.1
5.05.05.05.0
2.62.62.62.6
3.13.13.13.1
-
3.0
2.1
5.0
2.6
3.1
-
3.1
2.1
5.0
2.7
3.2
The assumptions used by the actuary are best estimates chosen from a range of possible assumptions, which due to the timescale
covered, may not necessarily be borne out in practice.
31. Called up share capital
31. Called up share capital
31. Called up share capital
31. Called up share capital
available for issue
Ordinary shares of no par value available for issue
Ordinary shares of no par value
available for issue
available for issue
Ordinary shares of no par value
Ordinary shares of no par value
At 31 December 2018
At 31 December 2018
At 31 December 2018
At 31 December 2018
At 31 December 2017
Ordinary shares of no par value
Issued and fully paid: ---- Ordinary shares of no par value
Issued and fully paid:
Ordinary shares of no par value
Ordinary shares of no par value
Issued and fully paid:
Issued and fully paid:
At 31 December 2018
At 31 December 2018
At 31 December 2018
At 31 December 2018
At 31 December 2017
Number
Number
Number
Number
200,200,000
200,200,000
200,200,000
200,200,000
200,200,000
££££000000000000
20,732
20,732
20,732
20,732
20,732
Number
Number
Number
Number
131,096,235
131,096,235
131,096,235
131,096,235
131,096,235
There are four convertible loans of £3,410,000 (2017: £3,410,000) with no remaining warrants to exercise at 31 December 2018
(2017: £nil).
On 23 June 2014, 1,750,000 share options were issued to Executive Directors and senior management within the Group at an
exercise price of 14 pence. The options vest over three years with a charge based on the fair value of 8 pence per option at the date
of grant. The period of grant is for 10 years less 1 day ending 22 June 2024. Of the 1,750,000 share options issued, 1,050,000
(2017:1,050,000) remain outstanding; the balance lapsed during 2017.
Performance and service conditions attached to share options that have not fully vested are as follows: -
(a) The options granted on 25 June 2010 (1,056,000 options) will vest if the mid-market share price of £0.30 is achieved during the
period of grant (10 years ending 25 June 2020); and
(b) The options granted on 25 June 2010 and 23 June 2014 require a minimum of three years’ continuous employment service in
order to exercise upon the vesting date.
Page | 60
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
ued)
(continued)
31. Called up share capital (contin
31. Called up share capital
ued)ued)
(contin
(contin
31. Called up share capital
31. Called up share capital
The fair value of services received in return for share options granted is based on the fair value of share options granted, measured
using a binomial probability model with the following inputs for each award: -
Fair value at date of grant
Share price
Exercise price
Expected volatility
Option life
Risk-free interest rate (based on government bonds)
Forfeiture rate
The charge for the year for share options granted was £nil (2017: £22,000).
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Balance at 1 January
Issue of loan notes
Issue of shares
23 June
2014
£0.08
£0.14
£0.14
55.0%
3
0.5%
33.3%
2018
2018
20182018
££££000000000000
29,727
29,727
29,727
29,727
6,876
6,876
6,876
6,876
----
36,603
36,603
36,603
36,603
25 June
2010
£0.03
£0.11
£0.11
47.0%
3
2.2%
0.0%
2017
£000
27,478
450
1,799
29,727
The 2018 closing balance is represented by £20,732,000 share capital (2017: £20,732,000) and £15,871,000 of loan notes (2017:
£8,995,000).
Investment in Group undertakings
32. 32. 32. 32. Investment in Group undertakings
Investment in Group undertakings
Investment in Group undertakings
The Company has the following investments in subsidiaries incorporated in the Isle of Man: -
Carrying value of investments
Carrying value of investments
Carrying value of investments
Carrying value of investments
Nature of
Business
31 December
31 December
31 December
31 December
2017
2017
20172017
% Holding
% Holding
% Holding
% Holding
Date of
Incorporation
Conister Bank Limited
Edgewater Associates Limited
TransSend Holdings Limited
Bradburn Limited
Asset and Personal Finance
Wealth Management
Holding Company for Prepaid Card Division
Holding Company
100100100100
100100100100
100100100100
100100100100
05/12/1935
24/12/1996
05/11/2007
15/05/2009
Amounts owed to and from Group undertakings are unsecured, interest-free and repayable on demand.
Total
Total
Total
Total
2018
2018
20182018
££££000000000000
14,167
14,167
14,167
14,167
2,005
2,005
2,005
2,005
----
----
16,172
16,172
16,172
16,172
Total
2017
£000
11,767
2,005
-
-
13,772
Page | 61
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
(continued)
32. Investment in Group undertakings (continued)
32. Investment in Group undertakings
(continued)
(continued)
32. Investment in Group undertakings
32. Investment in Group undertakings
Subordinated loans
Subordinated loans
Subordinated loans
Subordinated loans
MFG has issued several subordinated loans as part of its equity funding into the Bank and EWA.
Company
Company
Company
Company
Creation
Conister Bank Limited
Conister Bank Limited
Conister Bank Limited
Conister Bank Limited
11 February 2014
27 May 2014
9 July 2014
17 September 2014
22 July 2013
25 October 2013
23 September 2016
14 June 2017
12 June 2018
Associates Limited
Edgewater Associates Limited
Edgewater
Associates Limited
Associates Limited
Edgewater
Edgewater
14 May 2012
28 February 2013
21 February 2017
14 May 2017
Goodwill
Goodwill
Goodwill
Goodwill
Maturity
Interest rate
11 February 2024
27 May 2024
9 July 2024
17 September 2026
22 July 2033
22 October 2033
23 September 2036
14 June 2037
12 June 2038
14 May 2017
28 February 2018
21 February 2027
14 May 2027
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
Edgewater Associates Limited (“EWA”)
ECF Asset Finance PLC (“ECF”)
Three Spires Insurance Services Limited (“Three Spires”)
2018
2018
20182018
££££000000000000
500500500500
500500500500
500500500500
400400400400
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,100
1,100
1,100
1,100
450450450450
2,000
2,000
2,000
2,000
----
50505050
150150150150
128128128128
7,778
7,778
7,778
7,778
GroupGroupGroupGroup
2018
2018
20182018
££££000000000000
1,849
1,849
1,849
1,849
454454454454
41414141
2,344
2,344
2,344
2,344
2017
£000
500
500
500
400
1,000
1,000
1,100
450
-
-
50
150
128
5,778
Group
2017
£000
1,849
454
41
2,344
Goodwill impairment
Goodwill impairment
Goodwill impairment
Goodwill impairment
The goodwill is considered to have an indefinite life and is reviewed on an annual basis by comparing its estimated recoverable
amount with its carrying value.
The estimated recoverable amount in relation to the goodwill generated on the purchase of EWA is based on the forecasted 3 year
cash flow projections, extrapolated to 10 years using a 2.0% annual increment, and then discounted using a 12.0% discount factor.
The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% on stable profit levels.
The estimated recoverable amount in relation to the goodwill generated on the purchase of ECF is based on forecasted 3 year sales
interest income calculated at 5.0% margin, extrapolated to 10 years using a 2.0% annual increment, and then discounted using a
12.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% on varying
sales volumes.
There has been no change in the detailed method of measurement for EWA and ECF when compared to 2017. The goodwill
generated on the purchase of Three Spires has been reviewed at the current year end and is considered adequate given its income
streams referred to EWA. Based on the above reviews no impairment to goodwill has been made in the current year.
Page | 62
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
32. Investment in Group undertakings (continued)
32. Investment in Group undertakings (continued)
32. Investment in Group undertakings (continued)
32. Investment in Group undertakings (continued)
Acquisition of Incahoot Limited
Acquisition of Incahoot Limited
Acquisition of Incahoot Limited
Acquisition of Incahoot Limited
On 6 March 2015, the business of Incahoot Limited was acquired by Manx Incahoot Limited, a subsidiary of the Group.
On 9 December 2016, a valuation was conducted by an independent firm of professional advisers on the intellectual property rights
acquired for the purpose of including within these financial statements. The independent firm addressed the three levels of the IFRS
fair value hierarchy and concluded that level 3 was most appropriate as the intellectual property rights acquired had no active markets
(Level 1), or comparable assets against which to index prices (Level 2). Therefore, the report valued the intellectual property rights
acquired based on internally generated data (Level 3) being: costs incurred to date and cash flow projections. The report averaged
two valuation approaches, the replacement cost approach and the income approach using a discount factor of 42.5%, to arrive at a
final valuation of £262,474. This created an impairment of £48,026. On 2 February 2018, the valuation was again updated which lead
to a reduced valuation of £154,427. This created an additional impairment of £108,047.
The Directors performed an internal impairment assessment and consider the recoverable amount of the intellectual property rights
to be £76,000 at 31 December 2018. The recoverable amount at 31 December 2017 was considered to be £154,427 based on an
external valuation.
Investment in associates
Investment in associates
Investment in associates
Investment in associates
The Business Lending Exchange (“BLX”)
Beer Swaps Limited (“BSL”)
Pay It Monthly Ltd (“PIML”)
GroupGroupGroupGroup
2018
2018
20182018
££££000000000000
56565656
10101010
92929292
158158158158
Group
2017
£000
38
-
-
38
On December 2017, 40.0% of the share capital of BLX was acquired for nil consideration. The Group’s share of the associate’s total
comprehensive income during the year was £18,000.
On April 2018, 20% of the share capital of BSL was acquired for nil consideration. The Group’s share of the associates total
comprehensive income post acquisition and up to year-end was £10,000.
On August 2018, 30% of the share capital of PIML was acquired for £90,000 consideration. The Group’s resulting share of the
associates total comprehensive income post acquisition and up to year-end was £2,000.
33. Related party transactions
33. Related party transactions
33. Related party transactions
33. Related party transactions
Cash deposits
Cash deposits
Cash deposits
Cash deposits
During the year, the Bank held cash on deposit on behalf of Jim Mellon (Executive Chairman of MFG) and companies related to Jim
Mellon and Denham Eke (Chief Executive Officer of MFG). Total deposits amounted to £173,157 (2017: £40,000), at normal
commercial interest rates in accordance with the standard rates offered by the Bank.
Staff and commercial loans
Staff and commercial loans
Staff and commercial loans
Staff and commercial loans
Details of staff loans are given in note 22.
Normal commercial loans have been made to various companies connected to Jim Mellon and Denham Eke. As at 31 December
2018, £113,000 of capital and interest was outstanding (2017: £299,000).
Intercompany recharges
Intercompany recharges
Intercompany recharges
Intercompany recharges
Various intercompany recharges are made during the course of the year as a result of the Bank settling debts in other Group
companies. EWA provides services to the Group in arranging its insurance and defined contribution pension arrangements.
Loan advance to EWA
Loan advance to EWA
Loan advance to EWA
Loan advance to EWA
On 14 December 2016, a loan advance was made to EWA by the Bank in order to provide the finance required to acquire MBL (see
note 25). The advance was for £700,000 at an interest rate of 8% repayable over 6 years. A negative pledge was given by EWA to
not encumber any property or assets or enter into an arrangement to borrow any further monies. The balance as at 31 December
2018 was £508,000 (2017: £700,000).
Page | 63
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
(continued)
33. Related party transactions (continued)
33. Related party transactions
(continued)
(continued)
33. Related party transactions
33. Related party transactions
Loan advance to BLX
Loan advance to BLX
Loan advance to BLX
Loan advance to BLX
On 11 October 2017, a £4,000,000 loan facility was made available to BLX by the Bank in order to provide the finance required to
expand its operations. The facility is for 12 months, followed by a 3 year amortisation period. Interest is charged at commercial rates.
At 31 December 2018, £2,520,000 (2017: £550,000) had been advanced to BLX.
Loan advance to BSL
Loan advance to BSL
Loan advance to BSL
Loan advance to BSL
On 27 April 2018, a £1,000,000 loan facility was made available to BSL by the Bank in order to provide the finance required to expand
its operations. On 10 October 2018, this facility was increased to £1,500,000. The facility is for 12 months. Interest is charged at
commercial rates. At 31 December 2018, £1,099,000 (2017: £nil) had been advanced to BSL.
Loan advance to PIML
Loan advance to PIML
Loan advance to PIML
Loan advance to PIML
On 24 May 2018, a £500,000 loan facility was made available to PIML by the Bank in order to provide the finance required to expand
its operations. The facility is for 12 months. Interest is charged at commercial rates. At 31 December 2018, £322,000 (2017: £nil) had
been advanced to PIML. Post-year-end on 6 February 2019, the facility was increased to £1,000,000.
Investments
Investments
Investments
Investments
The Bank holds less than 1% equity in the share capital of an investment of which Jim Mellon is a shareholder (note 21). Denham
Eke acts as co-chairman.
Subordinated loans
Subordinated loans
Subordinated loans
Subordinated loans
The Company has advanced £7,450,000 (2017: £5,450,000) of subordinated loans to the Bank and £328,000 (2017: £328,000) to
EWA at 31 December 2018.
Loan notes
Loan notes
Loan notes
Loan notes
See note 29 for a list of related party loan notes as at 31 December 2018 and 2017.
Key management remuneration including Executive Directors
Key management remuneration including Executive Directors
Key management remuneration including Executive Directors
Key management remuneration including Executive Directors
Short-term employee benefits
Operating leases
34. 34. 34. 34. Operating leases
Operating leases
Operating leases
Non-cancellable lease rentals are payable in respect of property and motor vehicles as follows: -
2018
2018
20182018
££££000000000000
297297297297
Less than one year
Between one and five years
Over five years
35. Subsequent events
35. Subsequent events
35. Subsequent events
35. Subsequent events
2018
2018
20182018
2017
Leasehold
Leasehold
Leasehold
Leasehold
Property
Property
Property
Property
££££000000000000
214214214214
790790790790
162162162162
1,166
1,166
1,166
1,166
OtherOtherOtherOther
££££000000000000
----
----
----
----
Leasehold
Property
£000
178
738
276
1,192
2017
£000
300
Other
£000
-
-
-
-
There were no significant subsequent events identified after 31 December 2018.
management
Financial risk management
36. 36. 36. 36. Financial risk
management
management
Financial risk
Financial risk
A. Introduction and overview
A. Introduction and overview
A. Introduction and overview
A. Introduction and overview
The Group has exposure to the following risks from financial instruments:
credit risk;
liquidity risk;
market risks; and
operational risks.
Page | 64
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
(continued)
Financial risk management (continued)
36. 36. 36. 36. Financial risk management
(continued)
(continued)
Financial risk management
Financial risk management
(continued)
A. Introduction and overview (continued)
A. Introduction and overview
(continued)
(continued)
A. Introduction and overview
A. Introduction and overview
i. Risk management framework
i. Risk management framework
i. Risk management framework
i. Risk management framework
The Company’s Board have overall responsibility for the establishment and oversight of the Group’s risk management
framework. The Board of Directors have established the Group Audit, Risk and Compliance Committee (‘ARCC’), which is
responsible for approving and monitoring Group risk management policies. ARCC is assisted in its oversight role by Internal
Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of
which are reported to the ARCC.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate
risk limits and controls, and to monitor risks and adherence to limits. The risk management policies and systems are reviewed
regularly to reflect changes in market conditions and the Group’s activities. The Group, though its training and management
standards and procedures, aims to develop a disciplined and constructive control environment in which all employees
understand their roles and obligations.
B. Credit risk
B. Credit risk
B. Credit risk
B. Credit risk
‘Credit risk’ is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s loans and advances to customers and investment debt
securities. Credit risk includes counterparty, concentration, underwriting and credit mitigation risks.
Management of credit risk
Management of credit risk
Management of credit risk
Management of credit risk
The Bank’s Board of Directors created the Credit Committee which is responsible for managing credit risk, including the
following:
Formulating credit policies in consultation with business units, covering collateral requirements, credit assessments,
risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory
requirements.
Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are
allocated to in line with credit policy.
Reviewing and assessing credit risk: The Credit Committee assesses all credit exposures in excess of designated
limits, before facilities are committed to customers. Renewals and reviews of facilities are subject to the same review
process.
Limiting concentrations of exposures to counterparties, geographies and industries, by issuer, credit rating band,
market liquidity and country (for debt securities).
Developing and maintaining risk grading’s to categorise exposures according to the degree of risk of default. The
current risk grading consists of 3 grades reflecting varying degrees of risk of default.
Developing and maintaining the Group’s process for measuring ECL: This includes processes for:
initial approval, regular validation and back-testing of the models used;
o
o determining and monitoring significant increase in credit risk; and
o
incorporation of forward-looking information.
Reviewing compliance with agreed exposure limits. Regular reports on the credit quality of portfolios are provided to
the Credit Committee which may require corrective action to be taken.
C. Liquidity risk
C. Liquidity risk
C. Liquidity risk
C. Liquidity risk
‘Liquidity risk’ is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset. Liquidity risk arises from mismatches in the timing and amounts of
cash flows, which is inherent to the Group’s operations and investments.
Management of liquidity risk
Management of liquidity risk
Management of liquidity risk
Management of liquidity risk
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have enough liquidity to meet
its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to the Group’s reputation. The key elements of the Group’s liquidity strategy are as follows:
Funding base: offering six-months to five-year fixed term deposit structure with no early redemption option. This
means the Bank is not subject to optionality risk where customers redeem fixed rate products where there may be a
better rate available within the market;
Funding profile: the Bank has a matched funding profile and does not engage in maturity transformation which means
that on a cumulative mismatch position the Bank is forecast to be able to meet all liabilities as they fall due;
Page | 65
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
Financial risk management
36. 36. 36. 36. Financial risk management
Financial risk management
Financial risk management
C. Liquidity risk (continued)
C. Liquidity risk (continued)
C. Liquidity risk (continued)
C. Liquidity risk (continued)
Management of liquidity risk (continued)
Management of liquidity risk (continued)
Management of liquidity risk (continued)
Management of liquidity risk (continued)
Monitoring maturity mismatches, behavioural characteristics of the Group’s financial assets and financial liabilities,
and the extent to which the Group’s assets are encumbered and so not available as potential collateral for obtaining
funding.
Liquidity buffer: the Bank maintains a liquidity buffer of 10.0% of its deposit liabilities, with strict short-term mismatch
limits of 0.0% for sight to three months and -5.0% for sight to six months. This ensures that the Bank is able to
withstand any short-term liquidity shock; and
Interbank market: the Bank has no exposure to the interbank lending market. The Bank has no reliance on liquidity
via the wholesale markets. In turn, if market conditions meant access to the wholesale funding was constrained as
per the 2008 credit crisis, this would have no foreseeable effect on the Bank.
The Bank’s liquidity position is monitored daily against internal and external limits agreed with the FSA and according
to the Bank’s Liquidity Policy. The Bank also has a Liquidity Contingency Policy and Liquidity Contingency Committee
in the event of a liquidity crisis or potential liquidity disruption event occur.
The Treasury department receives information from other business units regarding the liquidity profile of their financial assets
and financial liabilities and details of other projected cash flows arising from projected future business. Treasury then maintains
a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to banks
and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole.
Regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market
conditions. The scenarios are developed considering both Group-specific events and market-related events (e.g. prolonged
market illiquidity).
D. Market risk
D. Market risk
D. Market risk
D. Market risk
‘Market risk’ is the risk that changes in market prices – e.g. interest rates, equity prices, foreign exchange rates and credit
spreads (not relating to changes in the obligor’s/issuer’s credit standing) will affect the Group’s income or value of its holdings
of financial instruments. The objective of the Group’s market risk management is to manage and control market risk exposures
within acceptable parameters to ensure the Group’s solvency while optimising the return on risk.
Management of market risks
Management of market risks
Management of market risks
Management of market risks
Overall authority for market risk is vested in Assets and Liabilities Committee (“ALCO”) who sets up limits for each type of risk.
Group finance is responsible for the development of risk management policies (subject to review and approval by ALCO) and
for the day-to-day review of their implementation.
Foreign exchange risk
Foreign exchange risk
Foreign exchange risk
Foreign exchange risk
The Bank is not subject to foreign exchange risks and its business is conducted in pounds sterling.
Equity risk
Equity risk
Equity risk
Equity risk
The Group has investment in associates of £158,000 (2017: £38,000) which are carried at cost adjusted for the Group’s share
of net asset value. The investment is audited annually and the Bank has access to these accounts. The Bank’s exposure to
market risk is not considered significant given the low carrying amount of the investment.
The Group’s investment in listed equities is not considered significant.
Interest rate risk
Interest rate risk
Interest rate risk
Interest rate risk
The principal potential interest rate risk that the Bank is exposed to is the risk that the fixed interest rate and term profile of its
deposit base differs materially from the fixed interest rate and term profile of its asset base, or basis and term structure risk.
Additional interest rate risk may arise for banks where (a) customers are able to react to market sensitivity and redeem fixed
rate products and (b) where a bank has taken out interest rate derivate hedges especially against longer term interest rate risk,
where the hedge moves against the bank.
Interest rate risk for the Bank is not deemed to be currently material due to the Bank’s matched funding profile. Any interest
rate risk assumed by the Bank will arise from a reduction in interest rates, in a rising environment due to the nature of the
Bank’s products and its matched funded profile. The Bank should be able to increase its lending rate to match any
corresponding rise in its cost of funds, notwithstanding its inability to vary rates on its existing loan book. The Bank attempts
to efficiently match its deposit taking to its funding requirements.
Page | 66
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
Financial risk management
36. 36. 36. 36. Financial risk management
Financial risk management
Financial risk management
E. Operational risk
E. Operational risk
E. Operational risk
E. Operational risk
‘Operational risk’ is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes,
personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks – e.g. those
arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks
arise from all of the Group’s operations.
Management of operational risk
Management of operational risk
Management of operational risk
Management of operational risk
The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the
Group’s reputation with overall cost effectiveness and innovation. In all cases, Group policy requires compliance with all
applicable legal and regulatory requirements.
The Group has developed standards for the management of operational risk in the following areas:
requirements for appropriate segregation of duties, including the independent authorisation of transactions;
requirements for the reconciliation and monitoring of transactions;
business continuity planning;
compliance with regulatory and other legal requirements;
documentation of controls and procedures;
periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks
identified;
requirements for the reporting of operational losses and proposed remedial action;
training and professional development;
development of contingency plans;
ethical and business standards;
information technology and cyber risks; and
risk mitigation, including insurance where this is cost-effective.
Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results
of Internal Audit reviews are discussed with ARCC.
Page | 67
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
37. Basis of measurement
37. Basis of measurement
37. Basis of measurement
37. Basis of measurement
The financial statements are prepared on a historical cost basis, except for the following material items.
Items
Items
Items
Items
Measurement basis
Measurement basis
Measurement basis
Measurement basis
Financial instruments at FVPL
Financial assets at FVOCI
Net defined benefit asset/liability
38. Significant accounting policies
38. Significant accounting policies
38. Significant accounting policies
38. Significant accounting policies
Fair value
Fair value
Fair value of plan assets less the present value of the
defined benefit obligation
Except for the changes explained in Note 5, the Group has consistently applied the following accounting policies to all periods
presented in these financial statements.
Set out below is an index of the significant accounting policies, the details of which are available on the pages that follow.
Ref.Ref.Ref.Ref.
Note description
Note description
Note description
Note description
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
M.
N.
O.
P.
Q.
R.
S.
Basis of consolidation of subsidiaries and separate financial statements of the Company
Interest in equity accounted investees
Foreign currency
Interest
Fee and commission income
Programme costs
Leases
Income tax
Financial assets and financial liabilities
i. Recognition and initial measurement
ii. Classification
iii. Derecognition
iv. Modifications of financial assets and financial liabilities
v. Offsetting
vi. Fair value measurement
vii. Impairment
Cash and cash equivalents
Loans and advances
Property, plant and equipment
Intangibles assets and goodwill
Impairment of non-financial assets
Deposits, debt securities issued and subordinated liabilities
Employee benefits
i. Long-term employee benefits
ii. Share-based compensation
Share capital and reserves
Earnings per share
Segment reporting
No.No.No.No.
69
69
69
69
70
70
70
70
70
71
71
72
72
72
73
75
75
75
75
76
76
77
77
77
77
77
77
Page | 68
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
(continued)
38. Significant accounting policies (continued)
38. Significant accounting policies
(continued)
(continued)
38. Significant accounting policies
38. Significant accounting policies
A. Basis of consolidation of subsidiaries and separate financial statements of the Company
A. Basis of consolidation of subsidiaries and separate financial statements of the Company
A. Basis of consolidation of subsidiaries and separate financial statements of the Company
A. Basis of consolidation of subsidiaries and separate financial statements of the Company
i. Business combinations
i. Business combinations
i. Business combinations
i. Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The
consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill
that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction
costs are expensed as incurred, except if they are related to issue of debt or equity securities.
ii. Subsidiaries
ii. Subsidiaries
ii. Subsidiaries
ii. Subsidiaries
Subsidiaries are entities controlled by the Group. The Group ‘controls’ an entity if it is exposed to or has rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses
whether it has control if there are changes to one or more of the elements of control. This includes circumstances in which protective
rights held (e.g. those resulting from a lending relationship) become substantive and lead to the Group having power over an investee.
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control
commences until the date on which control ceases.
iii. Loss of control
iii. Loss of control
iii. Loss of control
iii. Loss of control
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related Non-
Controlling Interest (“NCI”) and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest
retained in the former subsidiary is measured at fair value when control is lost.
consolidation
iv. Transactions eliminated on consolidation
iv. Transactions eliminated on
consolidation
consolidation
iv. Transactions eliminated on
iv. Transactions eliminated on
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to
the extent that there is no evidence of impairment.
v. Separate financial statements of the Company
v. Separate financial statements of the Company
v. Separate financial statements of the Company
v. Separate financial statements of the Company
In the separate financial statements of the Company, interests in subsidiaries, associates and joint ventures are accounted for at cost.
B. Interests in equity accounted investees
B. Interests in equity accounted investees
B. Interests in equity accounted investees
B. Interests in equity accounted investees
The Group’s interests in equity accounted investees may comprise interests in associates and joint ventures.
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and
operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net
assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the equity method. They are initially recognised at cost, which
includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the
profit or loss and OCI of equity accounted investees, until the date on which significant influence or joint control ceases.
C. Foreign currency
C. Foreign currency
C. Foreign currency
C. Foreign currency
Foreign currency assets and liabilities (applicable to the Conister Card Services division only) are translated at the rates of exchange
ruling at the reporting date. Transactions during the year are recorded at rates of exchange in effect when the transaction occurs. The
exchange movements are dealt with in the income statement.
D. Interest
D. Interest
D. Interest
D. Interest
Interest income and expense are recognised in profit or loss using the effective interest rate method.
Effective interest rate
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts of the financial instrument to
the net carrying amount of the financial asset or financial liability. The discount period is the expected life or, where appropriate, a
shorter period. The calculation includes all amounts receivable or payable by the Group that are an integral part of the overall return,
including origination fees, loan incentives, broker fees payable, estimated early repayment charges, balloon payments and all other
premiums and discounts. It also includes direct incremental transaction costs related to the acquisition or issue of the financial
instrument. The calculation does not consider future credit losses.
Page | 69
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
D. Interest (continued)
D. Interest (continued)
D. Interest (continued)
D. Interest (continued)
Effective interest rate (continued)
Once a financial asset or a group of similar financial assets has been written down as a result of impairment, subsequent interest
income continues to be recognised using the original effective interest rate applied to the reduced carrying value of the financial
instrument.
E. Fees and
commission income
E. Fees and commission income
commission income
commission income
E. Fees and
E. Fees and
Fees and commission income other than that directly related to the loans is recognised over the period for which service has been
provided or on completion of an act to which the fees relate.
Income in respect of fiduciary deposit taking is recognised on an accruals basis.
F. Programme costs
F. Programme costs
F. Programme costs
F. Programme costs
Programme costs are direct expenditure incurred in relation to prepaid card programmes. The costs are recognised over the period
in which income is derived from operating the programmes.
G. G. G. G. Leases
Leases
Leases
Leases
Leases in which the Group is a lessor
Leases in which the Group is a lessor
Leases in which the Group is a lessor
Leases in which the Group is a lessor
Finance leases and HP contracts
Finance leases and HP contracts
Finance leases and HP contracts
Finance leases and HP contracts
When assets are subject to a finance lease or HP contract, the present fair value of the lease payments is recognised as a receivable.
The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. HP
and lease income is recognised over the term of the contract or lease reflecting a constant periodic rate of return on the net investment
in the contract or lease. Initial direct costs, which may include commissions and legal fees directly attributable to negotiating and
arranging the contract or lease, are included in the measurement of the net investment of the contract or lease at inception.
Operating leases
Operating leases
Operating leases
Operating leases
Assets held for operating leases are presented on the Statement of Financial Position according to the nature of the asset. Lease
income is recognised over the lease term on a straight-line basis.
Leases in which the Group is a lessee
Leases in which the Group is a lessee
Leases in which the Group is a lessee
Leases in which the Group is a lessee
Operating leases
Operating leases
Operating leases
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement
on a straight-line basis over the period of the lease.
H. Income tax
H. Income tax
H. Income tax
H. Income tax
Current and deferred taxation
Current taxation relates to the estimated corporation tax payable in the current financial year. Deferred taxation is provided in full,
using the liability method, on timing differences arising between the tax bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. Deferred taxation is determined using tax rates (and laws) that have been enacted or
substantially enacted by the reporting date and are expected to apply when the related deferred tax is realised. Deferred taxation
assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences
can be utilised.
financial liabilities
assets and financial liabilities
I. Financial assets and
I. Financial
financial liabilities
financial liabilities
assets and
assets and
I. Financial
I. Financial
i. Recognition and initial measurement
i. Recognition and initial measurement
i. Recognition and initial measurement
i. Recognition and initial measurement
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which
they are originated. All other financial instruments including regular-way purchases and sales of financial assets) are recognised on
the trade date, which is the date on which the Group becomes party to the contractual provisions of the instrument.
A financial asset or financial liability is measured initially at fair value plus, for an item not at FVTPL, transaction costs that are directly
attributable to its acquisition or issue.
Page | 70
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
I. Financial
financial liabilities (continued)
assets and financial liabilities (continued)
I. Financial assets and
financial liabilities (continued)
financial liabilities (continued)
assets and
assets and
I. Financial
I. Financial
ii. Classification
ii. Classification
ii. Classification
ii. Classification
Financial assets
Financial assets
Financial assets
Financial assets
On initial recognition, a financial asset is classified as measured at: amortised cost, FVOCI or FVTPL.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI.
A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as FVTPL:
the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling
financial assets; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent
changes in fair value in OCI. This election is made on an investment-by-investment basis.
All other financial assets are classified as measured at FVTPL.
In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be
measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that
would otherwise arise.
Business model assessment
Business model assessment
Business model assessment
Business model assessment
The group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best
reflects the way the business is managed and information provided to management.
Assessment of whether contractual cash flows are solely payments of principal and
interest
Assessment of whether contractual cash flows are solely payments of principal and interest
interest
interest
Assessment of whether contractual cash flows are solely payments of principal and
Assessment of whether contractual cash flows are solely payments of principal and
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is
defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a
particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.
In assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument. This includes
assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows
such that it would not meet this condition.
Reclassifications
Reclassifications
Reclassifications
Reclassifications
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business
model for managing financial assets.
Financial liabilities
Financial liabilities
Financial liabilities
Financial liabilities
The Group classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortised cost.
iii. Derecognition
iii. Derecognition
iii. Derecognition
iii. Derecognition
Financial assets
Financial assets
Financial assets
Financial assets
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it
transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership
of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of
ownership and it does not retain control of the financial asset.
On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to
the portion of the asset derecognised) and the sum of (i) the consideration received (including any new asset obtained less any new
liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI is recognised in profit or loss.
Page | 71
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
I. Financial
financial liabilities (continued)
assets and financial liabilities (continued)
I. Financial assets and
financial liabilities (continued)
financial liabilities (continued)
assets and
assets and
I. Financial
I. Financial
iii. Derecognition (continued)
iii. Derecognition (continued)
iii. Derecognition (continued)
iii. Derecognition (continued)
Financial liabilities
Financial liabilities
Financial liabilities
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
iv. Modifications
iv. Modifications
iv. Modifications
iv. Modifications
Financi
al assets
Financial assets
al assets
al assets
Financi
Financi
If the terms of a financial asset are modified, then the Group evaluates whether the cash flows of the modified asset are substantially
different.
If the cash flows are substantially different, the contractual rights to cash flows from the original financial asset are deemed to have
expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value plus any eligible
transaction costs.
If the cash flows are modified when the borrower is in financial difficulties, then the objective of the modification is usually to maximise
recovery of the original contractual terms rather than to originate a new asset with substantially different terms. If the Group plans to
modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset
should be written off before the modification takes place. This approach impacts the result of the quantitative evaluation and means
that the derecognition criteria are not usually met in such cases.
If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset,
then the Group first recalculates the gross carrying amount of the financial asset using the original effective interest rate of the asset
and recognises the resulting adjustment as a modification gain or loss in profit or loss. Any costs or fees incurred and fees received
as part of the modification adjust the gross carrying amount of the modified financial asset and are amortised over the remaining term
of the modified financial asset. If such modification is carried out because of financial difficulties of the borrower, then the gain or loss
is presented together with impairment losses. In other cases, it is presented as interest income calculated using the effective interest
rate method.
Financial liabilities
Financial liabilities
Financial liabilities
Financial liabilities
The Group derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially
different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the
carrying amount of the financial liability derecognised and consideration paid is recognised in profit or loss. Consideration paid
includes non-financial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability.
If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by
discounting the modified cash flows at the original effective interest rate and the resulting gain or loss I s recognised in profit or loss.
Any costs and fee incurred are recognised as an adjustment of the carrying amount of the liability and amortised over the remaining
term of the modified financial liability by re-computing the effective interest rate on the instrument.
v. Offsetting
v. Offsetting
v. Offsetting
v. Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only
when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or
to realise the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of
similar transactions such as in the Group’s trading activity.
vi. Fair value measurement
vi. Fair value measurement
vi. Fair value measurement
vi. Fair value measurement
‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access
at the date. The fair value of a liability reflects its non-performance risk.
The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the
change has occurred.
The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making
the measurements: -
Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments;
Page | 72
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
Significant accounting policies (continued)
38. 38. 38. 38. Significant accounting policies (continued)
Significant accounting policies (continued)
Significant accounting policies (continued)
I. Financial
financial liabilities (continued)
assets and financial liabilities (continued)
I. Financial assets and
financial liabilities (continued)
financial liabilities (continued)
assets and
assets and
I. Financial
I. Financial
vi. Fair value measurement (continued)
vi. Fair value measurement (continued)
vi. Fair value measurement (continued)
vi. Fair value measurement (continued)
Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e.
derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar
instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation
techniques in which all significant inputs are directly or indirectly observable from market data; and
Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not
based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category
includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments
or assumptions are required to reflect differences between the instruments.
The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer
price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques.
For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying
degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks
affecting the specific instrument.
vii. Impairment
vii. Impairment
vii. Impairment
vii. Impairment
A financial instrument that is not credit-impaired on initial recognition is classified in ‘Stage 1’ and has its credit risk continuously monitored by
the Group.
If a significant increase in credit risk (“SICR”) since initial recognition is identified, the financial instrument is moved to ‘Stage 2’ but is not yet
deemed to be credit-impaired.
An SICR is always deemed to occur when the borrower is 30 days past due on its contractual payments. If the Group becomes
aware ahead of this time of non-compliance or financial difficulties of the borrower, such as loss of employment, avoiding contact
with the Group then an SICR has also deemed to occur.
A receivable is always deemed to be in default and credit-impaired when the borrower is 90 days past due on its contractual
payments or earlier if the Group becomes aware of severe financial difficulties such as bankruptcy, IVA, abscond or disappearance,
fraudulent activity and other similar events.
If the financial instrument is credit-impaired, the financial instrument is then moved to ‘Stage 3’. Financial instruments in Stage 3 have their
ECL measured based on expected credit losses on an undiscounted lifetime basis.
The Group measures loss allowances at an amount equal to lifetime ECL, except for debt investment securities that are determined to have
low credit risk at the reporting date for which they are measured as a 12-month ECL. Loss allowances for lease receivables are always
measured at an amount equal to lifetime ECL.
12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the
reporting date. Financial instruments for which a 12-month ECL is recognised are referred to as ‘Stage 1 financial instruments’.
Life-time ECL are the ECL that result from all possible default events over the expected life of a financial instrument. Financial instruments for
which a lifetime ECL is recognised but which are not credit-impaired are referred to as ‘Stage 2 financial instruments’.
Measurement of ECL
Measurement of ECL
Measurement of ECL
Measurement of ECL
After a detailed review, the Group devised and implemented an impairment methodology in light of the IFRS 9 requirements outlined
above noting the following:
The ECL was derived by reviewing the Group’s loss rate and loss given default over the past 8 years by product and geographical
segment.
The Group has assumed that the future economic conditions will broadly mirror the current environment and therefore the forecasted
loss levels in the next 3 years will match the Group’s experience in recent years.
For portfolios where the Group has never had a default in its history or has robust credit enhancements such as credit insurance or
default indemnities for the entire portfolio, then no IFRS 9 provision is made. At year-end, 37.9% had such credit enhancements
(2017: 41.7%).
If the Group holds objective evidence through specifically assessing a credit-impaired receivable and believes it will go on to
completely recover the debt due to the collateral held and cooperation with the borrower, then no IFRS 9 provision is made
Page | 73
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
(continued)
38. Significant accounting policies (continued)
38. Significant accounting policies
(continued)
(continued)
38. Significant accounting policies
38. Significant accounting policies
I. Financial
financial liabilities (continued)
assets and financial liabilities (continued)
I. Financial assets and
financial liabilities (continued)
financial liabilities (continued)
assets and
assets and
I. Financial
I. Financial
vii. Impairment (continued)
vii. Impairment (continued)
vii. Impairment (continued)
vii. Impairment (continued)
Measurement of ECL (continued)
Measurement of ECL (continued)
Measurement of ECL (continued)
Measurement of ECL (continued)
ECL are probability-weighted estimate of credit losses. They are measured as follows:
financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between
the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);
financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present
value of estimated future cash flows; and
undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if the
commitment is drawn down and the cash flows that the Group expects to receive.
Credit
impaired financial assets
Credit----impaired financial assets
impaired financial assets
impaired financial assets
Credit
Credit
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at
FVOCI, and finance lease receivables are credit-impaired (referred to as ‘Stage 3 financial assets’). A financial asset is ‘credit-
impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have
occurred.
Evidence that a financial asset is credit-impaired includes the following observable date:
significant financial difficulty of the borrower or issuer;
a breach of contract such as a default or past due event;
the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;
it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
the disappearance of an active market for a security because of financial difficulties.
A loan that has been renegotiated due to a deterioration in the borrower’s condition is usually considered to be credit-impaired unless
there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other indicators of
impairment. In addition, a retail loan that is overdue for 90 days or more is considered credit-impaired even when the regulatory
definition of default is different.
In making an assessment of whether an investment in sovereign debt is credit impaired, the Group considers the following factors:
the market’s assessment of creditworthiness as reflected in the bond yields;
the rating agencies’ assessments of creditworthiness;
the country’s ability to access the capital markets for new debt issuance;
the probability of debt being restructured, resulting in holders suffering losses through voluntary or mandatory debt
forgiveness;
The international support mechanisms in place to provide the necessary support as ‘lender of last resort’ to that country, as
well as the intention, reflected in public statements, of governments and agencies to use those mechanisms. This includes
an assessment of the depth of those mechanisms and, irrespective of the political intent, whether there is the capacity to
fulfil the required criteria.
Presentation of allowance for ECL in the statement of financial position
Presentation of allowance for ECL in the statement of financial position
Presentation of allowance for ECL in the statement of financial position
Presentation of allowance for ECL in the statement of financial position
Loss allowances for ECL are presented in the statement of financial position as follows:
financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets
loan commitments: generally, as a provision;
debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the
carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair
value reserve.
WriteWriteWriteWrite----offoffoffoff
Loans and debt securities are written off (either partially or in full) when there is no reasonable expectation of recovering a financial
asset in its entirety or a portion thereof. This is generally the case when the Group determines that the borrower does not have assets
or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. This assessment is carried
out at the individual asset level.
Recoveries of amounts previously written off are included in ‘impairment losses on financial instruments’ in the statement of profit or
loss and OCI.
Financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for
recovery of amounts due.
Page | 74
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
J. Cash and cash equivalents
J. Cash and cash equivalents
J. Cash and cash equivalents
J. Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents comprise cash and deposit balances with an original
maturity date of three months or less.
K. Loans and advances
K. Loans and advances
K. Loans and advances
K. Loans and advances
Loans and advances’ captions in the statement of financial position include:
loans and advances measured at amortised cost (see 38 (I)). They are initially measured at fair value plus incremental direct
transaction costs, and subsequently at their amortised cost using the effective interest method; and
finance lease receivable (see 38 (G)).
L. Property, plant and equipment
L. Property, plant and equipment
L. Property, plant and equipment
L. Property, plant and equipment
Items of property, plant and equipment are stated at historical cost less accumulated depreciation (see below). Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
The assets’ residual values and useful economic lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s
carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate
items of property, plant and equipment.
Depreciation and amortisation
Depreciation and amortisation
Depreciation and amortisation
Depreciation and amortisation
Assets are depreciated or amortised on a straight-line basis, so as to write off the book value over their estimated useful lives. The
useful lives of property, plant and equipment and intangibles are as follows: -
Property, plant and equipment
Leasehold improvements
IT equipment
Motor vehicles
Furniture and equipment
M. Intangible assets and goodwill
M. Intangible assets and goodwill
M. Intangible assets and goodwill
M. Intangible assets and goodwill
i. Goodwill
i. Goodwill
i. Goodwill
i. Goodwill
to expiration of the lease
4-5 years
2.5 years
4 -10 years
Goodwill that arises on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
ii. Software
ii. Software
ii. Software
ii. Software
Software acquired by the Group is measured at cost less accumulated amortisation and any accumulated impairment losses.
Expenditure on internally developed software is recognised as an asset when the Group is able to demonstrate: that the product is
technically feasible, its intention and ability to complete the development and use the software in a manner that will generate future
economic benefits, and that it can reliably measure the costs to complete the development. The capitalised costs of internally
developed software include all costs directly attributable to developing the software and capitalised borrowing costs, and are
amortised over its useful life. Internally developed software is stated at capitalised cost less accumulated amortisation and any
accumulated impairment losses.
Software is amortised on a straight-line basis in profit or loss over its estimated useful life, from the date on which it is available for
use. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
iii. Other
iii. Other
iii. Other
iii. Other
Intangible assets that are acquired by an entity and having finite useful lives are measured at cost less accumulated amortisation and
any accumulated impairment losses.
Intangible assets acquired as part of a business combination, with an indefinite useful live are measured at fair value. Intangible
assets with indefinite useful lives are not amortised but instead are subject to impairment testing at least annually.
Page | 75
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
olicies (continued)
38. Significant accounting policies (continued)
38. Significant accounting p
olicies (continued)
olicies (continued)
38. Significant accounting p
38. Significant accounting p
M. Intangible assets and goodwill (continued)
M. Intangible assets and goodwill (continued)
M. Intangible assets and goodwill (continued)
M. Intangible assets and goodwill (continued)
iii. Other (continued)
iii. Other (continued)
iii. Other (continued)
iii. Other (continued)
The useful lives of intangibles are as follows: -
Customer contracts and lists
Business intellectual property rights
Website development costs
Software
financial assets
N. Impairment of non----financial assets
N. Impairment of non
financial assets
financial assets
N. Impairment of non
N. Impairment of non
to expiration of the agreement
4 years - indefinite
indefinite
5 years
At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than deferred tax assets) to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
Goodwill is tested annually for impairment.
For impairment testing, assets are group together into the smallest group of assets that generates cash inflows from continuing use
that is largely independent of the cash inflows of other assets or Cash Generating Units (“CGUs”). Goodwill arising from a business
combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The ‘recoverable amount’ of an asset or CGU is the greater of its value in use and its fair value less cost to sell. ‘Value in use’ is based
on the estimated future cash flows, discounted to their present value using a pre=tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.
The Group’s corporate assets do not generate separate cash inflows and are used by more than one CGU. Corporate assets are
allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGUs to which the
corporate assets are located.
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to
the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the
asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation,
if no impairment loss had been recognised.
O. Deposits, debt securities issued and subordinated liabilities
O. Deposits, debt securities issued and subordinated liabilities
O. Deposits, debt securities issued and subordinated liabilities
O. Deposits, debt securities issued and subordinated liabilities
Deposits, debt securities issued and subordinated liabilities are the Group’s sources of debt funding.
The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the
contractual terms of the instruments.
Deposits, debt securities issued and subordinated liabilities are initially measured at fair value minus incremental direct transaction
costs, and subsequently measured at their amortised cost using the effective interest method.
Fiduciary deposits received on behalf of clients by way of a fiduciary agreement are placed with external parties and are not
recognised in the statement of financial position.
The Group could receive funds for its prepaid card activities. These funds would be held in a fiduciary capacity for the sole purpose
of making payments as and when card-holders utilise the credit on their cards and therefore would not be recognised in the statement
of financial position.
Page | 76
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
P. Employee benefits
P. Employee benefits
P. Employee benefits
P. Employee benefits
i. Long term employee benefits
i. Long term employee benefits
i. Long term employee benefits
i. Long term employee benefits
Pension obligations
Pension obligations
Pension obligations
Pension obligations
The Group has pension obligations arising from both defined benefit and defined contribution pension plans.
A defined contribution pension plan is one under which the Group pays fixed contributions into a separate fund and has no legal or
constructive obligations to pay further contributions. Defined benefit pension plans define an amount of pension benefit that an
employee will receive on retirement, usually dependent on one or more factors such as age, years of service and remuneration.
Under the defined benefit pension plan, in accordance with IAS 19 Employee benefits, the full service cost for the period, adjusted for
any changes to the plan, is charged to the income statement. A charge equal to the expected increase in the present value of the
plan liabilities, as a result of the plan liabilities being one year closer to settlement, and a credit reflecting the long-term expected
return on assets based on the market value of the scheme assets at the beginning of the period, is included in the income statement.
The statement of financial position records as an asset or liability as appropriate, the difference between the market value of the plan
assets and the present value of the accrued plan liabilities. The difference between the expected return on assets and that achieved
in the period, is recognised in the income statement in the year in which they arise. The defined benefit pension plan obligation is
calculated by independent actuaries using the projected unit credit method and a discount rate based on the yield on high quality
rated corporate bonds.
The Group’s defined contribution pension obligations arise from contributions paid to a Group personal pension plan, an ex gratia
pension plan, employee personal pension plans and employee co-operative insurance plans. For these pension plans, the amounts
charged to the income statement represent the contributions payable during the year.
ii. Share
based compensation
ii. Share----based compensation
based compensation
based compensation
ii. Share
ii. Share
The Group maintains a share option programme which allows certain Group employees to acquire shares of the Group. The change
in the fair value of options granted is recognised as an employee expense with a corresponding change in equity. The fair value of
the options is measured at grant date and spread over the period during which the employees become unconditionally entitled to the
options.
At each reporting date, the Group revises its estimate of the number of options that are expected to vest and recognises the impact
of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
The share option programme was originally set up for Group employees to subscribe for shares in Conister Trust Limited (now
Conister Bank Limited). Since the Scheme of Arrangement, the shareholders of the Bank became shareholders of the Company. The
share option programme is now operated by the Company. The fair value is estimated using a proprietary binomial probability model.
The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share
premium when the options are exercised.
Q. Share capital and reserves
Q. Share capital and reserves
Q. Share capital and reserves
Q. Share capital and reserves
Share issue costs
Share issue costs
Share issue costs
Share issue costs
Incremental costs that are directly attributable to the issue of an equity instrument are deducted from the initial measurement of the
equity instruments.
R. Earnings per share
R. Earnings per share
R. Earnings per share
R. Earnings per share
The Group presents basic and diluted EPS data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss that is
attributable to ordinary shareholders of the Bank by the weighted-average number of ordinary shares outstanding during the period.
Diluted EPS is determined by adjusting profit or loss that is attributable to ordinary shareholders and the weighted-average number
of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted
employees.
S. Segmental reporting
S. Segmental reporting
S. Segmental reporting
S. Segmental reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment),
or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and
rewards that are different from those of other segments. The Group’s primary format for segmental reporting is based on business
segments.
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ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
S. Segmental reporting (continued)
S. Segmental reporting (continued)
S. Segmental reporting (continued)
S. Segmental reporting (continued)
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses, including revenues and expenses relating to transactions with any of the Group’s other components, whose operating
results are regularly reviewed by the Group’s chief operating decision maker (CODM) to make decisions about resources to be
allocated to the segment and assess its performance, and for which discrete financial information is available.
Segment results are reported to the Group’s CEO (being the CODM) include items that are directly attributable to a segment as well
as those that can be allocated on a reasonable basis.
39. Standards issued but not yet effective
39. Standards issued but not yet effective
39. Standards issued but not yet effective
39. Standards issued but not yet effective
A number of new standards are effective for annual periods beginning after 1 January 2018 and earlier application is permitted;
however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements.
Standards
Standards
Standards
Standards
IFRIC 23 Uncertainty over Income Tax Treatments (issued on 7 June 2017)
Amendments to IFRS 9: Prepayment Features with Negative Compensation (issued on 12 October 2017)
IFRS 16 Leases (issued on 13 January 2016)
Effective date
Effective date
Effective date
Effective date
(accounting periods
commencing on or after)
1 January 2019
1 January 2019
1 January 2019
Of those standards that are not yet effective, IFRS 16 is expected to have a material impact on the Group’s financial statements in
the period of initial application.
IFRS 16 Leases
IFRS 16 Leases
IFRS 16 Leases
IFRS 16 Leases
The Group is required to adopt IFRS 16 Leases from 1 January 2019. The Group has assessed the estimated impact that initial
application of IFRS 16 will have on its consolidated financial statements, as described below. The actual impacts of adopting the
standard on 1 January 2019 may change because:
the Group has not finalised the testing and assessment of controls over its new IT systems; and
the new accounting policies are subject to change until the Group presents its first financial statements that include the date
of initial application.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of use asset
representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. These are
recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard
– i.e. lessors continue to classify leases as finance or operating leases.
IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease,
SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
Leases in which the Group is a lessor
No significant impact is expected for leases in which the Group is a lessor.
Leases in which the Group is a lessee
The group will recognise new assets and liabilities for its office premises and car parking sub-leases. As at 31 December 2018, the
Group’s future minimum lease payments under non-cancellable operating leases amounted to £1,166,000 (2017: 1,192,000) on an
undiscounted basis. (see note 34)
Transition
Transition
Transition
Transition
The Group plans to apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. Therefore, the cumulative
effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with
no restatement of comparative information.
The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply
IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.
Page | 78
ANNUAL FINANCIAL STATEMENTS
SHAREHOLDER NOTES
Page | 79
Clarendon House
Victoria Street
Douglas
Isle of Man
IM1 2LN
Tel: (01624) 694694
Fax: (01624) 624278
www.mfg.im
www.mfg.im
www.mfg.im
www.mfg.im
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