ANNUAL REPORT & ACCOUNTS 2013
A pioneering approach to simple,
straightforward banking
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C O N T E N T S
1
Introduction
2 Group highlights
4 Chairman’s statement
8 Chief Executive’s statement
16 Culture
20 Strategic report: Business review – Personal lending
22 Strategic report: Business review – Motor finance
24 Strategic report: Business review – Retail finance
26 Strategic report: Business review – Current accounts
28 Strategic report: Business review – Savings
30 Strategic report: Financial review
34 Board of Directors
36 Directors’ report
39 Directors’ responsibility statement
40 Corporate Governance statement
42 Remuneration report
44
Independent Auditor’s report
46 Consolidated statement of comprehensive income
47 Consolidated statement of financial position
48 Company statement of financial position
49 Consolidated statement of changes in equity
50 Company statement of changes in equity
51 Consolidated statement of cash flows
52 Company statement of cash flows
53 Notes to the consolidated financial statements
94 Five year summary
95 Notice of Meeting
97 Corporate contacts & advisers
1
Achieving our ambitions
Secure Trust Bank is a longstanding established UK bank,
having been incorporated in 1954. Its core business is to
provide banking services including a range of lending solutions
and savings products. The Group’s diversified lending portfolio
currently focuses on unsecured personal loans, motor and
retail finance whilst its lending is entirely funded by customer
deposits, with no exposure to wholesale funding.
From July 2013, the Group was permitted to draw down facilities under the Funding for
Lending Scheme (FLS). FLS monies are maintained as a liquidity buffer, above that required
to support lending, reflecting the Group’s cautious approach to risk. The Group also provides
current accounts to UK customers who may not be adequately served by other banks.
The Group operates from its head office in Solihull, West Midlands and had 550 full-time
equivalent employees at 31 December 2013. It has been a subsidiary of the Arbuthnot
Banking Group since 1985. The Group successfully listed on the Alternative Investment
Market in November 2011.
The Group has increased its portfolio in recent years, acquiring the Everyday Loans Group
and the V12 Finance Group in June 2012 and January 2013 respectively and the trade
and certain assets of Debt Managers Holdings Ltd in January 2013 which are held in its
subsidiary Debt Managers (Services) Limited.
Future developments
The Group has made significant progress with the development of its plans for the small
and medium-sized enterprises (SME) lending market. The Group will invest to develop this
business stream initially in two areas, asset based lending, specifically the invoice finance
market, and commercial property lending.
Clear opportunities to compete effectively in the invoice finance market have been identified.
The larger banks, seeking to improve their capital efficiency, will encourage borrowers who
are currently using overdrafts to use alternative funding products, increasing demand for
asset based lending products.
The Group believes that the commercial property market continues to be underserved as some
of the larger banks deal with their legacy real estate portfolios.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 2
Group highlights
Group highlights
Secure Trust Bank has shown sustained controlled
growth in 2013, both organically and through acquisition.
This growth has been achieved alongside prudent capital
and liquidity management.
2013
16.9%
2012
15.0%
2011
14.0%
2013
£79.0m
2012
£47.0m
2011
£28.5m
2013
350,861
2012
213,713
2011
145,174
90%
2012: 75%
Net interest margin
Operating income
Customer numbers
Loan to deposit ratio
2013
£17.1m
2012
£17.2
2011
£7.3m
2013
£525.9m
2012
£474.6m
2011
£307.8m
2013
19.7%
2012
23.3%
2011
20.5%
19.1%
2012: 23.3%
Profit before tax
Total assets
Core Tier 1 capital ratio
Total capital ratio
78.3p
2012: 108.9p
Earnings per share
secure trust bank PLc annuaL rePOrt & accOunts 2013 Group highlights
3
PEr s oN A L
L E NdI N G
m oTo r
F I N A N C E
r E T A I L
F I N A N C E
Fixed rate, fixed term
products with payments
received monthly. Loan terms
are between 12 months and
60 months with advances
varying from £500 to £15,000.
Personal lending showed
controlled organic growth
in 2013, with new business
personal lending volumes
growing by 35% to £105.1
million. The acquisition of
Everyday Loans in June 2012
has significantly broadened
the Group’s reach to a wider
market as well as introducing
a high street presence.
Includes a multi-channel
offering through motor
dealerships and brokers.
Fixed rate, fixed term hire
purchase agreements which
are secured mainly against
used cars with finance term
periods ranging from 24 to 60
months with a maximum loan
size of £15,000. New business
lending volumes grew by 18%
to £60.3 million. The Company
services the majority of the
Top 100 UK car dealer groups.
Includes lending solutions for
store and online retailers. These
are unsecured loans up to
£25,000 with fixed rates and
terms ranging from 6 months
to 48 months. The Company
acquired the V12 Finance Group
during the year; an acquisition
which was complementary
to the group’s existing retail
finance activities and which
has enabled the Company
to integrate its retail lending
activities with those of the V12
Finance Group to leverage
their point of sale system. New
business lending volumes grew
by 89% to £139.2 million.
CUr rE N T
A C CoU N Ts
sA V I N Gs
Combine a current account
with a prepaid card. The
account charges a monthly fee
but customers have the ability
to earn rewards at participating
retailers. The fee-based current
account has undergone
progressive enhancements
since its introduction.
A combination of instant
access accounts, notice
deposits and deposit bonds
with competitive interest rates.
Customer deposit balances
grew by 8.6% during 2013
to £436.6 million.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 4
Chairman’s statement
secure trust bank PLc annuaL rePOrt & accOunts 2013 Chairman’s statement
5
Chairman’s statement
I am pleased to report another year of significant progress
across the Secure Trust Bank Group. We have continued to
execute our strategy of outstanding customer service, meeting
their needs with simple straightforward banking solutions while
taking further steps to develop our business model.
This approach has proved popular. Customer satisfaction levels have been consistently high and
overall customer numbers increased from 231,713 to 350,861 during 2013, an increase of 51%.
Underlying profit before tax for 2013 is £25.2m, representing an increase of 52% on the prior
year and an increase of over 220% from £7.9m in 2011, at the time of IPO. Over the same
period customer lending balances have increased over 180% and customer numbers have
grown from 145,174 to 350,861 over these two years, representing an increase of 140%.
These measures serve to highlight the demand for our products and the positive progress
the Group has made since its IPO.
Consistent with our management philosophy, we have continued to proactively grow
and control our lending portfolio which has resulted in impairment losses being less than
expected when we originated the loans. With the economic recovery looking more assured
we are expanding into SME lending activities, building on the expertise many of our executives
have in these markets. This strategy will add secured loans to our balance sheet and further
our ambition to have a more diversified portfolio of customers and assets.
“ We have continued our strategy
of outstanding customer service,
meeting their needs with simple,
straightforward banking solutions.
The growth in customer numbers
highlights the demand for our products
and the progress the Group has made
since its IPo.”
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Chairman’s statement
Chairman’s statement Continued
Once again in 2013 we have heard much from commentators about the need for greater
competition in the UK banking industry. Unfortunately, despite the rhetoric, there has not
been the tangible change necessary to create a level playing field allowing existing smaller
banks to compete on a like for like basis with the dominant incumbents. This has led to
suggestions for caps on market share and the potential break up of larger banks. I believe
these proposals are driven by a failure to understand the root cause of the issue. The larger
banks dominate for three principal reasons:
1)
2)
3)
Deemed by markets to be too big to fail, the big banks benefit from an implicit subsidy
from the UK Government in the form of an implicit guarantee that they will not be allowed
to fail. The Bank of England published a report in May 2012 which included one estimate
of this subsidy being worth as much as £100bn to the big banks. This allows them to
fund their lending activities considerably more cheaply than smaller banks which do not
benefit from any implicit government guarantee.
Added to their huge funding cost disadvantages, the smaller banks continue to be
required to hold considerably more capital relative to the larger players. In context the
Independent Commission on Banking’s report highlighted that a small bank can be
required to hold up to seven times more capital for prime mortgage lending.
The big banks completely control the payments infrastructure and in so doing dominate the
current account market. This means they get £100bns of free funding via the balances
held on customers’ accounts. In order to protect this vital source of cheap funding and
their dominance of the ‘free if in credit’ current account market, the clearing banks levy
punitive fees against smaller banks seeking to access the payments infrastructure.
“ We are expanding into smE lending
activities, building on the expertise
many of our executives have in these
markets. This will further our ambition
to have a more diversified portfolio of
customers and assets.”
secure trust bank PLc annuaL rePOrt & accOunts 2013 Chairman’s statement
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I firmly believe that by addressing these three factors, the so called Challenger Banks, which
are already the fastest growing UK banks in percentage terms would be able to grow even
more quickly and in so doing contribute more to the economic recovery and help address
the too big to fail problem. I therefore call on the Government to take immediate, tangible
and decisive steps by:
1)
2)
Setting up a specific ‘Challenger Bank Growth Fund’. This should be available to all
banks with balance sheet assets of less than £5bn and allow these banks to borrow
term funding from HM Treasury at the same price as the big banks fund themselves as
a result of the implicit government guarantee.
Allow all established banks, regardless of size, to risk weight their lending assets at the
average of the top ten banks and building societies. Those large banks with a truly lower
risk profile would still gain an advantage but the overall disadvantage suffered by the
smaller banks would be substantially addressed.
3)
HM Government should compel the Payments Council and the clearing banks
which control the Council to allow immediately small banks to access the payments
infrastructure at cost.
Secure Trust Bank has started 2014 with robust capital and funding positions and significant
organic and external business development opportunities. I am confident that the Group will
continue to demonstrate profitable and sustainable growth over the coming period. The Board
proposes to pay a final dividend of 47p per share. This when added to the interim dividend of
15p would mean a full year dividend of 62p per share. If approved, the final dividend will be
paid on 9 May 2014 to shareholders on the register as at 11 April 2014.
Finally my Board and I would like to thank all of our employees for their commitment and
hard work and I would like to express my appreciation to my fellow Directors for their support
during the year and to welcome Lord Forsyth to the Board.
Henry Angest
Chairman
19 March 2014
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Chief Executive’s statement
Chief Executive’s statement
Throughout 2013 we have continued to execute our stated
and proven strategy to very good effect. The core businesses
have performed as expected, Everyday Loans made a good
contribution in its first full year within the Group and the
acquisitions and subsequent integrations of V12 Retail Finance
and Debt Managers proceeded smoothly.
As a result, we have delivered a strong set of financial results and continued to build on our
successful track record of underlying earnings growth. This gives us a robust capital position
and the confidence to continue to grow the dividend.
Significant growth in customer base and high satisfaction levels
Secure Trust Bank is committed to providing customers with simple straightforward banking
solutions coupled with great service delivered by friendly and professional staff. This is
nothing new. We have been doing this for nearly 62 years. All of our products are specifically
designed to be as easy for customers to understand as possible whilst also representing
good value for money. As an example, unlike many banks, we do not believe in offering
products with features that we regard as gimmicks such as deposit accounts that come with
an initial introductory bonus which, once expired, leaves customers with poor savings rates.
The benefit of such a customer focused philosophy came into sharp focus in 2013 when the
Financial Conduct Authority announced its intention to undertake a ‘thematic review’ of the
use of ‘teaser rates’ by banks. Whilst I am watching developments with interest, I am reassured
to note that, as we do not offer such products, we will not need to divert resources to assist
with this review nor will we be directly impacted if the regulator imposes penalties or orders
financial redress to customers negatively impacted by teaser rates.
To underscore further our commitment to giving our customers the best service we subscribed
to use the FEEFO service during 2013. FEEFO stands for Feedback Forum which is an
online tool that enables customers to rate our service and record any comments. Unlike the
more traditional ‘internal surveys’ the control sits with the customers who are free to say
whatever they want. At one level this could be viewed as a bit unnerving but I prefer to view
it as a great way of collecting real time customer feedback which reflects how our customers
actually experience us. This is valuable information which we discuss at our weekly
management meeting every Monday.
secure trust bank PLc annuaL rePOrt & accOunts 2013 Chief Executive’s statement
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C UsTo mEr N Um bEr s
Pr oGrEs sIoN
We strive to provide our customers with
simple, straightforward banking solutions
coupled with great service.
Dec 2009
69,708
Dec 2010
96,446
Dec 2011
145,174
Dec 2012
231,713
Dec 2013
350,861
Customer Numbers
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Chief Executive’s statement
Chief Executive’s statement Continued
The combination of our product design and obsession with great service has been reflected
in FEEFO scores of 92% (current and deposit accounts) and 95% (lending products) for
2013. Interested parties can access our FEEFO data at www.securetrustbank.com.
This approach to customer service is helping us to do business with an increasing number
of intermediaries who are attracted to us because of our reputation.
In addition, we have continued to be awarded external accolades and remain the only bank
in the UK to hold the Customer Service Excellence award (CSE). This award was introduced
by the Cabinet Office in 2010 to replace the Kite Mark. The CSE is a strong independent
endorsement of the way customer focus is embedded in the culture of the business and the
improvements we are making to our products and services.
During the fourth quarter of 2013 we also received confirmation that the Fairbanking
Foundation had renewed our 4 star mark making us the only bank in the UK to hold such
a mark in respect of our current account product.
We cannot rest on our laurels and we continue to invest in people, systems and processes
to improve our service and products still further.
As ever the acid test is whether high quality service is driving growth and I am pleased to be
able to note that all of the activities above have helped us to grow our overall customer base
by 51% during 2013.
C UsTo mEr F E Ed bA C K
“ Very good for me not like banks that rip
you off all the time”
Current Account - 29 May 2013
“ The security is excellent, and they send
out regular statements. I have no
complaints, I am a satisfied customer”.
Deposit Account - 25 Nov 2013
“ straightforward, great rate. Nice to see
a bank without any tricks”
120 Day Account - 26 Nov 2013
“ From start to finish easy and quick to set
up. Will recommend secure Trust bank if
the opportunity arises.”
“ Very prompt and efficient service -
excellent - would use you again for future
investments.”
3 Year Fixed Bond - 02 Dec 2013
5 Year Fixed Bond - 02 Dec 2013
“ I was provided with an excellent service,
and the people who helped me arrange
the loan were very clear and concise
along with coming over as being bubbly
and polite. I cannot fault the service I was
provided and was pleased to do business
with moneyway”.
Personal Loan - 08 Jan 2014
secure trust bank PLc annuaL rePOrt & accOunts 2013 Chief Executive’s statement
11
Controlling growth
The Board’s on-going top strategic priority is to protect the reputation and sustainability
of the bank via prudent balance sheet management, investment for growth and robust risk
and operational controls. We have continued to invest in our risk control and governance
capabilities during 2013 to reflect the growth in the business and the evolving regulatory
environment. In addition to continuing to operate an ‘out sourced’ internal audit strategy
with audit specialists from EY we have also boosted the capabilities of our own discreet
Audit, Operational Risk, Compliance and Credit Risk functions. Recognising the increased
pace of technological change and the potential opportunities that it may give rise to we
have also recruited a new Chief Technology Officer who started earlier this month. He joins
following a successful career with a number of larger financial institutions including Citigroup.
Solid Funding Profile
Our funding strategy was largely unchanged during 2013 save for modest utilisation of
the Funding for Lending Scheme. As at 31 December 2013 we had no direct exposure to
wholesale funding or interbank markets. All of our lending activities continued to be funded
by customer deposits with our year end loan to deposit ratio being 90%. The Funding for
Lending Scheme remains available to us but it is our intention only to use this to provide
surplus liquidity over and above a core loan to deposit ratio of less than 100%. To achieve a
broadly matched assets to liabilities position we increased the average tenor of our deposits
over the year with fixed term deposits rising to 44% of total deposits. This compares with
39% as at 31 December 2012. This treasury management has largely mitigated the bank’s
current exposure to interest rate basis risk whilst improving our resilience in the event of
unexpected major market shocks. The bank continues to enjoy strong demand for its
deposit products and since the year end we have gathered in further 3, 5 and 7 year term
deposits as we believe the interest rates are attractive and will help to position the balance
sheet favourably should interest rates rise faster than is expected.
Robust Capital ratios and modest leverage
Our year end Tier 1 Capital ratio of 19.7% remains very healthy (2012: 23.3%). Comparing
the relative balance sheet strength of individual banks is extremely difficult due to the
differing methodologies used under Basel II which can lead to a picture of seemingly similar
capital ratios despite the underlying gross leverage positions being wildly different. As at
31 December 2013 the Secure Trust Bank leverage ratio (calculated as total customer
lending divided by equity capital) was only 14.9% (6.7x), representing a modest increase on
the 17.2% (5.8x) leverage reported for 2012 and partially reflects the deployment of capital
raised in the December 2012 Placing.
The advent of CRD IV has sought to standardise leverage ratio disclosures. Using this
methodology our leverage ratio is 11.1% which is a much stronger ratio when compared to those
disclosed by major UK banks over recent weeks. This serves to highlight the scope we have to
increase our lending activities whilst remaining modestly leveraged on a comparable basis.
Powerful underlying profit growth
The underlying profit for 2013 of £25.2m represents a 52% increase on the £16.6m
underlying profit before tax in 2012. The statutory pre-tax profits for 2013 of £17.1m are
broadly unchanged compared to the £17.2m reported for 2012. As the Chairman notes
in his statement, the statutory profits have been heavily influenced by the acquisition
accounting treatment arising from the purchase of Everyday Loans in June 2012. The 2012
statutory profit included a one off profit of £9.8m, much of which is required to be amortised
in subsequent periods.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 12
Chief Executive’s statement
Chief Executive’s statement Continued
Costs continue to be rigorously controlled but increased regulatory requirements and in
particular the demand for experienced risk and compliance staff by the larger banks is
exerting upward pressure in these areas. As I note above, we have continued to invest in our
overall management capability to ensure that our growth is well controlled and sustainable.
This investment in our organisational capabilities inevitably means the short term cost to
income ratio is higher than if the business had a slower growth profile.
Lending portfolio performing as expected
We monitor all aspects of risk extremely closely with particular attention to the performance
of our lending book. In absolute quantum terms our impairment levels have risen given
our growing and maturing lending portfolio, but importantly these remained below the
level which we had assumed within our pricing models when writing the business in the
motor, personal unsecured and retail finance portfolios. We continue to adopt a robust and
dynamic formulaic approach to impairment provisioning. We do not seek to manage our
impairments via forbearance activities, instead the Group has looked to support customers
who are in financial difficulty and we seek to engage in early communication with borrowers
experiencing difficulty in meeting their repayments. Once again the impairment numbers
reported for 2013 are lower than expectations at origination which we believe reflects our
ongoing prudent underwriting standards and the improving economy.
Lending operations
In my statement last year I said ‘With the economic outlook remaining very difficult to predict
it is appropriate for us to exercise prudence and caution. We have therefore positioned the
bank to continue to grow at a good pace and in a sustainable manner whilst maintaining
low balance sheet leverage and robust capital and funding positions’. This is reflected in the
changes to the lending portfolio below.
2013 saw continued controlled growth. Overall new business lending volumes including full
year contributions from Everyday Loans and V12 grew 50% to £304.7m (2012: £202.5m)
which translated to an increase of 31% in overall balance sheet lending assets to £391.0m
(2012: £297.6m).
Motor finance increased lending, net of provisions, to £114.7m at 31 December 2013
(2012: £89.6m). This business, which focuses on the near prime market segment, continues
to service the majority of the Top 100 UK car dealer groups.
Personal unsecured lending balances, net of provisions, increased to £77.8m at 31 December
2013 (2012: £68.2m). A significant delay in the commencement of a new bank to bank loan
referral arrangement negatively impacted on anticipated growth volumes in this portfolio.
This is now live with Sainsbury’s Bank and should deliver benefits in 2014.
Retail Point of sale business, net of provisions, grew strongly driven by retailer demand
and the V12 acquisition with balances at 31 December 2013 increasing to £114.4m
(2012: £64.2m). This activity represents the highest credit quality lending that we currently
write and it is an area we will be looking to grow further in 2014.
Everyday Loans balances, net of provisions, grew to £81.4m at 31 December 2013
(2012: £73.8m). We continue to manage this business to focus on profit maximisation
rather than dramatic loan growth.
secure trust bank PLc annuaL rePOrt & accOunts 2013 Chief Executive’s statement
13
The Everyday Loans portfolio credit quality remained stable throughout 2013 in keeping
with the rest of the Secure Trust Bank Group portfolio. The portfolio derived from the
branch-based lending model comprises a wide spread of unsecured personal loan
customers with a relatively low average balance (£2,700) geographically spread across
the UK, thereby minimising any concentration of risk.
Focus on sustainability
A core objective in 2013 was to improve our self-sufficiency and organisational resilience by
reducing our reliance on third party brokers and introducers, especially in Personal Lending
and Retail Finance. I am pleased to report considerable positive progress here.
Our new personal lending volumes in January 2014 were 18% higher than in January 2013
when our largest single introducer accounted for 82% of all the business written. In January
2014 this introducer accounted for approximately half of the personal loans written under
the Moneyway brand. The remainder of the new business volumes is being originated via
a range of other sources, the largest of which is our direct to market proposition which
accounts for roughly 20% of our volume. This is our most cost effective personal loan
distribution channel. During 2014 we will continue to broaden our sources of new personal
lending business and aim to replicate the referral scheme in place with Sainsbury’s Bank with
other banks. This sort of unsecured consumer lending is the most exposed to sudden rises
in mortgage rates and these factors will influence the volume of new lending we write here
during 2014 relative to other forms of lending such as Retail Finance and Motor Finance.
The acquisition of V12 Retail Finance in January 2013 was a vital development as it gave
us a complete end to end retail finance platform. Since the acquisition we have invested
heavily in the V12 business as part of our strategy to grow the Retail Finance business faster
than our other lending portfolios. We have merged the Secure Trust Bank and V12 Retail
Finance operations and are operating this business on a single platform. This is giving rise
to operational efficiencies and an improved customer proposition. We have successfully
renewed our exclusive contract with the Association of Cycle Traders for a further five years
whilst also extending our contract with Evans Cycles for another two years. V12 has achieved
some notable new business wins and has now gone live with Halfords.
LE NdI N G As sE Ts
2013 saw controlled growth with business
lending volumes growing by 50% to £304.7
million, which led to an increase of 31% in
overall lending assets.
2009
£51.5
2010
£89.5
2011
£154.6
Millions
2012
£297.6
2013
£391.0
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 14
Chief Executive’s statement
Chief Executive’s statement Continued
Halfords have not provided any form of retail finance in any of their 450 stores or online in
recent years. The move into Retail Finance was an important development for them and we
were delighted to win this business in December despite stiff competition. Our entry into the
sports season ticket finance market is also going well and we are now live with several large
Premiership clubs. Finally, plans to diversify into the provision of season ticket finance for
commuters are progressing with East Midlands Trains selecting V12 as its finance provider.
We expect this business line to begin in the second half of 2014.
Fee based accounts
As at 31 December 2013 current account customers numbered 22,860, representing a
9% increase on the prior year of 20,962. Customer satisfaction levels are high but achieving
significant growth in customer numbers is constrained in part because the operational
costs arising from accessing the payments infrastructure make the product appear to be
uncompetitive compared to ‘free if in credit’ current accounts from other banks. We have
therefore decided to reduce our focus on this product going forward to free up time to invest
in more profitable areas.
As expected, the OneBill customer numbers continue to decline over time. £8.0 million of income
was generated in 2013 compared to £8.9 million in 2012. We continue to explore the potential to
offer a next generation OneBill product with a number of parties including Government agencies.
This is proving to be very slow and is not an area of significant focus at present.
Debt Managers has performed broadly in line with expectations since the acquisition with
a modest pre-tax loss recorded for 2013. The management team has spent much of 2013
restructuring the business and positioning it for growth. The benefits of this work should be
seen in 2014.
Our people
As the saying goes, ‘businesses don’t achieve success, people do’. A key factor in our
ongoing success is the way in which our staff interact with our customers and the business
partners and intermediaries we deal with. We place great emphasis on the training and
development of our people and on recognising their excellence. In 2013 this emphasis
included extensive internal training programmes through to the sponsorship of our staff to
take external academic qualifications ranging from foundation courses in Retail Banking with
the IFS University College to Masters Degrees in Human Resources Management. I remain
delighted that so many staff are willing to commit to their own development which is helping
them to improve their day to day performance and give them the skills needed to take on the
larger roles that will inevitably arise as the business continues to expand. During 2013 our
approach to the development of our employees was recognised by the awarding of Bronze
status by Investors in People (IIP). This places the Group in the top 13% of all businesses
that are accredited by IIP. We plan to build on this during 2014.
Secure Trust Bank employees have remained heavily involved in charitable activities during
the year. Numerous events took place ranging from participation in the annual ‘movember’
campaign in aid of prostate cancer charities through to making our call centres available for
free to support the various ‘Relief’ events. Indeed, we will be supporting the 2014 Sports
Relief event. I am very proud of all the work done to help those less fortunate than ourselves
and I applaud my colleagues for both their charitable work and the sheer commitment to
delivering great service in a very friendly manner to our customers throughout the year.
secure trust bank PLc annuaL rePOrt & accOunts 2013 Chief Executive’s statement
15
Paul Lynam
Chief Executive Officer
19 March 2014
Current developments
There has been no material change to the underlying performance of the business in the
early months of 2014. We continue to see potential to grow our lending portfolio in line with
our ambition and have a clear growth strategy and a pipeline of organic and external new
business opportunities.
We are particularly focused on balancing good organic growth in our lending portfolios,
especially in Motor and Retail Finance, with the creation and growth of SME lending activities.
Secure Trust Bank Real Estate Finance is now operational with some loans drawn down by
customers already and an encouraging pipeline of potential new business being developed.
Another key objective is to begin the process of entering SME lending markets to create
new engines of profit growth and to further diversify the lending portfolio via the addition of
secured lending assets over time. I am delighted to report that we have recruited a proven
high quality team to join us and create a new Invoice Finance business that will be called
Secure Trust Bank Commercial Finance. This will be headed by John Bevan who joins
us from Barclays where he was Managing Director of Trade and Working Capital UK and
Ireland. John has over thirty years banking experience and is a former chairman of the trade
body, the Asset Based Finance Association. The intention is that this ‘de novo’ business
grows in a controlled manner over the next five years. The business will be loss making until
2015 due to the initial costs of setting up the business and running sub-scale. We would
consider small acquisitions if identified and if they represent good value and allow us to
accelerate our plans in this space.
It has become clear to us that considerable potential exists to write good quality Real Estate
Finance transactions at attractive yields without needing to offer aggressive structures.
We have written some highly selective business in 2013 and plan to expand in this area in
2014 and beyond. We have therefore recruited a small team of proven property lenders who
have previously worked for me to exploit this opportunity. The focus of the team will be on
quality and profit rather than simply volume.
With the economic recovery appearing to gain traction we believe the time is right to diversify
our lending activities into sectors that are well understood by me and a number of my senior
colleagues. We expect to see demand for credit to rise as the economy improves and
businesses and consumers gain confidence. We believe we are well positioned to benefit from
this and are confident of making further positive progress with our strategic plan during 2014.
Finally I should acknowledge the ongoing media speculation regarding a number of banks
potentially looking to IPO in the coming periods. We are the only bank to float since the
credit crunch and have consistently delivered on the commitments made to the market.
As the Chairman notes in his statement, in the two full years since our flotation underlying
profits have risen over 220%. We have achieved this whilst being consistent with our prudent
risk management philosophies and without making any material use of cheap funding
mechanisms such as Funding for Lending to enhance short term profits. Over the same
period our share price has quadrupled and we have fostered relationships with existing
and potential new shareholders who understand the significance of the challenger bank
landscape and the advantage that the first mover will hold as new entrants appear.
We remain focused on our growth strategy and consider ourselves well positioned should
other opportunities arise that we believe are in the best interests of our shareholders.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 16
Culture
br oNzE L E V E L
A W A r d
secure Trust bank in the top
13 per cent of accredited
companies.
secure trust bank PLc annuaL rePOrt & accOunts 2013
Culture
17
Culture
Investors in People award
During the year the Company celebrated news that it had achieved Investors in People (IiP)
bronze level status which is over and above the standard Investors in People award and
places Secure Trust Bank in the top 13 per cent of accredited companies. IiP is an exacting
national standard that helps organisations to improve performance through their people and
also strive for continuous improvement. It ties the organisation’s strategy and objectives to
the roles and activities of employees.
IiP carried out an in-depth assessment of the Company and found that it satisfied all the
evidence requirements from their core standard and additional requirements from their
extended framework, leading to the bronze award. The IiP bronze assessment took place
over four days and involved the assessors travelling to the Company’s offices in Solihull to
interview over forty members of staff. The results showed that the Company’s values were
embedded into every aspect of the business and that employees were continually inspired
and motivated by their managers to improve their own performance.
Employee support
The success enjoyed by the Group is also creating numerous opportunities for our staff
as evidenced by Group full-time equivalent employee numbers increasing from 418 to
550 during 2013. Excluding the impact of acquisitions, 38 employees were additionally
employed by the Group during the year. Each new employee gets a structured induction
and development framework, whilst all employees have clear performance objectives aligned
to the Group’s strategy and values.
Financial support and study time allowances are also helping over a quarter of Secure Trust
Bank’s employees to take academic qualifications ranging from apprenticeships to master’s
degrees. The majority of promotions continue to go to internal staff which evidences the
range of career paths within the Group. As the size of the Group grows, these opportunities
will further expand.
Secure Trust Bank celebrates exceptional performance by awarding regular Customer
Service Awards. Individuals are also recognised through the annual ‘Outstanding Achievers’
award. Furthermore, on a quarterly basis the Chief Executive Officer reviews all the employee
suggestions for improving performance, efficiency and effectiveness and awards a cash prize
for the best suggestion.
Earn & Learn Degree Programme
Local sixth-form students are benefiting from a new Company initiative which will allow them
the opportunity to earn a BSc (Hons) degree, while working full-time for Secure Trust Bank.
The ‘Earn & Learn’ Degree Programme is another manifestation of the Company’s on-going
commitment to improving the skills-base of financial services professionals at a time when
the sector is coming under closer scrutiny about its conduct and professionalism.
The students are selected following an in-depth process and are given conditional offers of
employment to start with Secure Trust Bank upon successful attainment of 280 UCAS points.
The students will work full-time in a variety of hands-on roles and departments in the Bank for a
period of three to four years whilst completing the degree programmes during the evenings and
weekends. The students will also be enrolled in the ifs University College’s study programme
of lectures, seminars and workshops which will provide both a practical and theoretical
understanding of the banking and financial services industry. The students will work towards
gaining a fully-funded degree in Banking Practice and Management from the ifs University
College, while earning a salary and gaining valuable experience at Secure Trust Bank.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 18
Culture
Culture Continued
The ifs University College is a registered educational charity incorporated by Royal Charter.
It has a remit to provide the financial services industry with a skilled, effective and competent
workforce whilst also promoting a better understanding of finance amongst consumers.
The ifs is the only educational body with a specific focus on finance that has the power to
award its own degrees. Its formal qualifications range from A-Level equivalents for the 14-19
age group, to degree and masters programmes for financial professionals. The ifs also offers
professional development, competence maintenance and executive education programmes
through its alumni membership service.
Employee Council
The Company operates an Employee Council, which has employee representatives from
each department in the Company and operates within structured terms of reference.
The Council meets on a regular basis to encourage a two way process of communication
between employees and directors. The aim of the Employee Council is to promote employee
engagement and give representatives the opportunity to represent the views of the
employees in a forum which can make a positive difference.
Treating customers fairly
Customer focus is at the heart of what the Group does and how our employees behave.
Our products are consistently straight forward in their design and aim to offer value to our
customers. This has attracted a significant increase in customers to the Bank, with overall
customer numbers increasing during the year by more than 50% to over 350,000 by the end
of 2013.
On the back of the great service we have provided to our customer base as a whole we
have won and then retained a number of prestigious awards including the Customer Service
Excellence standard from the Cabinet Office and the 4 star mark for the current account from
the Fairbanking Foundation. Our customer service has been shown to meet Government
standards of excellence and was benchmarked against other high-performing organisations.
The Customer Service Excellence standard tests areas which are most important for our
G r oU P sTrA T E Gy
The Group’s strategy is to Grow, sustain and Love. The individual
components of this strategy comprise:
G r o w
Grow a sustainable business by doing more
of our current activity, introducing new product
lines and making new acquisitions.
S uSt a i n
safeguarding the integrity and sustainability
of the bank.
L o v e
making this a great bank to work for.
secure trust bank PLc annuaL rePOrt & accOunts 2013 Culture
19
A W Ar d s
The prestigious Customer
Service Excellence Award was
developed by the Cabinet Office
to acknowledge excellence in
public services.
The Fairbanking Foundation
operates an accrediation
scheme to encourage banking
organisations to improve the
financial well-being delivered by
their products.
IiP is an exacting national
standard that helps organisations
to improve performance through
their people and also strive
for continuous improvement.
The Company has received
the Best Dealer Finance Provider
award from the Institute of
Transport Management.
customers, such as delivery, timeliness, information, professionalism and staff attitude.
It also tests whether the Bank understands the needs of its customers and how satisfied
they are with the service they receive. The Fairbanking Foundation has further indicated that
the product has the potential to gain the category’s first 5 star Mark. It is not by accident
that Secure Trust Bank has avoided being drawn into the various scandals surrounding many
of the other banks. It goes to show just why treating customers fairly and providing simple,
straightforward, value for money banking is so important.
The Company utilises FEEFO, which is an independent online review system, in order to
obtain customer feedback on its current account, loans and savings products. The ratings
and comments made by the customers who reply to the request are monitored by senior
management of the Company. If there are any poor or bad ratings received, attempts are
made to contact the customer, in order to resolve any issues. Service improvement ideas
received via FEEFO from customers are also considered by the Company. The ratings and
comments are available on the Company’s website.
Active partners for business
The Group continues to foster strong, mutually beneficial relationships, with key
stakeholders and business introducers. The underlying philosophy is to make it as easy
as possible for introducers to do business with us and to continually seek to improve the
ways we work together. This approach to relationships has contributed to the renewal
of a number of contracts with key partners including the Association of Cycle Traders
and Evans Cycles. It is also a major factor in the gaining of substantial new business
partnerships including those with a number of high profile football clubs and Halfords.
The move into SME finance will allow us to provide more support to businesses in the UK.
Environmental consideration
The Group tries to limit its footprint on the environment through the use of energy saving
initiatives, recycling consumables and encouraging greener travel methods for its employees.
V A L U Es
To achieve this strategy, the Bank has adopted a number of values. It is our objective to
be the best bank in Britain and to help us achieve that we have chosen five values which
underpin the way we do business and the behaviour we expect from all of our staff. They
are used in evaluating an individual’s personal performance and their contribution to the
overall vision of the Bank. They are:
CUsTo mEr F oC UsEd
IN NoV A T I V E
TE Am orI E N T A T Ed
PErFo r mA N C E drI V E N
r IsK A W ArE
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking
20
Strategic report
Strategic report: Business review
E V Er y dA y LoA Ns
b rA N ChEs
Personal Lending
31
What we do
The personal loans which the Group offers are fixed rate, fixed term products which are
unsecured. Loan terms are between 12 months and 60 months with advances varying from
£500 to £15,000. Loans are provided to customers for a variety of purposes which might include,
for example, home improvements, personal debt consolidation and the purchase of vehicles.
Everyday Loans has continued to operate alongside Moneyway through their equally
well-known brand name and this will enable it to expand whilst creating significant synergistic
benefits for the Group.
How we do it
Distribution of the Group’s personal loans is through brokers, existing customers and affinity
partners, and targeted to UK-resident customers who are either employed or self-employed.
Loans are made to individuals over 21 years of age with an annual income generally over
£20,000, whilst Everyday Loans specifically is a provider of unsecured loans to a customer
base predominantly in lower income groups. They offer any purpose unsecured loans for
tenants as well as homeowners.
The Group has broadened its online distribution capabilities in the personal lending segment
and has entered into significant introducer relationships, including Shop Direct.
The business utilises highly automated underwriting systems which, in addition to providing
significant cost advantages, ensure that consistent credit decisions are made which
improves on-going performance monitoring and future policy decision making. Differential
pricing that reflects the credit risk of the underlying customer is standard for the Group.
These systems have enabled the business to control risk whilst retaining the speed of service
needed to support introducers.
The levels of credit impairments on all portfolios have been below the levels priced for when the
loans were originated. The credit risks in the lending book are continually scrutinised with this
data being used to inform changes in risk appetites and pricing. The Group continues to invest
to ensure the growth in its business model is reflected in its overall risk and control framework.
Where we do it
Everyday Loans operates through a network of offices where loans are originated, serviced
and collected. Applications are made by phone or online.
Secure Trust Bank through its brand Moneyway offers loans via the internet and a phone
service utilising an experienced team of UK based advisers.
2013 performance
The Group’s lending operations continued to grow in a controlled way, with new personal
lending volumes in the year, including Everyday Loans, increasing to £105.1 million from
£77.8 million in the previous year. This generated an increase in personal lending assets
during the year which, at the year-end, including Everyday Loans, totalled £159.2 million
(December 2012 : £142.0 million).
The growth in personal lending new business volumes has again not been at the expense
of price or quality. Income from personal lending increased by 73% to £41.8 million whilst
impairment losses were £10.3 million compared to £5.3 million in 2012.
r E V E N U E A Nd
L E NdI N G
P ErFo r mA N C E
vs PrIo r yE Ar s
KPIs
2013
£41.8m
2012
£24.2m
2011
£6.0m
Personal lending revenue
2013
£159.2m
2012
£142.0m
2011
£43.6m
Personal lending portfolios
secure trust bank PLc annuaL rePOrt & accOunts 2013 Strategic report
21
m oN EyW A y
E V Er y dA y LoA Ns
As a Company, secure Trust bank is well
established in personal unsecured lending
having been lending for over 35 years,
with moneyway being the Company’s
personal lending brand.
During 2012 the Company acquired
Everyday Loans which represented a
significant strategic development for the
bank in the area of personal lending.
The Company has broadened its
distribution capabilities in the personal
lending segment and has entered into
significant introducer relationships
including shop direct and a referral
scheme with sainsbury’s bank.
Everyday Loans provide any purpose
unsecured loans from £500 to £10,000 for
tenants as well as homeowners. Fees are
not charged on application, with applications
being made by phone or online.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 22
Strategic report
sE C UrE TrUsT bA N K
Motor Finance The Company services
the majority of the Top 100 UK car dealer
groups.
secure trust bank PLc annuaL rePOrt & accOunts 2013 Strategic report
23
N A T IoN A L
dIsTrIbU T IoN
1700+ dealers serviced
Strategic report - Business review Continued
Motor Finance
What we do
Secure Trust Bank’s motor finance business started lending in 2009. Motor finance loans
are fixed rate, fixed term hire-purchase agreements and are secured against the vehicle
being financed. Only passenger vehicles with certain features including an engine size of less
than three litres, an age ranging from new to a maximum of ten years old by the end of the
hire-purchase agreement and with a maximum mileage of 100,000 miles are financed. The
majority of vehicles are used cars. Finance term periods range from 24 months to 60 months
with a maximum loan of £15,000.
How we do it
The Company distributes its motor finance products via UK motor dealers and motor dealer
brokers. New dealer relationships are established by our UK-wide motor finance sales team
with all introducers subject to a strict vetting policy, which is reviewed on a regular basis.
Where we do it
Motor lending is administered in the Group head office in Solihull, however the UK motor
dealers and brokers are UK-wide.
2013 performance
New business lending volumes for motor lending increased to £60.3 million, an increase of
18% on the previous year. This generated a significant increase in lending assets during the
year, which at the year-end totalled £114.7 million (December 2012: £89.6 million).
r E V E N U E A Nd
L E NdI N G
P ErFo r mA N C E
vs PrIo r yE Ar s
Income from motor lending increased by 36% to £23.0 million whilst impairment losses were
33% higher at £3.6 million, compared to £2.7 million in 2012.
KPIs
2013
£23.0m
2012
£16.9m
2011
£9.9m
Motor Finance revenue
2013
£114.7m
2012
£89.6m
2011
£63.4m
Motor Finance portfolios
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 24
Strategic report
Strategic report - Business review Continued
PoI N T - oF- sA L E
dIsTrIbU T IoN
1000+ retailers serviced
Retail Finance
What we do
Secure Trust Bank’s retail finance business commenced lending in 2009 and provides point
of sale finance for in-store and online retailers.
Retail finance products are unsecured, fixed rate and fixed term loans with payments
received monthly in arrears. Loans range in term from 6 months to 48 months and the size
of the loans vary from £250 to £25,000 depending on the type of product being financed.
The loans are either interest bearing or have promotional credit subsidised by retailers or
suppliers. Secure Trust Bank does not pay retailers commissions and lending is restricted
to UK residents who are either employed or self-employed.
The three largest sub-markets for retail finance at 31 December 2013 are the provision
of finance for the purchase of musical instruments, cycles and the leasing of computer
equipment. The latter of these is transacted through the Company’s subsidiary undertaking
STB Leasing Limited. For the second successive summer, cycle finance has seen positive
new business levels undoubtedly as a consequence of the success of British cyclists in the
Tour de France, the Olympics and Paralympics over the last two years.
Other markets in which the Group provides finance include gym equipment, motor parts,
outdoor pursuits, furniture, leisure, jewellery and funerals. The Group provides finance
through a range of retailers including household names such as Evans Cycles, PC World and
DFS. The Company has arrangements in place with a number of affinity partners including
the Arts Council, ACTSmart and RentSmart.
How we do it
In addition to in-store finance, the bank has an online eFinance service to retailers which is
operated by V12 Retail Finance, providing finance to customers through an online paperless
processing system. This serves retailers across a number of sectors including furniture,
jewellery, dental and sports season tickets.
Where we do it
Retail lending is administered in both the Group head office in Solihull and the V12 Finance
Group’s offices in Cardiff. The dedicated retail lending team aims to provide a quality service
to both retailers and customers.
The acquisition of the V12 Finance Group during the year was complementary to the Group’s
existing retail finance proposition and the V12 management team continued in the business.
The acquisition enabled the group to integrate its existing retail lending business with that of
the V12 Finance Group to generate synergistic benefits from the use of a group-wide point
of sale system.
2013 performance
New business lending volumes for retail lending increased to £139.2 million, an increase of
89% on the previous year. This generated a significant increase in lending assets during the
year, which at the year-end totalled £114.4 million (December 2012: £64.2 million).
Income from Retail lending increased by 150% to £14.5 million. Impairment losses were
a modest £1.8 million in 2013, compared to £0.7 million in 2012.
r E V E N U E A Nd
L E NdI N G
P ErFo r mA N C E
vs PrIo r yE Ar s
KPIs
2013
£14.5m
2012
£5.8m
2011
£3.6m
Retail Finance revenue
2013
£114.4m
2012
£64.2m
2011
£42.6m
Retail Finance portfolios
secure trust bank PLc annuaL rePOrt & accOunts 2013 Strategic report
25
rE T A I L P Ar T N Er s
We have successfully renewed our
exclusive contract with the Association
of Cycle Traders and extended our
contract with Evans Cycles as well as
winning the contract to provide retail
finance for halfords.
r E T A I L P Ar T N Er s
I N C L UdE
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 26
Strategic report
C Ur rE N T A C CoU N T
Secure Trust Bank’s Current Account
is open to everyone regardless of credit
history and comes with a prepaid card
which can be used for effective personal
budgeting.
r E T A I L P Ar T N Er s
I N C L UdE
secure trust bank PLc annuaL rePOrt & accOunts 2013 Strategic report - Business review Continued
Current Accounts
What we do
The current account is a simple and transparent bank account which has been designed to
help customers manage their money and keep control of their finances by only letting them
spend the money they have available each month. The account does not have an overdraft
facility so the account holders can only spend money that they have available.
The account comes with a prepaid card, onto which money must be loaded before it can be
used, similar to a ‘pay as you go’ mobile phone top-up. This can help the customers manage
their money more effectively because the money loaded onto the prepaid card is separated
from the money in their current account, so they can shop safe in the knowledge that the bills
will be paid from the money in their current account. Customers generally make sure that they
have enough money in their current account to cover direct debits, standing orders and any
other regular payments, with the remaining money transferred onto their card to spend at over
30 million outlets, for online and telephone purchases and to make cash withdrawals at ATMs
showing the MasterCard® acceptance mark.
How we do it
Current accounts are distributed via the Company’s website, price comparison websites,
including Moneysupermarket and Compareprepaid, debt management companies and
through a direct outbound sales team.
Once the account is opened the account holder can register for the online and telephone
banking service which gives access to their account 24 hours a day, 7 days a week and
allows the free movement of money to and from their current account and prepaid card.
The fees are simple and transparent with no hidden or unexpected charges. For example, there
are no charges should a direct debit or standing order payment fail. Customers welcome the
transparent monthly account management fee, in return for which credit interest is paid at base
rate and customers have the ability to earn cash rewards of up to 4% paid into their account
on purchases made with their card, both online and in store, at over 30 participating major high
street retailers. Any cash rebated as a consequence of customer spending at the retailers on
the scheme can help to reduce or offset the monthly account charge. The account holder can
have additional cards linked to their account for family members at home or abroad, at no extra
monthly fee, with all cards eligible to earn rewards. Participating retailers include well known
stores such as Asda, Argos, Boots, Debenhams, B&Q and Marks & Spencer.
Where we do it
The business has developed an on-line capability to service and sign up accounts. It is now
possible for a customer to open an account on-line, be provided with the new account
details and transfer automatically all their direct debits and standing orders in minutes.
2013 performance
At 31 December 2013, the current account product had been taken up by almost 23,000
customers with the account experiencing new account openings averaging just under 800
per month for the 12 months to 31 December 2013. The current account generated income
of over £4.8 million in the year, which represented growth of 23% over the previous year. The
growth in the current account volumes has continued to outstrip the reduction in the OneBill
accounts. OneBill, a household budgeting product, generated income of £8.0 million in the
year, but the Company has closed this product to new customers.
Strategic report
27
oN L I N E A C C Es s
24/7
r E V E N U E A Nd
C UsTo mEr
N Um bEr s vs
PrIo r yE Ar s
KPIs
2013
£4.8m
2012
£3.9m
2011
£2.9m
Revenue
2013
22,860
2012
20,962
2011
17,178
Customer numbers
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking
28
Strategic report
Strategic report - Business review Continued
oN L I N E A C C Es s
24/7
Savings
What we do
The Bank’s savings accounts consist of deposit accounts, notice accounts and fixed term
bonds. At Secure Trust Bank, savings accounts offer a simple way to save money. Interest
rates offered are competitive and provide value for money.
Deposit accounts can be opened for as little as £1 and withdrawals can be made without
notice or loss of interest.
The notice deposit accounts are made available in periods ranging from 60 days to 183
days, with the majority at the 120 day term, depending on the Group’s funding requirements.
Fixed Price Deposit Bonds are launched to achieve the desired maturity profiles of the Group.
How we do it
By virtue of a focus on higher margin lending, the absence of large fixed overheads in the form
of a branch network and a policy of not cross-subsidising loss making products with profitable
ones, the Bank is able to offer competitive rates and has been successful in attracting term
deposits from a wide range of personal and non-personal customers. This provides a secure
funding profile which again gives additional financial security to the business.
The Bank is a member of the Financial Services Compensation Scheme (FSCS).
Where we do it
Methods of attracting deposits include product information on price comparison websites
(such as Moneysupermarket), best buy tables and newspaper articles about the deposit
accounts offered by the Group.
All savings products are administered in the Group head office in Solihull.
2013 performance
The Company continues to manage its liquidity on a conservative basis with none of its
funding coming from the wholesale markets. In December 2012, Secure Trust Bank was
admitted as a participant in the Bank of England’s Sterling Money Market Operations under
the Sterling Monetary Framework, to participate in the Discount Window Facility. From July
2013, the Group was permitted to draw down facilities under the Funding for Lending
Scheme (FLS). FLS monies are maintained as a liquidity buffer, above that required to
support lending.
Secure Trust Bank’s deposit activities comprise deposit accounts and fee-based accounts,
being fee-based current accounts and the OneBill accounts. At 31 December 2013
customer deposits totalled £436.6 million. This represents an increase of £38 million since
the last year end.
The Bank’s notice deposits totalled £207 million at the year-end (December 2012: £212
million). A new 180 day notice account was introduced in July and was highly successful,
raising additional new deposits of £14 million during the second half of the year.
During the year, the Bank launched further fixed rate deposit bonds predominantly with two
and five year maturities broadly to match its lending profile. These again were very successful
as the Group raised new deposits of over £63 million achieving its desired funding maturity
profile. At the year-end term deposit bond balances totalled £193 million.
s A V I N Gs
P ErFo r mA N C E
vs PrIo r yE Ar s
KPIs
2013
£36m
2012
£32m
2011
£31m
Current/demand accounts
2013
£400m
2012
£367m
2011
£241m
Term deposits
secure trust bank PLc annuaL rePOrt & accOunts 2013 Strategic report
29
sA V I N Gs
Instant Access Accounts can be opened
with as little as £1 and withdrawals can be
made without notice or loss of interest.
Notice Deposits are made available
in periods ranging from 60 to
183 days, depending on the
Company’s funding requirements.
Fixed Price Deposit Bonds are launched
by the Company to achieve desired
maturity profiles.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 30
Strategic report
rE V E N U E
Co mPo sI T IoN
£ mI L L IoN
2013
Personal Lending
Motor Finance
Retail Finance
One Bill
Current account
Other
41.8
23.0
14.5
8.0
4.8
4.4
2012
Personal Lending
Motor Finance
Retail Finance
One Bill
Current account
Other
24.2
16.9
5.8
8.9
4.0
0.9
Strategic report - Financial review
Summarised income statement
Interest, fee and commission income
Interest, fee and commission expense
Operating income
Impairment losses
Other income
Operating expenses
Acquisition related items
Profit before tax
Costs of acquisition
Acquisition fair value adjustments
Share based incentive scheme
Net ABG management recharges
Excess funding costs of acquisition
Income from acquired portfolios
Underlying profit before tax
Underlying tax
Underlying profit after tax
2013
£million
2012
£million
Variance
£million
96.5
(17.5)
79.0
(15.6)
–
(45.8)
(0.5)
17.1
0.9
4.9
2.2
0.1
–
–
25.2
(6.7)
18.5
60.7
(13.7)
47.0
(8.9)
0.1
(29.4)
8.4
17.2
3.1
(6.9)
1.6
0.1
1.9
(0.4)
16.6
(3.9)
12.7
89.2
35.8
(3.8)
32.0
(6.7)
(0.1)
(16.4)
(8.9)
(0.1)
8.6
(2.8)
5.8
29.0
Underlying basic earnings per share
118.2
Income analysis
Operating income increased by 68% to £79.0 million. Growth was achieved primarily through
increased levels of activity in the personal lending and retail finance product areas. Income
from personal lending grew by 73% partly due to the full year effect of the Everyday Loans
business acquisition which was completed mid-way through the prior year. Income from
retail finance increased by 150%, which was helped through the acquisition and integration
of the V12 Finance Group and its lending portfolio. Secure Trust Bank intends to create
diversified and balanced growth in the lending books which will serve the business well when
the market becomes more competitive.
Income from the current account with a prepaid card increased by 23%, and this partially
offset the expected decline in the OneBill account following its closure to new accounts in
2009. The current account closed the year with 22,860 customer accounts (2012: 20,962)
and OneBill ended the year with 24,297 customer accounts (2012: 26,154).
Impairment losses were £15.6 million (2012: £8.9 million). This is a modest increase as a
percentage of income despite the inclusion of a full year’s worth of Everyday Loans losses in
2013 (2012: 6 months and 3 weeks) and a significant increase in the collective provision.
We believe this is a function of prudent underwriting and an improving economy.
Operating expenses have increased, in line with expectations, as a result of the full year
effect of the Everyday Loans acquisition and the acquisition of V12 and Debt Managers in
2013 as well as the organic growth of the business.
Underlying profit before tax was £25.2 million, which is an increase of 52% on the 2012
underlying profit before tax.
secure trust bank PLc annuaL rePOrt & accOunts 2013
Strategic report
31
Acquisition related items
During the year, expenses were incurred of £0.9 million relating
to costs arising on the acquisition of the V12 Finance Group
and Debt Managers, partially offset by the £0.4 million gain
from a bargain purchase arising on the acquisition of the Debt
Managers business. During the previous year, expenses were
incurred of £1.4 million relating to costs arising primarily on
the acquisition of Everyday Loans. The acquisition of Everyday
Loans in June 2012 generated a fair value gain of £9.8 million.
Taxation
The effective tax rate on profit before tax is 28% (2012: 9%),
due primarily to acquisition adjustments relating to deferred
tax. The prior year’s tax rate reflected the effects of non-
taxable income during the year, primarily the gain from a
bargain purchase.
The total assets of the Group increased by 10% primarily
due to the continued growth in the personal lending, motor
finance and retail finance portfolios. Total assets now exceed
half a billion pounds. During the year the retail finance
business increased its portfolio size by 78% or £50.2 million
to close at £114.4 million, as a result of organic growth and
the acquisition of the V12 Finance Group. Personal lending
grew by £17.2 million as the business was able to source
new business from online brokers and affinity partners. Motor
finance increased its portfolio size by £25.1 million through a
growing number of dealer relationships.
Customer deposits grew by 9.5% to close at £436.6 million
to fund the increased lending balances. The Group continues
with its conservative funding policy, its lending remaining
entirely funded by customer deposits, ending the year with a
loan to deposit ratio of 90% (2012: 75%).
Distributions to shareholders
Capital
The directors recommend the payment of a final dividend
of 47 pence per share which, together with the interim
dividend of 15 pence per share paid on 20 September 2013,
represents a total dividend for the year of 62 pence per share
(2012: 57 pence per share).
Earnings per share
Detailed disclosures of earnings per ordinary share are shown
in note 11 of the financial statements. Basic earnings per
share reduced by 28% to 78.3p per share (2012: 108.9p),
due principally to the recognition of the exceptional gain from
a bargain purchase of £9.8 million in 2012. However, the
underlying basic earnings per share increased by 33%
to 118.2p per share (2012: 89.2p per share).
Summarised balance sheet
Assets
Loans and advances to banks
Loans and advances to customers
Other assets
Liabilities and equity
Deposits from customers
Other liabilities
Total equity
2013
£million
2012
£million
110.0
391.0
24.9
155.3
297.6
21.7
525.9
474.6
436.6
27.7
61.6
398.9
19.8
55.9
525.9
474.6
The Group’s capital management policy is focused on
optimising shareholder value over the long term. Processes
exist to ensure that Capital is allocated to derive targeted risk
adjusted returns whilst ensuring appropriate surpluses are
held above the minimum regulatory requirements. The Board
reviews the capital position at every board meeting.
In accordance with the EU’s Capital Requirements Directive
(CRD) and the required parameters set out in the Prudential
Regulation Authority Handbook (BIPRU 2.2), the Arbuthnot
Banking Group’s Internal Capital Adequacy Assessment
Process (ICAAP), of which the Group is a major component,
is embedded in the risk management framework of the Group.
It is subject to ongoing updates and revisions where
necessary, but as a minimum an annual review is undertaken
as part of the business planning process. The ICAAP is
a process which brings together the risk management
framework and the financial disciplines of business planning
and capital management.
Not all material risks can be mitigated by capital, but where
capital is appropriate the Board has adopted a “Pillar I plus”
approach to determine the level of capital the Group needs to
hold. This method takes the Pillar I capital formula calculations
as a starting point, and then considers whether each of the
calculations delivers a sufficient capital sum adequate to
cover anticipated risks. Where it is considered that the Pillar I
calculations do not reflect the risk, an additional capital add-on
in Pillar 2 is applied, as per the Individual Capital Guidance
(ICG) issued by the Prudential Regulation Authority.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking
32
Strategic report
L E NdI N G
Po r T FoL Io
Co mPo sI T IoN
%
Strategic report - Financial review Continued
The Group’s regulatory capital is divided into:
T i e r 1 which comprises shareholders’ funds and non-controlling interests, after deducting
intangible assets.
T i e r 2 which comprises the collective provision and revaluation reserves.
The ICAAP includes a summary of the capital required to mitigate the identified risks in its regulated
entities and the amount of capital that the group has available. All regulated entities within the Group
have complied with all of the externally imposed capital requirements to which they are subject.
2013
Tier 1 capital
£60.1 million
19.7% of Basel II Risk Weighted Assets
Tier 2 capital
£1.9 million
Total capital after deductions
£58.2 million
19.1% of Basel II Risk Weighted Assets
Personal lending
Motor finance
Retail finance
Other
40.7
29.3
29.3
0.7
2012
Personal lending
Motor finance
Retail finance
Other
47.7
30.1
21.6
0.6
Changes relating to the commencement of the implementation of Capital Requirements Directive
IV (CRD IV) in 2014 will not have a material impact on the capital resources of the Group.
Principal risks and uncertainties
The Group regards the monitoring and controlling of risks as a fundamental part of the
management process. Consequently, senior management are involved in the development
of risk management policies and in monitoring their application. The principal risks inherent in
the Group’s business are credit, market, liquidity, operational and regulatory risks. A detailed
description of the risk management policies in these areas is set out in Note 5 to the financial
statements; however a short description of the risks faced is detailed below.
Credit risk is the risk that a counterparty will be unable to pay amounts in full, when due. This risk
is managed through the Group’s internal controls and its credit risk policies as well as through the
Credit Committee, with significant exposures also being approved by the Group’s Risk Committee.
Market risk as it applies to the Secure Trust Bank Group is primarily limited to interest rate
risk. This is managed using Group resources with support from the treasury function of the
Arbuthnot Banking Group which does not take significant unmatched positions in any market
for its own account. The Group and Company have no exposures to currency fluctuations.
Liquidity risk is the risk that the Group cannot meet its liabilities as they fall due. The Group
takes a conservative approach to managing its liquidity profile and is primarily funded by
retail customer deposits, placing no reliance on the wholesale lending markets. The loan to
deposit ratio is typically maintained at a prudent level below 100%. The Assets and Liabilities
Committee (‘ALCO’), comprising executive directors and senior executives of the Company
and Group, is the formal body that has responsibility for liquidity risk management. The
ALCO meets formally on a monthly basis to review liquidity risk against set thresholds and
risk indicators including early warning indicators, liquidity risk tolerance levels and Individual
Liquidity Adequacy Assessment (ILAA) metrics.
Operational risk is the risk that the Group may be exposed to financial losses from failures of
its systems and processes. The Group maintains clear compliance guidelines and provides
ongoing training to all staff. The Group’s overall approach to managing internal control and
financial reporting is described in the Corporate Governance Statement in the Annual Report.
Regulatory risk can be split between capital risk and conduct risk. Capital risk is the risk that
the Group will have insufficient capital resources to support the business. The Group adopts a
secure trust bank PLc annuaL rePOrt & accOunts 2013
Strategic report
33
Neeraj Kapur
Chief Financial Officer
19 March 2014
conservative approach to managing its capital and at least annually assesses the robustness of
the capital requirements as part of the Arbuthnot Banking Group’s ICAAP, of which the Group
is a major component. Stringent stress tests are performed to ensure that capital resources
are adequate over a future three year horizon. Conduct risk is the risk that the Group does not
comply with regulatory requirements including, for example, the way it conducts its business or
treats its customers. The Group reviews performance against key customer and conduct risks
on a monthly basis and seeks feedback from its customers in all its product types.
Funding for Lending Scheme
During the year the Company was admitted to the Funding for Lending Scheme (“FLS”).
The FLS is a scheme launched by the Bank of England and HM Treasury, designed initially
to incentivise banks and building societies to boost their lending to UK households and non-
financial companies. The FLS does this by facilitating funding to banks and building societies for
an extended period, at below current market rates, with both the price and quantity of funding
provided linked to the institutions’ performance in lending to the UK non-financial sector.
The FLS allows participants to borrow UK Treasury Bills from the Bank of England for a period
of up to four years in exchange for eligible collateral during a defined drawdown period. The value
of the UK Treasury Bills lent by the Bank of England is at a discount to the market value of the
eligible securities which are lent to the Bank of England in return. The amount of discount or
“haircut” is determined according to the FLS rules, with the level of “haircut” being greater for
those eligible securities which are perceived as having greater risk.
The price of each institution’s borrowing in the FLS will depend on its volume of lending to
the real economy during the reference period. For banks or building societies maintaining or
expanding their lending over that period, the fee will be 0.25% pa on the amount borrowed.
As banks increase lending, their overall funding costs will fall. For banks or building societies
whose lending declines, the fee will increase linearly, up to a maximum of 1.5% pa where
lending decreases by 5% or more.
Under the applicable International Accounting Standard, IAS 39, if a security is lent under an
agreement to return it to the transferor, as is the case for eligible securities lent by institutions
to the Bank of England under the FLS, then the security is not derecognised because the
transferor retains all the risks and rewards of ownership. The UK Treasury Bills borrowed
from the Bank of England under the FLS are therefore not recognised on the balance sheet
of the institution as they will not meet the criteria for de-recognition by the Bank of England.
At 31 December 2013 the Company has pre-positioned £43.9 million of loans and advances
to customers and £9.9 million of loans and advances to banks with the FLS, which are
available for use as collateral for the Company’s participation in the scheme.
Liquidity
One of the Basel committee’s key reforms to develop a more resilient banking sector is
the Liquidity Coverage Ratio (LCR). The objective of the LCR is to promote the short term
resilience of the liquidity risk profile of banks. It does this by ensuring that banks have an
adequate stock of unencumbered high-quality liquid assets that can be converted easily and
immediately in private markets into cash to meet their liquidity needs for a 30 calendar day
liquidity stress scenario. At 31 December 2013, the Group had significant headroom over the
minimum 100% recommendations due to its significant stock of high quality liquid assets,
in the form of Bank of England Treasury Bills.
The Net Stable Funding Ratio (NSFR) supplements the LCR and has a time horizon of
one year. It has been developed to provide a sustainable maturity structure of assets
and liabilities. At 31 December 2013, the Group had an NSFR of 114%, with significant
headroom over the minimum requirement of 100%.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 34
board of directors
secure trust bank PLc annuaL rePOrt & accOunts 2013 board of directors
35
Board of Directors
1 Henry Angest LLL, Hon.F.UHI – Non-Executive Chairman
Henry Angest is Chairman and Chief Executive of Arbuthnot Banking Group PLC as well as
Chairman of Arbuthnot Latham & Co., Limited. He gained extensive national and international
experience as an executive of The Dow Chemical Company and Dow Banking Corporation. He was
Chairman of the Banking Committee of the London Investment Banking Association and a director of
the Institute of Directors. He is a Past Master of the Worshipful Company of International Bankers.
5
7
4
3
1
6
2
2 Paul Lynam ACIB, AMCT, Fifs – Chief Executive Officer
Paul Lynam joined Secure Trust Bank in September 2010, having spent 22 years working for
NatWest and RBS. He is a Fellow of the ifs University College and an Associate of the Chartered
Institute of Bankers and the Association of Corporate Treasurers. Paul was the Managing Director,
Banking, running RBS/NatWest’s SME banking business across the UK and spent four years as
the Managing Director of Lombard North Central PLC, running the largest asset finance and leasing
business in Europe.
3 Neeraj Kapur BEng, ACGI, FCA, CF, FCIBS – Chief Financial Officer
Neeraj Kapur has over 24 years financial services experience spent in both the accounting and
banking industries. He is a Chartered Banker, a Fellow of the Institute of Chartered Accountants in
England & Wales, and Council and Vice Chair of the ICAEW Financial Services Faculty. Neeraj spent
11 years working in professional practice before joining RBS in 2001 and has undertaken a number
of roles which included Chief Financial Officer of Lombard North Central PLC.
4 Andrew Salmon ACA – Non-Executive Director
Andrew Salmon joined Arbuthnot Banking Group in 1997 and is the Chief Operating Officer and
Head of Business Development of Arbuthnot Banking Group PLC. He was previously a director of
Hambros Bank Limited and qualified as a Chartered Accountant with KPMG.
5 Paul Marrow ACIB – Independent Non-Executive Director
Paul Marrow has over 40 years banking experience and has over the last decade been responsible
for the Commercial Banking and Specialist Corporate Banking business divisions of RBS Group in
the UK. Prior to retiring from RBS in July 2009, Paul was involved in a change programme in the RBS
UK banking business. Paul is currently the Chairman of JCB Finance Limited, a joint venture between
J C Bamford Excavators Limited and RBS Group.
6 Carol Sergeant BA, MBA, CBE – Independent Non-Executive Director
Carol Sergeant has extensive banking experience gained over a 38 year career with the Bank of
England, the Financial Services Authority (which she helped to set up) and latterly as the Chief Risk
Officer and a member of the Group Executive Committee of Lloyds Banking Group PLC. Carol holds
a BA from Cambridge University and an MBA from the CASS Business School. Carol is a non-executive
director of Danske Bank and Martin Currie Holdings Limited and is the Chairman of the UK whistle
blowing charity Public Concern at Work.
7 Jeremy Kaye FCIS – Company Secretary
The Rt Hon Lord Forsyth of Drumlean PC Kt – Independent Non-Executive Director*
Michael Forsyth is a director of J&J Denholm, Chairman of Hyperion Insurance Group, and former
Deputy Chairman of JP Morgan UK and Evercore Partners International. He was appointed to the Privy
Council in 1995, knighted in 1997, and joined the House of Lords in 1999. He was a member of the
House of Commons for 14 years and served in Government for 10 years, latterly as a Cabinet Minster.
*Michael Forsyth was appointed to the Board on 1 March 2014, after the financial year end.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 36
directors’ report
Directors’ report
Report and financial statements
Future developments
The directors submit their report and the audited financial
statements of Secure Trust Bank PLC (“the Company”) for
the year ended 31 December 2013. “The Group” includes
the Company and its subsidiaries.
The separate Strategic Report as well as the Chairman’s
Statement and Chief Executive’s Statement contain a fair
review of and likely future trends and factors that might affect
the development, performance and position of the Group.
Principal activities and review
Share capital
The principal activity of the Group is retail banking. A strategic
review in accordance with section 414C of the Companies Act
2006 forming part of this report is set out in the Strategic Report.
Results and dividend
The results for the year are shown on page 46. The Group
profit for the year after taxation attributed to equity holders of
the parent company amounted to £12.3 million (2012: £15.5
million). An analysis of the movement in profit after taxation
between the current and preceding year is contained in the
Financial Review on pages 30 and 31.
The directors recommend the payment of a final dividend
of 47 pence per share which, together with the interim
dividend of 15 pence per share paid on 20 September 2013,
represents a total dividend for the year of 62 pence per share
(2012: 57 pence per share). The final dividend, if approved
by members at the Annual General Meeting, will be paid on
9 May 2014 to shareholders on the register at the close of
business on 11 April 2014.
Acquisitions during the year
On 2 January 2013 the Company acquired the issued share
capital of V12 Finance Group Limited, which along with its
wholly owned subsidiaries V12 Retail Finance Limited and V12
Personal Finance Limited provide retail point of sale loans,
for a cash consideration of £3.5 million and funding to enable
£7.0 million of subordinated debt to be redeemed and £28.1
million of bank finance to be repaid.
On 15 January 2013 the Company’s subsidiary, Debt Managers
(Services) Limited (“DMS”), acquired the trade and certain
assets from Debt Managers Holdings Limited, Debt Managers
(AB) Limited and Debt Managers Limited. DMS collects debt
on behalf of a range of clients including banks and utility
companies. The company acquired the trade and assets for an
initial cash payment of £0.4 million paid on completion of the
transaction. In addition, deferred consideration of £0.1 million
was paid by DMS one year after completion on the business
achieving certain performance criteria.
At the Annual General Meeting shareholders will be asked to
approve two Ordinary and one Special Resolution. The first
Ordinary Resolution seeks to give directors general authority to
allot shares up to 5% of the Company’s existing ordinary share
capital during the period expiring on 31 May 2015, or if earlier
on the conclusion of the next Annual General Meeting of the
Company. The directors have no present intention of issuing
any shares and will not issue shares which would effectively
change the control of the Company without the prior approval
of shareholders in general meeting.
The Special Resolution renews the authority of the directors to
make market purchases of shares not exceeding 10% of the
existing share capital. The directors will keep the position under
review in order to maximise the Company’s resources in the best
interests of shareholders.
Remuneration
The second Ordinary Resolution gives the Company authority
to make bonus payments to executive directors or senior
managers not exceeding two times the annual basic salary
of the director or senior manager if required by forthcoming
regulation. It is the practice of the Company to pay fair and
reasonable salaries and to reward exceptional performance
under a bonus scheme.
Substantial shareholders
As at 19 March 2014 the Company was aware of the following
substantial holdings in its issued ordinary share capital:
Percentage of issued
Ordinary shares
ordinary share capital
Arbuthnot Banking
Group PLC
Ruffer LLP
Unicorn Asset
Management Limited
Cazenove Capital
Management Limited
Miton Group plc
10,486,205
680,967
607,275
590,905
540,000
67.0%
4.4%
3.9%
3.8%
3.5%
secure trust bank PLc annuaL rePOrt & accOunts 2013
directors’ report
37
Directors and their share interests
The directors of the Company are Henry Angest, Lord Forsyth of Drumlean, Neeraj Kapur,
Paul Lynam, Paul Marrow, Andrew Salmon and Carol Sergeant. With the exception of Lord
Forsyth of Drumlean, who was appointed on 1 March 2014, all the directors served on the
Board throughout the financial year and up to the date of signing these financial statements.
Biographical information about each director is shown on page 35.
Lord Forsyth and Carol Sergeant, who retires under Article 82 of the Articles of Association,
offer themselves for election or re-election as appropriate. Neither director has a service
agreement with the Company.
Mr Angest, Mr Lynam and Mr Salmon are directors of the ultimate parent company
Arbuthnot Banking Group PLC and their interests in the share capital and share options of
group companies are shown in the Directors’ Report of that company.
According to the information kept under Section 3 of the Disclosure and Transparency
Rules 2006, the interests of the directors and their families in the ordinary 40p shares of the
Company at the dates shown were as follows:
N Kapur
P A Lynam
P Marrow
A A Salmon
C F Sergeant
At 1 January 2013
the year
and 19 March 2014
Acquired during
At 31 December 2013
1,000
8,800
5,440
7,500
6,600
–
310
–
–
–
1,000
9,110
5,440
7,500
6,600
On 2 November 2011, Mr Lynam and Mr Salmon were both granted an option to subscribe
between 2 November 2014 and 1 November 2021 for 141,666 ordinary 40p shares in the
Company at 720 pence a share, as well as an option to subscribe between 2 November 2016
and 1 November 2021 for 141,667 ordinary 40p shares in the Company at 720 pence a share.
On 2 November 2011, Mr Kapur was granted an option to subscribe between 2 November
2014 and 1 November 2021 for 35,416 ordinary 40p shares in the Company at 720 pence
a share, as well as an option to subscribe between 2 November 2016 and 1 November 2021
for 35,417 ordinary 40p shares in the Company at 720 pence a share.
During 2013 the Share Option Scheme was modified to become equity-settled rather than
cash-settled (see note 25).
Apart from the interests disclosed above, no director was interested at any time during the
year in the share capital of Group companies.
Board Committees
The report of the Remuneration Committee on pages 42 to 43 will be the subject of an
Ordinary Resolution at the Annual General Meeting.
Information on the Audit, Nomination and Risk Committees is included in the Corporate
Governance statement on pages 40 to 41.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking
38
directors’ report
Directors’ report Continued
Employment policies and equal opportunities
Going concern
The Group is an inclusive and equal opportunities employer
that relies on HR specialists to ensure compliance with all
applicable laws governing employment practices and to advise
on all HR policies and practices, including recruitment and
selection, training and career development, and promotion
and retirement. Group policies seek to create a workplace
that has an open atmosphere of trust, honesty and respect.
Harassment or discrimination of any kind is not tolerated. This
principle applies to all aspects of employment from recruitment
and promotion, through to termination and all other terms and
conditions of employment.
Employee communications and involvement
The Group has processes in place for communicating with its
employees. Employee communications include information
about the performance of the Group, on major matters
affecting their work, employment or workplace and to
encourage them to get involved in social or community events.
These communications aim to achieve a common awareness
for all employees of the financial and economic factors
affecting the performance of the Group.
In assessing the Group as a going concern, the directors
have given consideration to the factors likely to affect its
future performance and development, the Group’s financial
position and the principal risks and uncertainties facing the
Group, including the Group’s exposure to credit, liquidity and
market risk and the mechanisms for dealing with these risks.
The Group uses various short and medium term forecasts to
monitor future regulatory compliance and these include stress
testing assumptions to identify the headroom on regulatory
compliance measures.
The directors are satisfied that the Company and the Group
have adequate resources to continue to operate for the
foreseeable future as going concerns. For this reason they
continue to adopt the going concern basis in preparing these
financial statements.
Annual General Meeting
The next Annual General Meeting of the Company will be held
on 7 May 2014.
The Notice of Meeting is included on pages 95 and 96.
Political donations
By order of the Board
The Group made no political donations during the year (2012: nil).
J R Kaye
Secretary
19 March 2014
Post balance sheet events
There are no post balance sheet events.
Auditor
Following a review of their corporate structure, our auditor,
KPMG Audit Plc, has instigated an orderly wind down of
business, with future audit work being undertaken by KPMG
LLP. The Board has decided to put KPMG LLP forward to be
appointed as auditor and a resolution for its appointment will
be proposed to the forthcoming Annual General Meeting of
the Company. There is no difference in liability terms between
KPMG Audit Plc and KPMG LLP.
Each director in office at the date of this Directors’ Report
confirms that so far as the director is aware, there is no
relevant audit information of which the Company’s auditor is
unaware and each director has taken all the steps that they
ought to have taken as a director to make themselves aware
of any relevant audit information and to establish that the
Company’s auditor is aware of that information.
secure trust bank PLc annuaL rePOrt & accOunts 2013 directors’ responsibility statement
39
Directors’ responsibility statement
The directors are responsible for preparing the Annual Report and the Group and parent
company financial statements in accordance with applicable law and regulations.
Company law requires the directors 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
IFRSs as adopted by the EU and applicable law and have elected to prepare the parent
company financial statements on the same basis.
Under company law the directors must not approve the financial statements unless they
are satisfied that they give a true and fair view of the state of affairs of the Group and parent
company and of their profit or loss for that period. In preparing each of the Group and parent
company financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
•
•
state whether they have been prepared in accordance with IFRSs as adopted by the EU;
and
prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Group and the parent company will continue in business.
The directors are responsible 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 Companies Act 2006. They 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 have decided to prepare voluntarily a Directors’ Remuneration Report in
accordance with Schedule 8 to The Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 made under the Companies Act 2006, as if those
requirements were to apply to the Company. The directors have also decided to prepare
voluntarily a Corporate Governance statement as if the Company were required to comply
with the Listing Rules and the Disclosure Rules and Transparency Rules of the Financial
Conduct Authority and the Prudential Regulation Authority in relation to those matters.
The directors are responsible for the maintenance and integrity of the corporate and financial
information included on the Company’s website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from legislation in other jurisdictions.
On behalf of the Board
Paul Lynam
Director
19 March 2014
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 40
Corporate Governance statement
Corporate Governance statement
AIM companies are not required to comply with
The UK Corporate Governance Code. Nevertheless,
the Board endorses the principles of openness, integrity
and accountability which underlie good corporate
governance and intends to take into account the provisions
of The UK Corporate Governance Code in so far as they
are appropriate to the Group’s size and circumstances.
The Board
The Group was led and controlled by an effective Board of
Directors which comprises Henry Angest (Non-Executive
Chairman), Paul Lynam (Chief Executive Officer), Neeraj
Kapur (Chief Financial Officer), and three other non-executive
directors. Under the Company’s Articles and pursuant to
the relationship agreement in place between the Company
and Arbuthnot Banking Group PLC (“ABG”), one third of the
directors will be appointed by ABG, one third of the directors
will be full-time executive directors, and one third of the
directors will be independent directors.
The Board meets regularly throughout the year. Substantive
agenda items have briefing papers, which are circulated in a
timely manner before each meeting. The Board will ensure
that it is satisfied that it is supplied with all the information that
it requires and requests, in a form and of a quality to enable
it to fulfil its duties. The Company Secretary is responsible
for ensuring that Board processes and procedures are
appropriately followed and support effective decision making.
All directors have access to the Company Secretary’s advice
and services and there is an agreed procedure for directors to
obtain independent professional advice in the course of their
duties, if necessary, at the Company’s expense. The Board
has delegated certain of its responsibilities to committees,
which are summarised below. Each of these committees
has written terms of reference.
Audit Committee
Membership of the Audit Committee is limited to non-
executive directors and the current Audit Committee
comprises Paul Marrow as Chairman, Andrew Salmon and
Carol Sergeant.
The primary responsibilities of the Audit Committee are
to review arrangements established by the directors
for compliance with regulatory and financial reporting
requirements, monitor the integrity of the Group and subsidiary
statutory accounts, oversee the work of external auditors,
monitor and review the scope, results and effectiveness of
the Company’s internal audit function and liaise with the Audit
Committee of ABG.
The Audit Committee’s responsibilities include reviewing
the Group’s system of internal control and the process
for evaluating and monitoring risk. The Committee also
considers any other matters which might have a financial
impact on the Company, including the Group’s arrangement
by which staff may, in confidence, raise concerns about
possible improprieties in matters of financial reporting or other
matters. The Audit Committee has the authority to obtain any
information it requires from any employee or external party,
and at least once a year will meet with the Company’s external
auditors and internal audit function without any executive
directors being present.
The Committee also reviews the appointment, terms of
engagement and objectivity of the external auditors, including
the level of non-audit services provided, and ensures that
there is an appropriate audit relationship. The Audit Committee
provides a forum for discussing with the Group’s external
auditors their report on the annual accounts.
Risk Committee
The Risk Committee is chaired by Andrew Salmon.
Other members are Paul Lynam and Paul Marrow.
The primary responsibilities of the Risk Committee are
to approve specific risk policies for the Company and its
subsidiaries, approve trading positions in excess of the
limits set by the management of the Group, oversee the
development, implementation and maintenance of the Group’s
overall risk management framework and its risk appetite,
strategy, principles and policies, oversee the Group’s risk
exposures, risk/return and proposed improvements to the
Group’s risk management framework, oversee adherence to
Group risk principles, policies and standards, and at all times
act in adherence with and with regard to the risk principles,
policies and standards adopted by ABG and keep ABG
regularly informed of any risk issues or breaches faced by
the Group which may affect the ABG Group.
Remuneration Committee
Details of the Remuneration Committee and directors’
remuneration are set out in the separate Remuneration report.
Nomination Committee
The Nomination Committee is chaired by Henry Angest and
its other members are Paul Marrow and Carol Sergeant.
The primary responsibilities of the Nomination Committee
are to review the number of directors and the balance
between executive and independent directors, recommend
secure trust bank PLc annuaL rePOrt & accOunts 2013 Corporate Governance statement
41
new independent director and executive director appointments to the board and the
length of term for which a non-executive director may be expected to serve, and have
regard to provisions of the Relationship Agreement when performing its duties. Before a
Board appointment is made the skills, knowledge and experience required for a particular
appointment are evaluated. The Nomination Committee also follows the ICSA Guidance
on Terms of Reference for Nomination Committees.
Shareholder Communications
The Company maintains a regular dialogue with its shareholders and makes full use of the
Annual General Meeting and any other General Meetings to communicate with investors.
The Company aims to present a balanced and understandable assessment in all its
reports to shareholders, its regulators and the wider public. Key announcements and other
information can be found at www.securetrustbank.com.
Internal control and financial reporting
The Board of Directors has overall responsibility for the Group’s system of internal control
and for reviewing its effectiveness. Such a system is designed to manage rather than
eliminate risk of failure to achieve business objectives and can only provide reasonable but
not absolute assurance against the risk of material misstatement or loss.
The directors and senior management of the Group have formally adopted a Group Risk
and Controls Policy which sets out the Board’s attitude to risk and internal control. Key
risks identified by the directors are formally reviewed and assessed at least once a year
by the Board. Key business risks are also identified, evaluated and managed by operating
management on an ongoing basis. The Board also receives regular reports on any risk
matters that need to be brought to its attention. Significant risks identified in connection with
the development of new activities are subject to consideration by the Board.
The effectiveness of the internal control system is reviewed regularly by the Board and the
Audit Committee, which also receives reports of reviews undertaken by the internal audit
function which is outsourced to EY. The Audit Committee also receives reports from the
external auditors, KPMG Audit Plc, which include details of internal control matters that they
have identified. Certain aspects of the system of internal control are also subject to regulatory
supervision, the results of which are monitored closely by the Board.
From January 2014, the Group has established its own Internal Audit function reflecting the
continuing business investment in risk mitigation and compliance processes. EY will continue
to be engaged in both an audit and advisory capacity and will provide support in areas
requiring specific subject matter expertise.
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 42
remuneration report
Remuneration report
Remuneration Committee
Directors’ Service Contracts
Mr Lynam and Mr Kapur each have service contracts
terminable at any time on 12 months’ notice in writing by
either party. Mr Marrow and Mrs Sergeant have service
contracts terminable at any time on 3 months’ notice in
writing by either party. Mr Angest and Mr Salmon have service
contracts with Arbuthnot Banking Group and their details are
disclosed in the financial statements of that Company.
Share Option Scheme
On 17 October 2011 the Company established The Secure
Trust Bank Share Option Scheme which is administered by the
Remuneration Committee. Details of the options granted to
directors of the Company can be found in the Directors’ Report
on pages 36 to 38.
The market price for each ordinary share at the year end was
2,925p. The highest and lowest market price for each ordinary
share during the year was 1,570p and 2,925p.
A detailed description of the Share Option Scheme, including
Scheme Conditions, is contained in Note 25 of the financial
statements.
Directors’ emoluments
This part of the remuneration report is audited information
Salary and fee payments
(including bonuses and
benefits in kind)
Pension contributions
2013
£000
2012
£000
1,427
60
1,487
1,252
60
1,312
Membership of the Remuneration Committee is limited to non-
executive directors. The present members of the Committee are
Henry Angest, Chairman, Paul Marrow and Carol Sergeant.
The Committee has responsibility for producing
recommendations on the overall remuneration policy for
directors and for setting the remuneration of individual
executive directors, both for review by the Board.
Remuneration is set having regard to any roles that may be
performed by such directors as directors of any other Group
companies in the corporate Group of which the Company
forms a part. The Committee applies the Company’s
remuneration policy and monitors its implementation, reviews
the Directors’ Remuneration Report, considers and if thought
fit awards any incentives to be offered under the Share
Option Scheme and pension arrangements, subject to the
achievement of specific criteria. The Remuneration Committee
also follows the ICSA Guidance on Terms of Reference for
Remuneration Committees. Members of the Committee do
not vote on their own remunerations.
Remuneration Policy
The Remuneration Committee determines the remuneration
of individual directors having regard to the size and nature
of the business; the importance of attracting, retaining and
motivating management of the appropriate calibre without
paying more than is necessary for this purpose; remuneration
data for comparable positions; the need to align the interests
of executives with those of shareholders; and an appropriate
balance between current remuneration and longer term
performance–related rewards. The remuneration package can
comprise a combination of basic annual salary and benefits
(including pension), a discretionary annual bonus award related
to the Committee’s assessment of the contribution made
by the executive during the year and longer term incentives,
including executive share options. Pension benefits take the
form of annual contributions paid by the Company to individual
money purchase schemes. The Remuneration Committee
reviews salary levels each year based on the performance of
the Group during the preceding financial period. This review
does not necessarily lead to increases in salary levels. During
2013 the Group implemented all the provisions required under
the Prudential Regulation Authority’s Remuneration Code.
The Group and its subsidiaries are all considered to be Tier III
institutions, due to the size of their relevant total assets.
secure trust bank PLc annuaL rePOrt & accOunts 2013
remuneration report
43
Total
2012
£000
319
870
78
45
Salary/
fees
Bonus
Benefits
Pension
£000
£000
£000
£000
Total
2013
£000
N Kapur
P Lynam
P Marrow
C Sergeant
184
475
83
45
100
500
–
–
787
600
19
21
–
–
40
25
35
–
–
328
1,031
83
45
60
1,487
1,312
The emoluments of Mr Angest and Mr Salmon are paid by Arbuthnot Banking Group PLC and
disclosed in the Arbuthnot Banking Group PLC consolidated financial statements. The cost of the
provision of the services of Mr Angest and Mr Salmon of £60,000 and £45,000 respectively, have
been recharged to the Company in accordance with the Services and Relationship Agreements
created at the time of the IPO (2012: £60,000 and £45,000 respectively).
The emoluments of the highest paid director were £1,031,000 for the year ended
31 December 2013 (2012: £870,000), including contributions made to a money purchase
scheme of £35,000 (2012: £35,000).
Retirement benefit contributions are being paid for two directors who served during 2013
(2012: 2).
Henry Angest
Chairman of the
Remuneration Committee
19 March 2014
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking
44
Independent Auditor’s report
Independent Auditor’s report
T O T H E M E M B E R S O F SE C U R E TR U S T BA N K P L C
We have audited the financial statements of Secure Trust
Bank PLC for the year ended 31 December 2013 set out
on pages 46 to 93. The financial reporting framework that
has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as
adopted by the EU and, as regards the parent company
financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements
is provided on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
In addition to our audit of the financial statements, the
directors have engaged us to audit the information in the
Directors’ Remuneration Report that is described as having
been audited, which the directors have decided to prepare
(in addition to that required to be prepared) as if the company
were required to comply with the requirements of Schedule
8 to The Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (SI 2008 No. 410)
made under the Companies Act 2006.
•
•
•
This report is made solely to the company’s members, as
a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and, in respect of the separate opinion
in relation to the Directors’ Remuneration Report and reporting
on corporate governance, on terms that have been agreed.
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, in respect of the
separate opinion in relation to the Directors’ Remuneration
Report, those matters that we have agreed to state to them
in our 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.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement set out on page 39, the directors are responsible
for the preparation of the financial statements and
for being satisfied that they give a true and fair view.
Our responsibility is to audit, and express an opinion on,
the financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
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 2013 and of the group’s profit for the year
then ended;
the group financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU;
the parent company financial statements have been
properly prepared in accordance with IFRSs as adopted
by the EU and as applied in accordance with the
provisions of the Companies Act 2006;
•
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies
Act 2006 and under the terms of our engagement
In our opinion:
•
•
the part of the Directors’ Remuneration Report which we
were engaged to audit has been properly prepared in
accordance with Schedule 8 to The Large and Medium-
sized Companies and Groups (Accounts and Reports)
Regulations 2008 made under the Companies Act 2006,
as if those requirements were to apply to the company;
and
the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements.
secure trust bank PLc annuaL rePOrt & accOunts 2013 Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 and under the terms of our engagement we are required to
report to you if, in our opinion:
•
•
adequate accounting records have not been kept by the parent company, or returns
adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements and the part of the Directors’ Remuneration
Report which we were engaged to audit are not in agreement with the accounting
records and returns; or
•
certain disclosures of directors’ remuneration specified by law are not made; or
•
we have not received all the information and explanations we require for our audit.
Independent Auditor’s report
45
Richard Gabbertas
(Senior Statutory Auditor)
for and on behalf of KPMG
Audit Plc, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham B4 6GH
19 March 2014
secure trust bank PLc annuaL rePOrt & accOunts 2013Simple, straightforward banking 46
Consolidated statement of comprehensive income
Interest receivable and similar income
Interest expense and similar charges
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Operating income
Impairment losses on loans and advances
Gain from a bargain purchase
Other income
Costs arising from acquisitions
Operating expenses
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income, net of income tax
Cash flow hedging reserve
– Effective portion of changes in fair value
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year
Profit attributable to:
Equity holders of the Group
Total comprehensive income attributable to:
Equity holders of the Group
Earnings per share for profit attributable to the
equity holders of the Group during the year
(expressed in pence per share)
Basic earnings per share
Diluted earnings per share
Year ended
31 December
2013
£million
Year ended
31 December
2012
£million
73.8
(12.9)
60.9
22.7
(4.6)
18.1
79.0
(15.6)
0.4
–
(0.9)
(45.8)
17.1
(4.8)
12.3
–
–
12.3
12.3
12.3
78.3
76.7
44.9
(10.5)
34.4
15.8
(3.2)
12.6
47.0
(8.9)
9.8
0.1
(1.4)
(29.4)
17.2
(1.7)
15.5
(0.1)
(0.1)
15.4
15.5
15.4
108.9
108.9
Note
7
30
8
10
11
11
The notes on pages 53 to 93 are an integral part of these consolidated financial statements
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
47
Consolidated statement of financial position
ASSETS
Loans and advances to banks
Loans and advances to customers
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total assets
LIABILITIES AND EQUITY
Liabilities
Deposits from banks
Deposits from customers
Current tax liabilities
Deferred tax liabilities
Other liabilities
Total liabilities
Equity attributable to owners of the parent
Share capital
Share premium
Retained earnings
Cash flow hedging reserve
Revaluation reserve
Total equity
Total liabilities and equity
Note
12
13
17
15
22
19
20
22
21
24
At
31 December
2013
£million
At
31 December
2012
£million
110.0
391.0
5.0
9.9
1.9
8.1
525.9
0.1
436.6
1.4
0.4
25.8
464.3
6.3
28.2
27.3
(0.4)
0.2
61.6
525.9
155.3
297.6
5.4
5.2
5.1
6.0
474.6
–
398.9
0.3
1.2
18.3
418.7
6.3
28.2
21.7
(0.4)
0.1
55.9
474.6
The financial statements on pages 46 to 93 were approved by the Board of Directors on 19 March 2014 and were signed on its behalf
by:
P Lynam
Chief Executive Officer
N Kapur
Chief Financial Officer
The notes on pages 53 to 93 are an integral part of these consolidated financial statements
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
48
Company statement of financial position
ASSETS
Loans and advances to banks
Loans and advances to customers
Property, plant and equipment
Intangible assets
Investments
Deferred tax assets
Other assets
Total assets
LIABILITIES AND EQUITY
Liabilities
Deposits from banks
Deposits from customers
Current tax liabilities
Other liabilities
Total liabilities
Equity attributable to owners of the parent
Share capital
Share premium
Retained earnings
Cash flow hedging reserve
Total equity
Total liabilities and equity
Note
12
13
17
15
16
22
19
20
21
24
At
31 December
2013
£million
At
31 December
2012
£million
108.5
283.9
0.5
0.9
3.7
0.8
101.0
499.3
0.1
436.6
0.2
15.5
452.4
6.3
28.2
12.8
(0.4)
46.9
499.3
153.6
197.5
1.0
0.8
–
0.6
98.1
451.6
–
398.9
0.3
8.7
407.9
6.3
28.2
9.6
(0.4)
43.7
451.6
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent company
profit and loss account. The profit for the parent company for the year is presented in the Company Statement of Changes in Equity.
The financial statements on pages 46 to 93 were approved by the Board of Directors on 19 March 2014 and were signed on its behalf
by:
P Lynam
Chief Executive Officer
N Kapur
Chief Financial Officer
Registered number: 00541132
The notes on pages 53 to 93 are an integral part of these consolidated financial statements
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
49
Consolidated statement of changes in equity
Balance at 1 January 2012
5.7
9.5
0.1
(0.3)
8.8
23.8
Share
capital
£million
Share
premium
£million
Revaluation
reserve
£million
Cash flow
hedging
reserve
£million
Retained
earnings
£million
Total
£million
Total comprehensive income for the period
Profit for 2012
Other comprehensive income, net of income tax
Cash flow hedging reserve
– Effective portion of changes in fair value
Total other comprehensive income
Total comprehensive income for the period
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends
Credit for share based payments
Issue of ordinary shares
Transaction costs on issue of shares
Total contributions by and distributions to owners
Balance at 31 December 2012
Total comprehensive income for the period
Profit for 2013
Other comprehensive income, net of income tax
Revaluation reserve
– Amount transferred to profit and loss
Total other comprehensive income
Total comprehensive income for the period
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends
Charge for share based payments
Total contributions by and distributions to owners
–
–
–
–
15.5
15.5
–
–
–
–
–
0.6
–
0.6
6.3
–
–
–
–
–
19.4
(0.7)
18.7
28.2
–
–
–
–
–
–
–
–
(0.1)
(0.1)
(0.1)
–
–
15.5
–
–
–
–
–
(2.5)
(0.1)
–
–
(2.6)
0.1
(0.4)
21.7
(0.1)
(0.1)
15.4
(2.5)
(0.1)
20.0
(0.7)
16.7
55.9
–
–
–
–
12.3
12.3
–
–
–
–
–
–
–
–
–
–
–
–
0.1
0.1
0.1
–
–
–
–
–
–
–
–
–
(0.1)
(0.1)
12.2
(9.1)
2.5
(6.6)
27.3
–
–
12.3
(9.1)
2.5
(6.6)
61.6
Balance at 31 December 2013
6.3
28.2
0.2
(0.4)
The notes on pages 53 to 93 are an integral part of these consolidated financial statements
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
50
Company statement of changes in equity
Balance at 1 January 2012
5.7
9.5
(0.3)
6.7
21.6
Share
capital
£million
Share
premium
£million
Cash flow
hedging
reserve
£million
Retained
earnings
£million
Total
£million
Total comprehensive income for the period
Profit for 2012
Other comprehensive income, net of income tax
Cash flow hedging reserve
– Effective portion of changes in fair value
Total other comprehensive income
Total comprehensive income for the period
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends
Credit for share based payments
Issue of ordinary shares
Transaction costs on issue of shares
Total contributions by and distributions to owners
Balance at 1 January 2013
Total comprehensive income for the period
Profit for 2013
Total comprehensive income for the period
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends
Charge for share based payments
Total contributions by and distributions to owners
–
–
–
5.5
5.5
–
–
–
–
–
0.6
–
0.6
6.3
–
–
–
–
–
–
–
–
–
–
19.4
(0.7)
18.7
28.2
–
–
–
–
–
(0.1)
(0.1)
(0.1)
–
–
–
–
–
(0.4)
–
–
–
–
–
–
–
5.5
(2.5)
(0.1)
–
–
(2.6)
9.6
9.8
9.8
(9.1)
2.5
(6.6)
12.8
(0.1)
(0.1)
5.4
(2.5)
(0.1)
20.0
(0.7)
16.7
43.7
9.8
9.8
(9.1)
2.5
(6.6)
46.9
Balance at 31 December 2013
6.3
28.2
(0.4)
The notes on pages 53 to 93 are an integral part of these consolidated financial statements
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
51
Year ended
31 December
2013
£million
Year ended
31 December
2012
£million
12.3
4.8
0.6
2.4
(0.4)
15.6
2.5
37.8
–
41.3
(76.1)
(0.6)
0.1
37.7
5.5
(2.5)
43.2
(36.9)
1.6
(3.9)
(0.4)
(0.7)
0.3
1.9
(38.1)
–
–
(9.1)
(9.1)
(4.0)
94.0
90.0
15.5
1.7
0.6
0.9
(9.8)
8.9
(0.1)
17.7
0.1
(41.3)
(80.8)
4.5
–
126.8
6.7
(1.4)
32.3
(71.6)
1.0
–
(0.6)
(0.3)
–
–
(71.5)
(3.0)
19.3
(2.6)
13.7
(25.5)
119.5
94.0
Consolidated statement of cash flows
Note
17
15
30
Cash flows from operating activities
Profit for the year
Adjustments for:
Income tax expense
Depreciation of property, plant and equipment
Amortisation of intangible assets
Gain from a bargain purchase
Impairment losses on loans and advances
Share based compensation
Cash flows from operating profits before changes in operating assets and liabilities
Changes in operating assets and liabilities:
– net decrease in derivative financial instruments
– net decrease/(increase) in loans and advances to banks
– net increase in loans and advances to customers
– net (increase)/decrease in other assets
– net increase in deposits from banks
– net increase in amounts due to customers
– net increase in other liabilities
Income tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Borrowings repaid on acquisition of subsidiary undertakings
Cash acquired on purchase of subsidiary undertakings
Purchase of subsidiary undertakings
Purchase of property, plant and equipment
Purchase of computer software
Proceeds from sale of property, plant and equipment
Proceeds from sale of computer software
Net cash from investing activities
Cash flows from financing activities
Net decrease in subordinated loans
Net inflow on issue of share capital
Dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
29, 30
29, 30
29, 30
17
15
26
The notes on pages 53 to 93 are an integral part of these consolidated financial statements
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
52
Company statement of cash flows
Note
17
15
Cash flows from operating activities
Profit for the year
Adjustments for:
Income tax expense
Depreciation of property, plant and equipment
Amortisation of intangible assets
Provisions against amounts due from customers
Share based compensation
Cash flows from operating profits before changes in operating assets and liabilities
Changes in operating assets and liabilities:
– net decrease in derivative financial instruments
– net decrease/(increase) in loans and advances to banks
– net increase in loans and advances to customers
– net decrease/(increase) in other assets
– net increase in deposits from banks
– net increase in amounts due to customers
– net increase in other liabilities
Income tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Borrowings repaid on acquisition of subsidiary undertaking
Purchase of subsidiary undertakings
Purchase of property, plant and equipment
Purchase of computer software
Proceeds from sale of property, plant and equipment
Net cash from investing activities
Cash flows from financing activities
Decrease in subordinated loans
Net inflow on issue of share capital
Dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
29, 30
16
17
15
26
Year ended
31 December
2013
£million
Year ended
31 December
2012
£million
9.8
3.0
0.3
0.3
9.6
2.5
25.5
–
41.3
(96.0)
34.0
0.1
37.7
6.0
(2.5)
46.1
(36.9)
(3.7)
(0.2)
(0.4)
0.4
(40.8)
–
–
(9.1)
(9.1)
(3.8)
92.3
88.5
5.5
1.4
0.4
0.1
6.2
(0.1)
13.5
0.1
(41.3)
(66.1)
(3.0)
–
126.8
2.7
(1.1)
31.6
(71.6)
–
(0.6)
(0.3)
–
(72.5)
(3.0)
19.3
(2.6)
13.7
(27.2)
119.5
92.3
The notes on pages 53 to 93 are an integral part of these consolidated financial statements
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
53
Notes to the consolidated financial statements
1. Accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
1.1 Reporting entity
Secure Trust Bank PLC is a company incorporated in the United Kingdom (referred to as “the Company”). The registered address of
the Company is One Arleston Way, Solihull, West Midlands, B90 4LH. The consolidated financial statements of the Company as at and
for the year ended 31 December 2013 comprise Secure Trust Bank PLC and its subsidiaries (together referred to as “the Group” and
individually as “subsidiaries”). The Group is primarily involved in banking and financial services.
1.2 Basis of presentation
The Group’s consolidated financial statements and the Company’s financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs as adopted or early adopted by the Group and endorsed by the EU) and the
Companies Act 2006 applicable to companies reporting under IFRS. They have been prepared under the historical cost convention,
as modified by the revaluation of land and buildings and financial instruments at fair value through profit or loss. The consolidated
financial statements are presented in pounds sterling, which is the Group’s functional and presentational currency.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree
of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are
disclosed in note 2.
The directors have assessed, in the light of current and anticipated economic conditions, the Group’s ability to continue as a going
concern. The directors confirm they are satisfied that the Company and the Group have adequate resources to continue in business
for the foreseeable future. For this reason, they continue to adopt the ‘going concern’ basis for preparing accounts.
The consolidated financial statements were authorised for issue by the Board of Directors on 19 March 2014.
a) Standards, interpretations and amendments effective in 2013 or which have been early adopted and are relevant to the Group
• IFRS 7 (Revised), ‘Disclosures – Offsetting Financial Assets and Financial Liabilities’ (effective 1 January 2013). The revised standard
amends the required disclosures to include information that will enable users of an entity’s financial statements to evaluate the effect
or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognised financial assets and
recognised financial liabilities, on the entity’s financial position.
• IFRS 13, ‘Fair Value Measurement’ (effective 1 January 2013). This standard replaces the existing guidance on fair value
measurement in different IFRSs with a single definition of fair value, a framework for measuring fair values and disclosures about
fair value measurements. This standard applies to assets, liabilities and an entity’s own equity instruments that, under other IFRSs,
are required or permitted to be measured at fair value or when disclosure of fair value is provided. Fair value is defined as 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.
• Improvements to IFRSs. Sets out minor improvements to IFRS standards as part of the annual improvement process.
The above changes did not have any material impact on the financial statements.
b) Standards, amendments and interpretations to existing standards applicable to the Group that are not yet effective and have not
been early adopted by the Group
The following standards and amendments to existing standards have been published and are mandatory for the Group’s accounting
periods beginning on or after 1 January 2014 or later periods, but the Group has not early adopted them:
• IFRS 10, ‘Consolidated Financial Statements’ and IAS 27 (Revised), ‘Separate Financial Statements’ (effective 1 January 2014). IFRS
10 supersedes IAS 27 and SIC-12, and provides a single model to be applied in the control analysis for all investees. There are some
minor clarifications in IAS 27, and the requirements of IAS 28 and IAS 31 have been incorporated into IAS 27.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements 54
Notes to the consolidated financial statements Continued
1.2 Basis of presentation continued
• IFRS 11, ‘Joint Arrangements’ (effective 1 January 2014). This standard replaces the existing accounting for subsidiaries and joint
ventures (now joint arrangements) and removes the choice of equity or proportionate accounting for jointly controlled entities, as was
the case under IAS 31.
• IFRS 12, ‘Disclosure of Interests in Other Entities’ (effective 1 January 2014). This standard replaces the existing accounting for
subsidiaries and joint ventures (now joint arrangements) and contains the disclosure requirements for entities that have interests in
subsidiaries, joint arrangements, associates and/or unconsolidated structured entities.
• IAS 32 (Revised), ‘Offsetting Financial Assets and Financial Liabilities’ (effective 1 January 2014). This standard was amended to
clarify the offsetting criteria, specifically when an entity currently has a legal right of set off; and when gross settlement is equivalent
to net settlement.
• IAS 36 (Revised), ‘Impairment of Assets’ (effective 1 January 2014). This relates to the recoverable amounts disclosure for non-
financial assets. The amendment reverses the unintended requirement in IFRS 13 ‘Fair Value Measurement’ to disclose the
recoverable amount of every cash-generating unit to which significant goodwill or intangible assets with indefinite lives have
been allocated. Under the amendments, recoverable amount is required to be disclosed only when an impairment loss has been
recognised or reversed. 1
• IFRIC 21, ‘Levies’ (effective 1 January 2014). The interpretation defines a levy as an outflow from an entity imposed by a government
in accordance with legislation. That levy is recognised as a liability when, and only when, the triggering event specified in the
legislation occurs. See note 21. 1
The above standards are unlikely to have a material impact on the Group.
• IFRS 9 ‘Financial instruments’ (effective from 1 January 2017). Phase one of this standard deals with the classification and
measurement of financial assets and will replace IAS 39. The requirements of this standard represent a significant change from the
existing requirements in IAS 39. The standard contains two primary measurement categories for financial assets: amortised cost and
fair value. The standard eliminates the existing IAS 39 categories of ‘held to maturity’, ‘available for sale’ and ‘loans and receivables’.
The potential effect of phase one of this standard is currently being evaluated but it is not expected to have a pervasive impact on the
Group’s financial statements, due to the nature of the Group’s operations. Further development phases for IFRS 9 are scheduled to
cover key areas such as impairment and hedge accounting. The impact of these future developments is likely to be material to the
Group once it becomes effective.1
1 These standards and interpretations have not yet been endorsed by the EU.
1.3 Consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying
a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable
or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the
date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is
measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange plus
costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.
The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as
goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised
directly in the Statement of Comprehensive Income.
Inter-company transactions, balances and unrealised gains and losses on transactions between group companies are eliminated.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Financial statementssecure trust bank PLc rePOrt & accOunts 2013 55
1.4 Interest income and expense
Interest income and expense are recognised in the Statement of Comprehensive Income for all instruments measured at amortised cost
and held to maturity using the effective interest method.
The effective interest method calculates the amortised cost of a financial asset or a financial liability and allocates the interest income
or interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or
receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the effective interest rate, the Group takes into account all contractual terms of the
financial instrument but does not consider future credit losses. The calculation includes all fees paid or received between parties to
the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income
is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
1.5 Net fee and commission income
Fees and commissions which are not considered integral to the effective interest rate are generally recognised on an accruals basis
when the service has been provided. Fees and commissions income consists principally of weekly and monthly fees from the One
Bill and Current Account products, arrears fees in the Everyday Loans business along with associated insurance commissions and
commissions earned on debt collection activities in the Debt Managers business. Fees and commissions expense consists primarily
of referral fees and broker commission.
1.6 Financial assets and financial liabilities
The Group classifies its financial assets at fair value through profit or loss or as loans and receivables and classifies its financial liabilities
as other financial liabilities. Management determines the classification of its investments at initial recognition. A financial asset or financial
liability is measured initially at fair value. At inception transaction costs that are directly attributable to its acquisition or issue, for an item not
at fair value through profit or loss, is added to the fair value of the financial asset and deducted from the fair value of the financial liability.
(a) Financial assets at fair value through profit or loss
This category comprises interest rate caps. All caps at 31 December 2013 are in qualifying hedge relationships. These cash flow hedges
are used to hedge against fluctuations in future cash flows from interest rate movements on variable rate customer deposits. On initial
purchase the derivative is valued at fair value and then the effective portion of the change in the fair value of the hedging instrument is
recognised in equity (cash flow hedging reserve) until the gain or loss on the hedged item is realised, when it is amortised; the ineffective
portion of the hedging instrument is recognised in the Statement of Comprehensive Income immediately. Fair values are based on
quoted market prices in active markets and where these are not available, using valuation techniques such as discounted cashflow
models (See also 1.7).
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Loans are
recognised when the funds are advanced to customers. Loans and receivables are carried at amortised cost using the effective interest
method (see below).
(c) Other financial liabilities
Other financial liabilities are non-derivative financial liabilities with fixed or determinable payments. Other financial liabilities are recognised
when cash is received from the depositors. Other financial liabilities are carried at amortised cost using the effective interest method.
The fair value of other liabilities repayable on demand is assumed to be the amount payable on demand at the Statement of Financial
Position date.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements 56
Notes to the consolidated financial statements Continued
1.6 Financial assets and financial liabilities continued
Derecognition
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group
has transferred substantially all of the risks and rewards of ownership. In transactions in which the Group neither retains nor transfers
substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to
recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the
value of the transferred asset. There have not been any instances where assets have only been partially derecognised. The Group
derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.
Amortised cost measurement
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured
at initial recognition, minus principal payments, plus or minus the cumulative amortisation using the effective interest method of any
difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.
Fair value measurement
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s
length transaction on the measurement date. The fair value of assets and liabilities traded in active markets are based on current bid
and offer prices respectively. If the market is not active the Group establishes a fair value by using appropriate valuation techniques.
These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same for which
market observable prices exist, net present value and discounted cash flow analysis.
1.7 Hedge accounting – cash flow hedges
On initial designation of the hedge, the Group formally documents the relationship between the hedging instruments and the hedged
items, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to
assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship
as well as on an ongoing basis, as to whether the hedging instruments are expected to be highly effective in offsetting the changes in
the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual
results of each hedge are within a range of 80-125%. The Group makes an assessment for a cash flow hedge of a forecast transaction,
as to whether the forecast transaction is highly probable to occur and presents an exposure to variations in cash flows that could
ultimately affect profit or loss.
If a hedging derivative expires or is sold, terminated, or exchanged, or the hedge no longer meets the criteria for cash flow hedge
accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. In a discontinued hedge of a
forecast transaction the cumulative amount recognised in other comprehensive income from the period when the hedge was effective is
reclassified from equity to profit or loss as a reclassification adjustment when the forecast transaction occurs and affects profit or loss.
If the forecast transaction is no longer expected to occur, then the balance in other comprehensive income is reclassified immediately
to profit or loss as a reclassification adjustment.
1.8 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the
liability simultaneously.
Financial statementssecure trust bank PLc rePOrt & accOunts 2013 57
1.9 Impairment of financial assets
Assets carried at amortised cost
On an ongoing basis the Group assesses whether there is objective evidence that a financial asset or group of financial assets is
impaired. Objective evidence is the occurrence of a loss event, after the initial recognition of the asset, that impacts on the estimated
future cash flows of the financial asset or group of financial assets, and can be reliably estimated.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss include, but are not limited to,
the following:
• Delinquency in contractual payments of principal or interest;
• Cash flow difficulties experienced by the borrower; and
• Initiation of bankruptcy proceedings.
If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the
amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use
of an allowance account and the amount of the loss is recognised in the Statement of Comprehensive Income. If a loan or held-to-
maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate
determined under the contract.
The Group considers evidence of impairment for loans and advances at both a specific asset and collective level. All individually
significant loans and advances are assessed for specific impairment. Those found not to be specifically impaired are then collectively
assessed for any impairment that has been incurred but not yet identified. In assessing collective impairment the Group uses historical
trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as
to whether current economic and credit conditions are such that the actual losses are likely to be significantly different to historic trends.
When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the
necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts
previously written off decrease the amount of the provision for loan impairment in the Statement of Comprehensive Income.
1.10 Intangible assets
(a) Goodwill arising on business combinations
Goodwill represents the excess of the cost of the acquisition over the fair value of the Group’s share of the net identifiable assets
acquired at the date of acquisition. Goodwill is held at cost less accumulated impairment losses and is deemed to have an infinite life.
The Group reviews the goodwill for impairment at least annually or when events or changes in economic circumstances indicate that
impairment may have taken place. Impairment losses are recognised in the Statement of Comprehensive Income if the carrying amount
exceeds the recoverable amounts.
(b) Computer software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.
These costs are amortised on the basis of the expected useful lives, which are between three to ten years.
Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred unless it is
probable that the expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard
of performance.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements 58
Notes to the consolidated financial statements Continued
1.10 Intangible assets continued
(c) Other intangibles
The acquisition of subsidiaries is accounted for in accordance with IFRS 3 ‘Business Combinations’, which requires the recognition
of the identifiable assets acquired and liabilities assumed at their acquisition date fair values. As part of this process, it is necessary
to recognise certain intangible assets which are separately identifiable and which are not included on the acquiree’s balance sheet.
The intangible assets recognised as part of the Everyday Loans and V12 Finance Group acquisitions have been recorded at fair value
and are being amortised over their expected useful lives, which are between five and ten years, apart from Everyday Loans broker
relationships, which are being amortised over three years.
1.11 Property, plant and equipment
Property is held at historic cost as modified by revaluation less depreciation. The Group has elected under IAS 16.31 to measure its
property at fair value. Revaluations are kept up to date such that the carrying amount does not differ materially from its fair value as
required by IAS 16.34. Revaluation of assets and any subsequent disposal are addressed through the revaluation reserve and any
changes are transferred to retained earnings.
Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the
acquisition of the items. Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their
estimated useful lives, which are subject to regular review:
Land
Freehold buildings
not depreciated
50 years
Leasehold improvements
shorter of life of lease or 7 years
Computer equipment
Other equipment
3 to 5 years
5 to 10 years
Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the Statement
of Comprehensive Income.
1.12 Leases
(a) As a lessor
Assets leased to customers under agreements which transfer substantially all the risks and rewards of ownership, with or without
ultimate legal title, are classified as finance leases. When assets are held subject to finance leases, the present value of the lease
payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is
recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method,
which reflects a constant periodic rate of return.
(b) As a lessee
Rentals made under operating leases are recognised in the Statement of Comprehensive Income on a straight line basis over the term
of the lease.
1.13 Cash and cash equivalents
For the purposes of the Statement of Cash Flows, cash and cash equivalents comprise cash in hand and demand deposits, and
cash equivalents comprise highly liquid investments which are convertible into cash with an insignificant risk of changes in value with
a maturity of three months or less at the date of acquisition, including certain loans and advances to banks and building societies and
short-term highly liquid debt securities.
Financial statementssecure trust bank PLc rePOrt & accOunts 2013 59
1.14 Employee benefits
(a) Post-retirement obligations
The Group contributes to defined contribution schemes and to individual defined contribution schemes for the benefit of certain employees.
The schemes are funded through payments to insurance companies or trustee-administered funds at the contribution rates agreed
with individual employees. The Group has no further payment obligations once the contributions have been paid. The contributions are
recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that
a cash refund or a reduction in the future payments is available. There are no post-retirement benefits other than pensions.
(b) Share-based compensation
The fair value of equity settled share-based payment awards are calculated at grant date and recognised over the period in which the
employees become unconditionally entitled to the awards (the vesting period). The amount is recognised as personnel expenses in the profit
and loss, with a corresponding increase in equity. The Group adopts a Black-Scholes valuation model in calculating the fair value of the share
options as adjusted for an attrition rate of members of the scheme and a probability of pay-out reflecting the risk of not meeting the terms of
the scheme over the vesting period. The number of share options that are expected to vest are reviewed at least annually.
The fair value of cash settled share-based payments is recognised as personnel expenses in the profit or loss with a corresponding increase in
liabilities over the vesting period. The liability is remeasured at each reporting date and at settlement date based on the fair value of the options
granted, with a corresponding adjustment to personnel expenses.
When share-based payments are changed from cash settled to equity settled and there is no change in the fair value of the replacement
award, it is seen as a modification to the terms and conditions on which the equity instruments were granted and is not seen as the settlement
and replacement of the instruments. Accordingly, the liability in the Statement of Financial Position is reclassified to equity and the prospective
charge to the profit or loss from the modification reflects the spreading of the initial grant date fair value of the award over the remaining vesting
period in line with the policy on equity settled awards.
1.15 Share issue costs
Incremental costs directly attributable to the issue of an equity instrument are deducted from the initial measurement of the equity
instruments. Costs associated with the listing of shares are expensed immediately.
1.16 Income taxation
Current income tax which is payable on taxable profits is recognised as an expense in the period in which the profits arise.
Deferred tax is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts
in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially
enacted by the Statement of Financial Position date and are expected to apply when the related deferred tax asset is realised or the
deferred tax liability is settled.
Deferred tax assets are recognised where it is probable that future taxable profits will be available against which the temporary
differences can be utilised.
1.17 Dividends
Dividends on ordinary shares are recognised in equity in the period in which they are approved.
1.18 Significant items
Items which are material by both size and nature (i.e. outside of the normal operating activities of the Group) are treated as significant
items and disclosed separately on the face of the Statement of Comprehensive Income. The separate reporting of these items helps to
provide an indication of the Group’s underlying business performance.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements 60
Notes to the consolidated financial statements Continued
1.19 Funding for Lending Scheme
Under the applicable International Accounting Standard, IAS 39, if a security is lent under an agreement to return it to the transferor, as
is the case for eligible securities lent by institutions to the Bank of England under the FLS, then the security is not derecognised because
the transferor retains all the risks and rewards of ownership. The UK Treasury Bills borrowed from the Bank of England under the FLS are
therefore not recognised on the balance sheet of the institution as they will not meet the criteria for derecognition by the Bank of England.
2. Critical judgements and estimates
The Group makes certain judgements and estimates which affect the reported amounts of assets and liabilities. Critical judgements
and the assumptions used in calculating estimates are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
2.1 Impairment losses on loans and advances
The Group reviews its loan portfolios to assess impairment at least on a half-yearly basis. The basis for evaluating impairment losses is
described in accounting policy 1.9. In determining whether an impairment loss should be recorded in the Statement of Comprehensive
Income, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in
the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio.
This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a
group, or national or local economic conditions that correlate with defaults on assets in the Group. Loans and advances are identified
as impaired by taking account of the age of the debt’s delinquency and the product type. The impairment provision is calculated by
applying a percentage rate to the balance of different ages and categories of impaired debt. The methodology and assumptions used
for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates
and actual loss experience.
Where financial assets are individually evaluated for impairment, management uses their best estimates in calculating the net present
value of future cash flows. Management has to make judgements on the financial position of the counterparty and the net realisable
value of collateral (where held), in determining the expected future cash flows.
In assessing collective impairment the Group uses historical trends of the probability of default, the timing of recoveries and the amount
of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual
losses are likely to be significantly different to historic trends.
To the extent that the default rates differ from those estimated by 10%, the allowance for impairment on loans and advances would
change by an estimated £2.6 million.
2.2 Acquisition accounting
The Group recognises identifiable assets and liabilities at their acquisition date fair values. The exercise of attributing a fair value to the
balance sheet of the acquired entity requires the use of a number of assumptions and estimates, which are documented at the time of
the acquisition. These fair value adjustments are determined from the estimated future cash flows generated by the assets.
Loans and advances to customers
The methodology of attributing a fair value to loans and advances to customers involves discounting the estimated future cashflows
using a risk adjusted discount factor. A fair value adjustment is then applied to the carrying value in the Group’s balance sheet.
Intangible assets
Identifying the separately identifiable intangible assets of an acquired company is subjective and based upon discussions with
management and a review of relevant documentation. During the current and prior years the acquisition of Everyday Loans and the V12
Finance Group indicated that there were four separately identifiable intangible assets which met the criteria for separation from goodwill,
these being Trademarks/Tradenames, Customer Relationships, Broker Relationships and Technology.
Financial statementssecure trust bank PLc rePOrt & accOunts 2013 61
2.2 Acquisition accounting continued
Trademarks and Tradenames are valued by estimating the fair value of the estimated costs savings resulting from the ownership of
trade names as opposed to licensing them. Customer Relationships are valued through the application of a discounted cashflow
methodology to net anticipated renewal revenues. The valuation of Broker Relationships is derived from a costs avoided methodology,
by reviewing costs incurred on non-broker platforms versus costs which are incurred in broker commission. Technology is valued by the
market derived royalty rate applied to the related cash flows to arrive at estimated savings resulting from the use of the acquired credit
decisioning technology.
2.3 Share Option Scheme valuation
The valuation of the equity-settled share option scheme was determined at the original grant date of 2 November 2011 using
Black-Scholes valuation models. In the opinion of the directors the terms of the scheme are such that there remain a number of key
uncertainties to be considered when calculating the probability of pay out, which are set out below. The directors also considered
the probability of option holder attrition prior to the vesting dates, details of which are also set out below.
Much of the Bank’s lending is in the near and sub-prime categories, with performance of the book heavily influenced by employment
trends. With the UK economy remaining fragile, the impact of a further downturn would be increasing unemployment, potentially
causing impairments to rise and new business levels to fall, thereby affecting the bank’s ability to sustain the levels of dividend growth
required under the terms of the scheme. Depending on the product type, market and customer demographics, the bank’s current
product range includes expected lifetime losses of between 1% and 20%.
Uncertainties in the regulatory environment continue, with pressure on the government to further constrain the activities of banks
following the well reported catalogue of recent issues in the industry. Any tightening of capital requirements will impact on the ability of
the Company to exploit future market opportunities and furthermore may inhibit its ability to maintain the required growth in distributions.
Taking these into account, the probability of pay out has been judged as 95% for the first tranche of share options (SOS1) which vest
on 2 November 2014 and 80% for the second tranche of share options (SOS2) which vest on 2 November 2016.
One participant in the share option scheme left the Company during 2012 and was consequently withdrawn from the scheme.
The directors consider that there is further uncertainty surrounding whether the remaining participants will all still be in situ and eligible
at the vesting date. The directors have assumed an attrition rate of 8% for the 2014 options and an attrition rate of 15% for the 2016
options over the scheme period.
2.4 Average life of lending
IAS 39 requires interest earned from lending to be measured under the effective interest rate method. The effective interest rate is the
rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the financial asset.
Management must therefore use judgement to estimate the expected life of each instrument and hence the expected cash flows
relating to it. The accuracy of the effective interest rate would therefore be affected by unexpected market movements resulting in
altered customer behaviour, inaccuracies in the models used compared to actual outcomes and incorrect assumptions.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements 62
Notes to the consolidated financial statements Continued
3. Maturity analysis of consolidated assets and liabilities
The table below shows the contractual maturity analysis of the Group’s assets and liabilities as at 31 December 2013:
At 31 December 2013
ASSETS
Loans and advances to banks
Loans and advances to customers
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total assets
LIABILITIES
Deposits from banks
Deposits from customers
Current tax liabilities
Deferred tax liabilities
Other liabilities
Total liabilities
Due within
one year
£million
Due after
more than
one year
£million
110.0
162.0
–
–
1.9
8.1
282.0
0.1
269.4
1.4
–
21.5
292.4
–
229.0
5.0
9.9
–
–
243.9
–
167.2
–
0.4
4.3
171.9
The table below shows the contractual maturity analysis of the Group’s assets and liabilities as at 31 December 2012:
At 31 December 2012
ASSETS
Loans and advances to banks
Loans and advances to customers
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total assets
LIABILITIES
Deposits from customers
Current tax liabilities
Deferred tax liabilities
Other liabilities
Total liabilities
Due within
one year
£million
Due after
more than
one year
£million
155.3
105.6
–
–
–
6.0
266.9
268.2
0.3
–
13.8
282.3
–
192.0
5.4
5.2
5.1
–
207.7
130.7
–
1.2
4.5
136.4
The directors do not consider that the behavioural maturity is significantly different to the contractual maturity.
Total
£million
110.0
391.0
5.0
9.9
1.9
8.1
525.9
0.1
436.6
1.4
0.4
25.8
464.3
Total
£million
155.3
297.6
5.4
5.2
5.1
6.0
474.6
398.9
0.3
1.2
18.3
418.7
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
63
Total
£million
108.5
283.9
0.5
0.9
3.7
0.8
101.0
499.3
0.1
436.6
0.2
15.5
452.4
Total
£million
153.6
197.5
1.0
0.8
0.6
98.1
451.6
398.9
0.3
8.7
407.9
3. Maturity analysis of consolidated assets and liabilities continued
The table below shows the contractual maturity analysis of the Company’s assets and liabilities as at 31 December 2013:
At 31 December 2013
ASSETS
Loans and advances to banks
Loans and advances to customers
Property, plant and equipment
Intangible assets
Investments
Deferred tax assets
Other assets
Total assets
LIABILITIES
Deposits from banks
Deposits from customers
Current tax liabilities
Other liabilities
Total liabilities
Due within
one year
£million
Due after
more than
one year
£million
108.5
115.9
–
–
–
–
101.0
325.4
0.1
269.4
0.2
15.5
285.2
–
168.0
0.5
0.9
3.7
0.8
–
173.9
–
167.2
–
–
167.2
The table below shows the contractual maturity analysis of the Company’s assets and liabilities as at 31 December 2012:
At 31 December 2012
ASSETS
Loans and advances to banks
Loans and advances to customers
Property, plant and equipment
Intangible assets
Deferred tax asset
Other assets
Total assets
LIABILITIES
Deposits from customers
Current tax liabilities
Other liabilities
Total liabilities
Due within
one year
£million
Due after
more than
one year
£million
153.6
65.2
–
–
–
98.1
316.9
268.2
0.3
8.7
277.2
–
132.3
1.0
0.8
0.6
–
134.7
130.7
–
–
130.7
The directors do not consider that the behavioural maturity is significantly different to the contractual maturity.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
64
Notes to the consolidated financial statements Continued
4. Classification of financial assets and liabilities
The tables below set out the Group’s financial assets and financial liabilities into the respective classifications:
At 31 December 2013
Loans and advances to banks
Loans and advances to customers
Deposits from banks
Deposits from customers
At 31 December 2012
Loans and advances to banks
Loans and advances to customers
Deposits from customers
Other
liabilities at
amortised
cost
£million
–
–
–
Loans and
receivables
£million
110.0
391.0
501.0
–
–
–
0.1
436.6
436.7
Other
liabilities at
amortised
cost
£million
–
–
–
Loans and
receivables
£million
155.3
297.6
452.9
–
–
398.9
398.9
The tables below set out the Company’s financial assets and financial liabilities into the respective classifications:
At 31 December 2013
Loans and advances to banks
Loans and advances to customers
Deposits from banks
Deposits from customers
Other
liabilities at
amortised
cost
£million
–
–
–
Loans and
receivables
£million
108.5
283.9
392.4
–
–
–
0.1
436.6
436.7
Total
carrying
amount
£million
110.0
391.0
501.0
0.1
436.6
436.7
Total
carrying
amount
£million
155.3
297.6
452.9
398.9
398.9
Total
carrying
amount
£million
108.5
283.9
392.4
0.1
436.6
436.7
Fair value
£million
110.0
391.0
501.0
0.1
436.6
436.7
Fair value
£million
155.3
297.6
452.9
398.9
398.9
Fair value
£million
108.5
283.9
392.4
0.1
436.6
436.7
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
65
4. Classification of financial assets and liabilities continued
At 31 December 2012
Loans and advances to banks
Loans and advances to customers
Deposits from customers
5. Financial risk management
Other
liabilities at
amortised
cost
£million
–
–
–
Loans and
receivables
£million
153.6
197.5
351.1
–
–
398.9
398.9
Total
carrying
amount
£million
153.6
197.5
351.1
398.9
398.9
Fair value
£million
153.6
197.5
351.1
398.9
398.9
Strategy
By their nature, the Group’s activities are principally related to the use of financial instruments. The directors and senior management
of the Group have formally adopted a Risk and Controls Policy which sets out the Board’s attitude to risk and internal controls. Key
risks identified by the directors are formally reviewed and assessed at least once a year by the Board, in addition to which key business
risks are identified, evaluated and managed by operating management on an ongoing basis by means of procedures such as physical
controls, credit and other authorisation limits and segregation of duties. The Board also receives regular reports on any risk matters
that need to be brought to its attention. Significant risks identified in connection with the development of new activities are subject
to consideration by the Board. There are budgeting procedures in place and reports are presented regularly to the Board detailing
the results of each principal business unit, variances against budget and prior year, and other performance data. A more detailed
description of the risk governance structure is contained in the Corporate Governance Statement on pages 40 to 41.
The principal risks inherent in the Group’s business are credit, market, liquidity and operational risk.
(a) Credit risk
The Company and Group take on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when
due. A formal Credit Risk Policy has been agreed by the Board whilst credit risk is monitored on a monthly basis by the Credit Risk
Committee which reviews performance of key portfolios including new business volumes, collections performance, provisioning levels
and provisioning methodology.
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to individual
borrowers or groups of borrowers. Such risks are monitored on a revolving basis and subject to an annual or more frequent review.
The limits on the level of credit risk are approved periodically by the Board of Directors and actual exposures against limits monitored daily.
Impairment provisions are provided for losses that have been incurred at the Statement of Financial Position date. Significant changes
in the economy could result in losses that are different from those provided for at the Statement of Financial Position date. Management
therefore carefully manages its exposures to credit risk as they consider this to be the most significant risk to the business.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and
capital repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part
by obtaining collateral. The assets undergo a scoring process to mitigate risk and are monitored by the Board. Disclosures relating to
arrears on loans and advances to customers are disclosed in note 13.
The Board monitors the ratings of the counterparties in relation to the Group’s loans and advances to banks. Disclosures of these at the
year end are contained in note 12. There is no direct exposure to the Eurozone and peripheral Eurozone countries.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
66
Notes to the consolidated financial statements Continued
5. Financial risk management continued
Motor finance loans are secured against motor vehicles. Details of the collateral held in respect of these loans are detailed in note 13.
The maximum exposure to credit risk for the Company and the Group was as follows:
Credit risk exposures relating to on-balance sheet assets are as follows:
Loans and advances to banks
Loan and advances to customers
Amounts due from related companies
Credit risk exposures relating to off-balance sheet assets are as follows:
Loan commitments
At 31 December
Group
Company
2013
£million
2012
£million
2013
£million
2012
£million
110.0
391.0
4.1
155.3
297.6
2.0
108.5
283.9
99.9
153.6
197.5
97.0
6.6
1.2
6.6
0.9
511.7
456.1
498.9
449.0
The above table represents the maximum credit risk exposure (net of impairment) to the Company and Group at 31 December 2013
and 2012 without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the
exposures are based on the net carrying amounts as reported in the Statement of Financial Position.
Forbearance
Secure Trust Bank does not reschedule contractual arrangements where customers default on their repayments. Under its Treating
Customers Fairly (TCF) policies, however, the Company may offer the customer the option to reduce or defer payments for a short
period. If the request is granted, the account continues to be monitored in accordance with the Group’s impairment provisioning policy.
Such debts retain the customer’s normal contractual payment due dates and will be treated the same as any other defaulting cases for
impairment purposes. Arrears tracking will continue on the account with any impairment charge being based on the original contractual
due dates for all products.
In June 2012, the Group acquired Everyday Loans whose policy on forbearance is that a customer’s account may be modified to
assist customers who are in or, have recently overcome, financial difficulties and have demonstrated both the ability and willingness to
meet the current or modified loan contractual payments. These may be modified by way of a reschedule or deferment of repayments.
Rescheduling of debts retains the customers’ contractual due dates, whilst the deferment of repayments extends the payment schedule
up to a maximum of four payments in a twelve month period. As at 31 December 2013 the gross balance of rescheduled loans included
in the Consolidated Statement of Financial Position was £13.9 million, with an allowance for impairment on these loans of £1.1 million.
The gross balance of deferred loans was £2.8 million with an allowance for impairment on these of £0.4 million. (31 December 2012: the
gross balance of rescheduled loans was £12.3 million, with an allowance for impairment of £1.2 million. The gross balance of deferred
loans was £2.9 million with an allowance for impairment of £0.4 million).
(b) Market risk
Market risks arise from open positions in interest rate and currency products, all of which are exposed to general and specific market
movements.
Currency risk
The Group and Company have no significant exposures to foreign currencies.
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
67
5. Financial risk management continued
Interest rate risk
Interest rate risk is the potential adverse impact on the Company and Group’s future cash flows from changes in interest rates and
arises from the differing interest rate risk characteristics of the Company and Group’s assets and liabilities. In particular, fixed rate
savings and borrowing products expose the Group to the risk that a change in interest rates could cause either a reduction in interest
income or an increase in interest expense relative to variable rate interest flows. The Group seeks to “match” interest rate risk on either
side of the Statement of Financial Position. However, this is not a perfect match and interest rate risk is present on money market
deposits of a fixed rate nature, fixed rate loans and fixed rate savings products. The Group monitors the interest rate mismatch on
a daily basis in conjunction with liquidity and capital.
The interest rate mismatch is monitored, throughout the maturity bandings of the book on a parallel scenario for 50 and 100 basis
points movements. The Group consider the 50 and 100 basis points movement to be appropriate for scenario testing given the current
economic outlook and industry expectations. This typically results in a pre-tax mismatch of £0.2m or less (2012: £0.1m or less) for the
Company and Group, with the same impact to equity pre-tax. In 2011 the Group put an interest rate cap in place primarily to hedge the
exposure to cash flow variability from interest rate movements on variable rate customer deposits.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements 68
Notes to the consolidated financial statements Continued
5. Financial risk management continued
Interest rate sensitivity gap
The following tables summarise the re-pricing periods for the assets and liabilities in the Company and Group, including derivative
financial instruments which are principally used to reduce exposure to interest rate risk. Items are allocated to time bands by reference
to the earlier of the next contractual interest rate re-price and the maturity date.
Group
As at 31 December 2013
ASSETS
Loans and advances to banks
Loans and advances to customers
Other assets
Total assets
LIABILITIES
Deposits from banks
Deposits from customers
Other liabilities
Equity
Total liabilities
Impact of derivative instruments
Interest rate sensitivity gap
More than
3 months
but less than
6 months
£million
More than
6 months
but less than
1 year
£million
More than
1 year
but less than
5 years
£million
Within
3 months
£million
More than
5 years
£million
110.0
82.4
–
192.4
–
105.9
–
–
105.9
(20.0)
66.5
–
56.1
–
56.1
–
116.0
–
–
116.0
–
84.4
–
84.4
–
13.9
–
–
13.9
–
–
(59.9)
70.5
–
191.8
–
191.8
–
163.3
–
–
163.3
20.0
48.5
Non
interest
bearing
£million
–
(23.9)
24.9
1.0
0.1
33.6
27.6
61.6
122.9
–
0.2
–
0.2
–
3.9
–
–
3.9
–
–
(3.7)
(121.9)
Cumulative gap
66.5
6.6
77.1
125.6
121.9
–
Group
As at 31 December 2012
ASSETS
Loans and advances to banks
Loans and advances to customers
Other assets
Total assets
LIABILITIES
Deposits from customers
Other liabilities
Equity
Total liabilities
Impact of derivative instruments
Interest rate sensitivity gap
More than
3 months
but less than
6 months
£million
More than
6 months
but less than
1 year
£million
More than
1 year
but less than
5 years
£million
Within
3 months
£million
More than
5 years
£million
126.8
65.0
–
191.8
107.4
–
–
107.4
(20.0)
64.4
28.5
29.7
–
58.2
128.6
–
–
128.6
–
–
60.1
–
60.1
–
–
–
–
–
(70.4)
60.1
–
153.9
–
153.9
128.9
–
–
128.9
20.0
45.0
–
0.1
–
0.1
1.8
–
–
1.8
–
(1.7)
Non
interest
bearing
£million
–
(11.2)
21.7
10.5
32.2
19.8
55.9
107.9
–
(97.4)
Cumulative gap
64.4
(6.0)
54.1
99.1
97.4
–
Total
£million
110.0
391.0
24.9
525.9
0.1
436.6
27.6
61.6
525.9
Total
£million
155.3
297.6
21.7
474.6
398.9
19.8
55.9
474.6
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
69
Total
£million
108.5
283.9
103.7
496.1
0.1
436.6
12.5
46.9
496.1
Total
£million
153.6
197.5
100.5
451.6
398.9
9.0
43.7
451.6
5. Financial risk management continued
Company
As at 31 December 2013
ASSETS
Loans and advances to banks
Loans and advances to customers
Other assets
Total assets
LIABILITIES
Deposits from banks
Deposits from customers
Other liabilities
Equity
Total liabilities
Impact of derivative instruments
Interest rate sensitivity gap
More than
3 months
but less than
6 months
£million
More than
6 months
but less than
1 year
£million
More than
1 year
but less than
5 years
£million
Within
3 months
£million
More than
5 years
£million
Non
interest
bearing
£million
108.5
42.4
72.6
223.5
–
105.9
–
–
105.9
(20.0)
97.6
–
32.5
–
32.5
–
116.0
–
–
116.0
–
50.1
–
50.1
–
13.9
–
–
13.9
–
–
(83.5)
36.2
–
181.6
–
181.6
–
163.3
–
–
163.3
20.0
38.3
–
0.2
–
0.2
–
3.9
–
–
3.9
–
(22.9)
31.1
8.2
0.1
33.6
12.5
46.9
93.1
–
–
(3.7)
(84.9)
Cumulative gap
97.6
14.1
50.3
88.6
84.9
–
Company
As at 31 December 2012
ASSETS
Loans and advances to banks
Loans and advances to customers
Other assets
Total assets
LIABILITIES
Deposits from customers
Other liabilities
Equity
Total liabilities
Impact of derivative instruments
Interest rate sensitivity gap
More than
3 months
but less than
6 months
£million
More than
6 months
but less than
1 year
£million
More than
1 year
but less than
5 years
£million
Within
3 months
£million
More than
5 years
£million
Non
interest
bearing
£million
125.2
21.4
72.1
218.7
107.4
–
–
107.4
(20.0)
91.3
28.4
19.7
–
48.1
128.6
–
–
128.6
–
–
33.1
–
33.1
–
–
–
–
–
(80.5)
33.1
–
136.8
–
136.8
128.9
–
–
128.9
20.0
27.9
–
0.1
–
0.1
1.8
–
–
1.8
–
(1.7)
–
(13.6)
28.4
14.8
32.2
9.0
43.7
84.9
–
(70.1)
Cumulative gap
91.3
10.8
43.9
71.8
70.1
–
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
70
Notes to the consolidated financial statements Continued
5. Financial risk management continued
(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.
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The liquidity requirements of the Group are met through short-term repayments of its deposits with Arbuthnot Latham & Co., Limited’s
treasury department to cover any short term fluctuations and longer term, funding to address any structural liquidity requirements.
The Company has a formal governance structure in place to manage and mitigate liquidity risk on a day to day basis. The Board sets
and approves the Company’s liquidity risk management strategy. The Assets and Liabilities Committee (‘ALCO’), comprising senior
executives of the Company, monitors liquidity risk. Key liquidity risk management information is reported by the finance team and
monitored by the Chief Executive Officer and Chief Financial Officer on a daily basis. The ALCO meets monthly to review liquidity risk
against set thresholds and risk indicators including early warning indicators, liquidity risk tolerance levels and ILAA metrics.
The Group relies on deposits from customers. During the current year the Company issued over £45 million of fixed rate deposit bonds
to customers over terms ranging from 2 to 7 years. These were issued to broadly match the term lending by the Company.
The new Liquidity regime came into force on the 1 October 2010. The PRA requires a firm to maintain at all times liquidity resources
which are adequate, both as to amount and quality, to ensure that there is no significant risk that its liabilities cannot be met as they
fall due. There is also a requirement that a firm ensures its liquidity resources contain an adequate buffer of high quality, unencumbered
assets (i.e. Government Securities in the liquidity asset buffer); and it maintains a prudent funding profile. The liquidity assets buffer is a
pool of highly liquid assets that can be called upon to create sufficient liquidity to meet liabilities on demand, particularly in a period of
liquidity stress. The liquidity resources outside the buffer must either be marketable assets with a demonstrable secondary market that
the firm can access, or a credit facility that can be activated in times of stress.
The Group has a Board approved Individual Liquidity Adequacy Assessment (ILAA). The liquidity buffer required by the ILAA has been
put in place and maintained since that time. Liquidity resources outside of the buffer are made up of deposits placed via Arbuthnot
Latham & Co., Limited at the Bank of England. The ILAA is updated annually.
The Group is exposed to daily calls on its available cash resources from current accounts, maturing deposits and loan draw-downs.
The Group maintains significant cash resources to meet all of these needs as they fall due.
The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management
of the Group. It is unusual for banks to be completely matched, as transacted business is often of uncertain term and of different types.
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are
important factors in assessing the liquidity of the Group and its exposure to changes in interest rates.
The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this
purpose net liquid assets are considered to be loans and advances to banks. At the year end this ratio was 25.2% (2012: 38.9%).
Financial statementssecure trust bank PLc rePOrt & accOunts 2013 71
5. Financial risk management continued
The tables below analyse the contractual undiscounted cash flows for the Company and Group’s financial liabilities into relevant maturity
groupings:
At 31 December 2013
Non-derivative liabilities
Deposits from banks
Deposits from customers
At 31 December 2012
Non-derivative liabilities
Deposits from customers
Gross
nominal
Carrying
amount
£million
inflow/ Not more than
3 months
£million
(outflow)
£million
More than
3 months
but less than
1 year
£million
More than
1 year
but less than
5 years
£million
More than
5 years
£million
0.1
436.6
436.7
(0.1)
(457.0)
(457.1)
(0.1)
(64.3)
(64.4)
–
(208.7)
–
(181.1)
(208.7)
(181.1)
–
(2.9)
(2.9)
Gross
nominal
Carrying
amount
£million
inflow/ Not more than
3 months
£million
(outflow)
£million
More than
3 months
but less than
1 year
£million
More than
1 year
but less than
5 years
£million
More than
5 years
£million
398.9
398.9
(419.4)
(419.4)
(66.1)
(66.1)
(205.4)
(145.5)
(205.4)
(145.5)
(2.4)
(2.4)
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are
important factors in assessing the liquidity of the Company and Group and its exposure to changes in interest rates and exchange rates.
(d) 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 the risks identified above. Operational risks arise from
all of the Group’s operations.
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, the Group’s policy requires compliance with all applicable legal
and regulatory requirements.
The Corporate Governance statement on pages 40 and 41 describes the Group’s system of internal controls which are used to
mitigate against operational risk. Compliance with Group standards is supported by a programme of periodic reviews undertaken by an
internal audit function. The results of the internal audit reviews are discussed with the Company’s senior management with summaries
submitted to the Group Audit Committee.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
72
Notes to the consolidated financial statements Continued
6. Capital management
The Group’s capital management policy is focused on optimising shareholder value, in a safe and sustainable manner. There is a clear
focus on delivering organic growth and ensuring capital resources are sufficient to support planned levels of growth. The Board regularly
reviews the capital position.
In accordance with the EU’s Capital Requirements Directive (CRD) and the required parameters set out in the Prudential Regulation
Authority (PRA) Handbook (BIPRU 2.2), the Arbuthnot Banking Group’s Internal Capital Adequacy Assessment Process (ICAAP), of which
the Group is a major component, is embedded in the risk management framework of the Group and is subject to ongoing updates and
revisions when necessary. However, at a minimum, the ICAAP is updated annually as part of the business planning process. The ICAAP
is a process that brings together the management framework (i.e. the policies, procedures, strategies, and systems that the Group has
implemented to identify, manage and mitigate its risks) and the financial disciplines of business planning and capital management.
Not all material risks can be mitigated by capital, but where capital is appropriate the Board has adopted a “Pillar 1 plus” approach
to determine the level of capital the Group needs to hold. This method takes the Pillar 1 capital formula calculations (standardised
approach for credit, market and operational risk) as a starting point, and then considers whether each of the calculations delivers a
sufficient capital sum adequately to cover management’s anticipated risks. Where it is considered that the Pillar 1 calculations do not
reflect the risk, an additional capital add-on in Pillar 2 should be applied, as per the Individual Capital Guidance (ICG) issued by the PRA.
Pillar 3 complements the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2). Its aim is to encourage
market discipline by developing a set of disclosure requirements which would allow market participants to assess key pieces of
information on a firm’s capital, risk exposures and risk assessment processes. Pillar 3 disclosures for the Arbuthnot Banking Group for
the year ended 31 December 2013 are published as a separate document on the Arbuthnot Banking Group website.
The following table shows the regulatory capital resources as managed by the Group:
Tier 1
Share capital
Share premium
Retained earnings
Goodwill
Intangible assets net of attributable deferred tax
Total Tier 1 capital
Tier 2
Collective allowance for impairment of loans and advances
Revaluation reserve
Total Tier 2 capital
Investments in non-solo consolidated entities
Total Tier 1 & Tier 2 capital
Reconciliation to total equity:
Goodwill and other intangible assets net of attributable deferred tax
Collective allowance for impairment of loans and advances
Investments in non-solo consolidated entities
Losses of non-solo consolidated entities
Dividends received from non-solo consolidated entities
Cashflow hedging reserve
Total equity
2013
£million
2012
£million
6.3
28.2
29.0
(0.3)
(3.1)
60.1
1.6
0.2
1.8
(3.7)
58.2
3.4
(1.6)
3.7
(1.2)
(0.5)
(0.4)
6.3
28.2
21.7
(0.3)
(3.9)
52.0
0.4
0.1
0.5
–
52.5
4.2
(0.4)
–
–
–
(0.4)
61.6
55.9
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
73
The Group forms part of the Arbuthnot Banking Group’s ICAAP which includes a summary of the capital required to mitigate the
identified risks in its regulated entities and the amount of capital that the Group has available. The PRA sets ICG for each UK bank
calibrated by reference to its Capital Resources Requirement, broadly equivalent to 8 percent of risk weighted assets and thus
representing the capital required under Pillar 1 of the Basel II framework. The ICAAP is a key input into the PRA’s ICG setting process,
which addresses the requirements of Pillar 2 of the Basel II framework. The PRA’s approach is to monitor the available capital resources
in relation to the ICG requirement. The Group maintains an extra internal buffer and capital ratios are reviewed on a monthly basis to
ensure that external and internal requirements are adhered to.
7. Net interest income
Total interest income and expense calculated using the effective interest method and which relates to financial assets or liabilities not
carried at fair value through profit or loss are £73.6 million (2012: £44.6 million) and £12.9 million (2012 : £10.5 million) respectively.
Included in interest income is income on loans and advances to banks of £0.2 million (2012: £0.3 million).
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements 74
Notes to the consolidated financial statements Continued
8. Operating expenses
Operating expenses comprise:
Staff costs, including those of directors:
Wages and salaries
Social security costs
Pension costs
Share based payment transactions
Depreciation of property, plant and equipment (Note 17)
Amortisation of intangible assets (Note 15)
Operating lease rentals
Other administrative expenses
Total operating expenses
Remuneration of the auditor and its associates, excluding VAT, was as follows:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor for other services:
The audit of the Company’s subsidiaries, pursuant to legislation
Audit related assurance services
Tax advisory services
Corporate finance services
All other non-audit services
2013
£million
2012
£million
20.1
1.9
0.7
2.2
0.7
2.5
1.4
16.3
45.8
2013
£’000
132
128
30
53
–
64
407
14.0
1.4
0.4
1.6
0.6
0.9
0.7
9.8
29.4
2012
£’000
108
82
105
105
250
5
655
Remuneration for corporate finance services in 2013 was £nil (2012: £250,000 in relation to the acquisition of Everyday Loans Holdings
Limited). All other non-audit services incurred during 2013 include £44,000 in relation to the due diligence performed as part of the
Company’s admission to the Funding for Lending Scheme.
The cost of the advice on the share issue in 2012 was charged against the share premium account, all other costs have been expensed.
9. Average number of employees
Directors
Management
Administration
Total
2013
2012
6
50
474
530
6
33
360
399
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
75
2013
£million
2012
£million
3.1
0.5
3.6
0.7
0.5
1.2
4.8
17.1
4.0
(0.3)
0.1
1.0
4.8
2.2
–
2.2
(0.5)
–
(0.5)
1.7
17.2
4.2
(2.7)
0.2
–
1.7
10. Income tax expense
Current taxation
Corporation tax charge – current year
Corporation tax charge – adjustments in respect of prior years
Deferred taxation
Deferred tax charge/(credit) – current year
Deferred tax charge – adjustments in respect of prior years
Income tax expense
Tax reconciliation
Profit before tax
Tax at 23.25% (2012: 24.5%)
Permanent differences
Tax rate change
Prior period adjustments
Corporation tax charge for the year
In 2012, of the £2.7 million permanent differences, £2.4 million related to the non-taxable gain from a bargain purchase.
During the year the Government substantively enacted a reduction in the main rate of UK corporation tax from 23% to 21% with effect
from 1 April 2014 and then to 20% with effect from 1 April 2015. This will reduce the Company’s future current tax charge accordingly.
11. Earnings per ordinary share
Basic
Basic earnings per ordinary share is calculated by dividing the profit attributable to equity shareholders of the Group of £12.3 million
(2012: £15.5 million) by the weighted average number of ordinary shares 15,648,149 (2012: 14,267,861) in issue during the year.
Diluted
Diluted earnings per ordinary share is calculated by dividing the profit attributable to equity shareholders of the Group of £12.3 million
(2012: £15.5 million) by the weighted average number of ordinary shares in issue during the year, as noted above, as well as the number
of dilutive share options in issue from 1 July when the share options scheme was modified to become equity settled.
The number of dilutive shares in issue at the year-end was 329,453, being based on the number of options granted of 920,831, the
exercise price of 720 pence per option and the average share price during the period from 1 July to 31 December 2013 of 2,531.25 pence.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
76
Notes to the consolidated financial statements Continued
12. Loans and advances to banks
Group
Placements with banks included in cash and cash equivalents (Note 26)
Other loans and advances to banks
2013
£million
2012
£million
90.0
20.0
94.0
61.3
110.0
155.3
Included within loans and advances to banks are amounts placed with Arbuthnot Latham & Co., Limited, a related company, of £31.6
million (31 December 2012: £24.9 million).
Moody’s long term ratings:
Group
Aaa
Aa1
A2
No rating
Company
Placements with banks included in cash and cash equivalents (Note 26)
Other loans and advances to banks
Moody’s long term ratings:
Company
Aaa
Aa1
A2
No rating
2013
£million
2012
£million
–
57.1
21.3
31.6
68.8
–
23.1
63.4
110.0
155.3
2013
£million
2012
£million
88.5
20.0
92.3
61.3
108.5
153.6
2013
£million
2012
£million
–
57.1
19.8
31.6
68.8
–
21.4
63.4
108.5
153.6
None of the loans and advances to banks are either past due or impaired.
At 31 December 2013 loans and advances to banks of £9.9 million were pre-positioned with the Bank of England’s Funding for Lending
Scheme and were available for use as collateral within the scheme (2012:£nil).
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
77
2013
£million
2012
£million
418.1
(27.1)
391.0
313.8
(16.2)
297.6
2013
£million
2012
£million
16.4
16.0
32.4
(6.9)
25.5
12.9
12.6
25.5
22.2
13.0
35.2
(8.9)
26.3
10.5
15.8
26.3
2013
£million
2012
£million
371.3
0.4
23.4
23.0
418.1
(27.1)
391.0
282.4
0.6
19.8
11.0
313.8
(16.2)
297.6
2013
£million
2012
£million
17.0
4.1
2.7
23.8
11.2
7.1
2.1
20.4
13. Loans and advances to customers
Group
Gross loans and advances
Less: allowances for impairment on loans and advances (Note 14)
The fair value of loans and advances to customers is shown in Note 4.
For a maturity profile of loans and advances to customers, refer to Note 3.
Loans and advances to customers include finance lease receivables as follows:
Group
Gross investment in finance lease receivables:
– No later than 1 year
– Later than 1 year and no later than 5 years
Unearned future finance income on finance leases
Net investment in finance leases
The net investment in finance leases may be analysed as follows:
– No later than 1 year
– Later than 1 year and no later than 5 years
Loans and advances to customers can be further summarised as follows:
Group
Neither past due nor impaired
Past due but not impaired
Past due up to 90 days and impaired
Past due after 90 days and impaired
Gross
Less: allowance for impairment
Net
Gross amounts of loans and advances to customers that were past due up to 90 days were as follows:
Group
Past due up to 30 days
Past due 30 – 60 days
Past due 60 – 90 days
Total
Interest income on loans classified as impaired totalled £2.6 million (2012: £1.5 million).
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
78
Notes to the consolidated financial statements Continued
13. Loans and advances to customers continued
Company
Gross loans and advances
Less: allowances for impairment on loans and advances (Note 14)
The fair value of loans and advances to customers is shown in Note 4.
For a maturity profile of loans and advances to customers, refer to Note 3.
Loans and advances to customers can be further summarised as follows:
Company
Neither past due nor impaired
Past due up to 90 days and impaired
Past due after 90 days and impaired
Gross
Less: allowance for impairment
Net
Gross amounts of loans and advances to customers that were past up to 90 days were as follows:
Company
Past due up to 30 days
Past due 30 – 60 days
Past due 60 – 90 days
Total
2013
£million
2012
£million
306.8
(22.9)
283.9
211.1
(13.6)
197.5
2013
£million
2012
£million
266.7
19.4
20.7
306.8
(22.9)
283.9
186.1
16.0
9.0
211.1
(13.6)
197.5
2013
£million
2012
£million
15.0
2.8
1.6
19.4
9.0
5.9
1.1
16.0
The majority of the loans are unsecured personal loans with an average size at inception of £5,000; therefore the portfolio does not
have a significant concentration to any individuals, sectors or geographic locations.
At 31 December 2013 loans and advances to customers of £43.9 million were pre-positioned with the Bank of England’s Funding for
Lending Scheme and were available for use as collateral within the scheme (2012: £nil).
£0.2 million (2012: £0.2 million) of the loans are secured upon residential property and these are neither past due nor impaired.
The residential property over which the mortgage is secured has a fair value of £0.2 million based on other recent property sales,
giving a loan to value ratio of 73% (2012:77%).
£1.8 million (2012: £nil) of the loans are secured upon commercial property and these are neither past due nor impaired.
£114.7 million (2012: £89.6 million) of the loans are secured against motor vehicles where the security is discharged when the buyer
exercises an option to buy the goods at a predetermined price at the end of the loan term. Management’s estimate of the fair value of
the motor vehicles was £99 million.
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
79
2013
£million
2012
£million
15.8
15.5
–
(5.8)
25.5
0.4
1.2
1.6
8.9
9.2
(0.6)
(1.7)
15.8
–
0.4
0.4
27.1
16.2
2013
£million
2012
£million
13.2
9.4
–
(0.7)
21.9
0.4
0.6
1.0
8.9
6.1
(0.3)
(1.5)
13.2
–
0.4
0.4
22.9
13.6
14. Allowances for impairment of loans and advances
A reconciliation of the allowance accounts for losses on loans and advances is as follows:
Group
Specific allowances for impairment
At 1 January
Provision for impairment losses
Amounts recovered previously written off
Loans written off during the year as uncollectible
At 31 December
Collective allowances for impairment
At 1 January
Provision for impairment losses
At 31 December
Total allowances for impairment
Company
Specific allowances for impairment
At 1 January
Provision for impairment losses
Amounts recovered previously written off
Loans written off during the year as uncollectible
At 31 December
Collective allowances for impairment
At 1 January
Provision for impairment losses
At 31 December
Total allowances for impairment
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
80
Notes to the consolidated financial statements Continued
15. Intangible assets
Group
Cost or valuation
At 1 January 2012
On acquisition of subsidiary undertaking
Additions
At 31 December 2012
On acquisition of subsidiary undertakings
Additions
Disposals
At 31 December 2013
Accumulated amortisation
At 1 January 2012
Amortisation charge
At 31 December 2012
Amortisation charge
At 31 December 2013
Net book amount
At 31 December 2012
At 31 December 2013
Company
Cost or valuation
At 1 January 2012
Additions
At 31 December 2012
Additions
At 31 December 2013
Accumulated amortisation
At 1 January 2012
Amortisation charge
At 31 December 2012
Amortisation charge
At 31 December 2013
Net book amount
At 31 December 2012
At 31 December 2013
Goodwill
£million
Computer
software
£million
Other
intangible
assets
£million
Total
£million
0.3
–
–
0.3
0.7
–
–
1.0
–
–
–
–
–
0.3
1.0
2.0
0.1
0.2
2.3
5.4
0.7
(1.9)
6.5
(1.6)
(0.2)
(1.8)
(0.9)
(2.7)
0.5
3.8
–
5.1
–
5.1
2.2
–
–
7.3
–
(0.7)
(0.7)
(1.5)
(2.2)
4.4
5.1
2.3
5.2
0.2
7.7
8.3
0.7
(1.9)
14.8
(1.6)
(0.9)
(2.5)
(2.4)
(4.9)
5.2
9.9
Goodwill
£million
Computer
software
£million
Total
£million
0.3
–
0.3
–
0.3
–
–
–
–
–
0.3
0.3
2.0
0.2
2.2
0.4
2.6
(1.6)
(0.1)
(1.7)
(0.3)
(2.0)
0.5
0.6
2.3
0.2
2.5
0.4
2.9
(1.6)
(0.1)
(1.7)
(0.3)
(2.0)
0.8
0.9
Goodwill is monitored throughout the period. This enables management to complete goodwill impairment testing if indicators arise.
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
81
Shares
at cost
£million
Impairment
provisions
£million
Net
£million
1.5
–
(0.1)
1.4
3.7
(1.4)
3.7
(1.4)
–
–
(1.4)
–
1.4
–
0.1
–
(0.1)
–
3.7
–
3.7
16. Shares in subsidiary undertakings
Company
At 1 January 2012
Acquisition of Everyday Loans Holdings Limited
On liquidation of subsidiaries
At 31 December 2012
Acquisition of V12 Finance Group Limited (Note 29)
On liquidation of subsidiaries
At 31 December 2013
The principal subsidiary undertakings of Secure Trust Bank PLC at 31 December 2013 were:
Country of
incorporation
Interest %
Principal activity
Debt Managers (Services) Limited
Everyday Loans Holdings Limited
Everyday Loans Limited *
Everyday Leasing Limited *
Secure Homes Services Limited
STB Leasing Limited
V12 Finance Group Limited
V12 Personal Finance Limited *
V12 Retail Finance Limited *
UK
UK
UK
UK
UK
UK
UK
UK
UK
100
100
100
100
100
100
100
100
100
Debt collection company
Holding company
Sourcing and servicing of unsecured and secured loans
Provider of unsecured and secured loans
Property rental
Leasing
Holding company
Dormant
Sourcing and servicing of unsecured loans
Shares in subsidiary undertakings are stated at cost less any provision for impairment. All subsidiary undertakings are unlisted. None of
the subsidiary undertakings are banking institutions.
All the above subsidiary undertakings are included in the consolidated financial statements and have an accounting reference date of 31 December.
All the above interests relate wholly to ordinary shares.
* These companies are owned indirectly by Secure Trust Bank PLC.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
82
Notes to the consolidated financial statements Continued
17. Property, plant and equipment
Group
Cost or valuation
At 1 January 2012
On acquisition of subsidiary undertaking
Additions
At 31 December 2012
Additions
On acquisition of subsidiary undertaking
Disposals
At 31 December 2013
Accumulated depreciation
At 1 January 2012
Depreciation charge
At 31 December 2012
Depreciation charge
Disposals
At 31 December 2013
Net book amount
At 31 December 2012
At 31 December 2013
Company
Cost
At 1 January 2012
Additions
At 31 December 2012
Additions
Disposals
At 31 December 2013
Accumulated depreciation
At 1 January 2012
Depreciation charge
At 31 December 2012
Depreciation charge
Disposals
At 31 December 2013
Net book amount
At 31 December 2012
At 31 December 2013
Freehold
land and
buildings
£million
Leasehold
improvements
£million
Computer
and other
equipment
£million
Total
£million
4.4
–
–
4.4
–
–
–
4.4
(0.2)
(0.1)
(0.3)
(0.1)
–
(0.4)
4.1
4.0
–
0.3
–
0.3
0.1
–
–
0.4
–
(0.1)
(0.1)
(0.1)
–
(0.2)
0.2
0.2
8.2
0.2
0.6
9.0
0.3
0.1
(0.5)
8.9
(7.5)
(0.4)
(7.9)
(0.4)
0.2
(8.1)
1.1
0.8
12.6
0.5
0.6
13.7
0.4
0.1
(0.5)
13.7
(7.7)
(0.6)
(8.3)
(0.6)
0.2
(8.7)
5.4
5.0
Computer
and other
equipment
£million
8.2
0.6
8.8
0.2
(0.5)
8.5
(7.4)
(0.4)
(7.8)
(0.3)
0.1
(8.0)
1.0
0.5
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
83
17. Property, plant and equipment continued
The Group’s freehold property is the Registered Office of the Company and is fully utilised for the Group’s own purposes.
The directors have assessed the value of the Group’s freehold property at the year end through comparison to current rental yields
on similar properties in the same area and do not believe that the fair value of freehold property is materially different from its carrying
value. The carrying value of freehold land which is included in the total carrying value of freehold land and buildings and which is not
depreciated is £0.5 million (2012: £0.5 million).
The historical cost of freehold property included at valuation is as follows:
Cost
Accumulated depreciation
Net book amount
18. Derivative financial instruments
2013
£million
2012
£million
4.8
(1.1)
3.7
4.8
(1.0)
3.8
In order to protect its floating rate deposit book from increases in Bank of England base rates above 1.5%, the Group entered into an
interest rate cap on 30 June 2011, with a notional amount of £20 million and a maturity date of 30 June 2015. This hedge meets the
condition for qualifying for hedge accounting during the year and also was an effective hedge and as such the loss on the hedging
instrument was recognised in other comprehensive income.
Group and Company
Interest rate cap held in qualifying hedge relationships
Moody’s long term ratings:
Contract amount:
A2
Contract/
notional
amount
£million
20.0
20.0
2013
2012
Fair value
assets
£million
Fair value
liabilities
£million
Contract/
notional
amount
£million
Fair value
assets
£million
Fair value
liabilities
£million
–
–
–
–
20.0
20.0
–
–
–
–
2013
£million
2012
£million
20.0
20.0
20.0
20.0
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84
Notes to the consolidated financial statements Continued
19. Other assets
Group
Trade receivables
Amounts due from related companies
Prepayments and accrued income
Company
Trade receivables
Amounts due from related companies
Prepayments and accrued income
20. Deposits from customers
Group and Company
Current/demand accounts
Term deposits
For a maturity profile of deposits from customers, refer to Note 3.
21. Other liabilities
Group
Trade payables
Amounts due to related companies
Accruals and deferred income
Company
Trade payables
Amounts due to related companies
Accruals and deferred income
2013
£million
2012
£million
0.6
4.1
3.4
8.1
0.2
2.0
3.8
6.0
2013
£million
2012
£million
0.1
99.9
1.0
101.0
0.1
97.0
1.0
98.1
2013
£million
2012
£million
36.4
400.2
436.6
32.2
366.7
398.9
2013
£million
2012
£million
9.8
2.2
13.8
25.8
5.9
0.6
11.8
18.3
2013
£million
2012
£million
3.3
2.2
10.0
15.5
1.0
0.7
7.0
8.7
Within Group trade payables at 31 December 2013 there is £4.3 million (2012: £4.5 million) collateral held from RentSmart. The Group
buys assets which are then leased to customers of RentSmart and the Group pays RentSmart a commission, which is recognised
within operating income. In return RentSmart continues to operate the agreement, retains the credit risk and provides the Group with
a collateral amount that is based upon the balance of customer receivables and expected new agreements during the following month.
Within Group and Company accruals and deferred income there is £5.1 million relating to accrued interest payable (2012: £2.7 million).
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
85
21. Other liabilities continued
Financial Services Compensation Scheme Levy
In common with all regulated UK deposit takers, the Company pays levies to the Financial Services Compensation Scheme (‘FSCS’) to
enable the FSCS to meet claims against it. The FSCS levy consists of two parts: a management expenses levy and a more significant
compensation levy. The management expenses levy covers the costs of running the scheme and the compensation levy covers the
amount of compensation and associated interest the scheme pays, net of any recoveries it makes using the rights that have been
assigned to it.
During 2008 and 2009 claims were triggered against the FSCS in relation to Bradford & Bingley plc, Kaupthing Singer and Friedlander
Limited, Heritable Bank Plc, Landsbanki Islands hf, London Scottish Bank plc and Dunfermline Building Society. The FSCS meets these
current claims by way of loans it received from HM Treasury. The terms of these loans were interest only for the first three scheme years,
up until March 2013, and the FSCS recovered the interest cost by way of levies on members over this period.
The Company’s FSCS provision reflects market participation up to the reporting date and the provision of £0.1 million relates to the
estimated interest levy for the scheme year 2013/14 which is payable in September 2014. This amount was calculated on the basis
of the Company’s share of protected deposits and the FSCS’s estimate of total interest levies payable for each scheme year. The loan
repayment relating to the scheme year 2013/14 was paid by the Company in September 2013.
In previous years the Company has applied a trigger date for recognition of FSCS liabilities of 31 December. During 2013 this was
changed to 1 April as this is the only supportable trigger date accepted by the forthcoming interpretation IFRIC 21. This has been
accounted for as a change in accounting policy as the decision on trigger date is an accounting policy choice. No prior year adjustment
has been prepared on the basis of materiality.
22. Deferred taxation
Group
Deferred tax liabilities:
Unrealised surplus on revaluation of freehold property
Other short term timing differences
Deferred tax liabilities
Deferred tax assets:
Carried forward losses
Deferred tax assets
Deferred tax liabilities:
At 1 January
Arising on acquisition of subsidiary undertaking
Profit and loss account
At 31 December
Deferred tax assets:
At 1 January
Arising on acquisition of subsidiary undertaking
Profit and loss account
Losses utilised through group relief during the year
At 31 December
2013
£million
2012
£million
0.2
(0.6)
(0.4)
1.9
1.9
(1.2)
(1.0)
1.8
(0.4)
5.1
–
(3.0)
(0.2)
1.9
(0.1)
(1.1)
(1.2)
5.1
5.1
(0.1)
(3.1)
2.0
(1.2)
0.2
6.4
(1.5)
–
5.1
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
86
Notes to the consolidated financial statements Continued
22. Deferred taxation continued
Company
Accelerated capital allowances and other short-term timing differences
Cash flow hedges
Deferred tax assets
At 1 January
Arising on acquisition of subsidiary undertaking
Profit and loss account – accelerated capital allowances and other short-term timing differences
Deferred tax assets at 31 December
2013
£million
2012
£million
0.7
0.1
0.8
0.6
0.2
–
0.8
0.5
0.1
0.6
0.2
–
0.4
0.6
During the year the Government substantively enacted a reduction in the main rate of UK corporation tax from 23% to 21% with effect
from 1 April 2014 and then to 20% with effect from 1 April 2015. This will reduce the Group’s future current tax charge accordingly.
Deferred tax has been calculated based on the newly enacted rates to the extent that the related temporary or timing differences are
expected to reverse in the future periods.
23. Contingent liabilities and commitments
Capital commitments
At 31 December 2013, the Group and Company had no capital commitments (2012: £nil).
Credit commitments
At 31 December 2013, the Group had commitments of £6.6 million and the Company had commitments of £6.6 million (2012: £1.2
million and £0.9 million respectively) to extend credit to customers.
Operating lease commitments
The future aggregate lease payments for non-cancellable operating leases are as follows:
Group
Within 1 year
Between 1 year and 5 years
Over 5 years
2013
2012
Land and
Buildings
£million
Other
£million
Land and
Buildings
£million
Other
£million
0.8
1.6
0.1
2.5
0.4
0.2
–
0.6
0.5
1.7
–
2.2
0.3
0.1
–
0.4
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
87
23. Contingent liabilities and commitments continued
Company
Within 1 year
Between 1 year and 5 years
Over 5 years
2013
2012
Land and
Buildings
£million
Other
£million
Land and
Buildings
£million
Other
£million
–
–
0.4
0.4
0.4
0.2
–
0.6
–
–
0.4
0.4
0.3
0.1
–
0.4
There are 36 leases classified as land and buildings in the group (2012: 31). Other leases include motor vehicles and computer hardware.
Other commitments
At 31 December 2013 a commitment exists to make further payments with regard to the Financial Services Compensation Scheme
Levy for 2014 and thereafter. Due to uncertainties regarding the elements in the calculation of the levy and the Group’s share thereof,
the directors consider this cost to be unquantifiable.
24. Share capital
At 1 January 2012
Shares issued during year
At 31 December 2012
At 31 December 2013
Number of
shares
Ordinary
shares
£million
14,166,667
1,481,482
15,648,149
15,648,149
5.7
0.6
6.3
6.3
On 20 November 2012 an ordinary resolution of the Company proposing the placing of 1,481,482 new ordinary shares at 1,350 pence
each was passed.
On 7 December 2012, an additional 1,481,482 ordinary shares were placed and admitted to trading on the Alternative Investment
Market (AIM), raising £20 million. Following the admission of the new shares, the Company had 15,648,149 ordinary shares of 40 pence
each in issue.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
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Notes to the consolidated financial statements Continued
25. Share based payments
On 17 October 2011, the Group established the Share Option Scheme (SOS) entitling key management personnel and senior
employees to purchase shares in the Company.
The performance conditions of the Scheme are that for the duration of the vesting period, the dividends paid by the Company must
have increased in percentage terms when compared to an assumed dividend of £8 million in respect of the financial year ending
31 December 2012, by a minimum of the higher of:
a) the increase in the Retail Prices Index during that period; or
b) 5% per annum during that period.
All dividends paid by the Company each year during the vesting period must be paid from the Company’s earnings referable to that
year. Also from the grant date to the date the Option is exercised, there must be no public criticism by any regulatory authority on the
operation of the Company or any of its subsidiaries which has a material impact on the business of the Company.
Options are forfeited if they remain unexercised after a period of more than 10 years from the date of grant. If the participant ceases to
be employed by the Group by reason of injury, disability, ill-health or redundancy; or because his employing company ceases to be a
shareholder of the Group; or because his employing business is being transferred out of the Group, his option may be exercised within
6 months after such cessation. In the event of the death of a participant, the personal representatives of a participant may exercise an
option, to the extent exercisable at the date of death, within 6 months after the death of the participant.
On cessation of employment for any other reason (or when a participant serves, or has been served with, notice of termination of such
employment), the option will lapse although the Remuneration Committee has discretion to allow the exercise of the option for a period
not exceeding 6 months from the date of such cessation.
In such circumstances, the performance conditions may be modified or waived as the Remuneration Committee, acting fairly and
reasonably and taking due consideration of the circumstances, thinks fit. The number of Ordinary Shares which can be acquired
on exercise will be pro-rated on a time elapsed basis, unless the Remuneration Committee, acting fairly and reasonably and taking
due consideration of the circumstances, decides otherwise. In determining whether to exercise its discretion in these respects, the
Remuneration Committee must satisfy itself that the early exercise of an option does not constitute a reward for failure.
On 2 November 2011 934,998 share options were granted at an exercise price of £7.20 per share. Half of the share options are
exercisable on 2 November 2014 with the remainder exercisable on 2 November 2016, being SOS1 and SOS2 respectively.
During 2013, the Share Option Scheme was changed to become an equity settled scheme. The original grant date valuation was
previously determined to be £1.69 per option and this valuation has been used in the calculation. An attrition rate of option holders
has been assumed of 8% for the first tranche of share options and 15% for the second tranche. Also, due to the options being fully
conditional knockout options, a probability of pay-out has been assigned based on the likelihood of meeting the performance criteria,
which is 95% and 80% respectively for the two share option tranches.
Key management personnel
Senior management
Share Options in issue
Exercise price (£)
Value per option (£)
Fair value of share options (£million)
Behavioural assumption (attrition)
Probability of payout
Total (£million)
No.
SOS1
SOS2
Total
3
5
8
318,750
141,666
318,749
141,666
637,499
283,332
460,416
460,415
920,831
7.20
1.69
0.8
7.6%
95%
0.7
7.20
1.69
0.8
15.2%
80%
0.5
1.6
1.2
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
89
26. Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances with less than three months
maturity from the date of acquisition.
Group
Loans and advances to banks (Note 12)
Company
Loans and advances to banks (Note 12)
27. Related party transactions
2013
£million
2012
£million
90.0
90.0
94.0
94.0
2013
£million
2012
£million
88.5
88.5
92.3
92.3
Related parties of the Company and Group include subsidiaries, Key Management Personnel, close family members of Key
Management Personnel and entities which are controlled, jointly controlled or significantly influenced, or for which significant voting
power is held, by Key Management Personnel or their close family members.
A number of banking transactions are entered into with related parties in the normal course of business on normal commercial terms.
These include deposits only during 2013 and 2012. Except for the directors’ disclosures, there were no other Key Management
Personnel disclosures, therefore the tables below relate to directors only.
Deposits
Deposits outstanding at 1 January
Additional deposits made during the year
Deposits outstanding at 31 December
Directors
2013
£million
2012
£million
0.3
–
0.3
0.2
0.1
0.3
The above transactions arose during the normal course of business and are on substantially the same terms as for comparable
transactions with third parties.
The Company undertook the following transactions with other companies in the Arbuthnot Banking Group:
Arbuthnot Latham & Co., Ltd – recharge income of shared services
Arbuthnot Latham & Co., Ltd – interest income on call account
Arbuthnot Banking Group PLC – group recharges
Everyday Lending Limited – interest income on loan receivable
Secure Homes Services Limited – building rental
V12 Finance Group Limited – dividends received
V12 Retail Finance Limited – commissions and service fees for loans
V12 Retail Finance Limited – software service charges
V12 Retail Finance Limited – loan book management and servicing fees
2013
£million
2012
£million
(0.2)
(0.1)
0.3
(2.5)
0.4
(0.5)
0.3
0.6
0.9
(0.8)
(0.2)
(0.1)
0.3
(1.6)
0.4
–
–
–
–
(1.2)
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
90
Notes to the consolidated financial statements Continued
27. Related-party transactions continued
For convenience the loans and advances with, and amounts receivable and payable to, related companies are noted below:
Group
Loans and advances to related companies
Amounts receivable from ultimate parent undertaking
Amounts payable to related companies
Company
Loans and advances to related companies
Amounts receivable from ultimate parent undertaking
Amounts receivable from subsidiary undertakings
Amounts payable to related companies
Directors’ remuneration
2013
£million
2012
£million
31.6
4.1
(2.2)
33.5
24.9
2.0
(0.6)
26.3
2013
£million
2012
£million
31.6
4.1
95.8
(2.2)
24.9
2.0
95.0
(0.6)
129.3
121.3
The directors’ emoluments (including pension contributions and benefits in kind) for the year are disclosed in the Remuneration Report
on pages 42 to 43.
At the year end the ordinary shares held by the directors are disclosed in the Directors’ Report on pages 36 to 38. Details of the
directors’ holdings of share options are also disclosed in the Directors’ Report.
The interests of any directors who hold shares in the ultimate parent company, Arbuthnot Banking Group PLC, are shown in the
Directors’ Report of the ultimate parent company.
28. Operating segments
The Group is organised into four main operating segments, which consist of the different products available, disclosed below:
1) Personal lending – Unsecured consumer loans sold to customers via brokers and affinity partners.
2) Motor finance – Hire purchase agreements secured against the vehicle being financed.
3) Retail finance – Point of sale unsecured finance for in-store and online retailers.
4) Current account and OneBill – The current account comes with a prepaid card to enable effective control of personal finances,
whilst OneBill is an account designed to aid customers with their household budgeting and payments process.
Management review these segments by looking at the income, size and growth rate of the loan books, impairments and customer
numbers. Except for these items no costs or balance sheet items are allocated to the segments.
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
91
28. Operating segments continued
Year ended 31 December 2013
Interest revenue
Fee and commission income
Revenue from external customers
Impairment losses
Lending balances
Year ended 31 December 2012
Interest revenue
Fee and commission income
Revenue from external customers
Impairment losses
Lending balances
Personal
Lending
£million
Motor
Finance
£million
Retail
Finance
£million
36.1
5.7
41.8
10.3
23.0
–
23.0
14.5
–
14.5
3.6
1.7
159.2
114.7
114.4
Personal
Lending
£million
Motor
Finance
£million
Retail
Finance
£million
21.5
2.7
24.2
16.9
–
16.9
5.3
2.7
5.8
–
5.8
0.7
142.0
89.6
64.2
Current
Account
and
OneBill
£million
–
12.8
12.8
–
0.5
Current
Account
and
OneBill
£million
–
12.9
12.9
(0.1)
0.4
Other
£million
0.2
4.2
4.4
Group
Total
£million
73.8
22.7
96.5
–
15.6
2.2
391.0
Other
£million
0.7
0.2
0.9
0.3
1.4
Group
Total
£million
44.9
15.8
60.7
8.9
297.6
The “Other” segment above includes other segments which are individually below the quantitative threshold for separate disclosure and
fulfils the requirement of IFRS 8.28 by reconciling operating segments to the amounts reported in the financial statements.
As interest, fee and commission and operating expenses are not aligned to operating segments for day-to-day management of the
business and cannot be allocated on a reliable basis, profit by operating segment has not been disclosed.
All of the Group’s operations are conducted wholly within the United Kingdom and geographical information is therefore not presented.
29. Acquisition of V12 Finance Group Limited
On 2 January 2013 the Company acquired 100% of the ordinary share capital of V12 Finance Group Limited, which along with its wholly
owned subsidiaries V12 Retail Finance Limited and V12 Personal Finance Limited provide retail loans, typically for 12 months on an unsecured
basis to consumers who are predominantly classified as prime borrowers. The cash consideration for the companies of £3.5 million was paid
on completion. The acquisition is complementary to the Group’s existing retail finance proposition and the V12 management team continued
in the business. Legal and professional costs of £0.2 million were incurred during the year in relation to the acquisition.
As part of the acquisition the Company provided funding such that the V12 Finance Group could redeem £7.0 million of subordinated
debt and repay existing bank finance amounting to £28.1 million.
The acquisition of V12 Finance Group Limited is accounted for in accordance with IFRS 3 ‘Business Combinations’, which requires the
recognition of the identifiable assets acquired and liabilities assumed at their acquisition date fair values. As part of this process, it is also
necessary to identify and recognise certain assets and liabilities which are not included on the acquiree’s balance sheet, for example
intangible assets. The exercise to fair value the balance sheet is inherently subjective and required management to make a number of
assumptions and estimates.
The Consolidated Statement of Comprehensive Income includes revenue of £5.1 million and a loss before tax of £0.4 million attributable
to V12.
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92
Notes to the consolidated financial statements Continued
29. Acquisition of V12 Finance Group Limited continued
The following unaudited assets were acquired as part of the acquisition of the V12 Finance Group Limited and its wholly owned
subsidiary entities:
Acquired
assets/
liabilities
£million
Fair value
adjustments
£million
Recognised
values on
acquisition
£million
Cash at bank
Loans and advances to customers
Intangible assets
Deferred tax assets
Prepayments and accrued income
Other assets
Total assets
Loans and debt securities
Deferred tax liabilities
Accruals and deferred income
Other liabilities
Total liabilities
0.2
32.7
0.1
0.3
0.5
0.1
33.9
35.1
–
0.1
0.1
35.3
–
–
5.5
–
–
–
5.5
–
1.3
–
–
1.3
Net identifiable (liabilities)/assets acquired
(1.4)
4.2
Consideration
Goodwill arising on acquisition
30. Acquisition of Debt Managers
0.2
32.7
5.6
0.3
0.5
0.1
39.4
35.1
1.3
0.1
0.1
36.6
2.8
3.5
0.7
On 15 January 2013 Debt Managers (Services) Limited (“DMS”), a wholly owned subsidiary of Secure Trust Bank PLC, acquired the
trade and certain assets from Debt Managers Holdings Ltd, Debt Managers (AB) Limited and Debt Managers Limited (together “Debt
Managers”). DMS collects debt on behalf of a range of clients including banks and utility companies.
Key benefits of this acquisition to the Company include:
• Broadening the income base of the Company without the requirement for large amounts of capital;
• The acquisition of a scalable collections platform through which the Company intends to channel its delinquent debt; and
• The acquisition of the latest call centre and collections technology, including market leading dialler capability, IVR technology and
payment websites.
DMS acquired the Debt Managers business for an initial cash payment of £0.4 million paid on completion of the transaction. Deferred
consideration of up to £0.3 million was payable by DMS one year after completion subject to the business achieving certain performance
criteria. Of this, £0.1 million was paid by DMS in final settlement.
At the year end, a fair value adjustment of £0.2 million was applied to the purchased loan portfolios, reflecting the acquisition date fair value
of the portfolios.
The acquired assets included a software platform jointly developed with a third party. Upon completion the rights to this software were
sold to that third party for consideration of £2 million. DMS then proceeded to lease back the internal rights to use this software.
On completion the Company provided DMS with £2.2 million of funding to clear an outstanding overdraft of £1.8 million and to fund the
working capital requirements of DMS.
Financial statementssecure trust bank PLc rePOrt & accOunts 2013
93
30. Acquisition of Debt Managers continued
The Consolidated Statement of Comprehensive Income includes revenue of £3.8 million and a loss before tax of £0.9 million attributable
to DMS. Had the acquisition occurred at the start of the financial year, the Consolidated Statement of Comprehensive Income would have
included revenue of £4.0 million and a loss before tax of £0.9 million attributable to DMS.
Client bank account
Property, plant and equipment
Intangible assets
Trade debtors
Purchased loan portfolios
Prepayments and accrued income
Total assets
Bank overdraft
Client control account
Trade creditors
Accruals and deferred income
Total liabilities
Net identifiable assets acquired
Consideration
Gain from a bargain purchase
Acquired
assets/
liabilities
£million
Fair value
adjustments
£million
Recognised
values on
acquisition
£million
1.4
0.1
2.0
0.7
0.1
0.2
4.5
1.8
1.3
0.5
0.2
3.8
0.7
–
–
–
–
0.2
–
0.2
–
–
–
–
–
0.2
1.4
0.1
2.0
0.7
0.3
0.2
4.7
1.8
1.3
0.5
0.2
3.8
0.9
0.5
0.4
31. Immediate and ultimate parent company
The Company regards Arbuthnot Banking Group PLC, a Company registered in England and Wales, as the immediate and ultimate
parent company. Henry Angest, the Group Chairman and Chief Executive has a beneficial interest in 53.7% of the issued share capital
of Arbuthnot Banking Group PLC and is regarded by the Company as the ultimate controlling party. A copy of the consolidated financial
statements of Arbuthnot Banking Group PLC may be obtained from the Secretary, Arbuthnot Banking Group PLC, One Arleston Way,
Solihull, West Midlands, B90 4LH.
32. Events after the balance sheet date
There were no material post balance sheet events in the Group.
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward bankingFinancial statements
94
Five year summary
Five year summary (unaudited)
Profit for the year
Interest and similar income
Interest expense and similar charges
Net interest income
Net fee and commission income
Operating income
Impairment losses on loans and advances
Gain from a bargain purchase
Other income
Exceptional costs
Arbuthnot Banking Group recharges
Operating expenses
Profit before income tax
Earnings per share for profit attributable to the equity holders
of the Group during the year
(expressed in pence per share)
– basic
Financial position
Loans and advances to banks
Loans and advances to customers
Debt securities
Other assets
Total assets
Deposits from customers
Other liabilities
Total shareholders’ equity
Total liabilities and shareholders’ equity
2013
£million
2012
£million
2011
£million
2010
£million
2009
£million
73.8
(12.9)
60.9
18.1
79.0
(15.6)
0.4
–
(0.9)
(0.1)
(45.7)
17.1
44.9
(10.5)
34.4
12.6
47.0
(8.9)
9.8
0.1
(1.4)
(0.1)
(29.3)
17.2
22.9
(5.6)
17.3
11.2
28.5
(4.6)
–
–
(0.5)
(1.8)
(14.3)
7.3
15.9
(3.4)
12.5
11.7
24.2
(2.2)
–
1.0
–
(0.9)
(13.4)
8.7
9.9
(1.3)
8.6
13.1
21.7
(1.2)
–
0.1
(0.7)
(0.3)
(11.5)
8.1
78.3
108.9
39.6
50.0
46.4
110.0
391.0
–
24.9
525.9
436.6
27.7
61.6
525.9
155.3
297.6
–
21.7
474.6
398.9
19.8
55.9
474.6
139.5
154.6
–
13.7
307.8
272.1
11.9
23.8
307.8
42.6
89.5
25.6
23.0
39.3
51.5
11.0
14.0
180.7
115.8
153.8
11.1
15.8
180.7
93.3
10.4
12.1
115.8
secure trust bank PLc rePOrt & accOunts 2013
Notice of Meeting
95
Notice of Meeting
NOTICE IS HEREBY GIVEN that the fifty ninth Annual General Meeting of the Company will be held at Arbuthnot House,
20 Ropemaker Street, London EC2Y 9AR on Wednesday, 7 May 2014 at 3pm for the following purposes:
ORDINARY BUSINESS
To consider and, if thought fit, pass the following resolutions which will be proposed as ordinary resolutions:
1. To receive and adopt the report of the directors and the financial statements for the year ended 31 December 2013.
2. To receive the report of the Remuneration Committee.
3. To declare a final dividend in respect of the year ended 31 December 2013 which the directors propose should be 47p per ordinary
share, payable on 9 May 2014 to shareholders on the register of members at the close of business on 11 April 2014.
4. To elect Lord Forsyth as a director who, having been appointed as a director since the last Annual General Meeting, offers himself
for election.
5. To re-elect Mrs C.F. Sergeant as a director who retires by rotation in accordance with Article 82 of the Articles of Association and
offers herself for re-election.
6. To appoint KPMG LLP as Auditor and to authorise the directors to fix their remuneration.
SPECIAL BUSINESS
To consider and, if thought fit, pass the following resolutions which in the case of resolutions 7 and 9 will be proposed as ordinary
resolutions and in the case of resolution 8 will be proposed as a special resolution:
7. That, in substitution for all subsisting authorities to the extent unused, the Directors be and they are hereby empowered to allot or
make offers or agreements to allot equity securities (as defined in Section 560 of the Companies Act 2006 (the “Act”)) pursuant to
Article 6 of the Articles of Association of the Company during the period until 31 May 2015 or, if earlier, the conclusion of the next
Annual General Meeting of the Company, save that (a) the Company may before such expiry make an offer or agreement that would
or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such
an offer or agreement as if the authority conferred hereby had not expired (b) the Section 551 Amount and the Section 561 Amount
for this purpose shall be an aggregate nominal amount of £312,000.
8. That the Company be and is hereby generally and unconditionally authorised to make market purchases (as defined in section
693(4) of the Companies Act 2006) of ordinary shares of 40p each in the capital of the Company (“ordinary shares”) provided that:
(a)
the maximum number of ordinary shares hereby authorised to be purchased shall be 1,564,800 (being approximately 10%
of the issued share capital of the Company as at 19 March 2013);
(b)
the minimum price which may be paid for an ordinary share shall be 40p;
(c)
(d)
(e)
the maximum price which may be paid for an ordinary share shall be 5% above the average of the closing middle market price
of the ordinary shares (as derived from the London Stock Exchange Daily Official List) for the 10 business days prior to the day
the purchase is made;
the authority hereby conferred shall expire on 31 May 2015 or, if earlier, on the conclusion of the next Annual General Meeting
of the Company unless such authority is renewed prior to such time; and
the Company may enter into contracts to purchase ordinary shares under the authority hereby conferred prior to the expiry
of such authority, which contracts will or may be executed wholly or partly after the expiry of such authority, and may make
purchases of ordinary shares pursuant to any such contracts.
9. That, for the purposes of and to the extent required by the forthcoming regulatory rules, the Company be and is hereby authorised
to pay a discretionary bonus to one or more executive directors or senior managers provided that in any case the payment does not
exceed two times the annual basic salary of that director or manager for the year in question.
By order of the Board
J.R. Kaye
Secretary
9 April 2014
Registered Office
One Arleston Way
Solihull B90 4LH
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward banking 96
Notice of Meeting
Notice of Meeting Continued
NOTES:
1. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, the Company gives notice that only those
shareholders entered on the relevant register of members (the “Register”) for certificated or uncertificated shares of the Company
(as the case may be) at 6 p.m. on 5 May 2014 (“the Specified Time”) will be entitled to attend or vote at the Annual General Meeting
in respect of the number of shares registered in their name at that time. Changes to entries on the Register after the Specified Time
will be disregarded in determining the rights of any person to attend or vote at the Annual General Meeting. Should the Annual
General Meeting be adjourned to a time not more than 48 hours after the Specified Time, that time will also apply for the purpose
of determining the entitlement of members to attend and vote (and for the purpose of determining the number of votes they may
cast) at the adjourned Annual General Meeting. Should the Annual General Meeting be adjourned for a longer period, then to be
so entitled, members must be entered on the Register at the time which is 48 hours before the time fixed for the adjourned Annual
General Meeting, or, if the Company gives notice of the adjourned Annual General Meeting, at the time specified in the notice.
2. Members who want to attend and vote should either attend in person or appoint a proxy or corporate representative to attend,
speak and vote on his/her behalf. A member may appoint more than one proxy in relation to the Annual General Meeting provided
that each proxy is appointed to exercise the rights attached to a different share or shares of the member, but must attend the
meeting in person. A proxy need not be a member. A paper Form of Proxy is enclosed. Please read carefully the instructions on
how to complete the form. Forms of Proxy, together with the power of attorney or other authority (if any) under which it is signed or
a notarially certified copy of such power of attorney or other authority, must be lodged with the Registrars or submitted not later than
48 hours before the time for which the Annual General Meeting is convened. Completion of the appropriate Form of Proxy does not
prevent a member from attending and voting in person if he/she is entitled to do so and so wishes.
3. There are no service contracts of directors other than ones which may be terminated on up to 12 months’ notice at any time.
Copies of these service agreements will be available for inspection at the registered office during usual business hours on any
weekday (Saturdays and public holidays excepted) from the date of this notice until the date of the Annual General Meeting and
at the place of the Annual General Meeting for 15 minutes prior to and during the Annual General Meeting.
secure trust bank PLc rePOrt & accOunts 2013 Corporate contacts & advisers
97
Corporate contacts & advisers
Secretary & Registered Office
J R Kaye FCIS
One Arleston Way
Solihull
West Midlands B90 4LH
T 0121 693 9100
F 0121 693 9124
Advisers
Independent Auditor:
KPMG Audit Plc
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham B4 6GH
Principal Banker:
Barclays Bank PLC
38 Hagley Road
Edgbaston
Birmingham B16 8NY
Stockbroker:
Canaccord Genuity Limited
88 Wood Street
London EC2V 7QR
Nominated Adviser:
Canaccord Genuity Limited
41 Lothbury
London EC2R 7AE
Registrar:
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
secure trust bank PLc rePOrt & accOunts 2013Simple, straightforward banking Secure Trust Bank PLC
One Arleston Way
Shirley
Solihull
West Midlands
B90 4LH
T 0121 693 9100
www.securetrustbank.com
Registration No. 00541132