Annual Report & Accounts
2023
Helping more consumers
and businesses
fulfil their ambitions
About us
We are an award-winning
UK specialist lender, providing
savings accounts and lending
services to over 1.2 million
customers. The Group has
been helping consumers
and businesses fulfil their
ambitions for over 70 years.
Adjusted profit before tax
£42.6m
2022: £39.0 million
Statutory profit before tax
£36.1m
2022: £39.0 million
Customer lending
£3.3bn
2022: £2.9 billion
Common equity tier 1 ratio
12.7%
2022: 14.0%
Strategic Report
Group at a glance
1
Chairman’s statement
4
Chief Executive’s statement
5
Financial review
10
Business review
Consumer Finance
16
Business Finance
20
Savings
24
Market review
26
Principal risks and uncertainties
28
Viability and going concern
39
Managing our business responsibly
Environmental, Social and Governance strategy
41
Section 172 statement
44
Climate-related financial disclosures
55
Corporate Governance Report
Chairman’s introduction
65
Board leadership
66
Corporate Governance report
69
Nomination Committee report
72
Audit Committee report
76
Risk Committee report
81
Directors’ Remuneration Report
85
Directors’ report
100
Directors’ responsibility statement
104
Independent Auditor’s report
105
Financial Statements
Consolidated statement of comprehensive income
114
Consolidated statement of financial position
115
Company statement of financial position
116
Consolidated statement of changes in equity
117
Company statement of changes in equity
118
Consolidated statement of cash flows
119
Company statement of cash flows
120
Notes to the financial statements
121
Five-year summary (unaudited)
174
Appendix to the Annual Report (unaudited)
175
Glossary
179
Corporate contacts and advisers
181
In this report
www.securetrustbank.com
Pages 1 to 64 form the Strategic Report. It includes our
market review, strategy, financial review and a business
review for each of the lines of business. Pages 100 to 103
form the Directors’ report.
All key performance indicators are presented on a continuing
basis, unless otherwise stated.
Adjusted profit before tax refers to Profit before income tax
from continuing operations before exceptional items.
Further information on exceptional items are included
on page 12, and discontinued operations are included
in Note 10 to the Financial Statements.
Our strategic priorities
Simplify
Enhance
customer experience
Leverage
networks
Focus on core business units and use
technology to deliver efficiency and
better operational processes
Improve the customer journey to
increase retention and attract new
customers to gain market share
Take advantage of our strong
partnerships with introducers
to drive growth
Enabled by technology
Take advantage of recent investments within our technology platforms to automate processes and streamline and enhance
customer experience for our business partners via integration and for our end customers through self-service.
Group at a glance
Our strategy
Our vision
To be the most trusted specialist lender in the UK
Our purpose
To help more consumers and businesses fulfil their ambitions
Our strategic pillars
Grow
Sustain
Care
Always act with integrity and transparency, delivering value for all stakeholders
Our strengths
Specialist
Expert
Diverse
Ambitious
Values
Customer
Focused
Risk
Aware
Future
Orientated
Teamwork
Ownership
Performance
Driven
Stakeholders
Customers
Shareholders
Employees
Environment
Wider society
Regulators
Suppliers
01
Secure Trust Bank PLC
Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Group at a glance
Our business model
Consumer Finance
Retail Finance
We provide quick and easy finance options
at point of purchase
Vehicle Finance
We help to drive more business in UK car dealerships
by providing financing for consumers and dealerships
2023 Customer lending
£1.7bn
2022: £1.4 billion
See pages 16 to 19
Business Finance
Real Estate Finance
We lend money against residential properties to
professional landlords and property developers
Commercial Finance
We support the growth of UK businesses
by enabling effective cash flow
2023 Customer lending
£1.6bn
2022: 1.5 billion
See pages 20 to 23
Savings
We look after our customers’ savings and
provide a competitive return
2023 Customer deposits
£2.9bn
2022: £2.5 billion
See pages 24 to 25
02
Secure Trust Bank PLC
Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Our strategic progress
•
Office space reduced by
51
%
•
Project Fusion on track for £5 million annualised cost savings¹ by end 2024
•
Making progress to deliver 50% reduction in Scope 1 and Scope 2 CO
2
emissions
by 2025
•
Completed closure of Debt Management Services operations
Simplify
•
Savings mobile app launched, 15% eligible users registered
•
Over 80% self-service adoption in Retail Finance
•
Enhanced collections and forbearance options in Vehicle Finance
•
Customer Feefo score of 4.6 stars and 10 Year Excellence Award
Enhance Customer
Experience
•
Supporting > 1,200 retailers
•
Partnering > 750 Vehicle Finance brokers, dealers and internet introducers
•
Business Finance repeat business from established relationships increasing
Leverage
Networks
•
Upgraded technological capabilities
•
Automated credit decisions
•
Ease of partner integration
•
Platforms proven to be scalable
Enabled by Technology
1
Cost savings relative to operating expenses for the 12 months ended December 2021.
Group at a glance
03
Secure Trust Bank PLC
Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
A robust set
of results
We are well placed to achieve
our growth targets and deliver
value for our shareholders.”
Lord Forsyth
Chairman
Chairman’s statement
I am pleased to present our Annual Report and Accounts for 2023. It has been a difficult year for the
country, and for so many of our customers, employees and fellow citizens. Despite the challenges the
Group has once again delivered a robust set of results with an adjusted profit before tax
1
at £42.6
million (2022: £39.0 million), and a statutory profit before tax of £36.1 million (2022: £39.0 million).
For the fifth year running we have received the UK’s Best Workplaces
TM
accolade from Great Place to Work
®
and are ranked 44
amongst the top large companies in Europe. This reflects the relentless effort by Anne McKenning and her team in HR to promote
a positive work culture. The business continues to collect prestigious awards, with Vehicle Finance nominated for ‘Finance provider of
the Year’ for the third year in a row, and Commercial Finance winning ‘Asset-based lender of the year’ at the Real Deal Private Equity
awards in Europe. The Group met the bracing Consumer Duty implementation deadlines set by the FCA and we remain completely
committed to ensuring the highest standards of service and support to our customers.
We are making good progress despite some headwinds in achieving our medium-term targets, with lending growing by £0.4 billion to
£3.3 billion, and savings book growth of £357 million to £2.9 billion. At our Capital Markets Day we explained how reaching a £4 billion
net lending book was the cornerstone to delivering them. The Board are proposing a final dividend of 16.2 pence for the year and are
now committed to a progressive dividend policy going forward.
It was a real pleasure to welcome Vicky Mitchell to the Board in November. She brings extensive experience in banking most notably
from Capital One (Europe) plc. There was also sadness with the intended retirement of Nick Davies after so many years of brilliantly
building our V12 Retail Finance business. I am also grateful to our departing Company Secretary, Mark Stevens who has been quite
simply outstanding and will be much missed.
Whilst on the issue of retirement, I announced in March 2023 that I would be stepping down at the next Annual General Meeting.
The search for my successor was skilfully led by our Senior Independent Director, Ann Berresford, and we have as a result in Jim
Brown, an experienced banker with all the necessary skills and experience to take the Group forward.
As I reflect on a decade on the Board of Secure Trust Bank, with over seven years as Chairman, I am immensely proud of its
achievements in the worst of times and the best of times. The business is resilient and has shown great agility and consistent delivery,
despite the challenges of Brexit, COVID-19, regulation and inflation. I have tremendous confidence in David and his Executive team
and in the progress made in cutting costs and focusing the business on segments where we have proven strength and expertise.
Looking ahead, inflation is falling and the markets predict that interest rates have peaked. Nonetheless geopolitics has created the
most fragile and unpredictable times in my lifetime. We hope for better times, but plan to maintain our record of resilience and are
well placed to achieve our growth targets and deliver value for our shareholders. In meeting that challenge, I am extremely grateful to
the Board, past and present, and to all of our employees whose dedication and hard work gives me every confidence for the future.
Lord Forsyth
Chairman
20 March 2024
1.
Adjusted profit before tax refers to profit before income tax from continuing operations before exceptional items.
04
Secure Trust Bank PLC
Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Chief Executive’s statement
Strong progress
in 2023
I am pleased to report
continued progress against
a challenging backdrop.”
David McCreadie
Chief Executive Officer
The Group has made continued progress in 2023 and we are moving closer to achieving our
£4 billion net lending ambition. We delivered robust loan book growth, improved adjusted profits
1
and maintained credit disciplines against a challenging economic backdrop. The year began with
high levels of inflation and the Bank of England tackling this by continuing to increase the Bank Base
Rate to levels not experienced since 2008, which in turn increased financial pressure on consumers
and businesses.
The Group has actively managed its balance sheet, while maintaining effective credit discipline. We have grown lending balances
by £0.4 billion during the period, with further market share gains in our Retail Finance and Vehicle Finance businesses. We delivered
record new business levels in each of our specialist lending businesses. We have delivered lending growth while carefully managing
our new business pricing. We continued to manage pricing carefully against the backdrop of rising rates and we have maintained tight
cost control. As a result, we have improved our adjusted cost income ratio
2
by 100 basis points.
I am pleased to report a good set of results against what has been a challenging backdrop. We achieved an adjusted profit before
tax
1
of £42.6 million (2022: £39.0 million), and made progress towards our medium-term targets, with a year-end lending portfolio
of £3.3 billion, an increase of 13.6% (2022: £2.9 billion). Net interest margin reduced to 5.4%, (2022: 5.7%), reflecting the interest rate
environment we are operating in, the increasing mix of lower risk lending in our consumer businesses and increased levels of Tier 2
debt to support our growth strategy. Our key performance indicators are set out overleaf, which include our medium-term targets,
which we refreshed at our recent Capital Markets Day (see our www.securetrustbank.com/cme2023 for details of the presentation).
The Group achieved a statutory profit before tax of £36.1 million (2022: £39.0 million), which includes exceptional items of £6.5 million,
which relate to customer remediation activity following the FCA’s industry review of Borrowers in Financial Difficulty (‘BiFD’) and
corporate activity. Further information on these items can be found on page 12 of the Financial Review.
With our four specialist lending segments, the Group operates in large addressable markets. We believe there are opportunities to
further deploy our expertise and systems to widen and deepen our market penetration. New business growth was 11.5% during the
year (2022: 43.5%) and net lending growth was 13.6% (2022: 19.1%).
In 2023 our market share for Retail Finance new business
increased to 13.5%
3
(2022:11.4%). Likewise we have seen market share gains
for our Vehicle Finance business, where improved distribution, despite the tightening of our credit criteria over the last 18 months, has
increased our market share for new business to 1.2%
4
(2022: 1.1%).
Further information on financial performance for the year is included in the Financial review (see pages 10 to 15).
1.
Adjusted profits/Adjusted profit before tax refers to profit before income tax from continuing operations before exceptional items.
2. Excludes exceptional items. See Note 8 to the Financial Statements and section (v) in the Appendix to the Annual Report for further details.
3.
Source: Finance & Leasing Association (‘FLA’): New business values within retail store and online credit: 2023: 13.5% (2022: 12.8%): FLA total and Retail Finance new business of £8,811 million
(2022: £8,775 million) and £1,185.4 million (2022: £1,124.3 million) respectively. As published at 31 December 2023
.
4.
Source: FLA. Cars bought on finance by consumers through the point of sale: New business values: Used cars: 2023, FLA total and Vehicle Finance total of £22,083 million (2022: £23,691
million) and £260.0 million (2022: £262.9 million) respectively, as published at 4 March December 2024.
05
Secure Trust Bank PLC
Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Chief Executive’s statement
Grow
Why we
measure this
Shows the growth in the
Group’s lending balances,
which generate income
Loans and advances
to customers
(£bn)
3.3
2.5
2.2
2023
2020
2019
2021
2022
2.2
2.9
Why we
measure this
Measures the Group’s ability to
generate profit from the equity
available to it
Total return on
average equity
(%)
7.3
15.9
12.8
2023
2020
2019
2021
2022
5.9
10.8
Why we measure this
Shows the interest margin
earned on the Group’s lending
balances, net of funding costs
Net interest
margin
(%)
2023
2020
2019
2021
2022
5.4
6.1
6.5
6.1
5.7
Key performance indicators
The following key performance indicators
are the primary measures used by
management to assess the performance
of the Group.
Certain key performance indicators represent alternative
performance measures that are not defined or specified
under International Financial Reporting Standards (‘IFRS’).
Definitions of the financial key performance indicators, their
calculation and an explanation of the reasons for their use
can be found in the Appendix to the Annual Report on
pages 175 to 178.
All key performance indicators are presented
on a continuing basis, unless otherwise stated.
Further information on discontinued operations are
included on Note 10 to the Financial Statements.
Further explanation of the financial key performance
indicators is discussed in the narrative of the Financial
review on pages 10 to 15, where they are identified by
being in bold font.
Further explanation of the non-financial key performance
indicators is provided in the Managing our business
responsibly (pages 41 to 54) and Climate-related financial
disclosures (pages 55 to 64) sections.
The Directors’ Remuneration Report, starting on page 85,
sets out how executive pay is linked to the assessment of
key financial and non-financial performance indicators.
06
Secure Trust Bank PLC
Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Chief Executive’s statement
Care
Why we
measure this
Indicator of customer satisfaction
with the Group’s products
and services
Customer
Feefo ratings
(Stars)
4.6
4.6
4.7
2023
2020
2019
2021
2022
4.7
4.6
Why we
measure this
Indicator of employee
engagement and satisfaction
Employee survey
trust index score
(%)
83
80
79
2023
2020
2019
2021
2022
82
85
Why we
measure this
Indicator of the Group’s impact
on the environment
Environmental
intensity indicator
(%)
2.2
3.0
4.7
2023
2020
2019
2021
2022
3.1
2.8
Sustain
Why we
measure this
The CET 1 ratio demonstrates
the Group's capital strength
Common Equity Tier 1
(‘CET 1’) ratio
(%)
2023
2020
2019
2021
2022
12.7
14.5
12.6
14.0
14.0
Why we
measure this
Measures how efficiently the
Group uses its cost base to
produce income
Cost to income
ratio
(%)
57.5
54.0
60.0
56.3
2023
2020
2019
2021
2022
56.6
55.0
Why we
measure this
Measures how effectively the
Group manages the credit risk
of its lending portfolios
Cost of risk
(%)
1.4
0.2
1.7
2023
2020
2019
2021
2022
2.0
1.4
Adjusted cost to income ratio
excludes exceptional items.
For further information see page 12
(Mark out of 5 based on star rating from
1,989 reviews (2022: 990, 2021: 937,
2020: 1,466, 2019:1,754))
(Total Scope 1, 2 and certain Scope
3 emissions per £m Group operating
income. See page 61 for further details)
07
Secure Trust Bank PLC
Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Chief Executive’s statement
Strategic priorities
At half year we launched our Optimising for Growth strategic priorities which support our strategic pillars of Grow, Sustain and Care.
A clear focus on simplifying the Group, enhancing customer experience and leveraging our networks will enable us to progress
towards delivering all of our medium-term targets.
Simplify
Our cost optimisation programme, Project Fusion, remained a key focus and we have successfully delivered annualised cost savings
of £4 million and are on track for £5 million annualised cost savings by the end of 2024. This has primarily been achieved through
streamlining legacy operational processes across a number of areas, simplifying the Group and reducing the number of business
lines we operate in. We have also taken the opportunity to review leadership structures, roles and spans of control and undertaken an
extensive review of our supplier contracts which has delivered significant savings, as well as reducing our property footprint by exiting
two properties in Solihull and Cardiff.
Enhance customer experiences
Ensuring we provide high customer satisfaction remains a priority for us. We continue to score highly with Feefo, scoring 4.6 stars out
of 5 (2022: 4.6 out of 5 stars), and won Feefo’s very exclusive accolade for customer service – the Feefo 10 Years of Excellence Award,
recognising businesses who have won a Feefo Trusted Service Award for 10 years running. Feefo also recognised our Vehicle Finance
and Retail Finance teams and we were awarded ‘Platinum Trusted Service Award’. Our Savings team secured Feefo’s ‘Gold Trusted
Service Award’.
The Group was recognised externally for its Vehicle Finance and Commercial Finance businesses. Vehicle Finance was nominated
for the Finance Provider of the Year Award at the Motor Trader Independent Dealer Awards 2023 for the third year in a row, and our
Commercial Finance team received the Asset-Based Lender of the Year Award at the Real Deals Private Equity Awards, the longest
running and most prestigious Private Equity awards in Europe.
Our customer experience is increasingly digital, with the launch of our Savings app, with 15% of customers registered since the launch.
Also, over 80% of our Retail Finance customers are registered for online account management. Internal net promoter scores remain
high for our Consumer Finance businesses and benchmark well against our industry.
As part of the new Consumer Duty, which came in at the end of July 2023, we undertook a comprehensive review of our
Consumer Finance and Savings products and services, including consumer testing. A number of enhancements were made to our
communications to improve our customer experience.
The market for acquiring deposits continues to be competitive due to the high interest rate environment. During the year, we raised
record levels of deposits and retained significant funds on maturing products. As Bank Base Rate rose, we supported customers by
continuing to increase rates across our managed rate products. We have introduced a Standard Savings Rate, setting the minimum
rate of interest for variable rate accounts. Our deposits are entirely from retail customers and 96% of deposits are fully covered by the
Financial Services Compensation Scheme.
Leverage networks
Strong relationships are critical to our business model. Maintaining a network of introducers from which we receive repeat lending
is a key focus. Our businesses have established relationships with partners, retailers, car dealerships, intermediaries and professional
advisers. The Group looks to further deepen these existing relationships to originate new business; to expand and tailor our product
offering; and take market share opportunities.
We have over 1,200 retailer partners within Retail Finance, which has supported lending growth of 16.0% during the year, and
a year-end lending balance of £1.2 billion. We successfully increased our volumes in large furniture retailers and entered a new sector
for financing electric vehicle chargers. Our AppToPay product has been seamlessly integrated into our established technology and
is operational with some of our retailer partners. In Vehicle Finance we now have a network of over 750 car dealerships. This has
supported net lending growth of 25.2%, and a year-end lending balance of £0.5 billion.
Our Business Finance businesses offer bespoke products and personalised account management. In Commercial Finance, private
equity groups, professional advisory firms and accountants are important relationships for new deal flow. Nearly two-thirds of our
private equity partners have made more than one client introduction, valuing our service proposition to our clients and their investors.
In 2023, 80% of Real Estate Finance’s new lending came through existing customer relationships, demonstrating the attractiveness
of our service and product proposition.
Enabled by technology
We have successfully launched a number of technology enhancements, which have allowed customers to interact with us more easily
and to streamline the end-to-end process. In addition to the launch of our Savings app, we launched AppToPay in Retail Finance,
a workflow management tool for Commercial Finance and confirmation of payee within our Savings platform.
Regulatory Initiatives
During H2 2023 we engaged in formal discussions with the FCA about our collections processes, procedures and policies. This follows
the FCA’s review of Borrowers in Financial Difficulty (‘BiFD’) across the industry. We have engaged external support to assist us with
this review and have delivered enhancements to our collections activities, which includes offering a wider range of forbearance
options to our customers. We expect the review to be completed in H2 2024.
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Secure Trust Bank PLC
Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Chief Executive’s statement
In January 2024, the FCA announced it was to undertake a review of discretionary commission arrangements in the motor finance market.
We sometimes operated these arrangements until June 2017, ahead of the FCA banning their use in January 2021. We believe that the
overall proportion of loans where we used discretionary commission arrangements was small and for a shorter period, relative to the
industry in general. The FCA plans to set out its next steps in Q3 2024, when the implications for the industry should become clearer.
Environmental, Social and Governance (‘ESG’)
I would like to thank all of our employees, who yet again show their commitment and passion for the organisation. We have been
acknowledged five times this year by Great Places to Work
®
as noted below, and received a Trust Index score of 83%, which was
a great outcome. Alongside this we also won the ENEI 2023 award for ‘Innovative Approach to Diversity, Equality, and Inclusion’
in relation to our podcast, which is aimed at creating a voice for colleagues, helping dispel stereotypes, increasing understanding
and celebrating our diversity.
2023 Awards
Best Workplaces Special
Recognition
TM
– 5 years
Best Workplaces in Financial
Services & Insurance
TM
Best Workplaces Europe
TM
Best Workplaces for Women
TM
Best Workplaces for Wellbeing
TM
We recently installed solar panels at our head office, which will contribute to our objective of reducing our Scope 1 and 2 CO
2
e
emissions. This will provide about a quarter of our electricity and reduce greenhouse gas emissions by 15 tonnes CO
2
e per year.
We have seen our environmental intensity indicator reduce 21.4% year-on-year (for further information see pages 61 to 62). We have
also made strong progress against our other ESG targets. Further details of our achievements can be found on pages 41 to 43.
Retirement of Chairman
On behalf of all my colleagues, I would like to thank Michael for his exemplary service to the Group over the years. He has been
an exceptional Chairman, and I thank him personally for the guidance and support he has given me since I took on the role of Chief
Executive Officer. His counsel has been invaluable. I wish him the very best for the future.
Outlook
With inflation falling ahead of Bank of England expectations, financial markets are predicting the Bank Base Rate has peaked and will
begin to fall in 2024. While macro conditions remain uncertain, the Board is very confident in the Group’s ability to make further strategic
progress in the year ahead, improve market share in our Consumer businesses and manage credit risk effectively. We sincerely hope this
starts to ease the ‘cost of living’ burden and financial pressure on our customers and is the beginning of a period of relative economic
stability. We are well positioned to deliver our medium-term targets and face the future with renewed confidence.
David McCreadie
Chief Executive Officer
20 March 2024
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Secure Trust Bank PLC
Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Financial review
Further progress
in income
and net lending
Continued focus on net lending
growth whilst maintaining strong
credit discipline and cost management.”
Rachel Lawrence
Chief Financial Officer
Income statement
Continuing operations
2023
£million
2022
£million
Movement
%
Interest income and similar income
304.0
203.0
49.8
Interest expense and similar charges
(136.5)
(50.4)
170.8
Net interest income
167.5
152.6
9.8
Fee and commission income
17.3
17.4
(0.6)
Fee and commission expense
(0.1)
(0.4)
(75.0)
Net fee and commission income
17.2
17.0
1.2
Operating income
184.7
169.6
8.9
Net impairment charge on loans and advances to customers
(43.2)
(38.2)
13.1
Gains on modification of financial assets
0.3
1.1
(72.7)
Fair value and other gains/(losses) on financial instruments
0.5
(0.3)
(266.7)
Operating expenses
(99.7)
(93.2)
7.0
Profit before income tax from continuing operations before exceptional items
42.6
39.0
9.2
Exceptional items
(6.5)
–
–
Profit before income tax from continuing operations
36.1
39.0
(7.4)
Income tax expense
(9.7)
(9.4)
3.2
Profit for the year from continuing operations
26.4
29.6
(10.8)
Discontinued operations
(Loss)/profit before income tax from discontinued operations
(2.7)
5.0
(154.0)
Income tax credit/(expense)
0.6
(0.9)
(166.7)
(Loss)/profit for the year from discontinued operations
(2.1)
4.1
(151.2)
Profit for the year
24.3
33.7
(27.9)
Basic earnings per share (pence) – Total
129.6
180.5
(28.2)
Basic earnings per share (pence) – Continuing
140.8
158.5
(11.2)
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Secure Trust Bank PLC
Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Financial review
Selected key performance indicators and performance metrics
2023
£million
2022
£million
Movement
%
Total profit before tax
33.4
44.0
(24.1)
%
%
Percentage
point movement
Net interest margin
5.4
5.7
(0.3)
Yield
9.8
7.5
2.3
Cost of funds
4.4
1.9
2.5
Adjusted cost to income ratio
54.0
55.0
(1.0)
Statutory cost to income ratio
57.5
55.0
2.5
Cost of risk
1.4
1.4
–
Adjusted return on average equity
9.6
9.4
0.2
Total return on average equity
7.3
10.8
(3.5)
Common Equity Tier 1 (‘CET 1’) ratio
12.7
14.0
(1.3)
Total capital ratio
15.0
16.1
(1.1)
Certain key performance indicators and performance metrics represent alternative performance measures that are not defined
or specified under International Financial Reporting Standards (‘IFRS’). Definitions of these alternative performance measures,
their calculation and an explanation of the reasons for their use can be found in the Appendix to the Annual Report on pages
175 to 178. In the narrative of this review, key performance indicators are identified by being in bold font.
All key performance indicators are presented on a continuing basis, unless otherwise stated. Adjusted profit before tax refers
to profit before income tax from continuing operations before exceptional items. Further information on exceptional items are
included on page 12 and discontinued operations are included on Note 10 to the Financial Statements.
The Directors’ Remuneration Report, starting on page 85, sets out how executive pay is linked to the assessment of key financial
and non-financial performance metrics.
2023 saw a continued focus on net lending growth whilst maintaining strong credit discipline and
cost management. Growth has been focused on higher credit quality prime lending, particularly
within our Consumer Finance businesses. Net lending growth of 13.6% has generated an 8.9%
increase in operating income, and this has been achieved with a 7.0% increase in costs. The Group
achieved an adjusted profit before tax of £42.6 million (2022: £39.0 million), with the CET 1 ratio
remaining strong at 12.7%.
Total Earnings Per Share (‘EPS’) fell from 180.5 pence per share (2022) to 129.6 pence per share. However, on an adjusted basis EPS
increased to 172.3 pence per share (2022: 158.5 pence per share).
Total return on average equity
decreased from 10.8% (2022) to
7.3%. On an adjusted basis return on average equity increased to 9.6% (2022: 9.4%).
Total return on average equity
performance in
2022 was impacted by the one-off £6.1 million gain recognised on the sale of the Debt Managers (Services) Limited’s loan portfolio.
Detailed disclosures of EPS are shown in Note 11 to the Financial Statements. The components of the Group’s profit are analysed
in more detail in the sections below.
Operating income
The Group’s operating income increased by 8.9% to £184.7 million (2022: £169.6 million). Net interest income on the Group’s lending
assets continues to be the largest component of operating income. This increased by 9.8% to £167.5 million (2022: £152.6 million),
driven by growth in net lending assets, with average balances increasing by 14.8% to £3,099.4 million (2022: £2,699.3 million).
The Group’s
net interest margin
decreased to 5.4% (2022: 5.7%), reflecting new Tier 2 capital required to support our growth
ambitions, which reduced NIM by 19 bps in the year and the strategic shift towards lower yielding, lower risk lending in both our
Business Finance and Consumer Finance divisions. The last two years have been challenging given the steep rise in interest rates,
and we have actively managed the repricing of new lending and retail deposits to maintain product margins.
The Group’s other income, which relates to net fee and commission income, increased slightly by 1.2% to £17.2 million
(2022: £17.0 million).
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Impairment charge
Impairment charges increased to £43.2 million (2022: £38.2 million). The charge was impacted by one material loss of £7.2 million,
relating to a long-running problem debt case within the Commercial Finance business, which was highlighted in the 2022 Annual
Report and Accounts (Note 47.2 Non-adjusting post balance sheet events). Circumstances around the particular case were unique,
with a lessons learned exercise confirming no similar concerns across the portfolio. Whilst it is disappointing to record a loss of this
magnitude, the cost of risk since inception of the Commercial Finance business in 2014, excluding this specific impairment charge,
has been 0.04% of average lending balances, and would be 0.6%, inclusive of this case. This loss in the year resulted in a Group
cost of risk
of 1.4% in line with the prior year (2022: 1.4%). Cost of risk also reflects the benefit of an improving cost of risk within
the Consumer Finance businesses, due to an increased mix of higher quality lending, offset by increased impairment charges on
two defaulted loans in the Real Estate Finance business.
Cost of risk for the year, excluding the material loss highlighted above, is 1.2%. Overall impairment provisions remain robust at
£88.1 million (2022: £78.0 million) with a total coverage level of 2.6% (2022: 2.6%).
During the financial year, the Group refreshed macroeconomic inputs to its IFRS 9 Expected Credit Loss (‘ECL’) models, incorporating
its external economic advisor’s latest UK economic outlook. The forecast economic assumptions within each IFRS 9 scenario, and the
weighting applied, are set out in more detail in Note 16 to the Financial Statements.
The Group has applied Expert Credit Judgements (‘ECJ’s’) underlays totalling £1.2 million (2022: £2.9 million overlay), where
management believes the IFRS 9 modelled output is not fully reflecting current risks in the loan portfolios. Further details of these
ECJs are included in Note 16 to the Financial Statements. During the year, the Group implemented a new IFRS 9 Probability of Default
model for Vehicle Finance near prime lending, which now better reflects the underlying credit quality of business written, and has
reduced the need for ECJ’s.
Fair value and other gains/(losses) on financial instruments
During the year, the Group realised a gain of £1.2 million (2022: £nil) in relation to the buy-back of the 2018 Tier 2 debt. The Group also
recognised a loss of £0.8 million (2022: £nil) relating to interest rate swaps being entered into ahead of hedge accounting becoming
available, which will reverse to the income statement over the remaining life of the swaps. The Group has highly effective hedge
accounting relationships, and as a result, recognised a small hedging ineffectiveness gain of £0.1 million (2022: £0.3 million loss).
Operating expenses
The Group’s cost base increased in the period by 7.0% to £99.7 million (2022: £93.2 million), with the adjusted
cost income ratio
improving to 54.0% (2022: 55.0%), despite the impact of inflation on operating expenses. The ratio reflects both the increase in
operating income and the ongoing programme of initiatives that seek to achieve more efficient and effective operational processes,
including digitalisation of processes, supplier and procurement reviews, organisational design and property management. We are
on track to deliver £5 million of annualised costs savings by the end of 2024 as part of Project Fusion. Statutory
cost income ratio
inclusive of exceptional items was 57.5% (2022: 55.0%).
Taxation
The effective tax rate on continuing activities of 26.9%, increased compared with 2022 (24.1%) following the change in Corporation
Tax rate to 25% from 19% with effect from 1 April 2023. The effective rate is above the 2023 Corporation Tax rate of 23.5% mainly
as a result of non-deductible expenses in exceptional items. The total effective tax rate is 27.2% (2022: 23.4%).
Exceptional items
The Group recognised charges for exceptional items of £6.5 million during the year (2022: £nil). Costs of £1.8 million were incurred
in relation to non-recurring corporate activity that took place during H1 2023. Following the FCA’s review of Borrowers in Financial
Difficulty (‘BiFD’) across the industry, and in response to the specific feedback we received on our own collection activities, costs of
£4.7 million (comprising £2.7 million costs and £2.0 million potential redress/goodwill) have been incurred, or provided for, relating to
processes, procedures and policies in our Vehicle Finance collections operations. We have engaged external support to assist us with
this work and, where necessary, are taking the necessary actions to enhance our approach. Further details are included in Note 8 to
the Financial Statements.
Discontinued business
In May 2022, the Group disposed of the loan portfolio of Debt Managers (Services) Limited, realising an overall initial profit on
disposal of £6.1 million in the first half of 2022. A further £2.7 million of wind-down costs have been incurred during the year, with
no significant further costs expected.
Distributions to shareholders
The Board recommended the payment of a final dividend for 2023 of 16.2 pence per share, which together with the interim dividend
of 16.0 pence per share, represents a total dividend for the year of 32.2 pence per share (2022: 45.1 pence per share). This is in line
with the Group’s policy to pay total annual dividends representing 25% of annual earnings.
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Summarised balance sheet
Assets
2023
£million
2022
£million
Cash and Bank of England reserve account
351.6
370.1
Loans and advances to banks
53.7
50.5
Loans and advances to customers
3,315.3
2,919.5
Fair value adjustment for portfolio hedged risk
(3.9)
(32.0)
Derivative financial instruments
25.5
34.9
Other assets
35.8
36.8
3,778.0
3,379.8
Liabilities
Due to banks
402.0
400.5
Deposits from customers
2,871.8
2,514.6
Fair value adjustment for portfolio hedged risk
(1.4)
(23.0)
Derivative financial instruments
22.0
26.7
Tier 2 subordinated liabilities
93.1
51.1
Other liabilities
46.0
83.5
3,433.5
3,053.4
New business
Loan originations in the year, being the total of new loans and advances to customers entered into during the period, increased
by 11.5% to £2,305.4 million (2022: £2,067.8 million). Further details on the divisional split of this new business can be found in the
Business review on pages 16 to 23.
Customer lending and deposits
Group lending assets increased by 13.6% to £3,315.3 million (2022: £2,919.5 million), surpassing £3.0 billion for the first time, primarily
driven by strong growth in our Consumer Finance and Real Estate Finance businesses. This represents a significant step towards our
£4.0 billion of net lending ambition, as presented at our recent Capital Markets Day.
Consumer Finance balances grew by £262.8 million or 18.4%, driven by strong demand from strategic partner retailers.
Vehicle Finance arrears and levels of provision have been temporarily impacted by the Group’s review of its collections policies and
procedures, as part of our programme of work designed to ensure we deliver good outcomes for customers. Further analysis of loans
and advances to customers, including a breakdown of the arrears profile of the Group’s loan books, is provided in Note 16 to the
Financial Statements.
Customer deposits include Fixed term bonds, ISAs, Notice and Access accounts. Customer deposits increased by 14.2% to
£2,871.8 million (2022: £2,514.6 million). Total funding ratio of 111.7% decreased slightly from 31 December 2022 (112.5%). As set out
on page 15, the mix of the deposit book has continued to change as the Group has adapted to the Base Rate changes throughout
the period, with a focus on meeting customer demand for Access products, and retaining stable funds, which is reflected in the
increase in Fixed term bonds and ISAs.
Retail Finance
£1,185.4m
Vehicle Finance
£471.2m
Real Estate Finance
£434.0m
Commercial Finance
£214.8m
New business volumes
£2,305.4m
2022: £2,067.8m
Retail Finance
£1,223.2m
Vehicle Finance
£467.2m
Real Estate Finance
£1,243.8m
Commercial Finance
£381.1m
Loans and advances to customers
£3,315.3m
2022: £2,919.5m
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Investments and wholesale funding
As at the end of 2023, the Group held no debt securities (2022: £nil). Amounts due to banks consisted primarily of drawings from
the Bank of England Term Funding Scheme with additional incentives for SMEs (‘TFSME’) facility.
Tier 2 subordinated liabilities
Tier 2 subordinated liabilities represents £90.0 million of 10.5-year 13.0% Fixed Rate Callable Subordinated Notes, which qualify
as Tier 2 capital. The existing 2018 Notes were repurchased in February and March 2023.
Capital
Management of capital
Our capital management policy is focused on optimising shareholder value over the long-term. Capital is allocated to achieve
targeted risk adjusted returns whilst ensuring appropriate surpluses are held above the minimum regulatory requirements.
Key factors influencing the management of capital include:
• The level of buffers and the capital requirement set by the Prudential Regulation Authority (‘PRA’);
• Estimated credit losses calculated using IFRS 9 methodology, and the applicable transitional rules;
• New business volumes; and
• The product mix of new business.
Capital resources
Capital resources increased over the period from £376.8 million to £397.6 million. This includes the proposed 2023 final dividend
of £3.1 million. The increase was primarily in CET 1 capital and was driven by total profit for the year of £24.3 million, offset by the
2023 dividend of £3.1 million, and the reduction in the IFRS 9 transitional adjustment of £9.6 million. In addition, the increase in Tier
2 was driven by the newly-issued £90.0 million subordinated debt, which will have increased utilisation over time as capital eligibility
increases as a consequence of risk weighted asset growth.
Capital
2023
£million
Restated
1
2022
£million
CET 1 capital, excluding IFRS 9 transitional adjustment
335.8
315.2
IFRS 9 transitional adjustment
2.1
11.7
CET 1 capital
337.9
326.9
Tier 2 capital
2
59.7
49.9
Total capital
397.6
376.8
Total risk exposure
2,653.4
2,334.6
Capital ratios
2023
%
2022
%
CET 1 capital ratio
12.7
14.0
Total capital ratio
15.0
16.1
CET 1 capital ratio (excluding IFRS 9 transitional adjustment)
12.7
13.6
Total capital ratio (excluding IFRS 9 transitional adjustment)
14.9
15.7
Leverage ratio
9.7
10.7
1.
Restated to reflect a change in accounting policy relating to land and buildings, which are now presented at historical cost. Further details are provided in Note 1.3 to the Financial Statements.
2.
Tier 2 capital, which is solely subordinated debt net of unamortised issue costs, capped at 25% of total Pillar 1 and Pillar 2A requirements.
Capital requirements
The Total Capital Requirement, set by the PRA, includes both the calculated requirement derived using the standardised approach
and the additional capital required, derived from the Internal Capital Adequacy Assessment Process (‘ICAAP’). In addition, capital
is held to cover generic buffers set at a macroeconomic level by the PRA.
2023
£million
Restated
1
2022
£million
Total Capital Requirement
238.8
210.1
Capital conservation buffer
66.3
58.4
Countercyclical buffer
53.1
23.3
Total
358.2
291.8
1.
Restated to reflect a change in accounting policy relating to land and buildings, which are now presented at historical cost. Further details are provided in Note 1.3 to the Financial Statements.
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Financial Statements
Financial review
The increase in lending balances through the year resulted in an increase in risk weighted assets over the period, bringing the total
risk exposure up from £2,334.6 million to £2,653.4 million. The capital conservation buffer has been held at 2.5% of total risk exposure
since 1 January 2019. The countercyclical capital buffer rose from 0% to 1% of relevant risk exposures in December 2022, and
remained at this level until 5 July 2023 when it rose again to 2%.
Liquidity
Management of liquidity
The Group uses a number of measures to manage liquidity risk. These include:
• The Overall Liquidity Adequacy Requirement (‘OLAR’), which is the Board’s view of the Group’s liquidity needs, as set out in the
Board-approved Internal Liquidity Adequacy Assessment Process (‘ILAAP’).
• The Liquidity Coverage Ratio (‘LCR’), which is a regulatory measure that assesses net 30-day cash outflows as a proportion of High
Quality Liquid Assets (‘HQLA’).
• Total funding ratio, as defined in the Appendix to the Annual Report.
• ‘HQLA’ are held in the Bank of England Reserve Account and UK Treasury Bills. For LCR purposes, the HQLA excludes UK Treasury
Bills that are pledged as collateral against the Group’s TFSME drawings with the Bank of England.
The Group exceeded the LCR minimum threshold (100%) throughout the year, with the Group’s average LCR being 208.0% (based
on a rolling 12 month-end average).
Liquid assets
We continued to hold significant surplus liquidity over the minimum requirements throughout 2023, managing liquidity by holding
HQLA and utilising funding predominantly from retail funding balances from customer deposits. Total liquid assets reduced to
£400.2 million (2022: £416.9 million) which amongst other things reflects the levels of liquidity at the end of 2023 to support funding
required to fund the pipeline.
The Group is a participant in the Bank of England’s Sterling Money Market Operations under the Sterling Monetary Framework and
has drawn £390.0 million under the TFSME. The Group has no liquid asset exposures outside of the United Kingdom and no amounts
that are either past due or impaired.
Liquid assets
2023
£million
2022
£million
Aaa – Aa3
356.4
370.1
A1 – A2
43.8
41.6
Unrated
–
5.2
Total
400.2
416.9
We continue to attract customer deposits to support balance sheet growth. The composition of customer deposits is shown in the
table below:
Customer deposits
2023
%
2022
%
Fixed term bonds
54
56
Notice accounts
6
20
ISA
22
17
Access accounts
18
7
Total
100
100
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Annual Report & Accounts 2023
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Financial Statements
What we do
• We operate a market-leading online e-commerce service to retailers, providing
unsecured, prime lending products to UK customers to facilitate the purchase
of a wide range of consumer products, including bicycles, musical equipment
and instruments, furniture, outdoor/leisure items, electronics, dental, jewellery,
home improvements products and football season tickets. These retailers
include a large number of household names.
• The finance products are either interest-bearing or have promotional interest-
free credit subsidised by retailers. For interest-free products, the customer
pays the same price for the goods, regardless of whether credit is taken or not.
Taking the credit option allows the customer to spread the cost of the main
purchase into more manageable monthly payments, and afford ancillary extras
and add-ons, which can also be financed. Interest-free borrowing attracts a large
proportion of high credit quality customers.
• The online processing system allows customers to sign their credit agreements
digitally, thereby speeding up the pay-out process, and removing the need to
handle sensitive personal documents. 90% of applications are decisioned in an
average of six seconds.
• The business is supported by a highly experienced senior team and workforce.
2023 performance
• Lending and revenue growth has come mainly from interest-free lending
into the furniture and jewellery sectors. We achieved record new lending for
another year and increased our lending balances by 16% (2022: 37.9%), resulting
from an increase in our market share of the retail store and online credit new
business market
1
.
• Extension of our footprint within key retail partners, as well as the introduction
of new retailer relationships leveraging our strong track record of systems
integration. As a result of significant new business growth over recent years
we are now well established as one of the major lenders in the point of sale
credit market.
• We have consciously focused on prime sectors, remaining cautious in response
to the economic environment. This is a driver of the net interest margin decrease
year-on-year. However, cost of risk (1.4%) has also decreased compared to 2022
(1.6%), and is in line with expectation and reflects a growing lower credit risk
lending book.
• At the end of the year, 86.3% (2022: 85.1%) of the lending book related to
interest-free lending, and 80.4% (2022: 68.9%) of customers have signed up
to online account management allowing self-service of their account.
Outlook
• We anticipate further lending growth from our existing retail partners and our
operational plans are focused on digitalising all key processes to improve our
customer and retail partners’ experience.
Business review
Consumer Finance
Retail Finance
We provide quick and easy finance options at point of purchase:
•
Helping consumers purchase lifestyle goods and services without having to wait.
•
Supporting the growth of UK retailers by offering integrated finance options that drive sales.
Performance history
New business
(£m)
2023
2020
2019
2021
2022
726.0
1,185.4
614.5
771.5
1,124.3
Loans and advances
to customers
(£m)
2023
2020
2019
2021
2022
688.9
1,223.2
658.4
764.8
1,054.5
Net interest margin
(%)
2023
2020
2019
2021
2022
8.9
6.4
8.7
8.1
6.8
Risk adjusted margin
(%)
2023
2020
2019
2021
2022
6.4
5.3
6.7
7.8
5.6
1.
Source: Finance & Leasing Association (‘FLA’): New business values within retail store and online credit: 2023: 13.5%
(2022: 12.8%): FLA total and Retail Finance new business of £8,811 million (2022: £8,775 million) and £1,185.4 million
(2022: £1,124.3 million) respectively. As published at 31 December 2023
.
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Electrifying
interest-free
finance
2023 Retail Finance loans and advances to customers
£1.2bn
2022: £1.1 billion
Market share
1
13.5%
2022: 12.8%
In March 2023, a successful new business
partnership between British Gas and V12
Retail Finance was formed.
Initially, the launch was based solely on the purchase of E Hive
chargers, using interest-free finance over 10 months, however
due to the success of the launch, in early May, British Gas
increased the offering to include untethered chargers and
added an interest-free six-month option.
As the electric/hybrid car market continues to be a major focus
for the UK, the demand to have chargers installed at home is
rising. British Gas advertises across all British Gas/Centrica sites,
promoting Hive chargers with an app that controls everything
related to home services, including Hive EV charging, making it
easy for customers, much like the V12 application that provides
a simple and streamlined process from any online device.
British Gas Hive systems can currently be found in 1.9 million
homes, a figure that is set to increase.
The experience I have had has been excellent.
The interest-free credit is a great option to have.”
Customer feedback
Trustpilot, V12 Retail Finance customer
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Financial Statements
Consumer Finance
Vehicle Finance
We help to drive more business in UK car dealerships:
•
Providing funds to customers to help them buy used vehicles from dealers via Vehicle Finance.
•
Providing funds to dealers to help them buy vehicles for their forecourts and showrooms via Stock Funding.
Business review
What we do
• We provide lending products that are secured against the vehicle being financed.
The majority of vehicles financed are used cars sold by independent dealers.
• We also provide vehicle stock funding whereby funds are advanced and secured
against dealer forecourt used car stock; sourced from auctions, part exchanges
or trade sources.
• Finance is provided via technology platforms, allowing us to receive applications
online from its introducers; provide an automated decision; facilitate document
production through to pay-out to dealer; and manage in-life loan accounts.
2023 performance
• Continued lending growth, despite the market for used cars bought on point-of-
sale finance shrinking by 6.8%
1
year-on-year by value. Market share increased to
1.2% from 1.1% in 2023
1
.
• New business growth exceeded lending growth due to the short-term duration
of Stock Funding.
• Our Prime lending products, launched in 2021, delivered £114.8 million of new
lending during 2023 and represent 24.4% (2022: 23.4%) of new business.
• 33.4% (2022: (24.2%) of the lending portfolio relates to prime products, this
is reflected in our net interest margin and risk-adjusted margin performance.
Cost of risk reduced from 6.3% to 3.4% (2022), driven by the mix of higher credit
quality business following actions in 2022 and 2023 to tighten credit criteria.
• The Stock Funding product launched in 2019 now has 250 active dealers
(2022: 193) with credit lines of £51.5 million (2022: £37.0 million).
• As part of the continuing Motor Transformation Programme (‘MTP’), in 2023
we successfully delivered phase two of the new collection platform to
incorporate the prime portfolio.
• During H2 2023, we engaged in formal discussions with the FCA about our
collections policies and procedures in Vehicle Finance, in relation to Borrowers
in Financial Difficulty. Where necessary, we are enhancing our approach to
ensure good outcomes are delivered in line with the Group’s purpose and
values (see Note 8 to the Financial Statements).
Outlook
The final phase of MTP is to transfer Near Prime originations onto the new platform
with the implementation of a new rate for risk module, which will allow us to price
lending based on the risk profile of the borrower.
In January 2024, the FCA announced it was to undertake a review of discretionary
commission arrangements in the motor finance market. We sometimes operated
these arrangements until June 2017. The FCA plans to set out its next steps in
Q3 2024, when the implications for the industry should become clearer. (See Note
31.1.2 to the Financial Statements).
Performance history
New business
(£m)
2023
2020
2019
2021
2022
183.3
471.2
78.6
199.8
401.7
Loans and advances
to customers
(£m)
2023
2020
2019
2021
2022
323.7
467.2
243.9
263.3
373.1
Net interest margin
(%)
2023
2020
2019
2021
2022
13.5
10.3
12.8
13.1
12.0
Risk adjusted margin
(%)
2023
2020
2019
2021
2022
9.1
7.3
5.1
14.0
6.1
1.
Source: FLA. Cars bought on finance by consumers through the point of sale: New business values: Used cars: 2023,
FLA total and Vehicle Finance total of £22,083 million (2022: £23,691 million) and £260.0 million (2022: £262.9 million)
respectively, as published at 4 March 2024.
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Providing
more
options for
our dealers
2023 Vehicle Finance loans and advances to customers
£0.5bn
2022: £0.4 billion
Number of brokers, dealers, internet introducers
756
2022: 626
In 2023, we continued to invest in our
Stock Funding product, which helps
vehicle dealerships with the funding and
technology to seamlessly buy vehicles
from wholesale suppliers.
Our integration with auction houses extended from 13 to 16,
thereby extending the range of suppliers for our dealers.
Our technology, coupled with the strong relationships we
hold across the industry, continues to help us to make our
Stock Funding product stand out, and provide us with a
strong point of differentiation in the market. This contributed
towards achieving 250 active dealers, where credit lines
reached £50 million. Since inception of the product launching
in 2019, we’ve funded over £400 million of vehicles.
Easy to work with and very fast application
approval. Highly recommended.”
Customer feedback
Vehicle Finance customer
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Financial Statements
Business Finance
Real Estate Finance
We lend money against residential properties to professional landlords and property developers:
•
Providing commercial lending facilities to professional landlords to allow them to improve and grow their portfolio.
•
Providing development facilities to property developers and SME housebuilders to help build new homes for sale or letting.
•
We have an experienced specialist team, with many years of property expertise, which is nimble and responsive within
the market.
Business review
What we do
• Providing first charge secured lending to professional landlords to allow them
to improve and grow their portfolio.
• Providing development facilities to property developers and SME housebuilders
to help build new homes for sale or letting.
• We provide lending secured against property assets to a maximum 70% loan-to-
value ratio, on fixed or variable rates over a term of up to five years.
• Finance opportunities are sourced and supported on a relationship basis directly
and via introducers and brokers.
• We maintain a strong risk management framework for existing and
prospective customers.
2023 performance
• We delivered record new business lending for the third year running by
working with existing larger customers to take advantage of new investment
opportunities and to re-finance their portfolios.
• Lending balances are at an all-time high, despite a difficult economy, with
interest rate volatility and SME borrowers less willing or able to risk their capital.
• The portfolio principally comprises lower risk residential investment lending,
83.8% (2022: 85.0%). The remainder of the book relates to development and
commercial investment lending.
• Net revenue margin was broadly flat year-on year despite the challenging
interest rate environment.
• Impairment charges for the year were £4.5 million (2022: £1.3 million) and this
has impacted risk adjusted margin year-on-year. This charge primarily reflects
a higher provision on one legacy development loan from within the whole
portfolio. Without this charge, risk adjusted margin would be 2.5% (2022: 2.6%).
• Secured loan book with an average loan-to-value of 57.2% (2022: 57.7%),
reducing the level of inherent risk to credit losses.
Outlook
• We believe that the long-term outlook is positive for real estate lending.
Our specialist and bespoke services stand us in good stead to deliver
sustainable growth.
Performance history
New business
(£m)
2023
2020
2019
2021
2022
316.3
434.0
189.5
376.1
384.5
Loans and advances
to customers
(£m)
2023
2020
2019
2021
2022
962.2
1,243.8
1,051.9
1,109.6
1,115.5
Net revenue margin
(%)
2023
2020
2019
2021
2022
3.2
2.6
3.0
3.0
2.7
Risk adjusted margin
(%)
2023
2020
2019
2021
2022
3.2
2.2
2.5
3.0
2.6
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Financial Statements
Business review
Supporting
energy efficiency
through our
lending
2023 Real Estate Finance loans and advances to customers
£1.2bn
2022: £1.1 billion
Average loan-to-value
57.2%
2022: 57.7%
Real Estate Finance has provided a dedicated
Energy Performance Certificate (‘EPC’)
Improvement Loan to Kingsford Group,
provider of luxury apartments in Edinburgh.
The EPC Improvement Loan is designed to
help landlords remediate their properties
with energy-saving solutions for themselves
and their tenants.
Arranged by Matthew Blaine-Young, Head of Origination at
Real Estate Finance, the EPC Improvement Loan will fund the
installation of secondary glazing and, once upgraded to an EPC
C-rating, further measures will be introduced, such as solar panels,
a community battery and heat pump technology.
Alan Watts,
CEO of Kingsford Group, said:
Matthew at Secure Trust Bank understood my
desire to make the right decisions for people
and the planet. There was no doubt that the
EPC Improvement Loan was the best option
interest rate.”
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What we do
• Our lending remains predominantly against receivables, releasing funds up to
90% of qualifying invoices under invoice discounting facilities. Other assets can
also be funded either long or short-term and across a range of loan-to-value
ratios alongside these facilities.
• We also provided additional lending to existing customers through the
Government guaranteed Coronavirus Business Interruption Loan (‘CBIL’)
Scheme, Coronavirus Large Business Interruption Loan (‘CLBIL’) Scheme and
Recovery Loan Scheme (‘RLS’).
• Business is sourced and supported directly from clients via private equity houses
and professional introducers, but is not reliant on the broker market.
• The Commercial Finance team has a strong reputation across the Asset Based
Lending market. The experienced specialist team works effectively with its
partners across private equity and tier 1 and 2 accountancy practices.
• Partners and clients have direct access to decision-makers.
2023 performance
• We delivered record new business in 2023.
• There was a modest year-on-year increase in lending balances as the economic
headwinds led to higher client attrition.
• The large increase in net revenue margin is driven by fees charged for new
facilities, extensions and early terminations. In 2023 and 2022 increases in
UK Base Rates were passed through to clients.
• As reported in the 2023 Interim Report, the 2023 impairment charge of
£8.0 million incorporates a £7.2 million charge on a one-off, long-running
problem debt case. Circumstances around the particular case were unique, with
a lessons learned exercise confirming no similar concerns across the portfolio.
• The Group continues to administer UK Government CBIL, CLBILS and RLS
products. At 31 December 2023, the outstanding lending balances under
these schemes totalled £15.5 million (2022: £28.9 million) with 76% of balances
now repaid.
Outlook
• Economic and market conditions remain challenging for our clients, but we
remain committed to supporting their growth and success and we look forward
to partnering with new businesses in 2024.
Performance history
New business
(£m)
2023
2020
2019
2021
2022
162.2
214.8
126.1
93.7
157.3
Loans and advances
to customers
(£m)
2023
2020
2019
2021
2022
251.7
381.1
230.7
313.3
376.4
Net revenue margin
(%)
2023
2020
2019
2021
2022
6.0
7.0
5.5
5.7
6.4
Risk adjusted margin
(%)
2023
2020
2019
2021
2022
5.9
4.7
5.0
5.8
6.2
Business Finance
Commercial Finance
We support the growth of UK businesses by enabling effective cash flow:
•
Providing a full suite of Asset Based Lending to UK clients who need working capital solutions.
•
Providing bespoke lending facilities where Secure Trust Bank is well known for working closely with clients to sustain
their businesses.
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2023 Commercial Finance loans and advances to customers
£0.4bn
2022: £0.4 billion
Total facilities available to clients
£0.7bn
2022: £0.7 billion
Award
winning
Lending
In April, Commercial Finance won the Asset
Based Lender of the Year award at the 2023
Real Deals Private Equity Awards, the longest
running and most prestigious Private Equity
awards in Europe.
Richard Foote, London and South East’s Regional Managing
Director, said: “We were absolutely delighted to be named Asset
Based Lender of the Year. Private Equity is a strategic focus for
Commercial Finance, so it is a honour for us to be recognised
by the industry. A huge thanks and congratulations to all of our
fantastic team. The award is testament to their hard work and the
support we provide to our clients and introducers.
My experience of Secure Trust Bank, and
in particular Dillon and Munair, has been a positive
one since we switched over from a high street
lender. Dillon and Munair are always available
for any queries I might have, and always offer
good advice and service. We would 100%
recommend STB.”
Coleherne Limited
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What we do
• We offer a range of savings accounts that are purposely simple in design, with
a choice of products from Access to 180-day notice, and six month to seven year
fixed terms across both Bonds and ISAs.
• Accounts are made available and priced in line with our ongoing funding needs,
allowing each individual to hold a maximum balance of £1 million.
• Our range of savings products enables us to access the majority of the UK
personal savings markets and compete for significant liquidity pools, achieving
a lower marginal cost with the volume, mix and the competitive rates offered;
optimised to the demand of our funding needs.
2023 performance
• We successfully raised over £1.7 billion of new deposits and retained over
£0.7 billion at maturity during the year, reaching a record deposit holding
of £2.9 billion.
• During 2023 the Bank of England continued to increase the Bank Base Rate,
which drove up the cost of acquiring and retaining retail deposits. We continue
to offer a simple product offering, distributed via the ‘best buy’ tables and
therefore priced competitively.
• We have built on the launch of the Access Account in 2022, with balances
surpassing £0.5 billion at year-end. Savers have benefited from higher interest
rates and a competitive variable market allowing decent returns without
sacrificing immediate access to funds. Similarly, these features of the market
have weakened demand for Notice products. We enhanced the Access Account
this year, allowing customers to save deposits from £1 to £250,000, expanding
from our previous bands of £1,000 to £85,000.
• ISAs have remained important to achieving our growth plans in 2023, as well
as for customers, with the higher-rate market environment creating increased
demand for tax-free savings. We have improved the ISA application journey
by introducing a shorter form process for existing customers.
• Fixed-rate term deposits continue to form a key part of our funding mix, with
over £0.6 billion retained into new fixed-term products at maturity.
• During 2023, we continued to prioritise Savings’ highest volume
correspondence and convert from paper to digital. 42% of correspondence was
converted to digital during 2023. The overall total correspondence that is now
digital is 59%. For customers, this is timelier, removes reliance on the postal
service, and supports our strategic priorities of simplifying and enhancing our
customer experience. This initiative provides a cost saving, as well as acting on
customer feedback about too much paper being issued. This initiative continues
into 2024.
Outlook
• 2024 is likely to be a dynamic market for savings as product pricing adjusts to
a falling interest rate environment. Customers will seek to optimise returns and
we have a product set to meet these demands.
Savings
We look after our customers’ savings and provide a competitive return:
•
Helping our customers save for special events such as a holiday, wedding or retirement.
•
Helping our lending businesses fund their product to enable them to lend in the market we compete in.
Savings Review
Total deposits
(£m)
2023
2020
2019
2021
2022
1,992.5
2,871.8
2,020.3
2,103.2
2,514.6
Total funds raised
(£m)
2023
2020
2019
2021
2022
560.2
1,719.1
535.9
661.3
1,210.1
ISA
£629.6m
£174.3m
£521.3m
£1,546.6m
Notice
Access
Term
2023
£2,871.8m
ISA
£421.8m
£500.7m
£178.1m
£1,414.0m
Notice
Access
Term
2022
£2,514.6m
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Launch of
our first
Savings
mobile app
2023 Total customer deposits
£2.9bn
2022: £2.5 billion
Retail deposits covered by FSCS
95.6%
2022: 94.9%
Business review
In September we launched our first Savings
mobile app in response to customer feedback.
The app which is available for both iOS and Android, makes
it easy for customers to manage their savings accounts within
a secure platform optimised for mobile devices. Customers
can view their balance, view and approve transactions, make
withdrawals, view statements and send/receive secure messages.
The launch demonstrates how we are leveraging technology in line
with our optimising for growth strategy by enhancing the customer
experience, while also reducing the need for them to call us.
Roll-out of the app to existing customers was completed by year-
end, at which point, 12% of eligible customers had registered.
Since the launch, circa 15% of all withdrawal requests were
submitted via the app.
We remain focused on keeping our innovations clear and simple,
so that we can meet our customers’ needs and continue to look
for opportunities to enhance the capability of the app.
Excellent customer service – answered
my questions and were helpful.”
Customer feedback
Feefo, Savings customer
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Market review
The Group operates exclusively within the UK and its revenue is derived almost entirely from customers operating in the UK, the
Group is therefore particularly exposed to the condition of the UK economy. Customers’ borrowing demands are variously influenced
by, among other things, UK property markets, employment levels, inflation, interest rates and customer confidence. The economic
environment and outlook affects demand for the Group’s products, margins that can be earned on lending assets and the levels of loan
impairment provisions.
As a financial services firm, the Group is subject to extensive and comprehensive regulation by governmental and regulatory bodies in
the UK. The Group conducts its business subject to ongoing regulation by the Financial Conduct Authority (‘FCA’) and the Prudential
Regulation Authority (‘PRA’). The Group must comply with the regulatory regime across many aspects of its activities, including: the
training, authorisation and supervision of personnel; systems; processes; product design; customer journey and documentation.
Economic review
Economic growth, measured in quarterly UK Gross Domestic Product (‘GDP’), slowed in 2023, with only a 0.1% increase
1
in GDP
recorded. This represents a material fall from 2022 where annual GDP growth was 4.3%. Economists’ base case forecasts indicate
GDP growth will remain low in 2024 at 0.5%, driven by the lagged impacts of tighter monetary policy on both households and the
corporate sector.
Inflation remains above the Bank of England 2% target, although it has been falling ahead of expectations during the year, from 10.1%
in January 2023 to 4.2%
1
in December 2023. The fall follows the Bank of England’s response to tackle inflation with several Base Rate hikes
in the year, taking rates from 3.5% to 5.25% by December 2023. Financial markets have responded to the recent inflation data, pricing in
a fall in the Bank Base Rate to 4.25% by the end of 2024. Although the Bank Base Rate has likely peaked, the full impact of the tightening
since late 2021 is still to feed through to the real economy and consumers’ disposable incomes and capacity for discretionary spending.
Employment levels remain high at 75.0%
1
, while unemployment continues to remain at a low level of 3.8%
1
, but did increase slightly
during the year from 3.7%
1
. Vacancies in the labour market fell to circa 0.9 million
1
as employers hold back on recruitment to control costs
in an uncertain economic environment. Given the continued pressures on employers from borrowing and energy costs, unemployment is
expected to rise towards a peak of 4.5% by mid-2024. Strong annual wage growth at 6.2%
1
to December 2023 continues to fuel inflation,
but has fallen from the in-year peak of 7.9%
1
.
As anticipated, the impact of tighter credit and higher interest rates has softened transaction volumes and prices in the housing market.
Lenders have reported lower mortgage approvals and negative net lending to October 2023. Given lower rate expectations linked to
lower inflation figures, lenders started to cut mortgage rates in the latter part of 2023 and this has continued into early 2024, leading
to an uptick in mortgage approvals. However, given the wider economic pressures, economists continue to predict a further correction
in house prices of circa 6% in 2024.
Outlook
Interest rates are expected to fall in 2024, with the market expecting the first cut to take place in Q2 2024 and rates ultimately ending
the year at 4.25%. The UK economy is expected to grow only modestly through 2024. House prices are expected to continue to fall
after a long period of growth, and unemployment is expected to rise to a peak of 4.5% from its current level. The impact of high interest
rates will impact consumers as they remortgage away from historic low-rate deals. The full impact, however is yet to flow through with
1.5 million mortgage borrowers having fixed rate deals expiring before the end of 2024. With forecast low GDP and higher interests still
to flow through in full to household incomes, the balance of risks therefore to the UK remains skewed to the downside.
Government and regulatory
This has been another eventful year for Government and regulatory announcements that impact the Group and/or the markets in which
it operates. The key announcements in 2023 are set out below.
Prudential regulation
In November 2022, the PRA issued CP16/22 ‘The PRA consults on proposals for implementation of the Basel 3.1 standards’ setting out
its proposed changes to regulatory requirements, which are now expected to become effective from 1 July 2025. The proposals set out
changes to the regulatory environment, including significant changes to the capital requirements for credit risk and operational risk.
In PS17/23 issued in December 2023, the PRA issued a near final approach for several areas, including operational risk with confirmation
for the remaining areas, including credit risk expected by June 2024.
In February 2023, the PRA issued CP4/23 ‘The Strong and Simple Framework: Liquidity and Disclosure requirements for Simpler-regime
Firms’ setting out their initial proposals for a strong and simple prudential framework, as well as the Phase 1 proposed liquidity and Pillar
3 disclosure-related rules for the new regime. In December 2023, the PRA confirmed the final eligibility criteria for the regime in PS15/23,
the renaming of the regime to the Small Domestic Deposit Takers (‘SDDT’) regime and confirmed the Phase 1 implementation date as
1 July 2024. It also confirmed the associated liquidity and Pillar 3 rules for SDDT firms.
The SDDT capital rules are the subject of a further consultation, expected by June 2024. The PRA has indicated that the Basel 3.1 rules
will be the starting point for designing the SDDT regime capital requirements. However, the launch date for the SDDT capital regime is
still to be announced.
1.
Source: Office for National Statistics, data as at 31 December 2023, unless otherwise stated.
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PS17/23 also confirmed that firms that are eligible for and have applied to join the SDDT regime do not need to adopt Basel 3.1 and
can instead remain on the current UK Capital Requirements Regulation regime until the capital rules applicable to the SDDT regime are
launched. The Group expects to be eligible to join the SDDT regime.
The Group has undertaken an impact analysis of the CP16/22 proposals to understand the potential impact under the proposed full
rules, which is broadly neutral to risk-weighted assets. The Group will decide whether it will adopt the full rules or defer and adopt the
SDDT regime in 2024.
During May 2023, the PRA issued PS5/23 ‘Model risk management principles for banks’ setting out stronger governance expectations
for model governance to address observed shortcomings within the industry. A new supervisory statement SS1/23, incorporating these
revised expectations was also issued, however the final policy applies only to banks adopting the internal ratings model approach to
capital. Therefore the Group is not directly impacted by the changes. The PRA is proposing the development of specific requirements for
SDDT firms, which are expected to adopt a more proportionate approach.
During June 2023, the PRA issued CP10/23 ‘Solvent exit planning for non-systemic banks and building societies’. This proposes
a new requirement for non-systemic banks, such as Secure Trust Bank, to develop solvent exit planning documentation as an additional
approach that could potentially be used as an alternative to resolution. The proposed implementation date is July 2025.
The UK Countercyclical Capital Buffer (‘CCyB’) rate increased from 1% to 2% on 5 July 2023, as previously announced by the Financial
Policy Committee (‘FPC’). The FPC has stated that it will continue to monitor the CCyB rate due to the current uncertainty around the
economic outlook.
Conduct regulation
The FCA’s new Consumer Duty came into force on 31 July 2023. In the run up to the deadline, the regulator published Dear
CEO portfolio letters and podcasts, setting out its expectations and approach to supervision, and findings from its reviews of fair
value frameworks. The Group’s preparations included a comprehensive review of Consumer Finance and Savings products and
customer experience.
At the end of July 2023, the FCA set out a 14-point action plan on cash savings to ensure banks are passing on interest rate rises to savers
appropriately, communicating with customers much more effectively and offering them better savings rate deals.
During the year, the FCA has continued to focus on supporting consumers, who are struggling with the cost of living. In May 2023,
it published a consultation on protections for borrowers in financial difficulty, proposing how they intend to incorporate aspects
of the Tailored Support Guidance into the FCA’s sourcebooks. In June, the FCA joined other regulators to call on firms to help
struggling customers.
The FCA and PRA released proposals in September 2023 to promote diversity and inclusion in regulated financial services firms, aimed
at cultivating healthier work environments and tapping into a wider talent pool.
In December 2023, the Payment Services Regulator published its final policy statement and direction on fighting authorised push
payment scams, including all accounts capable of receiving faster payments within the scope.
During June 2023, the International Sustainability Standards Board (‘ISSB’) issued the first two Sustainability Disclosure Standards, S1 and
S2 (IFRS S1 and S2). They set requirements for the disclosure of sustainability-related financial information and climate-related disclosures,
respectively. The proposals are still to be incorporated into FCA guidance and the current expectation is that the adoption date is likely
to be 2025. As a listed entity, the Group already falls within scope of the current Task Force on Climate-related Financial Disclosures
(‘TCFD’) requirements, the proposed new standards build on what has already been developed.
In January 2024, the FCA announced it was to undertake a review of discretionary commission arrangements in the motor finance
market. Vehicle Finance sometimes operated these arrangements until June 2017, ahead of the FCA banning their use in January 2021.
We believe that the overall proportion of loans where we used discretionary commission arrangements was small and for a shorter
period, relative to the industry in general. The FCA plans to set out its next steps in Q3 2024, when the implications for the industry
should become clearer.
Government and monetary policy
Following a consultation on the optimal structure for UK financial services post-Brexit, the Financial Services and Markets Act 2023 (the
‘FSMA’) received royal assent during June 2023, with the aim of implementing the outcomes of the Government’s future regulatory
framework review and to make changes to update the UK regulatory regime. This allows for sector-wide regulation of financial services
and markets, involving the revocation of EU law and its replacement with rules-based regulation primarily administered by regulators,
subject to the oversight of Parliament, which is expected to allow for faster responses to changing conditions.
The Bank of England MPC announced five consecutive increases in the UK Bank Base Rate over the course of 2023, taking rates up from
3.5% at the end of December 2022 to 5.25% at 31 December 2023. Rates have been held since August 2023.
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Risk management
The effective management of risk is a key part of the Group’s strategy and is underpinned by its Risk Aware value. This helps to protect
the Group’s customers and generate sustainable returns for shareholders. The Group is focused on maintaining sufficient levels of capital,
liquidity and operational control, and acting in a responsible way.
The Group’s Chief Risk Officer is responsible for leading the Group’s Risk function, which is independent from the Group’s operational
and commercial teams. The Risk function is responsible for designing and overseeing the embedding of appropriate risk management
frameworks, processes and controls, to enable key risks to be identified, assessed, monitored and accepted or mitigated in line with the
Group’s risk appetite. The Group’s risk management practices are regularly reviewed and enhanced to reflect changes in its operating
environment. The Chief Risk Officer is responsible for reporting to the Board on the Group’s principal risks and how they are being
managed against agreed risk appetite.
Risk appetite
The Group has identified the risk drivers and major risk categories relevant to the business, which has enabled it to agree a suite of
risk appetite statements and metrics to underpin the strategy of the Group. The Board approves the Group’s risk appetite statements
annually and these define the level and type of risk that the Group is prepared to accept in the achievement of its strategic objectives.
Risk culture
A strong risk-aware culture is integral to the successful delivery of the Group’s strategy and the effective management of risk.
The Group’s risk culture is shaped by a range of factors including risk appetite, risk frameworks and policies, values and behaviours,
as well as a clear tone from the top.
The Group looks to continually enhance its risk culture, and in 2023, performed an assessment of its risk culture against standards based
on industry best practice and guidance from the Institute of Risk Management.
Risk governance
The Group’s approach to managing risk is defined within its Enterprise-Wide Risk Management Framework. This provides a clear
risk taxonomy and provides an overarching framework for risk management supported by frameworks and policies for individual risk
disciplines. These frameworks set the standards for risk identification, assessment, mitigation, monitoring and reporting.
The Group’s risk management frameworks, policies and procedures are regularly reviewed and updated to reflect the evolving risks
that the Group faces in its business activities. They support decision-making across the Group and are designed to ensure that risks are
appropriately managed and reported via risk-specific committees.
Established risk committees are in place at Board, Group and individual business unit level to enable clear oversight of risk management,
including robust risk identification and mitigation across the Group.
An Executive Risk Committee, chaired by the Chief Risk Officer, reviews key risk management information from across all risk disciplines,
with material issues escalated to the Executive Committee and/or the Risk Committee of the Board, as required.
The Group operates a ‘Three Lines of Defence’ model for the management of its risks. The Three Lines of Defence, when taken together,
control and manage risks in line with the Group’s risk appetite. The three lines are:
• First line: all employees within the business units and associated support functions, including Operations, Finance, Treasury,
Human Resources and Legal. The first line has ownership of and primary responsibility for their risks.
• Second line: specialist risk management and compliance teams reporting directly into the Chief Risk Officer, covering Credit risk,
Operational risk, Information Security, Prudential risk, Compliance and Conduct risk and Financial Crime risk. The second line are
responsible for developing frameworks to assist the first line in the management of their risks and providing oversight and challenge
designed to ensure they are managed within appetite; and
• Third line: is the Internal Audit function that provides independent assurance on the effectiveness of risk management across
the Group.
Principal risks and uncertainties
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Principal risks and uncertainties
Board and Board Committees
• See Corporate Governance section on pages 65 to 113
Group Executive Committee
Chair: Chief Executive Officer
• Provides an executive oversight of the ongoing safe and profitable operation of the Group. It reports to the Board through the
Chief Executive Officer.
• Responsible for the execution of the strategy of the Group at the direction of the Chief Executive Officer.
Executive Risk Committee
Chair: Chief Risk Officer
• Responsible for overseeing the Group’s risk profile, its
adherence to regulatory compliance and monitoring these
against the risk appetite set by the Board.
• Monitors the effective implementation of the risk
management framework across the Group.
Assets and Liabilities Committee (‘ALCO’)
Chair: Chief Financial Officer
• Responsible for implementing and controlling the liquidity,
and asset and liability management risk appetite of the
Group, providing high level control over the Group’s
balance sheet and associated risks.
• Sets and controls capital deployment, treasury strategy
guidelines and limits, and focuses on the effects of future
plans and strategy on the Group’s assets and liabilities.
Credit
Committees
Model
Governance Committee
Other
Committees
Responsible for making decisions
about lending, inclusive of oversight
of credit scorecards and modelling.
Responsible for understanding,
challenging and assessing risk
and appropriateness of statistical and
financial models and to challenge
model assumptions and suitable
model validation.
The activities of the Executive Risk
Committee and ALCO are also
supported by various specialist
sub-committees and working
groups, covering: Liquidity, Financial
Crime, Compliance and Regulation,
Operational Risk, Assumptions and
Climate Change.
Principal risks
Executive management performs ongoing monitoring and assessment of the principal risks facing the Group, including those that
would threaten its business model, future performance, solvency or liquidity.
Further details of the principal risks and the changes to risk profile seen during the 2023 financial year are set out below.
The Group also regularly reviews strategic and emerging risks and analysis has been included to detail output of these reviews for
2023. Notes 37 to 40 to the Financial Statements provide further analysis of credit, liquidity, market and capital risks. Emerging risks
are identified in line with the Group’s Enterprise-Wide Risk Management Framework, utilising a ‘top-down’ approach with Group
Executive workshops and a ‘bottom-up’ approach through the business unit risk and control self assessment process.
Further details of the Group’s risk management framework, including risk appetite, can be found on the Group’s website:
www.securetrustbank.com/riskmanagement
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Principal risks and uncertainties
Credit risk
Description
The risk of loss to the Group from the failure of clients, customers or counterparties to honour fully their obligations to the firm,
including the whole and timely payment of principal, interest, collateral or other receivables.
Mitigation
• The Group has a defined Credit risk framework, which sets out how Credit risk is managed and mitigated across the Group.
• Risk appetite is cautious with the Group focusing on sectors and products where it has deep experience.
• Specialist Credit teams are in place within each business area to enable new lending to be originated in line with the Group’s
risk appetite.
• For Business Finance, lending is secured against assets, with Real Estate Finance lending, the majority of which is at fixed
rates, secured by property at conservative loan-to-value ratios. Short dated Commercial Finance lending is secured across
a range of assets, including debtors, stock and plant and machinery.
• For Consumer Finance, security is taken for Vehicle Finance lending and Retail Finance is unsecured, however positioned
towards lower risk sectors. The vast majority of Retail Finance lending is interest free for consumers, with remaining consumer
lending at fixed rates, which mitigates the direct impact of rising interest rates on affordability. Consumer Credit risk is
assessed through a combination of risk scorecards, credit and affordability policy rules.
• Portfolio performance is tracked closely and reported via specialist management review meetings into the Executive and
Board Risk Committees, with the ability to make changes to policy, affordability assessments or scorecards on a dynamic basis.
• Management monitors and assesses concentration risk for all lending against control limits. The diversification of lending
activities and secured nature of larger exposures mitigates the exposure of the Group to concentration risk.
Change during the year
Heightened
During 2023, economic conditions continued to be challenging in the UK, with high levels of inflation and cost of living pressures
for consumers. In addition, both consumers and businesses were impacted by rising interest rates throughout the period.
The Group’s lending portfolios performed satisfactorily in 2023. Retail Finance arrears continue to be low by historical
comparison following a move into lower risk sectors over the last few years. Vehicle Finance has witnessed good quality
new business acquisition as the Group tightened its criteria in light of the increased cost of living. However, Vehicle Finance
collections performance in the year was impacted as the Group undertook a review of its collections policies, procedures and
forbearance options to ensure they deliver good outcomes for customers.
The Real Estate Finance and Commercial Finance businesses performed satisfactorily at a portfolio level, with key risk metrics
remaining within appetite. Some customers have been impacted by the rising interest rate environment; however, they have
been managed closely with low levels of customer defaults leading to increased provisions.
One material loss was recorded in the first half of the year, within Commercial Finance, in relation to a long-running problem
debt case. The circumstances around the particular case were unique, with a lessons learned exercise confirming no similar
concerns across the portfolio. In addition, within Real Estate Finance, impairment charges increased, which were primarily
attributable to a higher provision on one development loan.
The overall rating for the year is driven by the continuing uncertainty in the external economic environment.
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Liquidity and Funding risk
Description
Liquidity risk is the risk that the Group is unable to meet its liquidity obligations as they fall due or can only do so at excessive
cost. Funding risk is the risk that the Group is unable to raise or maintain funds to support asset growth, or the risk arising from
an unstable funding profile that could result in higher funding costs.
Mitigation
Liquidity and Funding risk is managed in line with the Group’s Prudential Risk Management Framework. The Group has
a defined set of liquidity and funding risk appetite measures that are monitored and reported, as appropriate.
The Group manages its liquidity and funding in line with internal and regulatory requirements, and at least annually assesses
its exposure to liquidity risks and adequacy of its liquidity resources as part of the Group’s Internal Liquidity Adequacy
Assessment Process.
In line with the Prudential Regulation Authority’s (‘PRA’) self-sufficiency rule, the Group always seeks to maintain liquid resources
that are adequate, both as to amount and quality, and managed to ensure that there is no significant risk that its liabilities
cannot be met as they fall due under stressed conditions. The Group defines liquidity adequacy as the:
• ongoing ability to accommodate the refinancing of liabilities upon maturity and other means of deposit withdrawal at
acceptable cost;
• ability to fund asset growth; and
• otherwise, capacity to meet contractual obligations through unconstrained access to funding at reasonable market rates.
The Group conducts regular and comprehensive liquidity stress testing to identify sources of potential liquidity strain and to
check that the Group’s liquidity position remains within the Board’s risk appetite and prudential regulatory requirements.
Contingency funding plans
The Group maintains a Recovery Plan that sets out how the Group would maintain sufficient liquidity to remain viable during
a severe liquidity stress event. The Group also maintains access to the Bank of England liquidity schemes, including the
Discount Window Facility.
Change during the year
Stable
The Group has maintained all liquidity and funding ratios in excess of Board and regulatory requirements throughout the year.
A significant level of high quality liquid assets, predominately held as cash at the Bank of England, continue to be maintained
to ensure that obligations are met as they fall due. The Group’s funding base has a very high proportion of retail depositors
covered by the Financial Services Compensation Scheme protection.
Principal risks and uncertainties
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Financial Statements
Principal risks and uncertainties
Capital risk
Description
Capital risk is the risk that the Group will have insufficient capital resources to meet minimum regulatory requirements and to
support planned levels of growth.
The Group adopts a conservative approach to managing its capital. It annually assesses the adequacy of the amount and quality
of capital held under stress as part of the Group’s Internal Capital Adequacy Assessment Process (‘ICAAP’).
Mitigation
Capital management is defined as the operational and governance processes by which capital requirements are identified and
capital resources maintained and allocated, such that regulatory requirements are met while optimising returns and supporting
sustainable growth.
The Group manages its capital requirements on a forward-looking basis against minimum regulatory requirements and
the Board’s risk appetite to ensure capital resources are sufficient to support planned levels of growth. The Group will take
opportunities to increase overall levels of capital and to optimise its capital stack as and when appropriate. In addition
to the ICAAP, the Group performs regular budgeting and reforecasting exercises that consider a five-year time horizon.
These forecasts are used to plan for future lending growth at a rate that both increases year-on-year profits and maintains
a healthy capital surplus, taking into consideration the impact of known and anticipated future regulatory changes. The Group
also models various stressed scenarios looking over a five-year time horizon, which consider a range of growth rates over those
years as part of the viability and going concern assessments.
Further information on the Group’s capital requirement is contained within the Pillar 3 disclosures, which are published as
a separate document on our website (www.securetrustbank.com/pillar3).
Change during the year
Stable
The Group continues to meet its capital ratio measures, taking into consideration the increased requirements driven by planned
growth and any change in regulatory requirements, and continues to operate within its risk appetite. In February 2023, the
Group issued £90.0 million of 10.5 year, 13.0% Fixed Rate Callable Subordinated Notes, which also qualify as Tier 2 regulatory
capital (subject to a cap of 25% of Pillar 1 and 2A requirements). The Group is actively considering regulatory changes proposed
through Basel 3.1 and the Interim Capital Regime as part of the Small Domestic Deposit Takers Regime. Details of the common
equity tier 1 ratio, total capital ratio and leverage ratio are included in the financial review on page 14.
The 2023 ICAAP showed that the Group can continue to meet its minimum regulatory capital requirements, even under
extreme stress scenarios.
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Principal risks and uncertainties
Market risk
Description
Market risk is the risk to the Group’s earnings and/or value from unfavourable market movements, such as interest rates and
foreign exchange rates. The Group’s market risk primarily arises from interest rate risk. Interest rate risk refers to the exposure of
the Group’s financial position, balance sheet and earnings to movements in interest rates.
The Group’s balance sheet is predominantly denominated in GBP, although a small number of transactions are completed in
US Dollars, Euros and other currencies in support of Commercial Finance customers.
Mitigation
The Group’s principal exposure comes from the term structure of interest rate sensitive items and the sensitivity of the Group’s
current and future earnings and economic value to movements in market interest rates. The Group does not take significant
unmatched positions through the application of hedging strategies and does not operate a trading book.
The main contributors to interest rate risk are:
• the mismatch, or duration, between repricing dates of assets and liabilities; and
• customer optionality, for example, early repayment of loans in advance of contractual maturity dates.
The Group uses an interest rate sensitivity gap analysis that informs the Group of any significant mismatched interest rate risk
positions that require hedging. This takes into consideration the behavioural assumptions for optionality as approved by ALCO.
Risk positions are managed through the structural matching of assets and liabilities with similar tenors and the use of vanilla
interest rate derivative instruments to hedge the residual unmatched position and minimise the Group’s exposure to interest
rate risk.
The Group has a defined set of market risk appetite measures that are monitored monthly. Interest rate risk in the banking book
is measured from an internal management and regulatory perspective, taking into consideration both an economic value and
earnings-based approach.
The Group monitors its exposure to basis risk and any residual non-GBP positions. Processes are in place to review and react to
movements to the Bank of England Base Rate.
The Group has no significant exposures to foreign currencies and hedges any residual currency risks to Sterling.
All such exposures are maintained within the risk appetite set by the Board and are monitored by ALCO.
Change during the year
Stable
Despite continued increases in the Bank of England Base Rate during 2023, the Group remained within risk appetite in relation
to interest rate risk and market risk throughout the year.
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Principal risks and uncertainties
Operational risk
Description
Operational risk is the risk that the Group may be exposed to direct or indirect loss arising from inadequate or failed internal
processes, personnel and succession, technology/ infrastructure, or from external factors.
The scope of Operational risk is broad and includes business process, operational resilience, third party risk, Change
management, Human Resources, Information Security and IT risk, including Cyber risk.
Mitigation
The Group has an Operational Risk Framework designed in accordance with the ‘Principles for the Sound Management of
Operational Risk’ issued by the Basel Committee on Banking Supervision. This framework defines and facilitates a range of
activities, including:
• a risk and control self-assessment process to identify, assess and mitigate risks across all business units through improvements
to the control environment;
• the governance arrangements for managing and reporting these risks;
• risk appetite statements and associated thresholds and metrics; and
• an incident management process that defines how incidents should be managed and associated remediation, reporting and
root-cause analysis.
The framework is designed to ensure appropriate governance is in place to provide adequate and effective oversight of
the Group’s operational risks. The governance framework includes the Group Operational Risk, Executive Risk and Board
Risk Committees.
The Group has a defined set of qualitative and quantitative operational risk appetite measures. These measures cover all
categories of operational risk and are reported and monitored monthly.
In addition to the delivery of framework requirements, the Group has focused on various thematic areas of operational risk in
2023, including supplier management, operational resilience, business processes and data management.
Change during the year
Stable
The Group uses the ‘The Standardised Approach’ for assessing its operational risk capital, in recognition of the enhancements
made to its framework and embedding it across the Group. The Group continues to invest in resource, expertise and systems
to support the effective management of operational risk. In 2023, the Group has continued to enhance these standards and has
introduced several improvements to the control frameworks in place across its operational risks. Overall, the assessment is that
the level of risk has remained stable.
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Principal risks and uncertainties
Model risk
Description
Model risk is the potential for adverse consequences from model errors or the inappropriate use of modelled outputs to inform
business decisions.
The Group has multiple models that are used, amongst other things, to support pricing, strategic planning, budgeting,
forecasting, regulatory reporting, credit risk management and provisioning.
Model risk has been elevated to a principal risk following a review of the Group’s Enterprise-Wide Risk Management Framework.
Mitigation
The Group has a Model Risk Management policy that governs its approach to model risk and sets out:
• model risk appetite;
• model and model risk definitions; and
• roles and responsibilities for model risk management.
As required within its policy, the Group maintains a model inventory and a risk register incorporating specific model-
related risks.
Change during the year
Stable
The Group has delivered significant improvements to its Model Governance Framework in 2023. Whilst the Group is not
within the scope of the PRA’s Supervisory Statement 1/23, it has aligned its model risk management practices to this standard.
Working with a third party expert in the field of model governance, the model risk management framework including policies,
procedures, model development standards and model validation requirements have all been rewritten and trained out to senior
management and model users. A team has been created to oversee model risk management and to undertake independent
validations of the Group’s high risk models.
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Principal risks and uncertainties
Compliance and Conduct risk
Description
The risk that the Group’s products and services, and the way they are delivered, or the Group’s failure to be compliant with
all relevant regulatory requirements, result in poor outcomes for customers or markets in which we operate, or cause harm
to the Group. This could be as a direct result of poor or inappropriate execution of our business activities or behaviour from
our employees.
Mitigation
The Group manages this risk through its Compliance and Conduct Risk Management Framework. The Group takes a principle-
based approach, which includes retail and commercial customers in our definition of ‘customer’, with coverage across all
business units and both regulated and unregulated activities.
Risk management activities follow the Enterprise-Wide Risk Management Framework, through identifying, assessing and
managing risks, governance arrangements and reporting risks against Group risk appetite. Arrangements include horizon-
scanning of regulatory changes, oversight of regulatory incidents and assurance activities conducted by the three lines of
defence, including the second line Compliance Monitoring programme.
The Group’s horizon-scanning activities track industry and regulatory developments, including the implementation of the Basel
3.1 standard and the Small Domestic Deposit Takers proposal, and the PRA and FCA’s diversity and inclusion proposals.
Key focus areas across the finance industry in 2023 have been the implementation of the new Consumer Duty, the FCA’s Cost of
Living Forbearance review that stemmed from its Borrowers in Financial Difficulty (‘BiFD’) report in 2022, and the developments
in model risk management.
Change during the year
Heightened
The overall rating for the year is driven by the increased regulatory focus on conduct matters, including the new Consumer Duty,
cost of living and forbearance across the motor finance sector following the FCA’s BiFD review, and historic discretionary motor
finance commissions.
The Group completed the necessary activities to achieve the regulatory timeframe to implement the new Consumer Duty,
including product and value assessments and consumer understanding testing. A programme of activities continues to embed
further the Duty across the consumer businesses.
During H2 2023, the Group engaged in formal discussions with the FCA about its collections processes, procedures and policies
in Vehicle Finance and engaged external support to assist. Where necessary, we are enhancing further our approach to enable
good outcomes to be delivered in line with the Group’s purpose and values.
In January 2024, the FCA announced it was undertaking a review of discretionary commission arrangements in the motor
finance market. Vehicle Finance sometimes operated these arrangements until June 2017, ahead of the FCA banning their use
in January 2021. We believe that the overall proportion of loans where we used discretionary commission arrangements was
small and for a shorter period, relative to the industry in general. The Group is tracking developments in order to respond, when
the implications for the industry become clearer.
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Principal risks and uncertainties
Financial Crime risk
Description
The risk that the Group’s products and services will be used to facilitate financial crime, resulting in harm to its customers,
the Group or third parties, and the Group fails to protect them by not having effective systems and controls. Financial Crime
includes anti-money laundering, terrorist financing, proliferation financing, sanctions restrictions, modern slavery, human
trafficking, fraud and the facilitation of tax evasion. The Group may incur significant remediation costs to rectify issues, reimburse
losses incurred by customers and address regulatory censure and penalties.
Mitigation
We operate in a constantly developing financial crime environment and are exposed to financial crime risks of varying degrees
across all areas of the Group. The Group is focused on maintaining effective systems and controls, alongside vigilance against
all forms of financial crime and meeting our regulatory obligations.
The Group has a Financial Crime Framework designed to meet regulatory and legislative obligations, which includes:
• Mandatory annual colleague training and awareness initiatives.
• Regular reviews of our suite of financial crime policies, standards and procedures, checking they remain up to date and
address any legislative/regulatory change and emerging risks.
• Detection, transaction monitoring and screening technologies.
• Extensive recruitment policy to screen potential employees.
• Horizon-scanning and regular management information production and analysis conducted to identify emerging threats,
trends and typologies, as well as preparing for new legislation and regulation.
• Financial crime-focused governance with risk committees providing senior management oversight, challenge and
risk escalation.
• Intelligence shared through participating in key industry events such as those hosted by UK Finance and other networks.
Change during the year
Stable
Enhancements to the Group’s financial crime control environment have continued with a focus on financial crime capabilities
and systems and controls. We are closely monitoring changes to fraud and financial crime regulation and guidance and
responding to them.
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Principal risks and uncertainties
Climate Change risk
Description
Climate change, and society’s response to it, present risks to the UK financial services sector, with some of these only fully
crystallising over an extended period. The Group is exposed to physical and transition risks arising from climate change.
Mitigation
The Group has established processes to monitor our risk exposure to both the potential ‘physical’ effects of climate change
and the ‘transitional’ risks from the UK’s adjustment towards a carbon neutral economy. The Group has developed a new role to
support the deployment of its Climate Strategy and enable pivotal change and development across the Group. The activities
remain a core element of our Environmental, Social and Governance approach.
Stress testing work has been enhanced for 2023, for our Vehicle Finance and Real Estate Finance businesses to test the
resilience of our portfolios and strategies to manage the risks and opportunities of climate change. Further detail is provided
within the Climate-related financial disclosures section of the Annual Report and Accounts (see pages 55 to 64).
Change during the year
Stable
The Group’s direct exposure to the physical impacts of climate change remains relatively limited, given its footprint and areas
of operation. However, it has established robust controls designed to manage the associated risks and will continue to develop
its business plans in the future as the risks evolve. Disclosures are made within the Climate-related financial disclosures section
of the Annual Report and Accounts in line with the guidance from the ‘Task Force on Climate-Related Financial Disclosures.
Specific detail on each of the key risks identified and mitigation are covered within the Strategy section on page 56. The Group
continues to monitor the evolving climate disclosure landscape and regulatory requirements and expectations, including
transition planning.
Strategic and Emerging risks
In addition to the principal risks disclosed above, the Board and Executive Committee regularly consider strategic and
emerging risks, including key factors, trends and uncertainties that could impact the performance of the Group.
The key strategic risk identified by the Executive and reported through to the Board Risk Committee was the macroeconomic
environment in the UK. The Group operates exclusively within the UK and therefore its performance is influenced by the
performance of the UK economy. Weaknesses in economic position or outlook can impact the demand for the Group’s
products, returns that can be achieved and the level of impairments.
2023 saw rapid increases in inflation, driven principally by increases in energy costs and other supply chain and labour market
issues. The Bank of England response to higher inflation has been to increase interest rates, with continued upward pressure
throughout 2023, creating uncertainty for consumers and businesses.
The Group has taken proactive action to reflect these changes in lending parameters to continue to operate within its credit risk
appetite and maintain support for its customers.
Whilst material direct impacts have not yet been seen, the Group continues to monitor closely the macroeconomic environment
to assess the impact of these changes on its customers and financial performance.
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Viability and going concern
Going concern
In assessing the Group as a going concern, the Directors considered the factors likely to affect its future performance and development,
recent regulatory announcements, the Group’s financial position and the principal risks and uncertainties facing the Group, as set out in
the Strategic Report. The Group uses various short and medium-term forecasts to monitor future capital and liquidity requirements, and
these include stress-testing business planning assumptions to identify the headroom on regulatory compliance measures. The details of
the forecasts and stress tests are explained in the Business viability section below.
Accordingly, the Directors conclude that the Company and the Group have adequate resources to continue in operational existence for
a period of at least 12 months from the date of the approval of the Financial Statements, and therefore it is appropriate to continue to
adopt the going concern basis in preparing the accounts.
Business viability
In accordance with provision 31 of the UK Corporate Governance Code, the Directors have a reasonable expectation that the Company
and the Group will be able to continue in operation and meet their liabilities as they fall due, for the period up to 31 December 2028.
As the Group’s financial planning horizon is five years, the Group considers a five-year period for its viability assessment.
The Directors are confident of the Group’s viability over the longer-term after considering all of the principal risks affecting the Group,
including these factors:
• The Group has delivered strong profit growth and capital management in 2023 and the 2024 annual budget process indicates long-
term growth potential.
• The Group successfully navigated through the real life business and financial stresses resulting from the COVID-19 pandemic.
The legacy of the pandemic is that the Group has adopted new working practices, proved it can take necessary action on credit policy
to manage risk and control business volumes, and demonstrated its operational resilience.
• Our deposit base is made up of retail customers and 95.6% of total deposits are fully covered by the Financial Services Compensation
Scheme (‘FSCS’).
• Our stress testing indicates the Group’s ability to manage its capital and liquidity requirements through the regulator’s prescribed
financial stresses.
• The Group has maintained capital levels in excess of its internal risk appetites and regulatory requirements throughout the year and is
forecast to continue to do so over the five-year planning horizon.
• The Group has assessed the impact of recent regulatory announcements on the outputs and conclusions of the 2023 ICAAP, and
determined that under a severe but plausible outcome of the FCA’s reviews of motor finance industry discretionary commission
arrangements and of Borrowers in Financial difficulty (‘BiFD’), the Group would continue to maintain sufficient capital over the
planning horizon.
• In the area of climate change, the Board recognises the long-term risks and following a review launched its full ESG Strategy in 2023.
The Group plans to enhance its financial planning processes in respect of climate change. Risks associated with climate change are
considered as part of the annual ICAAP. Material impacts of climate change on the Group’s markets and business model will emerge
over the longer-term horizon and beyond the period of viability assessment. Notwithstanding this, the Group is mindful of the need to
adapt its business model to changes in the markets it operates in as a result of climate change.
Furthermore, the Board considers that the circumstances required to cause the Group to fail, as demonstrated by its stress testing
procedures, are sufficiently remote.
The Directors have based their assessment on the results of these activities:
• The latest annual budget process, which contains information on the expected financial and capital positions and performance of the
Group over the 2024 to 2028 period.
• The Group monitors its key performance indicators across profit, capital, liquidity, and different risk categories to mitigate any changes
in risk outside of its risk appetite.
• In addition to the annual budget process, key sensitivities are measured through other forecasting activity undertaken over the course
of the year, which would impact on capital and liquidity over the planning horizon.
• The Group’s ILAAP, approved by the Board in June 2023, provides assurance that the Group can maintain liquidity resources that 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.
This risk was tested under the financial stresses outlined below. The Group has maintained liquidity levels in excess of its liquidity risk
appetite and regulatory requirements throughout the year and is forecast to continue to do so over the ILAAP planning horizon.
• The Group’s ICAAP, which considered the PRA’s published macroeconomic stress and severe scenarios in order to assess the
adequacy of capital resources over the 2023 to 2027 period, was approved in August 2023. Within this process, the Group considered
the extent of the credit, operational and market risks it is exposed to, and how such risks affect its required capital levels. Under the
macroeconomic stress, the details of which are set out below, at no point were minimum regulatory capital requirements breached,
and capital buffers held at the start of the stress were confirmed to be adequate.
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Viability and going concern
• The latest Group Recovery Plan was approved in September 2023 and confirmed that the Group has sufficient recovery options
available to recover from the severe economic stress scenario modelled over the 2023 to 2027 period. The primary recovery options
are to raise new deposits and reduce the level of new lending.
• Consideration of the other principal risks, as set out on pages 28 to 38, identify any other severe, but plausible scenarios that could
threaten the Group’s business model, future performance, solvency or liquidity.
A summary of the different financial stresses are set out below:
ILAAP
The Group’s 2023 ILAAP included idiosyncratic, market-wide and combined stress scenarios.
The idiosyncratic liquidity stress test assumed an operational incident within the Deposits Operations team leads to adverse media
coverage across social media, financial websites, newspapers and on TV. This leads to a short-term loss in customer confidence and
makes it materially more challenging to retain maturing term bonds, higher notice being served and customers withdrawing Access and
ISA deposits. This is expected to be a short-term event, which is most severe within the first number of weeks of the 90-day stress period
after which the severity of outflows reduces up to 90 days. The Group manages to lower new lending volumes overall over a period of
time, but retains a presence in all material markets.
The market-wide stress is based upon the UK economy entering a severe recession with rising unemployment and inflation, falling
house and equity prices, subdued wage growth and a contraction in GDP, due to prolonged economic uncertainty. Higher customer
default rates (in line with the Macro ICAAP stress) and the regulators’ decision to allow consumer customers to take payment holidays
results in lower payment inflows. Completions on consumer contracts fall while requests for refinancing from business customers also
contracts in line with reduced economic activity. The Group seeks to maintain a market presence in all material business lines, and so
continues lending on a more selective basis, so avoiding potential reputational damage from full market withdrawal. While bonds and
savings accounts do not represent the primary liquidity source for many customers, the prevailing economic conditions still result in some
increase in notice being served on savings accounts and lower bond retention as customers flock to easy access products.
The combined stress includes elements of the idiosyncratic and market stresses whereby the UK economy enters a severe recession,
and the Group suffers outflows due to poor customer services at the same time.
In addition, the ILAAP includes sensitivity analysis to model the impact of adverse variances in stress assumptions used in each of the
above scenarios.
Reverse stress test modelling was also performed to identify the type and severity of a stress required for the Group to be no longer able
to meet its liquidity requirements. Three scenarios were assessed to consider the impact of a severe retail deposits stress, a lending side
stress and a wholesale funding-based stress.
ICAAP
The Group’s ICAAP considered a PRA-published macroeconomic stress and severe scenarios to assess the adequacy of capital resources
over the 2023 to 2027 period. The macroeconomic stress included an unemployment peak of 8.5% in Q2 2024, a 31.0% property price
decline by mid-2025, and an economic recovery beginning in 2025. At no point under the stress were the Group’s minimum capital
requirements not met, and capital buffers held at the start of the stress were confirmed to be adequate.
Reverse stress test modelling was also performed to assess the level of stress required for the Group to be no longer able to meet its
capital requirements. This required a significantly more severe scenario, including peak unemployment of 12.0% and a sharper decline in
house prices to 48.0% of the starting values.
The ICAAP also used scenario modelling for elements of the Group’s Pillar 2A capital assessment to support the assessment of
operational risk and credit risk.
Recovery Plan
The latest Group’s Recovery Plan confirmed that the Group has sufficient recovery options available to recover from the severe stress
scenarios modelled over the 2023 to 2027 period.
The combined capital stress test included peak unemployment of 12.0%, a 48.0% decline in property prices and an increase in
operational losses based on the ICAAP Pillar 2A scenario modelling. The idiosyncratic liquidity stress test assumed a loss of confidence
in the Group, resulting in a run on the bank with a rapid loss of Access and ISA deposits and significantly increased Notice Account
outflows. In addition, it was assumed that there would be a significant increase in requests to withdraw funds from fixed term bonds prior
to the original maturity date. At the same time, to reflect a layering of liquidity risks, lending outflows were increased due to higher levels
of pipeline completion.
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Secure Trust Bank PLC
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Financial Statements
Managing our business responsibly
Environmental, Social and Governance (‘ESG’) strategy
Our focus areas
United Nations’ Sustainable
Development Goals
Climate
action/risk
Customer trust
Equity, Diversity
and Inclusion
(‘ED&I’)
Education
and skills
Communities
and charities
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Grow
Sustain
Care
Delivering value
for all stakeholders
What is our ESG strategy?
At the start of 2023, the Group published its ESG strategy to:
• prioritise the ESG factors that we determine as material. These are issues of significant concern to our stakeholders that influence
the delivery of our business strategy and our ability to achieve success; and
• act responsibly by aligning our activities with external standards relevant to us.
The strategy is supported by an internal process for reporting progress against focus areas identified as material, which provides
oversight at the highest level of our organisation.
What progress has been made against our ESG strategy and priorities?
During 2023, our ESG strategy has made good progress, with positive indicators across all of our focus areas. The Group continues
to work with Business in the Community (‘BiTC’). There has been a significant increase in positive responses across all ESG-related
questions in our annual employee engagement survey. We are a signatory to the HM Treasury Women in Finance Charter and pledged
to promote gender diversity. This includes targeting female colleagues to be at least 30% of our Executive Committee from 2024 and of
our senior management roles from 2026. We met the 2024 target in late 2023 and are on track to meet the 2026 target. We made good
progress on our target to deliver a 50% reduction in Scope 1 and 2 CO
2
e emissions, with a cumulative 36% reduction by the end of 2023.
Future progress on this target though depends on factors such as our property estate size. We made the disclosures and in the period
met the other ESG targets we set for 2023 and are on track towards achieving the targets we set for future periods.
Who owns our ESG strategy?
Ultimate ownership and oversight of our ESG strategy is with the Board, as it supports the business strategy set by it. The Board delegates
the implementation of our ESG strategy to the Chief Executive Officer (‘CEO’) and through him to the Executive Committee.
What is the governance that supports our ESG strategy?
The Executive Committee is supported by the Executive Risk Committee and working groups, covering environment, climate change,
ED&I and customer experience. It is also supported by our Charity Committee that coordinates our choices of preferred charities and
informs them of activities that support them. It also promotes £-for-£ match charity funding and volunteering.
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Secure Trust Bank PLC
Annual Report & Accounts 2023
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Financial Statements
Managing our business responsibly
Environmental, Social and Governance (‘ESG’) strategy
Governance
Always acting with integrity and transparency
to deliver value for all our stakeholders
Grow
Sustain
Care
Social
Stakeholders
Pillar
Focus issue
Measures/Disclosures
Progress
Customer trust
• Customers
• Shareholders
• Employees
• Regulators
Grow
Sustain
Build the trust of our
customers through the way we
treat them, by enhancing their
experience, achieving high
standards of customer service
excellence and through the
outcomes we enable for them.
• Accreditation with the
Government backed Customer
Service Excellence quality mark.
• Feefo Trusted Awards.
• Awards from Moneyfacts.
• HM Government Cyber Essentials
Plus certificate.
Equity, Diversity
& Inclusion (ED&I)
• Customer
• Shareholders
• Employees
• Environment
• Wider society
• Regulators
Sustain
Grow
Care
Our vision is to be a successful
inclusive business where all of
our people feel respected, can
confidently be themselves and
fulfil their potential.
• Maintaining/improving Great
Place to Work
®
rankings for large
companies, women and wellbeing.
• HM Treasury Women in Finance
Charter published targets.
• Annual Gender Pay Gap reporting.
• Maintaining/improving our
Employer Network for Equality
and Inclusion (‘ENEI’) TIDE Mark.
• Maintaining our Disability
Confident accreditation.
Education and skills
• Customer
• Shareholders
• Employees
• Environment
• Wider society
• Regulators
Sustain
Grow
Care
Help all of our colleagues
through a wide range of
skills and development
opportunities to build their
specialisations, increase
their confidence, plan their
career progression and make
it happen.
• Maintaining/improving Great
Place to Work
®
scores for
career development.
Communities
and charities
• Customers
• Shareholders
• Employees
• Environment
• Wider society
• Regulators
• Suppliers
Sustain
Care
Make a positive contribution
to the communities in
which we work and conduct
our business.
• Bi-annual report on supplier
payment period in days.
• Annual modern slavery statement
setting out steps taken to
eradicate modern slavery in our
businesses and supply chains.
• Total charities supported and
annual fundraising for charity by
colleagues and matched by the
Group £-for-£.
Page 45
Page 44
Page 47
Page 49
Page 47
Page 47
Page 54
Page 52
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Financial Statements
Managing our business responsibly
Environmental, Social and Governance (‘ESG’) strategy
Environmental
Stakeholders
Pillar
Focus issue
Measures/Disclosures
Progress
Climate action/risk
• Shareholders
• Environment
• Wider society
• Regulators
Sustain
We aim to minimise the harmful
impact of our business on the
environment by reducing Scope
1 and 2 emissions from our
operations and to use less and
re-use more.
• Reduce Scope 1 and 2 emissions
by 50% from 31 December 2021 to
31 December 2025.
Page 51
• Compliance with the Task Force
for Climate-related Financial
Disclosures (‘TCFD’) requirements
and related PRA regulations/
Listing Rules.
Page 55
Governance
Always acting with integrity and transparency
to deliver value for all our stakeholders
Grow
Sustain
Care
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Managing our business responsibly
Section 172 statement
This section incorporates both our approach to managing business responsibly and our section
172 statement. The Directors are bound by their duties under section 172(1)(a) to (f) of the
Companies Act 2006 and must disclose the manner in which these have been discharged.
Pages 44 to 54 demonstrate how the Directors have discharged this duty, in particular their
duty to act in the way they consider, in good faith, promotes the success of the Company for
the benefit of its members as a whole and outlines decisions taken by the Board, detailing how
stakeholder interests were considered and balanced.
Customers
Link to strategy
Care
Grow
Why we act responsibly towards our customers
Our purpose is to help more consumers and businesses fulfil their ambitions. Our aim is to build the trust of our customers
through the way we treat them by enhancing our customers’ experience, achieving high standards of customer service
excellence and through the outcomes we enable for them. The Group successfully met the Consumer Duty implementation
deadlines and remains focused on ensuring customers receive good outcomes. Discharging the Consumer Duty rules has
given us the opportunity to critically review and enhance our existing approach to our customers and the outcomes we reach
for them.
We have rigorous policies and procedures designed to make our lending responsible, fair and appropriate to the customer’s
circumstances, thereby enabling customers to make informed borrowing decisions. We only approve lending once we have
checked a customer’s creditworthiness and ability to meet repayments. The customer experience is considered at every point in
the design process for products and services. We regularly seek customer opinion on new initiatives before promoting them to
the wider population and the customer design approval process makes sure that we can provide strong evidence that customer
needs have been considered before a new product is launched.
Two-way engagement
Listening to our customers is paramount. We continue to use Feefo as an independent source of customer feedback, providing
valuable insight into our customer relationships. In addition, our customers can use Trustpilot to share their views about
us. Feefo scoring and customer service awards are monitored by the Board. We strive to continually improve our services
and our complaints data is reviewed by the Executive and Board Risk Committees. In 2023:
• our average Feefo rating, remained 4.6 out of 5 (2022: 4.6); and
• the average Trustpilot rating was 4.6 out of 5 (2022: 4.7).
We also collected feedback from our SME Commercial and Real Estate Finance customers and satisfaction scores, although
we are conscious that the small sample size of the population means outlier feedback can impact the scores. In 2023 these were:
• 75% for Real Estate Finance; and
• 100% for Commercial Finance.
We take pride that our ratings demonstrate our culture of putting the customer at the centre of what we do. When poor
feedback is received, we treat each case individually and attempt to resolve the issue with the customer. This feedback is
monitored alongside complaints data and, where emerging trends are noted, we seek to design and implement solutions to
fix any problems. Data managed by third parties is subject to similar policies to ensure its protection and security. We make sure
that each supplier handling data completes our Security Questionnaire prior to onboarding. The questionnaire is designed to
help us assess the risk level for each supplier engagement as well as the robustness of their risk mitigation strategies.
Data protection
Data protection is a key part of building a trusting and strong relationship with our customers. Our data protection policies
help to ensure customers are confident that their data is secure in all transactions with the Group. These policies include the
requirement for all colleagues to undertake training on cybersecurity, information security and data protection including GDPR.
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Managing our business responsibly
Section 172 statement
Customers
continued
Outcomes
Consumer Duty implementation
As part of the Consumer Duty requirements, which came into full force on 31 July 2023, for open products and services, we
undertook a comprehensive review of all of our Consumer Finance and Savings products and customer experience, a thorough
exercise which we dedicated over a year to. This included consumer testing on our communications, and we continue to
enhance these to improve our customer experience. We used an independent adviser to help assess the value of our products
and consider that our products continue to offer good customer outcomes and represent fair value. We continue to monitor
and develop our products and services in line with developing best practice post-implementation of the requirements.
The Board conducted a review in early 2023 to understand its readiness to comply with the new Consumer Duty. The Board
had particular regard to regulatory compliance and its duties under s172 specifically to the need to foster the Company’s
business relationships with its customers and to the desirability of the Company maintaining a reputation for high standards
of business conduct.
Launch of customer savings mobile app
We continued to develop our digital capabilities to provide customers with increased opportunities to self-serve on their
accounts and our customer experience is increasingly digital. In 2023, we launched our mobile Savings app and 15%
of customers have registered since launch, and more than 80% of our Retail Finance customers registered for online
account management.
Customer service awards
For the eleventh successive year, the Group has been accredited with the Government-backed Customer Service Excellence
(‘CSE’) quality mark. This follows an in-depth external assessment of customer priorities, especially customer insight, culture,
information, service delivery and quality of service. The final report states “STB is the only bank in the UK to achieve the CSE
Standard. STB continues to demonstrate year on year improvements to service delivery and sustained high levels of customer
satisfaction in a climate of global financial uncertainty. Ongoing certification to the CSE Standard continues to be fully justified
and well-deserved”.
Feefo Trusted Awards and other awards
We remain recognised through the Feefo Trusted Awards. We have a Platinum Trusted Service award by Feefo for our
Moneyway and V12 Retail Finance businesses and received the Gold Trusted Service award for our Savings business.
These awards are an important barometer of our customers’ views as they are rated by customers against demanding criteria.
They give clear external recognition that our customer-focused approach runs throughout our organisation.
The Board
The Board receives updates on customer views. This helps us to shape the products and services we offer to suit our customers’
needs. Key topics discussed at meetings have included:
• implementation of the Consumer Duty;
• vulnerable customer needs;
• customer trends in 2023;
• reviewing key business activities and lending products against customer feedback;
• customer affordability and the cost of living;
• receiving updates on Feefo and Trustpilot ratings and customer service awards; and
• aligning management reward with Feefo ratings.
How has the customer voice helped the Board make decisions on strategy?
As previously reported, the Board decided to acquire AppToPay Ltd, the owner of the digital Buy Now Pay Later (‘BNPL’)
technology platform following clear demand for this product from retail customers and retailers. During 2023, a pilot of
AppToPay was launched in Retail Finance and feedback has been received. The decision to acquire and integrate the AppToPay
technology aligns our customer and retailer needs with our growth strategy, which is also at the core of our shareholders’
interests. Customer experience updates are also received which have directly led to customer improvements including changes
to withdrawal request processing times, customer ability to self-serve for settlement figures and new application process
improvements to support vulnerable customers.
Additionally, one of our key values is to be customer focused. In 2023, the Board implemented the new Consumer Duty rules and
appointed Finlay Williamson as the Consumer Duty Champion to help ensure that the consumer voice is heard at the Board.
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Shareholders and other
capital providers
Link to strategy
Care
Grow
Why we act responsibly towards our shareholders
The views of those who own STB and support us financially are important as they provide us with the capital we use to run
our business.
Two-way engagement
The Board obtained feedback from our major shareholders during 2023 via our Chairman and CEO. Our committee chairmen,
as well as the Senior Independent Director, were available to meet with shareholders on request. Ahead of the 2023 AGM,
STB undertook an exercise to understand the views of major shareholders on the proposed resolutions.
The Board also receives updates from the Head of Investor Relations and Company Secretary on correspondence received from
shareholders throughout the year.
Outcomes
AGM
In addition to being able to attend the AGM in person and submit questions, shareholders continued to be able to submit
questions electronically ahead of the 2023 AGM with STB committing to publish responses on our corporate website.
Capital Markets Day
We held a Capital Markets Day in November 2023 to further engage existing and potential shareholders.
The Board
The Board is responsible for safeguarding our shareholders’ investment and we seek their feedback on our stewardship.
Key topics discussed by the Board this year have included:
• dividends;
• Capital Markets Day;
• the appointment of new company Brokers and a PR Firm following competitive tender;
• regulatory capital requirements;
• mergers and acquisitions;
• growth strategy;
• trading updates.
How has the shareholder voice helped the Board make decisions on strategy?
The Board continued to follow its dividend policy of returning 25% of earnings to shareholders during 2023, and declared an
interim dividend of 16 pence per share in 2023 following the 2022 final dividend of 29.1 pence per share.
Managing our business responsibly
Section 172 statement
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Section 172 statement
Employees
Link to strategy
Sustain
Why we act responsibly towards our employees
Giving our employees an effective voice builds trust, innovation, productivity and organisational improvement. By considering
our people as a key stakeholder in our decision-making, we seek to attract the best people for our business, gain their
commitment and retain them long-term to fulfil their ambitions at work. The employee voice is pivotal in creating diverse,
inclusive and safe working environments.
Two-way engagement
YourVoice surveys and champions
In November 2023, we completed for the sixth time an annual ‘Your Voice’ employee survey conducted by the Great Place
to Work
®
(‘GPTW
®
’) Institute.
This comprehensive survey explored the levels of trust and employee engagement across the Group and includes values
such as credibility, fairness, respect, camaraderie, honesty and pride. The results are benchmarked against many of the most
progressive workplaces in the UK and are considered by the Board. We were thrilled to maintain a high Trust Index rating
of 83% (2022: 85%). 85% of respondents stated that ‘Secure Trust Bank is a great place to work’ (2022: 88%). The Trust Index
is the average of the core survey statements and is used as the Group’s key performance indicator for employee satisfaction.
The ‘Your Voice’ survey also showed 90% of employees felt they were treated as a full member regardless of their position at
the company.
Our ‘Your Voice’ results are used to drive continuous improvement at both Group and team level throughout the year. Progress
is communicated and enabled by a team of colleague volunteers called ‘Your Voice’ champions. Our Your Voice Champions
meet quarterly and act as a conduit between senior management and the wider colleague community to drive and report
progress at both a Group and team level.
We were delighted to be recognised:
• once again at the UK’s Best Workplaces™ awards in April 2023, significantly improving our ranking in the UK’s Best Workplaces™
Large category, placing 12 out of 87 companies (2022: 29), the UK’s Best Workplaces™ for Women category and in the UK’s
Best Workplaces™ for Wellbeing; and
• also now as a best workplace in Europe ranking 44 out of 50 in the 500+ employees category and as a best Workplace
in Financial Services and Insurance.
Employee councils
We operate Employee Councils in each of our businesses, with department representatives elected by their colleagues.
The Councils meet regularly and encourage a two-way process of communication between employees, senior managers
and the Board. Our Group Employee Council meets with the CEO, HR Director and is chaired by the independent
Non-Executive Director designated for workforce engagement, Paul Myers. The Group Employee Council aims to promote
further employee engagement and provides a structured forum for teams to share their views, receive updates from the
Board through Paul Myers and provide insight, feedback and suggestions to make the Group continue to be a great place to
work. Throughout 2023, our Employee Councils were pivotal in helping us shape our future working practices and consider
colleagues’ views. Paul Myers updates the Board following each meeting so that all Directors have a good understanding of
employee views and priorities.
ENEI Partnership and TIDE diversity benchmarking
We maintained our partnership with the Employer Network for Equality and Inclusion (‘ENEI’), again completing the TIDE
diversity benchmarking tool to identify focus areas. In 2023, we were again awarded the silver standard for our approach to and
progress on diversity and inclusion. The evaluation results showed an increase in our score to 82% from 78% in the previous
year and 74% in 2021. This is the fifth consecutive year that we have been awarded both a UK Best Workplaces™ for Women
award and an ENEI TIDE Mark, showing that employees feel a strong sense of trust, fairness and wellbeing in their workplace.
Alongside this we also won the ENEI 2023 award for ‘Innovative Approach to Diversity, Equality, and Inclusion’ for our podcast
creating a voice for colleagues to help dispel stereotypes, increase understanding and celebrate our diverse colleagues.
A key focus issue within the social aspects of our ESG strategy is to support our people by promoting ‘belonging’ through
equity, diversity and inclusion, engaging effectively with colleagues and promoting their wellbeing.
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Section 172 statement
Employees
continued
Two-way engagement continued
Policies and collaborative working tools
The Board continued to operate WorkWise hybrid working policy, enabling the vast majority of employees to work remotely
as well as in the office. Our Workwise and Family Friendly policies include family friendly measures to support colleagues of
all genders with families. We offer enhanced maternity, adoption, paternity and shared parental leave pay and hold regular
meetings for colleagues on maternity/paternity leave to help them feel supported and connected to the workplace. Fully paid
phased returns are available for colleagues on parental and adoption leave. Our Family Friendly policy is designed to enable
employees to balance family and work and to fulfil both their family and work obligations plus our Absence Policy details
compassionate leave, parental bereavement leave and dependents’ leave allowing colleagues to respond to care emergencies.
The decision to move to a hybrid working policy was based on feedback received from employees who wanted the flexibility
that remote working provides. In further support of our hybrid way of working, in 2023 we launched the Microsoft VIVA and 365
suites of collaboration tools which help support colleagues to work efficiently as effective collaborators in a hybrid environment.
All employee Sharesave plan
During 2023, we invited all eligible employees to participate in the Group’s Sharesave plan. The plan seeks to align the
interests of our employee stakeholders with those of our shareholders as well as allowing our employees to share in the
success they have helped create. We communicated the launch with employees via news articles on the intranet. A webinar,
communications with teams, as well as drop in sessions with members of the Company Secretariat were available to eligible
participants who wanted to know more. Feedback was sought from employees on the benefit of the plan and will be reflected
on when considering the 2024 invite. We launched a financial education initiative, partnering with Wealth at Work, to explain
the implications of the maturing 2020 Sharesave grant, the different options available and potential tax consequences.
The feedback from participants was that they had a far better understanding of what the maturity meant for them and the
majority of participants elected to exercise their share options at maturity. We were highly commended at the ProShare awards
in 2023 for this financial education initiative.
Outcomes
Employee development
Employee development remains a priority. We have a comprehensive induction programme for new employees, a wide range
of specialist professional qualifications and numerous other development opportunities. These include a comprehensive four-level
leadership academy and ‘ICE’, our Individual Contributor Excellence Programme for those in specialist and non-leadership
roles. These programmes have continued to be delivered either virtually or face-to-face during 2023 to ensure that the focus
on personal development is maintained. We also continued several line manager masterclasses to build further confidence
in leading teams, including compulsory Everyday Allyship training for line managers which shows how to promote inclusion and
the wellbeing of others by taking action to support those in marginalised groups. We continue to partner with Everywoman
to provide extensive online and self-managed learning that is so important for our hybrid working teams.
Our personal growth programme, Blazing My Trail, sponsored by our Non-Executive Director designated for workforce
engagement, helps colleagues to build confidence, plan their progression and make it happen. It remains extremely popular
and oversubscribed at each intake and includes a variety of prestigious external speakers who help attract excellent feedback.
We’ve also been increasing the number of colleagues who are taking part in apprenticeships for our MentorMe programme,
with 41 mentors and 54 mentees participating this year. On average, colleagues are spending 20 hours throughout the year on
their personal development at STB. Employee training hours are tracked through self-declaration.
2023 was the third year of the Alan Karter scholarships which gives four individuals per year the opportunity to attend
professional development programmes with Cranfield Business School for either leadership skills or training on how to develop
impact and influencing skills, for use in either their current role or to enable them to progress to a more senior position.
Additionally, all employees engage with our Performance Management System on an bi-annual basis. These identify objectives
against company values, as well as opportunities for training and further development in the company.
To ensure employees are kept abreast of financial and other factors affecting the Company, Executive Directors hold periodic
sessions to update all employees on the performance of the Group, which included updates on the year end and interim results.
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Section 172 statement
Employees
continued
Employee engagement and recognition
Research consistently shows a clear link between high performance and team engagement. To recognise colleagues for
their contribution, we have a suite of recognition tools to celebrate exceptional performance and behaviours. These range
from simple e-thank you cards to the Group’s annual Outstanding Achievers awards, where 30 winners are selected by the
Executive Committee. Team leaderboards for e-thank yous were introduced in 2023 to encourage more participation in the
initiative. These schemes together with our annual incentive programme continue to help embed excellence within our culture.
We provide colleagues with a wide range of training for personal and professional development. We support employees
in achieving recognised qualifications from the London Institute of Banking and Finance and other bodies.
In early 2024, we enhanced our rewards for long service across the Group and extended awards to celebrate other significant
personal occasions such as on the birth or adoption of a child, marriage or civil partnerships.
Employee wellbeing
It is critically important to provide a positive and healthy working environment, so colleagues have the opportunity and
support to enhance their own wellbeing. Following positive feedback, we continued to focus on employee wellbeing
during 2023, building on the wellbeing progress previously made and resulting in STB being recognised as a Great Place
to Work for wellbeing in 2023. In 2023, we continued our wellbeing hour initiative and launched a VIVA wellbeing challenge
where employees can win an extra day of annual leave through engaging with the wellbeing tools and resources available.
The wellbeing hour gives colleagues an hour each month during their working day to dedicate to supporting their wellbeing.
We maintained the Wellbeing Cafe launched during the pandemic, allowing colleagues to connect with others supported by
one of our many Mental Health First Aiders. Our employee wellbeing initiatives are supported by our comprehensive health
and safety (‘H&S’) framework. This framework includes health and safety policies. a full set of H&S risk assessments, a H&S
Manual, a programme of H&S training for all new and current employees, a programme of H&S activities (supported by the H&S
Management System) and H&S monitoring and reporting.
The Facilities and HR teams are responsible for the H&S policy, procedures, training, monitoring and reporting. Senior leaders,
line managers and employees are responsible for compliance and completing relevant H&S activities.
Equity, Diversity & Inclusion (‘ED&I’)
In 2023, we published our fifth Gender Pay Report and supporting commentary. We are committed to diversity in the workplace
at all levels. The actions outlined in the report demonstrate this and show our commitment to improving the position at senior
manager level. In 2023, women comprised 25% (2022: 25%) of our Executive Committee. Our ED&I agenda remains an area of
focus and we are conscious we still have more to do. We continue to work closely with Everywoman in progressing our Inclusion
Agenda with two of our senior leaders appointed as Everywoman Ambassadors. We continue to be signatories of the Women
in Finance Charter.
Our ED&I workforce champions (‘Inclusioneers’) champion our Group vision and provide valuable feedback to our
ED&I Steering Committee. They are supported by our Advisory Committee of relevant subject matter experts. These groups
are critical in helping us to take meaningful action in ensuring everyday inclusion is a reality.
At the year-end, the split by gender of the Group was as follows:
1.
In accordance with the requirement set out in s.414C(8)(c)(ii) of the Companies Act 2006 for disclosure of STB’s ‘senior managers’ (as that term is defined in s.414C(9)), there were
7 Male and 2 Female senior managers.
All other
employees
Male
415
Female
407
Total
822
Total
69
Male
43
Female
26
Senior
managers
1
and
their direct
reports
Directors
Male
4
Female
4
Total
8
Total
employees
Male
459
Female
434
Total
893
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Employees
continued
Board and Executive Management gender representation
1
Number of Board
members
Percentage
of the Board
Number of senior
positions on
the Board
(CEO,CFO, SID
and Chair)
Number in
Executive
Management
2
Percentage
of Executive
Management
Men
4
50%
2
8
73%
Women
4
50%
2
3
27%
Other categories
–
–
–
–
–
Not specified/prefer not to say
–
–
–
–
–
Board and Executive Management ethnic representation
3
Number of Board
members
Percentage
of the Board
Number of senior
positions on
the Board
(CEO,CFO, SID
and Chair)
Number in
Executive
Management
2
Percentage
of Executive
Management
White British or other White
(including minority-White groups)
8
100
4
11
100%
Not specified/prefer not to say
–
–
–
–
–
1.
The Board and Executive Management were asked to confirm their gender from the follow options: male, female, other category and not specified/prefer not to say.
2.
In accordance with the requirement under Listing Rules LR 9.8.6R(9) and LR 14.3.33R(1), the ‘Number in Executive Management’ includes all members of the executive committee
(which includes the CEO and CFO, who are also Directors), and the company secretary.
3.
The Board and Executive Management were asked to confirm their ethnicity from the follow options: white british/other white, mixed/multiple ethnic groups, asian/asian british,
black/african/caribbean/black british, other ethnic group, including arab and not specified/prefer not to say.
The Board
The Board acknowledges that the strength of our service is set by our people. Having a talented, healthy, diverse family of
individuals engaged in their roles is essential to bringing to life the Group’s vision to be the most trusted specialist lender in the
UK and fundamental to the long-term success of the Group. By protecting mental health and listening to employee feedback
and implementing ideas for improvements, we stand the best chance of maintaining morale, boosting productivity and
retaining the individuals that drive the Group’s sustainable success.
Key topics discussed by the Board this year have included:
• communication of our refreshed strategy to our people;
• diversifying the workforce;
• ‘Your Voice’ results;
• hybrid working;
• aligning Management reward with employee engagement; and
• upskilling existing employees to provide a talent pipeline for the Group through initiatives such as the Confident Leader
Academy, Blazing My Trail and an extensive range of professional qualifications.
How has the employee voice helped the Board make decisions on strategy?
The Board recognises employees and other workforce colleagues as key stakeholders and considers their views when making
key strategic decisions with our non-executive director for workforce engagement ensuring that the employee voice is heard
in the Boardroom.
Our annual pay review prioritised our lower salary banded colleagues with Senior Leadership receiving a lower percentage
increase. Further information on other all employee initiatives can be found in our Remuneration Committee report starting
on page 85.
Managing our business responsibly
Section 172 statement
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Section 172 statement
Environment
Link to strategy
Sustain
Why we act responsibly towards our environment
We recognise the importance of acting responsibly in relation to the environment. Our ESG Strategy, developed through
engaging with a wide range of stakeholders, includes environment as a key focus area.
Two-way engagement
In 2021, the Group adopted an Environment Action Plan for our Solihull head office and Cardiff office. This programme of
work continued in 2023 using the outputs from Business in the Community’s Responsible Business Tracker survey to guide
our environment plan, embed our Environmental Policy and help the Group develop its approach to reducing CO
2
equivalent
(‘CO
2
e’) emissions from its operations and improving its environmental impact.
In 2023, the Board launched our ESG strategy, more information can be found on pages 41 to 43.
Outcomes
Our Environmental Policy sets out key areas of focus for the business, committing us to follow environmental guidance, where
reasonably practicable, provided by the UK Government, the financial services sector and environmental organisations.
This includes reporting our progress using key metrics related to our environmental footprint. More information about our
progress in this area is in the following Climate-related Financial Disclosures section.
In 2023, the Real Estate finance business provided a dedicated Energy Performance Certificate Improvement Loan to Kingsford
Group, dedicated to help landlords remediate their properties with energy saving solutions and enhance the sustainability
credentials of luxury apartments in Edinburgh.
We continued to develop our digital capabilities to provide customers with increased opportunities to self-serve on their
accounts. The majority of STB’s customers are now accessing savings statements and certificates of interest online via internet
banking, reducing both costs for STB and environmental impacts. In 2023, we continued our focus on the development of
digital capabilities, launching the Savings mobile app.
The Board has also supported environmental initiatives which have been implemented at various offices including solar panels
and electric vehicle chargers at STB’s offices in Cardiff and Solihull. Our Manchester office now uses 100% renewable energy and
our leased office in Birmingham is now using 59% of its energy from renewable sources.
We monitor emissions from our operations and review the business model to assess what the indirect impact of financing
of certain industries, such as Vehicle Finance, can have on the environment. We have continued to provide financing for the
small but growing second hand electric vehicles market. Additionally, the remaining group leasing vehicles have switched from
petrol and diesel vehicles to plug in hybrid and electric vehicles.
The group has assessed its use of freshwater and freshwater use intensity. As an office-based business which uses very little
water compared to other businesses, our resources have been focused on environmental targets and goals elsewhere, such
as our Environmental Action Plan.
The Board
The Board recognises that making decisions that help to improve our impact on the environment support our long-
term sustainability.
Key topics discussed by the Board this year have included:
• ESG strategy including how STB can offset its environmental impact from its operations;
• measuring emissions from our operations and setting our CO
2
e reduction target for Scope 1 and 2 emissions; and
• future operating model.
How has the environmental voice helped the Board make decisions on strategy?
In developing strategy, environmental impact has been a key feature of Board discussions. The Board continues to be mindful
of both STB’s direct and indirect impacts on the environment. In 2023, an ESG strategy to improve STB’s environmental impact
has been developed and adopted by the Board. The Board has received specific training on climate change risk and ESG.
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Section 172 statement
Wider society
Link to strategy
Care
Grow
Why we act responsibly towards our society
We remain mindful of our need to act responsibly in society and comply with the wide range of laws and regulations applying to
financial services companies generally in the UK.
Two-way engagement
Our established community-focused schemes remain in place and our Charity Committee continues to empower colleagues
from different business areas to drive forward charitable activities.
There were increased opportunities for fundraising and community outreach in 2023 and we significantly exceeded our
fundraising targets set for 2023. We chose to enhance our £-for-£ matching donations raised by Group employees so STB
will match donations £-for-£ up to a total of £400, doubling the previous limit of £200. In 2023, we supported 12 charities
and raised over £91,000 for good causes. We have a strong relationship with Solihull College, a respected college local to
our headquarters.
The STB Volunteers Scheme entitles colleagues to use one paid day a year to make a difference in their local area. In 2023,
91 days were used by colleagues.
Our Group Financial Promotions policy clearly sets out expectations regarding responsible marketing which are aligned to
regulatory expectations and Consumer Duty. Our Group Social Media Policy and Pricing Policy requires colleagues involved
in marketing activities to undergo mandatory enhanced training on responsible marketing. We carry out annual training on
marketing requirements for all involved in marketing activities.
Our Customer Charter is published on our website and sets out what our customers can expect from us.
Outcomes
The Group has a governance framework and policies designed to enable us to meet our responsibilities and adhere to
the highest professional and ethical standards when dealing with customers, suppliers, employees, local communities and
other stakeholders.
The scope of our Group-wide policies includes:
• anti-bribery and corruption;
• anti-money laundering;
• employment health and safety;
• whistleblowing; and
• human rights and tackling modern slavery.
All employees are required to complete the relevant regulatory training on an annual basis with further training offered
when required.
The Board
The Board is proud that STB is a good corporate citizen and funds businesses which fuel our economy. We are mindful of our
impact on wider society and supportive of our employees’ efforts with local communities and stakeholders.
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Managing our business responsibly
Section 172 statement
Regulators
Link to strategy
Care
Grow
Why we act responsibly towards our regulators
We have a duty to engage openly and proactively with our regulators.
Two-way engagement
We interact with our regulators through monthly meetings. We engage with thematic reviews in which the Group participates.
Informally we regularly consider correspondence and publications from the regulatory sphere. We also engage through UK
Finance and the Finance & Leasing Association, the relevant trade bodies.
We adhere to the FCA’s 12 Principles for business, the foundation for FCA regulated firms operating in a regulatory environment.
Separately, during H2 2023, we engaged in formal discussions with the FCA about our collections processes, procedures and
policies. This follows the FCA’s review of Borrowers in Financial Difficulty (‘BiFD’) across the industry. We have engaged external
support to assist us with this review and, where necessary, will take action to enhance our approach. We expect the review to be
completed in H2 2024.
Outcomes
We require our people to act with integrity and provide them with the necessary training to conduct themselves with due skill,
care and diligence. For example, we have a suite of policies to support the conduct of our employees including, for example,
our conflicts of interest policy and conduct risk policy. These policies are embedded through our training programmes.
This approach supports the outcomes we provide to our customers.
We review consultation papers as they provide insight on key risks and opportunities and allow us to learn from our peers
on industry wide challenges. This enables us to evolve our business processes, become more resilient and identify opportunities
to take advantage of our specialisations and/or our technology. This helps us to serve our customers in the best way we can.
Our horizon -scanning processes helps safeguard against the risk of missing or not responding to regulatory change impacting
the Group as set out on page 36.
The Board
By taking part in regulatory initiatives and having open communication with our regulators, we can understand better the key
drivers for regulatory change which, in the Board’s view, promote the long-term success of the Group. It also provides us with
a platform to provide input into the regulatory environment in which we operate. By supporting the regulatory regime in which
we have been granted a licence to operate, we ensure, collectively with our peers, continued customer confidence in the
industry. Key topics discussed by the Board this year have included:
• the Consumer Duty;
• operational and cyber resilience; and
• areas of regulatory focus.
How has the regulators’ voice helped the Board make decisions on strategy?
Knowing regulatory and industry expectations allows us to enhance and adapt our existing operating model. It also provides
us with a steer on what is needed when implementing our strategy.
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Managing our business responsibly
Section 172 statement
Suppliers
Link to strategy
Care
Grow
Why we act responsibly for our suppliers
Our suppliers support a wide range of services and systems which underpin our operating model.
Two-way engagement
The Group has a structured supplier governance framework to manage material, and other, suppliers. The Group is registered
with Transparency in the Supply Chain (‘TISC’) Report and Modern slavery statement registry service to further demonstrate its
commitment to increasing transparency within its supply chain and within its own business, and in tackling modern slavery and
human trafficking.
The Group is committed to systematically asking potential suppliers for their responsible business policies as part of the
procurement process, and we actively monitor existing supplier compliance with the social and environmental factors in the
contractual terms.
The Group also regularly monitors labour providers, labour sourcing agents and recruitment agencies’ compliance with human
rights standards and has included human rights risks in its overall risk register.
The Group offers safe and confidential grievance channels for employees and contractors to complain or raise concerns of
human rights abuses.
Outcomes
The Board is committed to acting ethically and with integrity in all of its business relationships. The Board has adopted policies
which reinforce this commitment including the procurement, the supplier management and the anti-bribery and corruption
policies. Additionally, regular risk-based supplier assessments are undertaken to continually manage the working conditions
in our supply chain. The Group invests in training for employees on modern slavery.
The Board
Delivery of our vision to be the most trusted specialist lender in the UK depends, in part, on ensuring the continuity of our
services. Key topics discussed by the Board this year have included:
• operational resilience of material suppliers; and
• commitments to avoid instances of modern slavery in our supply chain.
How has our suppliers’ voice helped the Board make decisions on strategy?
The availability of, and engagement with, suppliers helps to deliver some of our operating strategy and enhance our
customers’ experience.
Non-financial and sustainability information statement
The Group complies with the non-financial information reporting requirements contained in sections 414CA and 414CB of the
Companies Act 2006. This helps stakeholders understand the Group’s position on key non-financial information.
Information about environmental matters, employees, social matters, respect for human rights and anti-corruption and anti-bribery
matters is included in the ‘Managing our Business Responsibly’ section.
The location of other required information required is set out in the table below:
Reporting Requirement
Section
Pages
Policy embedding, due diligence and outcomes
Principal risks and uncertainties
28 to 38
Description of principal risks and impact of business activity
Principal risks and uncertainties
28 to 38
Description of the business model
Our business model
2
Non-financial key performance indicators
Key performance indicators
6 to 7
Climate related financial disclosures
Climate-related financial disclosures
55 to 64
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Climate change
Climate change, and society’s response to it, presents risks and opportunities to the UK financial services sector. While some of
these risks may not crystalise in the short-term, our industry needs to act now to support and help mitigate the medium to long-term
implications of climate change.
The Group continues to assess its risk exposure to both the potential ‘physical’ effects of climate change and the ‘transitional’ risks
from the UK’s target to bring all greenhouse gas (‘GHG’) emissions to net zero by 2050.
To explain how the Group is responding to these risks, this report is structured to align with the four key parts of the guidance from
the ‘Task Force for Climate-related Financial Disclosures’ (‘TCFD’), being Governance, Strategy, Risk management and Metrics and
targets. The key risks, their mitigants and assessments are covered under the Strategy and Risk management sections of this report.
The Group has complied with the requirements of Listing Rule 9.8.6(8) by including climate-related financial disclosures consistent
with the recommendations and recommended disclosures of the TCFD within its Annual Report and Accounts, except for two aspects
where it has assessed itself as partially aligned:
• Strategy (b): The Group is yet to embed fully climate change risk and opportunities into its annual planning cycle due to the longer-
term nature of climate-related impacts. Risks associated with climate change are considered as part of the annual Internal Capital
Adequacy Assessment Process. The Group plans in 2024 to enhance its financial planning processes in respect of climate change
with a view to making fully aligned disclosures on this aspect in its 2024 Annual Report and Accounts.
• Metrics and thresholds (b): The Group continues to develop its climate-related metrics and has faced challenges in obtaining supply
chain and Scope 3 financed emissions data for parts of its business. This is an industry-wide challenge, and the Group has identified
this as a key area of focus in 2024. The timeframe within which it will be able to make disclosures fully aligned with this aspect is,
however, not certain as it depends on the practicality and availability of suitable data.
The climate-related financial disclosures made by the Group comply with the requirements of the Companies Act 2006 as amended
by the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022. The Group continues to develop its
approach to emissions reporting with Scope 1, Scope 2 and elements of Scope 3 emissions continuing to be reported. The Group is
keen to see the outcome of the Government’s recent consultation on Scope 3 reporting, as well as greater guidance and consistency
across the industry, as it develops its approach.
The Group is reporting a summary of financed emissions associated with the Group’s portfolio of businesses where suitable and
verifiable data can be obtained, with additional third-party oversight implemented in 2023.
The Group continued to develop its Climate strategy and emissions reporting, in preparation for transition planning disclosures
anticipated in 2025, and for potential changes in sustainability reporting driven by International Sustainability Disclosure Standards
IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information and S2: Climate-related Disclosures.
Further details are provided in the Metrics and targets section below.
Governance
The Group recognises the importance of climate change risk management and has appointed an enterprise-wide focused specialist
risk manager to facilitate and drive our Climate strategy across the Group. The Group has allocated Senior Management Function
responsibility for identifying and managing the risks from climate change to the Chief Risk Officer (‘CRO’).
The Board has delegated responsibility for oversight of climate change risk to the Executive Risk Committee (‘ERC’). The ERC receives
regular updates and reviews all associated risk appetite metrics and thresholds on a monthly basis. The ERC members include the
Chief Executive Officer, Chief Financial Officer and Chief Operating Officer. The Group’s risk governance structure can be found on
pages 28 to 29.
During 2023:
• The Board approved the Climate Change Risk Appetite Statement and supporting metrics in 2023.
• Climate change risk is reported to the ERC and then the Board Risk Committee (‘BRC’). Over the year, the ERC met on 12 occasions
and the BRC met on six occasions.
• The Group has also developed climate metrics aligned to our businesses, enabling insights into the embedding of our climate
strategy. The Metrics and targets section provides further details.
• In December 2023, the Executive Committee received a progress report about climate change. The Executive Committee
discussed our transitional planning and how this could be impacted by regulatory expectations. Other considerations included how
to reduce the impact on climate change of our own operations and improve our emissions data management and reporting.
• The CRO and senior members of the risk function are members of the UK Finance TCFD, Disclosure & Consultations Working
Group. They attend industry meetings and consultations through UK Finance, and have engaged with external expertise to
enhance their skills to develop the Group’s response to the risks associated with climate change. This focus will continue to evolve
into 2024.
Climate-related financial disclosures
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Strategy
The Group, through the governance model described above, has identified several risks and opportunities associated with climate
change. They are described below with supporting commentary on the implications for our future strategy. Cognisant of the UK
Government’s 2050 net zero target, the Group is committed to supporting the consumers and businesses it works with to transition
to a low carbon economy. A key consideration for 2024, will be for the Group to develop how it will support and engage with business
customers and their own climate approach.
The Group’s ESG strategy has been approved by the Board and was published at the start of 2023. This strategy included a focus
on environmental aspects including a focus on climate action/risk. The strategy also includes the Group’s target to achieve a 50%
reduction in Scope 1 and 2 CO
2
equivalent (CO
2
e) emissions by December 2025, compared with a 2021 baseline. The Group is
on track to achieve this target, following the successful implementation of initiatives in 2022/23 and the planned delivery of its
environmental action plan over the next two years.
The Group considers remuneration policies to be an important incentive to achieving our organisation’s climate-related goals
and objectives.
The management of all risks (including climate change risk) is embedded within the executive’s remuneration policy and processes.
In 2023, the Department for Energy Security and Net Zero launched a Call for Evidence, closing in December 2023, to gather
feedback on the benefits, costs, and practicalities of Scope 3 GHG emissions reporting in the UK, including links to the Government’s
Streamlined Energy and Carbon Reporting (‘SECR’) framework. The Group is keen to factor the outputs of this consultation, once
published, into its approach to emissions reporting.
The Group has commenced planning in preparation of the finalisation of the requirement, and form of transition plans that will be
required, and for other changes to the Listing Rules anticipated for 2024. It has also been monitoring the proposals for sustainability
reporting in 2025. and although these proposals are yet to be finalised for application in the UK, the Group has started to raise
awareness internally and upskill relevant members of staff.
The Group has commenced planning in preparation for the form of transition plans that will be required, and for other climate-related
disclosure changes to the Listing Rules anticipated for 2024. It has also been monitoring the proposals for sustainability reporting in
2025. Although the application of these proposals in the UK is yet to be finalised, the Group has started to raise awareness internally
and upskill relevant members of staff.
Risk management
Whilst climate change risk has been recognised as a principal risk within the Group, the management of this risk has been integrated
and embedded within existing risk management frameworks and associated processes, and is governed through existing risk
governance structures, including reporting to the ERC and monitoring for any new regulation through established horizon
scanning processes.
Physical risks and transitional risks continue to be managed and integrated within the Operational Risk Framework and the Credit
Risk Framework, respectively. This includes how risks are identified, assessed, mitigated and any associated stress testing and
scenario analysis.
However, all climate change risks are reported collectively to enable management and the Board to understand and consider the
scale and breadth of the climate change risk profile. These are reviewed, at a minimum, on an annual basis.
The Group’s climate change risks have been identified through workshops with representatives from each business line and the Risk
team. These reviews consider both physical and transitional risk and all relevant sources of risk, as described within the guidance
tables provided by TCFD. This qualitative review is undertaken annually, and all identified risks are assessed against three time
horizons, being one year, five years and 10 plus years. The potential impact of the risks are assessed against an established hierarchy
contained within our risk frameworks that cover the potential financial, regulatory/reputational, business disruption, customer impacts
and the emerging regulatory landscape.
Each risk each has an executive owner and is collectively reviewed and agreed at the ERC.
Internal stress testing
As described below, the businesses have each undertaken scenario analysis, most appropriate for their time horizon and plausible
exceptional scenarios. Each scenario is reviewed for its insights as a minimum every three years. This analysis has improved the
Group’s understanding of the key drivers to its risks and therefore the mitigating actions required. We continued to refine this analysis
in 2024, to understand better the risks and opportunities that climate change presents.
Climate-related financial disclosures
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Summary of climate change risks
Climate change risk
Source
Area
Risk
Timeframe
Impact
Physical
risk
Acute/
Chronic
Operations
Impact of climate change interrupting our internal
operations e.g. floods.
Medium and
long-term
Low
Acute/
Chronic
Operations
Impact of climate change interrupting our supply
chain e.g. floods.
Short, medium
and long-term
Low
Acute/
Chronic
Real Estate
Finance
The value of the Group’s security may be
negatively impacted due to increased risk of flood
associated with climate change.
Short, medium
and long-term
Low
Transitional
risk
Technology/
Market
Vehicle
Finance
Failure to respond/recognise that the value of
the loan security may be negatively impacted by
‘transitional’ effects from climate change.
Short, medium
and long-term
Low
Current and
emerging
regulation
Real Estate
Finance
Failure to respond/recognise that the value of the
loan security may be negatively impacted by the
effects of climate change or through ‘transitional’
impacts.
Short, medium
and long-term
Low
Market/Current
and emerging
regulation
Commercial
Finance
Profitably or viability of our clients may be
impacted by the transitional effects of climate
change.
Short, medium
and long-term
Low
Reputation
Group
The Group’s reputation is negatively impacted due
to failure to meet:
• climate change regulation;
• stakeholder expectations;
• the strategic responses needed to address
changing markets: and
• consumer demands/preferences.
Short, medium
and long-term
Low
Climate-related financial disclosures
Operations
Disruption to the Group’s and third-party suppliers’ operational sites through climate change-related impacts,
such as severe weather.
The Group has reviewed the physical risks associated with the location of each of its operational sites. Similarly, we have
consulted with our material suppliers about their contingency plans in the event of flooding or other severe weather.
From the flood risk data and energy performance ratings of our internal sites, and the responses from our material suppliers,
we do not consider there to be any material risks in the short term.
In strategic terms, these risks and their associated risk appetites will be assessed and will influence any proposed changes
to our operational sites and the selection and on-boarding processes for any new suppliers during those processes.
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Vehicle Finance
Transitional impacts of climate change within the motor industry as consumers and as the industry responds to the move
towards non/low carbon-fuelled vehicles.
The key area of risk for the Group is the implication of an accelerated transition to the use of ‘non-fossil fuelled vehicles’ on the
residual values of our security on internal combustion engine vehicles. Our current planning assumption is based on an orderly
transition to non-fossil fuelled vehicles.
As part of our strategic planning process, the Board has reviewed and approved our response to this climate change risk for the
Vehicle Finance business. We have already amended our credit policy to allow lending for electric vehicles (‘EV’). However, given
that we operate in the used vehicle sector where 98% of transactions are for internal combustion engine vehicles (source: SMMT
used car sales: Q3 2023), the current level of lending associated with EV and hybrid vehicles is low.
We are committed to supporting our customers where they wish to transition to EV and hybrid vehicles, and dealers wishing to
stock them. To assist this, we are actively enhancing our market intelligence in this sector, and closely monitoring the key factors
that will influence changes in this market (e.g. customer preferences, Government intervention, infrastructure, and vehicle
developments). In addition, we are working with our ‘Introducer’ base to understand how we can develop our product base and
lending criteria better to support demand for EV and hybrid vehicles.
To support this strategy we have set risk appetite metrics that monitor the proportion of older vehicles (with higher emissions)
that we are willing to fund, and metrics that monitor customer behaviour.
In order to understand better the potential implications of the transition to vehicles with lower emissions, the Group
has reviewed a range of scenarios to help assess the level of risk from climate change on our Vehicle Finance business.
These scenarios are linked to the Bank of England’s Climate Biennial Exploratory Scenarios (‘CBES’) that are based on those
developed by the Network for Greening the Financial System and are designed to support central banks to bring greater
consistency and comparability to stress testing exercises. Two routes to meeting net zero carbon dioxide emissions targets by
2050 were considered: an ‘Early Action Scenario’ and a ‘Late Action Scenario’. A third scenario explored what might happen in
terms of the physical risks materialising if governments around the world fail to take action to address climate change:
the ‘No Additional Action Scenario’.
Whilst it is recognised that the economic impacts of these scenarios were set by the Bank of England prior to the current
inflationary environment, the results do still provide the Group with an understanding of the potential impact of these
transitional risks on our Vehicle Finance business.
In the unlikely event of the Group not taking any action to mitigate the potential impacts from these scenarios, the increase in
the level of credit losses would likely peak around 2031 for the Early Action and Late Action Scenarios, albeit at a lower level
in the Early Action Scenario. Management have monitoring tools in place that closely monitor the key indicators and, should
elements of the scenarios unfold, the Group would take corrective action through amending credit policies to reduce loan-to-
value ratios and/or reduce lending to those vehicles that are likely to see the most significant reduction in value as a result of
the transition.
The outcomes from the analysis indicate that currently there is no significant link to credit losses due to climate change factors
and the Group is resilient across the scenarios assessed. The results will be factored into the Group’s 2024 Internal Capital
Adequacy Assessment Process.
The Group plans to develop further the scenario analysis undertaken and will continue to use the results to identify climate
change risks/opportunities and how they may influence our business plans.
Climate-related financial disclosures
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Real Estate Finance
Climate change-related impacts on the valuations of property securing our Real Estate Finance portfolio.
There are two areas of potential risk that could impact the performance of the Real Estate Finance portfolio. The first relates
to the risk that climate change has an increased impact on the weather conditions across the UK, and the properties we hold
as security for our lending are subject to an increased risk of flooding or similar risks associated with severe weather.
In order to mitigate flood risk, existing on-boarding and due diligence processes require a full valuation from a RICS-qualified
surveyor, which includes an assessment of the flood risk. Based on this information, the Group may choose not to proceed
with lending, or will look to mitigate the risk through acceptable insurances. It should also be noted that, unlike a residential
mortgage, the maximum term of our loan facilities is currently five years, so this limits the potential impact from any change to
the level of flood risk and ensures we have recent valuation assessments. Therefore, we are confident that the level of risk is not
currently considered to be material.
Notwithstanding these due diligence checks, the Group regularly reviews the assets it currently holds as security at portfolio
level against external flood risk data provided by ‘Hometrack’. The Group has reviewed and updated this portfolio approach
in 2023. This is now assessed against the security values. This is measured by the combined security value of properties in high
and very high flood areas, divided by the total portfolio security value. This produces a percentage of properties, exposed to
high and very high flood risk by security value. Results show that 3.9% of the security value of the portfolio is classed as having
a high or very high level of risk from flooding (3.4% in 2022 using the same methodology). This compares to the national
average of 3.7%.
The second area of risk is where the value of our security could be impacted by transitional changes made or imposed on the
sector through Government intervention to improve the energy efficiency. The UK Government has set a minimum Energy
Performance Certificate (‘EPC’) rating of E for tenanted properties. In order to understand the potential risks, the Group has
reviewed the EPC rating for the properties we hold as security and tracks this rating by the value of residential property within
its investment loan portfolio. The results are presented below:
EPC Rating
% of investment loan portfolio by value
C or above
69.4%
D and E
30.4%
Below E
0.2%
To mitigate this risk, new lending facilities are provided on the basis that all properties are compliant (unless exempt) with
current EPC requirements. The Group also requires an assessment from the borrower regarding their strategy to comply with
any future changes to EPC requirements. For existing exposures, this is reviewed on an annual basis. Therefore, the Group
does not consider the risk associated with transitioning to the new EPC requirements to be material.
Furthermore, to understand better the potential implications of these risks, the Group has undertaken a review of a range of
quantitative scenario assessments, linked to the Bank of England’s CBES scenarios (as described above under Vehicle Finance),
to help assess the longer-term level of risk from climate change on our Real Estate Finance business. The analysis considered
the potential economic implications of the transitioning to net zero and the most severe potential impacts of flooding on
property values. The analysis showed that the Group’s approach to surveying/valuing properties and the short-term nature of
the lending facilities provided, enabled us to minimise any impact from flooding within the planning period and adapt lending
policy to withstand the most severe longer-term economic impacts. The outcomes from the analysis indicate that currently
there is no significant link to credit losses due to climate change factors and the Group is resilient across the scenarios assessed.
The results will be factored into the Group’s 2024 ICAAP.
The Group plans to develop further the scenario analysis undertaken and will continue to use the results to identify climate
change risks/opportunities and how they may influence our business plans.
Climate-related financial disclosures
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Metrics and targets
The Board has approved an overarching risk appetite statement in relation to climate change: ‘Secure Trust Bank Group seeks
to understand and quantify its climate change risk exposure, so the Bank working with its customers and clients can minimise
the financial risks associated with the transition to a low carbon economy and any impacts from climate change to our business’.
This statement is supported by the following metrics and thresholds, which have been approved by the Board:
Business area
Metric example
Thresholds –
Outside of appetite
Position at 31
December 2023
Insight provided
Vehicle Finance
Vehicle age – new business
portfolio weighted average
> 8 years
7.2 years
Consumer behaviour and buying
patterns internal combustion engines
in comparison to EVs
Real Estate Finance
Combined security value of
properties in high and very high
flood areas, divided by the total
portfolio security value, as
a percentage.
> 8%
3.9%
Understanding of impact on portfolio
of flood risk
Commercial Finance
Number of clients with a residual
climate risk rating of ‘high’
> 1
0
Enables clear understanding of
a business’s credentials and impact
on the Group’s metrics
Tracking and reporting of quantifiable metrics has enabled the Group to operate within its appetite and helped to make sure that the
impact on our portfolios of climate change is understood and effectively managed. In addition to the above metrics, there are further
metrics and thresholds that are reviewed by the ERC on a monthly basis.
We remain committed to developing our understanding of emissions by suppliers to the Group to support delivery of our climate
ambitions. In 2024, we plan to enhance further this activity by focusing on the largest suppliers to the Group.
Climate-related financial disclosures
Commercial Finance
The potential impacts on our Commercial Finance clients as they respond to any changes to their business from the effects
of climate change.
The Group’s Commercial Finance clients cover a broad range of sectors. There is a risk that their businesses and/or customers
could be affected by the transitional impacts of climate change, which in turn, could affect their ability to service their lending
with the Group.
In order to understand and evaluate the risk to our business, the Group has developed an approach to assess formally the
climate change risks associated with each of its Commercial Finance clients. The assessments consider all of these areas of risk
(i) client risk; (ii) geography; (iii) product risk; (iv) debtor risk; (v) supply risk; and (vi) collateral risk.
This bespoke assessment model allows our Commercial Finance business to focus on the most relevant areas of our credit
risk assessment and thereafter engage with those current and prospective clients that may have material or specific risks to
understand and support them with necessary mitigations.
To support this approach, the Group has defined its risk appetite that it will not engage with clients whose residual risk rating
from this assessment is considered to be ‘high’ risk in relation to the impacts of climate change. Rather than having a sector
specific risk appetite, Commercial Finance operates a business model that makes appropriate client-by-client decisions to
reflect the climate change risk associated with each individual facility.
Whilst the client risk reviews have provided useful insight, the level of risk is not currently considered to be material since the
Commercial Finance portfolio is primarily composed of short-term, self-liquidating facilities secured principally by debtors and
stock. Should there be any material concerns or risks relating to the impact of climate change on the viability of the client, these
facilities can be reviewed, reduced or additional collateral taken, where required.
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Climate-related financial disclosures
Scope 1, Scope 2, and Scope 3 GHG emissions.
This section of the report covers the Group’s GHG emissions. The Group continues to develop its reporting capability each year.
This year we are reporting new categories for the first time which are noted under the table. Supply chain emissions are not reported
this year, however developing reporting on this area will be a key focus in 2024.
The following tables set out the Group’s energy consumption and equivalent emissions (CO
2
e) for 2023 in accordance with TCFD
guidance and the Companies Act 2006 (Strategic Report and Directors’ Report) Regulation 2013, and the Companies (Directors’
Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.
We have calculated emissions using the GHG Protocol Corporate Accounting and Reporting Standard (revised edition).
GHG consumption and emissions are reported as single totals, by converting them to the equivalent amounts of kWh and CO
2
e
respectively, using emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2023.
All energy consumption and emissions relate to the UK and cover all Group entities and therefore are aligned with the financial
reporting of the Group.
Measure
2023
kWh
2022
kWh
Year-on-Year
Variance %
Scope 1 – Building energy: gas consumption
145,692
210,605
(30.8)
Scope 1 – Emergency generator: gas oil consumption
4,733
4,733
–
Scope 1 – Business travel: Group-leased vehicles
136,364
195,579
(30.3)
Scope 2 – UK electricity consumption
948,919
1,303,946
(27.2)
Scope 3 – Business travel: employee-owned vehicles
148,844
126,748
17.4
Total energy consumption
1,384,552
1,841,611
(24.8)
Measure (Location-based emissions
1
)
2023
CO
2
e
tonnes
2022
CO
2
e
tonnes
Year-on-Year
Variance %
Scope 1 – Direct emissions from the combustion of fossil fuel
60.2
148.3
(59.4)
Scope 2 – Indirect emissions from purchased electricity
224.8
252.2
(10.9)
Scope 3 – Other indirect emissions (excluding Financed Emissions)
114.9
91.5
25.6
Total Scope 1 to 3 CO
2
e emissions (excluding Financed Emissions)
399.9
492.0
(18.7)
Measure
2023
2022
Year-on-Year
Variance (%)
Group operating income £ million (continuing and discontinued)
184.7
178.2
3.6
Environmental intensity indicator
(Total emissions excluding financed emissions per £m Group operating income)
2.2
2.8
(21.4)
1.
Location-based emissions are calculated by multiplying electricity consumption for all sites by the Government’s conversion factor for UK electricity.
• Scope 1 emissions result from activities owned and controlled by the Group. These are direct emissions that include the combustion
of natural gas for heating buildings and fuel for Group-leased vehicles.
• Scope 2 emissions are indirect emissions generated from purchased electricity in relation to the Group’s activities, but occur at
sources that the Group does not own or control. For 2023, this now includes EV emissions from the Group’s leased EVs.
• Scope 3 emissions are indirect emissions generated by the Group’s activities, but occur at sources that the Group does not own or
control. Emission data included in the table relate to Scope 3 categories (3) Fuel and energy related activities (not included in Scope
1 or 2), (4) Upstream transportation and distribution and (6) Business travel. For 2023, this now includes (5) Waste generated in
operations, and additional reporting for EVs under (4) Upstream transportation and distribution. For further information on Scope 3
categories applicable to the Group, see Scope 3 CO
2
e emissions section below, where the Financed emissions (category 15) is also
detailed, separately, and not included in the above table or the commentary and charts below.
In 2023, the Group achieved a net reduction of 92.1 tonnes of reported location based CO
2
e emissions. Like for like emissions have
been reduced by 124.2 tonnes CO
2
e (25.2%). However, this success has been offset by the addition of three new categories to the
reporting for this year, which have added a further 32.1 tonnes CO
2
e to the total.
The most significant drivers of the reduction on CO
2
e emissions are presented on the following page.
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• Energy consumption has decreased year-on-year for natural gas (30.8%) and electricity (27.2%). This has been primarily driven by the
closure of three of our offices.
• Business travel mileage for employee-owned vehicles has increased by 21.1%, as the Group returns to pre-pandemic travel levels.
• Business mileage for Group-leased vehicles has decreased by 6.2%. This has been caused by using an improved methodology for
calculating company vehicle business mileage that now removes any private mileage from the total annual mileage recorded for each
company vehicle.
Gas consumption (Scope 1)
Electricity consumption (Scope 2)
Group-leased vehicles (Scope 1)
Employee-owned vehicles (Scope 3)
Building energy:
Business travel:
2023
2022
2019
2021
2020
CO
2
e
emissions (tonnes) five year trend
0
100
200
300
400
500
*
Graph is prepared on location-based emissions.
CO
2
e emissions for the categories above are following the trend set by the energy consumption data.
CO
2
e emissions
2023
Building energy:
UK Electricity
49.1%
Scope 2
Business travel:
Public transport
12.8%
Other
5.2%
Business travel:
Employee-owned vehicles
10.7%
Scope 3
Business travel:
Group-leased vehicles
8.0%
Building energy:
Gas consumption
6.6%
EV's:
UK Electricity
7.1%
Scope 1
Other
0.5%
Energy consumption five year trend
(kWh)
1,303,946
1,649,045
2023
2022
2019
2020
2021
1,402,793
1,475,676
Gas consumption (Scope 1)
Building energy:
Electricity consumption (Scope 2)
210,605
948,919
145,692
146,616
186,693
194,723
Energy consumption five year trend
(miles)
575,755
645,458
2023
2022
2019
2020
2021
302,043
335,448
Group-leased vehicles (Scope 1)
Business travel:
Employee-owned vehicles (Scope 3)
197,830
613,773
163,300
283,224
107,441
57,420
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Environmental initiatives
Achievements
Various environmental initiatives are being implemented across the Group. Recent achievements include:
Sector
Achievements
Climate Change
• Manchester office has now switched to 100% renewable electricity. Our leased office in Birmingham
is currently using 59% renewable energy.
• The closure of three offices and the removal of gas from the fourth office has reduced gas and
electricity consumption.
• Solar panels have been installed at our office in Cardiff, providing 33% of the energy required at this site.
• The remaining Group-leased vehicles have been switched from petrol and diesel vehicles to plug in hybrid
and electric vehicles.
• A Group-wide scheme has been launched to enable employees to lease EVs.
Circular Economy
• We continued to recycle all serviceable equipment no longer required by the Group and participate
in recycling schemes.
• Items such as batteries, toner cartridges and IT equipment are recycled.
• We purchase as many consumables as possible from recycled supplies, alongside environmentally friendly
cleaning products.
Nature Stewardship
• We have developed an Eco Garden at the Solihull office, which is supporting local wildlife.
Planned activities
The Group’s programme of environmental initiatives will continue to be implemented throughout 2024. The table below illustrates
some of the key initiatives planned:
Sector
Planned activities
Climate Change
• Review the electricity supply with our Birmingham office landlord to encourage them to move to 100%
renewable electricity.
• We are planning to sell our vacant building in Solihull and downsize our office in London to reduce further
energy consumption.
• The fleet of Group-leased vehicles will be reviewed again during 2024, with a view to switching from plug
in hybrid vehicles to EVs.
• Undertake a review of our premises to consider how we can reduce energy consumption and improve
energy efficiency.
Circular Economy
• Continue to monitor waste from our offices, considering ways to reduce overall waste and increase the
proportion of recyclable waste.
• Review purchased products across the Group to determine which other items can be switched to recycled
or sustainable products.
• Where we have excess furniture as a consequence of the reduction of our property footprint we will continue
to donate to local schools, colleges, and charities.
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Scope 3 CO
2
e emissions
The Group has assessed the relevance and materiality for each category of Scope 3 emissions within the table below.
Scope 3 Category
Status
1
Purchased goods and services
Supply chain analysis underway, area of focus in 2024.
2
Capital goods
Supply chain analysis underway, area of focus in 2024.
3
Fuel and energy-related activities (not
included in Scope 1 or Scope 2)
Included in Scope 3 reporting.
4
Upstream transportation and distribution
Enhanced reporting has been made in 2023.
5
Waste generated in operations
Included for the first time in 2023.
6
Business travel
Included in Scope 3 reporting.
7
Employee commuting
Under review in 2024.
8
Upstream leased assets
All material emissions from leased assets are included in Scope 1 and 2 emissions.
9
Downstream transportation and distribution
Not applicable for the Group.
10 Processing of sold products
Not applicable for the Group.
11 Use of sold products
Not applicable for the Group.
12 End-of-life treatment of sold products
Not applicable for the Group.
13 Downstream leased assets
Not applicable for the Group.
14 Franchises
Not applicable for the Group.
15 Investments (Financed emissions)
See below for further details.
Financed emissions
In 2023, the Group continued its work to validate the baseline for Financed emissions associated with our key lending portfolios.
Financed emissions are the indirect emissions attributable to the Group due to the financing we provide to our customers. In line with
Partnership for Carbon Accounting Financials (‘PCAF’) methodology, we have established the data for Financed emissions across the
vehicles we finance. The Group intends to develop further its data and reporting capabilities in 2024.
The Financed emissions analysis for all vehicles financed follows the formula prescribed in the PCAF standard.
As at
31 December
2023
As at
31 December
2022
Vehicle Finance loan book (£m)
(excluding Stock Funding)
435.4
351.8
Average CO
2
e tonnes per annum per
vehicle
1,2
1.87
1.99
Total annual CO
2
e tonnes
1,2
108,054
101,000
Total annual Scope 3: Financed emissions
CO
2
e tonnes
71,911
64,600
Financed
Emissions
=
Attribution Factor
x
Vehicle Emissions
Outstanding loan value
Annual Km x
CO
2
Kg/Km
Original vehicle value
The Strategic Report was approved by the Board on 20 March 2024 and signed on its behalf by:
David McCreadie
Chief Executive Officer
1.
Internal combustion engine (Scope 1: direct emissions from fuel combustion in vehicles), EVs (Scope 2: indirect emissions from electricity consumed) and plug-in hybrid and EVs (Scope 1
and 2) estimates based on the annual mileage provided in the contract, or where not available based on an estimate from the Department of Transport data (2019). Internal combustion
engine, plug-in hybrid and EVs tailpipe emissions use recognised manufacturer data for all vehicles. EV emission data uses Government averages for CO
2
/km.
2. The official figures for grammes of CO
2
/km are from the regulatory testing either older New European Driving Cycle (‘NEDC’) or phased in from c2017 ‘Worldwide harmonised Light-Vehicle
Testing Procedure (‘WLTP’). An uplift is applied to the emission figure on vehicles on the earlier test to reflect better ‘real world’ CO
2
emissions.
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The Board is satisfied that STB’s governance
structure remains appropriate to the size and
complexity of its business.”
Lord Forsyth
Non-Executive Chairman
Chairman’s introduction
On behalf of the Board, I am pleased to present our Corporate Governance Report.
The Board is satisfied that STB’s governance structure remains appropriate to the size and complexity of its business and enables
the Board to oversee the delivery of its strategy as a regulated bank.
The Corporate Governance Report in its entirety, pages 65 to 113, explains how the Group has applied and complied with the
provisions of the UK Corporate Governance Code 2018 and the Companies (Miscellaneous Reporting) Regulations 2018 for the year
to 31 December 2023.
The Report includes a statement disclosing compliance with the UK Corporate Governance Code 2018, which can be found on page
69, and a disclosure of how the Company engages with its stakeholders, which can be found on pages 44 to 54.
The Board has a skilled group of Non- Executive Directors, who are independent under the Code and who, bring considerable
experience across a number of specialisms. The Non-Executive Directors’ role is to challenge management and to participate in the
development of a clear strategy for the Group. The Executive Directors responsibilities include implementing the agreed , delivering
growth and managing the portfolio of businesses through the Groups Executive Committee.
The Board met both physically and virtually on a regular basis during 2023, to collaborate and maintain control of its governance
processes and activities.
The Board is required to confirm that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable,
and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy.
Lord Forsyth
Chairman
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Board leadership
Board of Directors
Strong
leadership
The Rt Hon Lord Forsyth
of Drumlean PC Kt
Non-Executive Chairman
C
Appointed to the Board on 1 March
2014 as an Independent Non-Executive
Director and as Chairman of the Company
on 19 October 2016. Chairman of the
Nomination Committee and member of
the Remuneration Committee.
Skills and experience
Lord Forsyth is a former 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 Minister.
Long term contributions
His background in the public and private
sectors has given Lord Forsyth a broad
experience of matters relevant to the
business of the Group, including strategy,
governance, operations, marketing,
risk and human capital. His experience
enables him to provide valuable insights
at committee meetings and to chair the
Board effectively.
Other appointments include
Lord Forsyth is a Director of J&J Denholm
Limited, Denholm Enterprise Limited
and Denholm Logistics Group Limited.
He served a full term of four years as
Chairman of the House of Lords Economic
Affairs Committee and stepped down in
January 2022. He was elected as Chairman
of the Association of Conservative Peers
in September 2021. In January 2024 he
became Chairman of the House of Lords
Financial Services Regulation Committee.
David McCreadie FCBI
Chief Executive Officer (‘CEO’)
Appointed to the Board on 17 December
2019 and appointed as CEO on
5 January 2021.
Skills and experience
David McCreadie has many years of
banking experience and is a Fellow of the
Chartered Banking Institute. He spent
more than 20 years at The Royal Bank
of Scotland (‘RBS’) (now Natwest Group
plc) holding roles in Branch Banking,
Consumer Finance and several Group
central functions. From 2004 to 2008,
David was appointed the CEO of Kroger
Personal Finance, a joint venture between
RBS and Kroger Co, based in Cincinnati,
USA. David joined Tesco Personal Finance
in 2008 and was a member of the executive
team that built Tesco Bank. David was an
Executive Director and Managing Director
of Tesco Bank, with responsibility for the
banking and insurance businesses, from
2015 to 2019.
Long term contributions
His executive career and wealth of
experience in banking, risk management,
governance, consumer facing businesses
and retailing provide David with the
skills required to manage the day-to-
day activities of the Group. His strong
leadership and strategic expertise enable
him to lead the Group in a sustainable way
and create shareholder value.
Rachel Lawrence ACMA
Chief Financial Officer (‘CFO’)
Appointed to the Board on
23 September 2020.
Skills and experience
Rachel has considerable experience in
financial services gained from a career
spanning more than 20 years. She has held
senior finance roles in Metro Bank PLC,
where she was part of the original team
that set up the bank, and Shawbrook Bank
where she was part of the successful Initial
Public Offering. Prior to joining STB, Rachel
was CFO at AIB Group (UK) plc. She brings
a wealth of banking experience focused
on high growth start up organisation and
wider financial services experience gained
in asset management, life, pensions and
general insurance. She is a qualified
chartered management accountant.
Long term contributions
Rachel’s considerable experience in finance
and banking which proves invaluable in
her role as Chief Financial Officer. She has
a deep understanding of the Group’s
businesses and strategy and has a strong
track record of creating shareholder value.
Committee membership
Nomination
Audit
Remuneration
Executive
Risk
C
Chair
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Board leadership
Board of Directors
Ann Berresford ACA
Senior Independent Director
C
Appointed to the Board on 22 November
2016, appointed Chairman of the Audit
Committee on 23 September 2017.
Member of the Risk and Nomination
Committees. Ann was appointed as the
Senior Independent Director following the
close of the Annual General Meeting on
24 June 2020.
Skills and experience
Ann Berresford is a Chartered Accountant
with a background in the financial services
and energy sectors. She has held positions
at Bath Building Society, the Pensions
Regulator, Hyperion Insurance Group,
Triodos Renewables plc, the Pension
Protection Fund, Bank of Ireland Group,
Clyde Petroleum plc and Grant Thornton.
Long-term contributions
Her career has given Ann experience
in mortgages, pensions, operations,
accounting, finance and risk. Her previous
experience in the renewable sectors gives
her a long-term outlook. The insights she
has gained from her career mean that she
is a strong Senior Independent Director
and member of the Board and committees
she serves. Her financial background
makes her an excellent Chairman of the
Audit Committee.
Other appointments include
Ann is the Senior Independent Director
and Chairman of the Audit Committee of
Albion Venture Capital Trust PLC.
Paul Myers ACIB
Independent Non-Executive Director
C
Appointed to the Board on 28 November
2018 and as Chairman of the Risk
Committee on 31 March 2020.
Member of the Remuneration and
Nomination Committees. Paul is the
Non-Executive Director designated for
workforce engagement and the Chairman
of the Employee Council.
Skills and experience
Paul Myers has many years of banking
experience, gained initially in Barclays,
where he spent 24 years in a variety
of retail banking roles. He was part of
the small team that founded and built
Aldermore Bank, where he served as Chief
Operating Officer, Corporate Development
Director and on the Board as an Executive
Director. Paul had a wide range of
responsibilities at Aldermore, including IT,
operations, transformation, marketing and
digital as well as building and developing
the retail and SME savings operations.
Paul also has previous experience as
CEO of a FinTech new banking venture,
GKBK Limited. Paul is an Associate of the
Chartered Institute of Bankers.
Long-term contributions
Paul’s career has given him a wide range
of experiences and responsibilities,
including IT, operations, transformation,
marketing and digital as well as building
and developing retail and SME savings
operations. His insight into banking and
particularly IT and operations provide a
unique viewpoint that complements the
Board and the Committee he serves well.
His broad experience positions him well as
Chairman of the Risk Committee.
Other appointments include
Paul is currently a Non-Executive Director
at Ashman Finance Limited, a new bank
start-up.
Committee membership
Nomination
Audit
Remuneration
Executive
Risk
C
Chair
Victoria Mitchell
Independent Non-Executive Director
Appointed to the Board on 1 November
2023. Member of the Nomination and
Remuneration Committees.
Skills and experience
Victoria has many years of banking
experience, gained predominantly during
a twenty-year career with Capital One
(Europe) plc, during which she served as
Chief Legal Counsel, Chief Risk Officer and
Chief Operating Officer. She sits on the
Board and is a member of the Remuneration
and Risk Committees of the West Bromwich
Building Society. She is also a member of
the Audit & Risk Committee, Nomination
and Governance Committee and is Chair
of the Financial Services Board at N Brown
Group plc. Victoria has recently joined the
Board of Vocalink Limited, where she chairs
the Risk Committee and is a member of the
Audit Committee.
Victoria was previously a Non-Executive
Director at Lookers plc, which gave her
considerable insight into the Motor
Finance industry. She was a member of
the Audit and Risk, Remuneration and
Nomination Committees throughout her
tenure at Lookers plc, was Chairman of the
Remuneration Committee from April 2021
to September 2022 and was Chairman of
Lookers Motor Group Limited. She is a
graduate of Birmingham University
Long-term contributions
Her background has given Victoria
vast experience in risk, remuneration,
governance, corporate strategy, and finance,
particularly motor finance. Additionally, her
experience in remuneration and governance
make her a valuable addition to both
the Remuneration Committee and the
Nomination Committee.
Other appointments include
Victoria is a Non-Executive Director of
Vocalink Limited, N Brown Group plc and
West Bromwich Building Society.
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Victoria Stewart
Independent Non-Executive Director
C
Appointed to the Board on 22 November
2016. Appointed Chairman of the
Remuneration Committee on 21 July
2017 and Member of the Nomination and
Audit Committees.
Skills and experience
Victoria Stewart has over 30 years’
experience in the financial services sector,
and was for many years a fund manager
and investor in UK small companies.
She is an experienced non-executive
director, specialising in banking and
investment. Victoria has knowledge of
corporate structures and capital markets,
with particular experience in smaller
companies listed on the Main Market and
the Alternative Investment Market. She has
held a number of positions at Royal
London Group and Chiswell Associates.
Long-term contributions
Her background has given Victoria vast
experience in remuneration, governance,
corporate strategy, investor relations,
accounting, finance and risk. Her investor
relations experience provides her with
valuable insight from a shareholder
perspective from which the Board benefits.
Her experience in remuneration, finance
and governance make her a suitable choice
for the Chairman of the Remuneration
Committee and member of the Nomination
and Audit Committees.
Other appointments include
Victoria is the Senior Independent
Director of Artemis Alpha Trust plc. She is
a Non-Executive Director of Aberforth
Smaller Companies Trust PLC, Alpha
Securities Trading Limited and JP Morgan
Claverhouse Investment Trust plc, where
she is also Chairman of the Remuneration
Committee. She is a member of the
ICAEW Investment Committee and
former member of the ICAEW Corporate
Governance Committee.
Finlay Williamson
CA FCIBS
Independent Non-Executive Director
Appointed to the Board on 30 June 2021
and as Consumer Duty Champion on
27 October 2022. Member of the Audit,
Risk and Nomination Committees.
Skills and experience
Finlay Williamson is a qualified accountant
with many years of banking experience,
gained initially at The Royal Bank of
Scotland Group PLC (now NatWest
Group plc) and then at Virgin Money
Holdings (UK) plc, where he was Chief
Financial Officer prior to the IPO.
Finlay was previously a Non-Executive
Director at Paragon Banking Group PLC,
where he was a member of the Audit
Committee and chaired the Group
and Bank Risk Committees.
Long-term contributions
His career has given Finlay experience in
retail, SME and auto finance banking, as
well as real estate domain experience.
He also has experience of corporate
acquisitions and subsequent integrations,
with significant experience of change and
transformation. Finlay has developed good
relationships with the Financial Conduct
Authority and Prudential Regulatory
Authority during his career and is up to
date with their priorities and processes.
He also has prior appointments on plc
Boards and Committees. The skills and
experience he has gained from his career
mean that he is a strong addition to the
Board and committees he serves.
Other appointments include
Finlay is currently the Chairman of the
Audit Committee and Senior Independent
Director of Hampden & Co PLC.
Board leadership
Board of Directors
Committee membership
Nomination
Audit
Remuneration
Executive
Risk
C
Chair
Independent Non-Executive
Director and Chairman designate,
to be appointed to the Board on
31 March 2024, and succeed as
Chairman on 16 May 2024 subject
to regulatory approval.
Jim Brown
Skills and experience
Jim Brown is a banking professional with
many years’ experience, gained through
a number of executive positions. He was
CEO, Sainsbury’s Bank and a member of
the Sainsbury’s Group Operating Board
until his retirement from these roles, at
the end of March 2024. He is also a Non-
Executive Director on the Board of Just
Group plc.
Before this, Jim was the CEO at Future
Williams & Glyn within the RBS Group
and prior to this he was CEO, Ulster
Bank Group. He held a number of senior
appointments within RBS and ABN AMRO
in Asia and earlier in his career with
Citibank and Chase AMP Bank.
Long-term contributions
Jim Brown has extensive experience
and a proven track record as a banking
executive and brings substantial
wholesale, commercial and retail banking
experience to the Board. He has held
roles at the executive level managing
both retail and commercial banking for
over 35 years at country and regional
level across multiple markets and various
sized businesses. Much of his career
has involved starting, growing and/or
restructuring banks and businesses, as
well as mergers and acquisitions. Jim also
has significant stakeholder management
experience including boards, regulators,
rating agencies, investors, suppliers,
industry bodies, professional firms, unions,
politicians and media. The Board considers
that Jim’s background makes him an ideal
candidate for election to the Board and as
Chairman designate.
Other appointments include
Jim is a Non-Executive Director of Just
Group plc.
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UK Corporate Governance Code (the ‘Code’) – Statement of Compliance
Throughout the year under review, the Board confirms that the Group has complied with the provisions and applied the principles
of the Code, with the exception of provision 19 which is explained below.
Board Chairman tenure and succession
The Chairman, Lord Forsyth, who was independent upon his appointment as Chairman in October 2016, has served as a Director for
more than nine years since his appointment in March 2014 and will step down at the forthcoming Annual General Meeting in May 2024.
Noting the recommendation of Code Provision 19 that provides that a chair should not remain in post beyond nine years from the date
of their first appointment to the Board. Following engagement with major shareholders to understand their views on the Chairman’s
tenure, it was concluded that the short period of non-compliance with the code was appropriate to facilitate the effective succession
planning and ensure the identification of a skilled successor with the right skills, experience and fit with the Board. The Board were
comfortable that the knowledge and experience that the Chairman brought to the Board outweighed the need for mandated time
independence and was content that the Chairman remained independent in character and judgement.
Following a thorough and extensive recruitment process led by the Senior Independent Director, the Company has announced that Jim
Brown will join the Board as a Non-Executive Director with effect from 31 March 2024, and subject to regulatory approval, will succeed
Lord Forsyth as Chairman following the conclusion of the 2024 Annual General Meeting. Further details can be found in the Nomination
Committee report on pages 72 to 75.
The governance sections of this report describe the Group’s governance arrangements and how the Board has applied the principles
of the Code. A copy of the Code can be found on the Financial Reporting Council’s website.
Board leadership and Company culture
The corporate purpose, values and strategy of STB are set out at the beginning of the Annual Report and are embedded into
employee objectives aligned to STB’s strategy of Grow, Sustain and Care. Every year, an all-employee opinion survey is issued and the
feedback is reviewed by the Board to assess how well these aims are understood and followed by the workforce. The result of this year’s
survey, conducted by Great Place to Work®, indicated a continued improvement for the fourth consecutive year on what were already
positive scores, demonstrating that the culture and values of STB are understood and ingrained in the organisation (please see page 47
for more information).
The Board believes it is important that colleagues can raise concerns in confidence and, if they wish, anonymously. Information on the
Group’s whistleblowing arrangements can be found on page 80. Regular interaction with key stakeholders takes place via the Chairman,
the Non-Executive Director designated for workforce engagement and each of the committee chairmen. This enables stakeholder
impact to be fully considered in Board discussions across a range of topics. In addition, workforce engagement remains a standing item
on the Board agenda. Further information on this and how the Group Employee Council operates can be found on page 47.
The Chairman of the Board, Chief Executive Officer (‘CEO’) and Chief Financial Officer (‘CFO’) meet with analysts and institutional
investors to seek and understand their views and report back to the Board. The committee chairmen and the Senior Independent
Director are available to engage with shareholders on significant matters relating to their areas of responsibility. Further detail on
stakeholder engagement can be found in the Managing our Business Responsibly section, starting on page 41. The Chairman meets
with the Non-Executive Directors without the Executive Directors, or other members of senior management present, at least annually.
The Board delegates authority to executive management to run the business and to implement the strategy set by the Board. A brief
description of the responsibilities of the Executive Committee and a description of the governance framework can be found on STB’s
corporate website. Two members of executive management, the CEO and the CFO, are Executive Directors of the Board. The CEO
is the Chairman of the STB Group Executive Committee.
Board attendance and composition
Members
No. of scheduled
meetings eligible
to attend
Attended
Lord Forsyth
15
15
Ann Berresford
15
15
Rachel Lawrence
15
15
David McCreadie
15
15
Paul Myers
15
15
Victoria Stewart
15
15
Finlay Williamson
15
15
Victoria Mitchell
1
1
iNED
6
ED
2
Board
composition as at
31 December 2023
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The Board sets the Group’s risk appetite and oversees risk management practices by management. The Board meets regularly
and, both as a Board and through its various committees, provides oversight of and direction to management through constructive
challenge, strategic guidance and specialist advice. Regular confirmation is sought from management that the necessary resources
are in place to enable STB to meet its objectives and measure performance.
Division of responsibilities
The Board is led by the Chairman who is responsible for the Board’s overall effectiveness and who encourages a culture of openness
and debate. The Board provides strategic leadership to the Group, sets its long-term strategic objectives, risk appetite, and exercises
oversight over the implementation of the strategy and the activities of management. The Board is aware of its responsibilities to all its
stakeholders and is mindful of this in Board discussions as set out on pages 44 to 54. The Board has appointed a Senior Independent
Director, Ann Berresford, who is available to shareholders if they have concerns, where contact through the normal channels of
Chairman, CEO or other Executive Directors has failed or is inappropriate. The Senior Independent Director was appointed in June
2020 and fulfilled this role throughout 2023 (please see the Board biographies on pages 66 to 68).
The responsibilities of the Chairman, CEO and Senior Independent Director are outlined in writing and a brief summary of their
roles can be found on STB’s corporate website. The role of each of the Non-Executive Directors is to hold management to account
by providing constructive challenge and strategic guidance at Board and committee meetings. The Board has delegated specific
authorities to its four committees; Audit, Risk, Remuneration and Nomination, via each committee’s respective terms of reference
which are available to view on the STB website. There is a schedule of matters reserved for consideration by the Board. These include,
amongst other matters, approving the Group’s strategy, the determination of dividends, material acquisitions or disposals and the issue
of new shares. The Board exercises oversight of the work of its committees via formal updates from committee chairmen. There is a
clear division of responsibilities between the leadership of the Board and the executive leadership of the Company. Internal processes
are in place to enable the Board to have access to necessary information and resources to function effectively, including the
maintenance of online portals of up-to-date company policies, timely dissemination of information and access to independent
professional advice at the expense of the Company. All Directors have access to the Company Secretary’s advice and services.
Directors have access to the necessary information and resources to be able to effectively discharge their responsibilities. The Company
Secretary provides support and acts as a first point of contact for the Chairman and Non-Executive Directors. The Company Secretary is
also responsible for the induction of new independent Non-Executive Directors.
Delegation of authority within limits set by the Board
Subject to certain matters reserved for the Board, the CEO has been delegated authority limits and powers within which to manage the
day-to-day affairs of the Group. Each Executive Committee member has authority delegated from the CEO within which they manage
the day-to-day affairs of the business or function for which they are accountable, and the Group and Business Unit Executive Committees
and other Committees assist them in assessing and controlling risk.
Composition, succession
and evaluation
Information on Board and Committee succession
planning can be found within the Nomination
Committee Report starting on page 72. The length
of service for each Non-Executive Director in
years as at 31 December 2023 is outlined on the
right. The Nomination Committee considers the
membership and tenure of the Board as a whole and
considered proposals for refreshing membership
during the year. Please see the Nomination
Committee report starting on page 72 for more
information, including on matters of evaluation.
Board Diversity
The Board confirms that as at the 31 December 2023 and throughout the financial year the Board comprised of over 40 percent women
and upon the appointment of Vicky Mitchell in November 2023 achieved gender parity. Also, as at 31 December 2023 and throughout
the financial period, women occupied two of the senior board positions, including the Senior Independent Director and CFO.
No members of the Board were from a minority ethnic background. During the Chair and NED recruitment undertaken during the year,
a number of candidates, who would likely have met this criterion, were considered in line with the Board policy on diversity, but ultimately
based on the recruitment process outlined within the Chairman and Director recruitment section on page 74, were unsuccessful.
Numerical data on the sex or gender identity and ethnic diversity of the Board, senior Board positions (Chair, CEO, SID and CFO) and
executive management is outlined in the tables on page 50. All individuals reported on within these tables were contacted as part of
the year end disclosure process and requested to individually confirm their Gender from the following options (Male, Female, other and
not specified/prefer not to say) and Ethnicity (white british/other white, mixed/multiple ethnic groups, asian/asian british, black/african/
caribbean/black british, other ethnic group, including arab and not specified/prefer not to say).
0
2
4
6
8
10
Non-Executive Director Tenure
Victoria Stewart
7.11
Lord Forsyth
Finlay Williamson
Paul Myers
Ann Berresford
Victoria Mitchell
9.84
2.5
5.09
7.11
0.16
Years as at 31 December 2023
Non-Executive Directors
0
2
4
6
8
10
Non-Executive Director Tenure
Victoria Stewart
7.11
Lord Forsyth
Finlay Williamson
Paul Myers
Ann Berresford
Victoria Mitchell
9.84
2.5
5.09
7.11
0.16
Years as at 31 December 2023
Non-Executive Directors
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Conflicts of interest
All Directors are required to disclose to the Board any outside interests which may conflict with their duties to the Group (including any
related party transactions). The Board is required to approve any actual or potential conflicts of interest. On appointment, new Directors
are required to disclose their other interests. Conflicts of interest are also governed by the Articles of Association of the Company and
company law. Directors are under a continuing obligation to disclose external appointments and to confirm they have sufficient time
to discharge their duties to the Group. Additional external appointments require prior authorisation by the Chairman and an internal
schedule of conflicts is maintained.
Financial reporting
A description of the responsibilities of the Directors for the preparation of the Annual Report and Accounts is set out on page 104.
The approach taken by the Board to ensure that the Annual Report and Accounts are fair, balanced and understandable is set out on
page 79 and the information necessary for shareholders to assess the Company’s position and performance is set out in the Strategic
Report, starting on page 1. An explanation of the business model and the strategy for delivering the objectives of the Company is set
out on pages 1 to 3. A statement of the responsibility of the External Auditors for the Annual Report and Accounts is set out on page
111. The basis on which the Board reached its decision to adopt the going concern basis of accounting is described on pages 39 to 40.
Internal control
The Board has overall responsibility for maintaining the Group’s system of internal control, including financial, operational and
compliance controls, and for reviewing its effectiveness. This system is designed to manage risk of failure to achieve business objectives
and to provide reasonable assurance against the risk of material misstatement or loss. The system of internal control was in place
throughout the financial year, and up to the date of the approval of the Annual Report and Accounts, and was reviewed by the Board
and its Committees. The Board, through the Risk Committee, confirms that in reviewing the Annual Report, it has completed a robust
assessment of the Group’s emerging and principal risks and has included a description of its principal risks as set out on pages 28 to 38.
The key risk management principles include the following:
Risk appetite
The Board has adopted a Group risk appetite statement which sets out the Board’s attitude to risk and internal control.
Risk management framework
The Group has adopted a ‘Three Lines of Defence’ model to control and manage risks in line with the Group’s risk appetite. Please
see the description of principal risks and uncertainties on pages 28 to 38 for a description on how the Three Lines of Defence operates
at STB Group. Each of the second line functions that set policy, provide guidance and oversee risk management or compliance has the
appropriate expertise in order to fulfil its responsibilities and this is overseen by the Board Committees.
Risk identification and monitoring
The Board, through the Risk Committee, confirms that in reviewing the Annual Report, it has completed a robust assessment of
the Group’s emerging and principal risks and has included a description of its principal risks as set out on pages 28 to 38. Key risks
identified by the Directors are formally reviewed and assessed annually by the Board and the Risk Committee. Key business risks are
also identified, evaluated and managed on an ongoing basis by management. The Board and the Risk Committee also receive regular
reports on any material risk matters. Significant risks identified in connection with the development of new activities are considered
by the Board and the Risk Committee in conjunction with the approval of any such new activity.
Review of the effectiveness of the Internal Control System
The Board, through the Audit and Risk Committees, reviews the effectiveness of the Internal Control System. The Audit Committee
receives reports of reviews undertaken by the Internal Audit function as well as reports from the External Auditors, Deloitte LLP,
which include details of internal control matters they have identified as part of their external audit. Other key elements of the Group’s
system of internal control include regular meetings of the Executive and business unit Risk Committees and monthly financial and
operational reporting.
The reports of the Audit Committee and Risk Committee starting on pages 76 and 81 respectively set out further details of how those
responsibilities are discharged.
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Statement by Chairman of the Nomination Committee
All our appointments are made on merit.”
Lord Forsyth
Non-Executive Chairman
The Committee’s focus in 2023 has been on recruiting a new Chairman and overseeing the planned changes to the senior
management team following the retirement of Nick Davies, Managing Director, V12 Retail Finance. In addition the Committee also
sought a replacement for Baroness Neville-Rolfe, who previously served as a Non-Executive Director.
The process to recruit a new Chairman has been run by Ann Berresford our Senior Independent Director (‘SID’) and I want to thank
her and the other members of the Chair Recruitment Panel for overseeing the search culminating in the proposed appointment of
Jim Brown as a Non-Executive Director and Chairman designate.
Until Baroness Neville Rolfe stepped down, the Board was gender balanced and I am delighted that Victoria Mitchell has joined the
Board and become a member of the Remuneration Committee and restored the equilibrium. All our appointments continue to be
made on merit and Victoria’s skills and experience complements the other directors and provides a fresh insight into our deliberations.
Diversity and inclusion plays an important part in our workforce engagement and succession planning and more detail can be found
in our S172 report on pages 44 to 54.
The Board and Committee evaluation concluded that the Board and its Committees remain effective and have the right level of
challenge to and oversight of Senior Management.
As we progress into 2024, I would like to express my thanks to the Committee members for their continued support and I am sure
they will welcome Jim as he leads them into a new chapter at STB.
Lord Forsyth
Chairman
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Nomination Committee attendance and composition
Members
No. of scheduled
meetings eligible
to attend
Attended
Lord Forsyth
6
6
Ann Berresford
6
6
Paul Myers
6
6
Victoria Stewart
6
6
Finlay Williamson
6
6
Vicky Mitchell
1
1
iNED
6
ED
0
Nomination
Committee
composition as at
31 December 2023
Membership and meetings
As at 31 December 2023, the Nomination Committee comprised six members, as set out in the attendance table above, and was
compliant with the Code provision regarding its composition throughout 2023. Lord Forsyth recused himself for discussions relating to
the recruitment of his successor, during which meetings were chaired by the SID.
The Committee meets at least twice a year or as frequently as its Chairman may require, and held six meetings in 2023. A Chair
Recruitment Panel (‘Panel’) was established in the period, led by the SID and comprising all the Non-Executive Directors except the
Chairman, to run the Chair succession process. The Company Secretary, or their alternate, acts as Secretary to the Committee and other
Directors or members of the senior management team attend at the request of the Committee Chairman. During the year the Chief
Executive Officer (‘CEO’) attended a meeting by invitation.
Lord Forsyth as the Chairman of the Committee reports to the Board on the outcome of Committee meetings and any
recommendations made by the Committee.
Role and activities of the Nomination Committee
The Nomination Committee is responsible for considering the size, composition and balance of the Board; the retirement and
appointment of Directors, including Executive Directors; succession planning for the Board and senior management, focused on
the development of a diverse succession pipeline; and making recommendations to the Board on these matters.
The Committee’s roles and responsibilities are covered in its terms of reference which were reviewed and updated during the year
and are available on our corporate website.
Composition and independence
The Committee confirmed to the Board that it is satisfied that all Non-Executive Directors are independent and that Lord Forsyth,
who was considered to be independent upon his appointment in March 2014 and upon his appointment as Chairman in 2016 remained
independent, meeting the independence criteria set out in the Code.
The Committee reviewed the Board’s composition during 2023 and concluded that it had the right balance of skills, knowledge and
experience but would benefit from the recruitment of a further Non-Executive Director, culminating in the appointment of Vicky
Mitchell. The Committee continues to be mindful of the composition of each of the Board Committees and the Board and to have
at least half of the Board members as independent non-executive directors.
Succession
General succession planning
The Nomination Committee has considered the Company’s succession plans, both at Board and at Senior Manager level. The plans
identify potential internal candidates, short-term solutions in the event of unanticipated changes in circumstances and external
recruitment, as well as reallocating regulatory responsibilities as required. The need for regulatory approval of the persons performing
Senior Manager Functions under the Senior Managers Regime is incorporated into the suggestions of proposed individuals outlined
in the succession plan.
The Committee, when considering the succession plans for individuals on the Board and in Senior Management, reviews the
contingency (immediate), medium (one to two year) and longer-term (two to three year) proposals. The Committee also receives
updates on the mentoring programmes for ‘High Potential’ individuals identified by the Executive Committee.
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Chairman and Director recruitment
Following the announcement that Lord Forsyth would retire in 2024, the Committee established a Chairman Recruitment Panel
(‘Panel’)
which conducted a competitive tender process to select an independent recruitment consultant to assist in the selection of
a prospective Chairman. The process assessed the consultants’ ability to understand the candidate profile and assist the Panel in
refining the key skills required; the consultants’ understanding of the market and regulatory environment; and the approach to equity,
diversity and inclusion when recruiting in the financial services sector. The process culminated in the appointment of Per Ardua
Associates Limited (‘Per Ardua’), a leadership consulting and executive search firm operating at Board and Senior Executive level across
Financial Services. Per Ardua is a member of the Association of Executive Search Consultants (‘AESC’) and is committed to the AESC’s
Code of Professional Practice. Per Ardua had no other connections to the Company, Senior Management or the individual Directors
prior to their appointment.
The candidate profile was developed by the Panel with input from Per Ardua, the Chairman and Executive Directors and feedback from
shareholders who met with the SID in H1 2023. The profile followed the Board Policy on Diversity (see below) and was reviewed for
gender bias by Per Ardua.
The recruitment process involved devising a list of candidates who were initially interviewed by the SID, then by the remaining members
of the Panel with a short list being interviewed by the Executive Directors and the Chairman, culminating in the appointment of Jim
Brown as announced on 25 January 2024.
Having successfully devised a candidate profile for the Chairman’s replacement, the Committee also agreed to engage Per Ardua
to conduct a search for a further Non-Executive Director, as Per Ardua had obvious synergy in identifying suitable candidates and an
understanding of the Board’s requirements as they simultaneously conducted a search for the Chairman. The search commenced in
July 2023 and culminated in the appointment of Victoria Mitchell in November 2023. The Committee is content that the Board currently
has the right mix of skills and experience in the short term and mindful of the tenure of the remaining members of the Board will
consider further recruitment during the short to medium term as part of the normal succession planning process.
Board policy on diversity
The Board appointment process and composition is overseen by the Nomination Committee. The Committee conducted the annual
review of the Board Policy on Diversity, including gender, race, ethnicity, age, disability, religious belief, sexual orientation, marital status,
gender reassignment and pregnancy (together ‘Diversity’), which outlines the Group’s commitment to providing equal opportunities.
A copy of the Board Policy on Diversity is available on our Company website.
Any appointments made to the Board are made on merit, against objective criteria and having regard to long-term planning in relation
to Board composition and strategy. The Committee has not set quotas or targets for the Board’s composition. The Board had a 3:4 split
of women:men throughout the majority of 2023, which is in excess of the 33% target set by the Hampton- Alexander review and an
equal representation of men and women at the 31 December 2023. Diversity will continue to be a factor taken into consideration during
future appointments and as part of refreshing the Board.
Board effectiveness and Non-Executive Director evaluation
Following an externally facilitated review in 2022, the 2023 effectiveness review was conducted by way of an internal review facilitated by
Independent Audit Limited (‘IAL’). IAL had no other connections to the Company, Senior Management or the individual Directors prior
to their appointment.
The internal review comprised an externally hosted questionnaire, but did not include interviews, observations or a review of papers by
IAL. IAL attended a meeting of the Committee during discussion of the report on the outcomes to answer Directors’ questions. As part
of the conclusion of those discussions an internally facilitated conclusion and action plan was created. Having completed the reports in
early 2024, the Board and Nomination Committee concluded that the Board and Committees remain effective and have the right level
of challenge to and oversight of Senior Management and that Directors are not just comfortable with the status quo.
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Approach and methodology
The externally facilitated questionnaire addressed matters relevant to STB as well as items laid down in the Code and associated
guidance. The core areas addressed for the Board were ‘Strategy, Risk & Finance’, ‘People, Culture, Stakeholders’, ‘Mix, Information,
Development’ and ‘Meetings, Dynamics, Committees’. Core questions and themes were consistent across the Board and Committee
evaluations to enable a broader action plan to be developed, with each Committee having a tailored questionnaire addressing the key
areas of their responsibilities and oversight. The 2022 Board effectiveness review noted the evolving Board dynamic following changes
to both the Board and the Executive Committee and the Committee noted that these would continue to change as members of the
Board and Executive Committee retired from the business and were succeeded during the course of 2023 and 2024. The key themes
that were identified from the 2023 self-evaluation review were:
• Devoting additional time to strategic discussions and monitoring strategic performance;
• Working at the right level of detail; and
• Talent management processes.
The Board will be reviewing these themes over the course of 2024.
Individual evaluation
The Chairman conducts a formal evaluation of the overall performance of the CEO and reviews and agrees the CEO’s evaluation of
the Chief Financial Officer against the goals agreed by the Board which form the measures under the company’s annual bonus scheme.
Further information can be found on page 92. The Chairman also conducts an individual evaluation of each Non-Executive Director
addressing both their core competencies and their Senior Managers Regime responsibilities.
In assessing the contribution of each Director, the Chairman has confirmed that each continues to make a valuable contribution
to the business and deliberations of the Board.
Progress on previous evaluations
Focus area or discussion point
Response or action taken
Focus on Board succession planning
and recruitment
The Committee constituted a Chair Recruitment Panel to lead the process for the
selection of a successor to the current Chairman, which culminated in the proposed
appointment of Jim Brown as a Non-Executive Director and Chairman Designate.
In addition,
the recruitment of a further Non-Executive Director was undertaken, with the
appointment of Victoria Mitchell during the year.
Ongoing focus on the provision of
Management information and the link
to clear KPIs
Strategic KPIs were already reported to the Board in the Finance Dashboard and more
focus on expanding the MI pack, including the provision of more forward looking
information linked to the medium-term targets, Consumer Duty and People, was
discussed with the Board. A pack addressing elements of this reporting has been
developed and work is ongoing to refine this.
Continued focus on the execution of
strategy aligned to the medium-term
targets and the allocation of capital in
support of the delivery of strategy.
The Board discussed these topics on a regular basis and further refinement to the
Management pack and forward looking forecasts was made to the budgeting process
in late 2023. Work in this area continues to evolve and is ongoing.
Board training and development
The Board receives detailed reports from executive management on the performance of the Group at its meetings. Updates are
provided on relevant legal, corporate governance and financial reporting developments. In addition, the Board, on the
recommendation of the Committee, adopted a training programme during 2023 for 2023/24 and received training on the
implementation of the Consumer Duty requirements, Model Governance and Regulatory developments and Financial Crime matters.
This training was delivered through both internal experts and external consultants. Directors are encouraged to attend external
seminars on areas of relevance to their role and to keep a record of their external training. A training plan for 2024 has been approved
and reflects business, regulatory and governance matters.
On her appointment Vicky Mitchell received a comprehensive and tailored induction programme.
Nomination Committee report
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Statement by the Chairman of the Audit Committee
I am pleased to present the report of the Audit Committee for the financial year ended 31 December 2023 and this report sets out the
role of the Committee, and some of the key matters on our agenda over that period.
The Committee has spent significant time in 2023 considering Secure Trust Bank’s key accounting judgements and the reporting and
presentation of a number of exceptional items. An important part of this has been the Committee’s rigorous review and challenge
of STB’s expected credit loss IFRS 9 models and the validation of those models’ outputs. The Committee has also reviewed the
macroeconomic scenarios which underpin them and the model’s impact on STB’s impairment provisions.
The Committee has continued to receive valued support from internal and external stakeholders including the Chief Internal Auditor,
Chief Financial Officer, senior members of the Finance team, and the External Auditors. The Committee follows a standing agenda and
receives an update at every meeting from Finance, governance matters as well as on internal audit activity. In 2023, I met with the Chief
Internal Auditor for a monthly update on progress against the internal audit annual plan.
I have also regularly met with the External Audit Partner. Following the completion of Matthew Perkin’s fifth year appointed as External
Audit Partner, he rotated off and Neil Reed has succeeded him as External Audit Partner. Deloitte LLP are approaching the conclusion
of their sixth year of appointment and the Committee has assessed the quality and effectiveness of the external audit process.
The Committee remain satisfied that it continues to be effective and therefore recommend their reappointment as Auditor for 2024
to the Board at the 2024 Annual General Meeting (‘AGM’).
On a final note, I would like to acknowledge the substantial effort from the financial reporting team in 2023 and express the
Committee’s gratitude for their commitment and dedication to improving the interim and annual reporting process.
Ann Berresford
Chairman of the Audit Committee
Our focus this year has been on rigorous review and
challenge of impairment provisions and management judgements
underpinning the accounts, on overseeing the external audit processes,
and on ensuring that the internal audit plan addresses the Group’s
context and evolving risks.”
Ann Berresford
Chairman of the Audit Committee
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Committee governance
The Audit Committee met five times during the year. Members’ attendance is summarised in the table below.
Meetings of the Committee were regularly attended during the year by the Chief Executive Officer, Chief Internal Auditor, the Chief
Financial Officer and senior members of the Finance team, as well as the External Audit Lead Partner and other senior members of
the External Audit team and other members of the Board at the invitation of the Committee. The Committee maintains a close and
open dialogue with the External Auditor and Chief Internal Auditor, routinely holding private sessions with them following Committee
meetings and as required between meetings.
The Chairman of the Audit Committee reports to the Board on the outcome of Committee meetings and any recommendations arising
from the Committee. The Company Secretary, or their alternate, acts as Secretary to the Audit Committee. Committee materials and
minutes from the meetings are made available, as appropriate, to all Board members.
The Committee membership complied with the Code provision for independence throughout 2023. Both Ann Berresford and Finlay
Williamson are considered by the Board to have recent and relevant financial experience and the Audit Committee, as a whole, has
competence relevant to the sector in which the Group operates.
Role of the Audit Committee
The Audit Committee assists the Board in, amongst other matters, discharging its responsibilities with regard to regulatory reporting,
financial reporting, including monitoring and reviewing the integrity of the Company’s annual and interim financial statements,
reviewing and monitoring the extent of the non-audit work undertaken by external auditors, advising on the appointment,
reappointment, removal and independence of external auditors and reviewing the effectiveness of the Company’s internal audit
activities, internal controls and risk management systems including the Company’s whistleblowing framework. The ultimate
responsibility for reviewing and approving the Annual Report and Accounts and the Interim Report remains with the Board. The Audit
Committee reviews the Annual Report before submission to the Board for approval, and will consider whether taken as a whole, it
is fair, balanced, and understandable and provides the information necessary for shareholders to assess the Company’s position,
performance, business model and strategy. The Audit Committee assists the Board in reaching its conclusions by reviewing significant
financial reporting judgements, including the going concern assumption and long-term viability of the business and any material
uncertainties, and assessing whether the narrative reporting in the Strategic Report accurately reflects the financial statements.
The Audit Committee is supported in this assessment by an effective external audit, the assessment of internal controls by internal audit
and by challenging management on the integrity of financial and narrative statements.
Matters discussed at Audit Committee meetings since 1 January 2023
Meetings of the Audit Committee are scheduled to align with key dates in the Group’s financial reporting cycle. The Committee
maintains a schedule of meetings with a forward look agenda that facilitates the even distribution of items and the effective
management of Committee time. Additionally, the Committee also deals with other matters as they arise.
Audit Committee attendance and composition
Members
No. of scheduled meetings
eligible to attend
Attended
Ann Berresford
5
5
Victoria Stewart
5
5
Finlay Williamson
5
5
iNED
3
ED
0
Audit
Committee
composition as at
31 December 2023
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During the year, the Audit Committee reviewed its Terms of Reference, the forward-look agenda, the Internal Audit Charter, and the
engagement contract with the External Auditors. Other principal matters considered are set out as follows:
Financial and regulatory reporting
The Audit Committee has reviewed the following matters in connection with the annual and interim financial statements and
considers that the Company has adopted appropriate accounting policies and made appropriate estimates and judgements in 2023:
Accounting policies, key judgements
and assumptions used in preparing
interim and annual financial statements
The Audit Committee reviewed the key accounting policy changes and judgements
proposed by the Executive in preparing the financial statements for the year ended
31 December 2023, the interim financial statements for the six months ended 30 June
2023, the stock exchange announcements and investor presentations that accompanies
those statements. The Audit Committee reviewed the change in accounting policy
relating to land and buildings, which are now presented at historical cost.
In August 2023, the Audit Committee considered whether STB had sufficient distributable
reserves to pay a dividend and confirmed to the Board that the Board could pay an
interim dividend on that basis.
External factors have continued to evolve and the Committee has considered updates
and overlays to judgements and assumptions to take account of developments in the
macroeconomic environment and demonstrated impacts on STB including to customer
affordability and the cost of living. In 2023, the Committee reviewed the outputs from
the Group’s IFRS 9 models and considered the quantum and rationale for post-model
adjustments in ensuring the adequacy of the levels of impairment provision. An economic
advisory firm was engaged in 2023 to support the Assumptions Committee in formulating
the macro-economic scenarios and weightings prior to recommendation to the
Committee and the Audit Committee has continued to use their outputs for this purpose.
The Committee considered the appropriate accounting treatment and presentation
of exceptional items. Exceptional items relate to costs incurred as part of the FCA’s
thematic review regarding borrowers in financial difficulty (‘BiFD’) and corporate activities.
It further considered and approved the quantum of any provision to be held for BiFD.
The Committee also considered the accounting treatment for the Group’s position
relating to the FCA’s review of historical motor finance commission arrangements, where
the Group operated some discretionary commission arrangements until June 2017, and
agreed that the Group should not recognise a provision but disclose a contingent liability.
The Committee has approved the inclusion of expert credit judgements regarding loss
given default and probability of default in the Vehicle Finance business, and cost of living/
affordability in both Consumer Finance businesses; and considered the regulatory and
accounting impact of these on the financial statements.
The Audit Committee undertook horizon scanning of future accounting changes,
including as a consequence of audit reform and the implementation of a new UK
Corporate Governance Code to understand changes or voluntary measures STB may, or
will be required to, implement. Following the transition in 2022 of the review of climate
related disclosures to the Audit Committee from the Risk Committee, the Committee has
reviewed STB’s climate related disclosures and received updates on the progress made to
align with TCFD expectations.
In making its recommendations to the Board to approve the annual and interim financial
statements, the Committee has considered matters raised by the External Auditor on
matters of judgement.
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Use of the going concern basis in
preparing the financial statements
and long-term viability of the Group
The financial statements are prepared on the basis that the Group and Company are
each a going concern. The Audit Committee has reviewed management’s explanations
as to the appropriateness of the going concern basis in preparing the Group and
Company financial statements and has not identified any material uncertainties as to
the Company’s ability to continue as a going concern for the period of 12 months from
the approval of the accounts.
The Audit Committee has reviewed and challenged the basis for assessing long-term
viability, including the period by reference to which viability is assessed, the principal
risks to long-term viability and actions taken or planned to manage those risks.
This included consideration of specific stress tests and the Committee’s conclusions are
taken into account in the Board’s viability statement on page 39 to 40.
Presentation of a fair, balanced
and understandable Annual Report
and Accounts
The Audit Committee, having reviewed the content of the Annual Report and
considering relevant matters including the presentation of material sensitive items, the
representation of significant issues, the consistency of the narrative disclosures in the
Strategic Report with the financial statements, the overall structure of the Annual Report
and the steps taken to ensure the completeness and accuracy of the matters included,
has advised the Board that the 2023 Annual Report and Accounts include a ‘fair,
balanced and understandable’ assessment of the Group and Company’s businesses.
Regulatory reporting
The Committee has monitored regulatory reporting processes and oversees
developments in the overall control environment for regulatory reporting.
External Audit
Deloitte LLP has continued in their position as External Auditor since their appointment at the 2018 AGM following the audit tender
conducted in 2017.
During the year, the Committee reviewed and approved the external audit terms of engagement, the scope of the external audit,
timetable, materiality and audit strategy as well as the letter of representation.
The Audit Committee reviews reports prepared by the External Auditor setting out their audit approach and conclusions on matters
of judgement impacting the financial statements, any internal control findings identified during the external audit, their
independence, and approves additional services and related fees. The External Auditor also highlighted upcoming areas of interest to
the Committee to assist with their horizon scanning. The principal matters that the Committee discussed with Deloitte are set out
in their report starting on page 105.
During 2023, the Committee assessed the effectiveness of the external audit process for 2022. The capabilities of the external audit
team, their independence and challenge of management, the scope of the work, the quality of their communications and fees
were all considered. The assessment also considered the views of the Finance team, Chief Risk Officer and Chief Internal Auditor.
The Committee concluded that the external audit process was satisfactory and that the External Auditor was performing well.
The review did not highlight any reason for the Audit Committee not to recommend their reappointment. The Committee has
considered and duly agreed to recommend the reappointment of Deloitte as External Auditor to shareholders at the 2024 AGM.
The Audit Committee agreed a fee increase with the External Auditor in 2023. After significant discussion, the Committee was
satisfied that the level of audit fees payable in respect of the audit services provided, being £968,000 (2022: £757,000) was appropriate
and that an effective audit could be conducted for such a fee. The existing authority for the Audit Committee to determine the
remuneration of the External Auditor is derived from shareholder approval granted at the AGM held in May 2023 and a similar
resolution is proposed at the AGM to be held in May 2024.
Independence of the External Auditor, fees and non-audit services
Deloitte has confirmed to the Audit Committee that it has policies and procedures in place to satisfy the required standards of
objectivity, independence, and integrity, and that these comply with the Financial Reporting Council’s Ethical Standards for Auditors.
The Audit Committee has considered matters that might impair the independence of the External Auditor, including the non-audit
fees paid to the External Auditor, and has confirmed that it was satisfied as to the independence of the external audit firm, Deloitte.
Having been appointed for five years, our former lead audit partner, Matthew Perkins, rotated off STB’s external audit and the
Committee has agreed that Neil Reed be appointed as the lead partner for 2023.
The Group has agreed a policy on the provision of non-audit services by its external auditor. The policy ensures that the engagement
of the external auditor for such services requires pre-approval by appropriate levels of management or the Audit Committee and does
not impair the independence of the external auditor, and that such engagements are reported to the Audit Committee on a regular
basis. The External Auditor is only selected for such services when they are best suited to undertake the work and there is no conflict
of interest.
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The total of audit and non-audit fees paid to Deloitte during the period is set out in Note 6 on page 131. The non-audit services fee of
£185,000 (2022: £110,000) were in respect of, but not limited to, the review of the interim financial statements and other ad hoc advice.
In the case of each engagement, management considered it appropriate to engage Deloitte for the work because of their existing
knowledge and experience of the organisation. Non-audit fees represented 19% of audit fees in 2023.
Internal audit
The Group has an independent Internal Audit function led by the Chief Internal Auditor, augmented by external subject matter
experts from a panel of internal audit co-source providers. The Chief Internal Auditor reports to the Chairman of the Audit Committee
and they meet frequently through the year.
The primary role of the Internal Audit function is to help the Board and Executives protect the assets, reputation and sustainability of
the Group, by providing independent and objective assurance on the design and operating effectiveness of the Group’s governance,
risk management and control framework and processes, following a risk-based approach.
The Committee reviews and approves the internal audit plan each year, and during the year it oversaw internal audit activity, including
adjustments to the approved plan to respond to external and internal events and priorities. In approving the internal audit plan, the
Committee was satisfied that the team has the appropriate resource to deliver its plans.
The Committee received and considered all reports issued by the internal audit team. Key themes addressed in 2023 included:
• the effectiveness of executive governance and of the second line of defence in areas such as credit risk oversight and
model governance;
• Customer and Product Lifecycles, with a particular focus on changes made to address the requirements of the Consumer Duty;
• Operational Resilience including IT resilience;
• Financial Crime Risk Management and Oversight; and
• Finance, Treasury and Prudential risks.
The Committee also reviewed the Internal Audit function’s assessment of the overall effectiveness of the governance and risk and
control framework and Internal Audit’s conclusions on employee behaviours in the context of the Group’s framework of values
and culture.
Internal Audit quality and independence
During the year the Committee reviewed the performance and independence of the Internal Audit function and was satisfied as to
the effectiveness, quality, experience, expertise and independence of the function and the Chief Internal Auditor.
Internal controls and risk management
The Audit Committee monitors the effectiveness of the Group’s governance, risk, and control framework. A statement approved by
the Committee regarding the operation of the risk and control framework is set out on page 71.
During 2023, the Committee reviewed the procedures for detecting fraud affecting financial reporting, and a report from the
Chief Compliance Officer on the systems and controls for the prevention of bribery. The financial reporting process is operated by
suitably qualified and experienced accountants and designed to provide assurance regarding the reliability of financial reporting
and preparation of financial statements through documented procedures and accounting policies. It operates under the Group’s
Enterprise-Wide Risk Management framework, where controls are in place to provide assurance over the preparation of the financial
statements. The Annual Report and Accounts are reviewed throughout the financial reporting process by relevant senior managers
prior to submitting to the Audit Committee, which provide review and challenge, before recommending to the Board for approval.
The Audit Committee also discusses any control recommendations arising from the External Audit.
Whistleblowing
The Audit Committee assumes responsibility for oversight of the effectiveness of whistleblowing arrangements and the Chairman
of the Audit Committee is the Whistleblowers’ Champion. The Committee receives reports on the effectiveness of whistleblowing
arrangements from the Chief Compliance Officer during the year as well as quarterly reports on any issues raised in the period.
There were three new cases during the year (2022: one). Cases are assessed and, where required, subject to investigation in
accordance with the Group’s Whistleblowing Policy. An annual report on whistleblowing incidents is received by the Board.
Audit Committee effectiveness evaluation
During the reporting period, an externally facilitated internal assessment was conducted which considered the Committee’s
performance as part of the wider Board effectiveness review. The result of the evaluation confirmed that the Committee and other
participants considered that the Committee was performing effectively. Please see the Nomination Committee report (starting on
page 72) for more information.
Looking ahead
The Committee’s priorities for 2024 will include a continuing focus on financial reporting in the context of wider market conditions and
responding to developments in Corporate Governance standards and changes for the future of the UK external audit market.
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Statement by Chairman of the Risk Committee
The Committee has continued to monitor
the full range of risks facing the Group.”
Paul Myers
Chairman of the Risk Committee
I am pleased to present the report of the Risk Committee for the financial year ended 31 December 2023. The UK continued
to experience heightened geo-political instability, elevated energy prices, high levels of inflation and a rapidly rising interest rate
environment, all of which continued to contribute to a significant cost of living challenge for UK consumers. We also saw the impacts on
our business customers from higher interest rates, weaker consumer demand and a softer property market. While we saw a welcome
easing of inflation and more stable interest rates as the year progressed, the Committee remained focused on the consequential
impact to the Group’s risk profile, with continued review and challenge of existing models and close monitoring of credit performance.
Given the cost of living challenges, much Committee time was devoted to reviewing customer affordability and the fair treatment
of vulnerable customers, including the review of the Group’s collections processes, procedures and policies.
The Committee has continued to monitor the full range of risks facing the Group and has overseen the maturing and updating of
risk appetites to support the Group’s medium-term strategy. Particular focus was given to overseeing the roll out of the Consumer
Duty principles within the Group’s processes, and the impact these have had on risk appetite. The Board appointed Finlay Williamson
as its Consumer Duty Champion, and Finlay also remains a valued member of the Risk Committee.
The Group has continued to operate the hybrid working model it successfully adopted in 2020. The Committee continually assesses
both the risk challenges and opportunities this presents for customers, employees and the Group’s businesses. The Committee receives
reports regarding the Group’s current information security practices and policies to make sure that the Group is abreast of challenges
in a continually changing threat landscape.
Climate risk remained a key area of focus for the Committee. Discussions on the Group’s climate exposure, both for the Group and to
individual business areas, have been held with challenges made to metrics and thresholds presented by management. The Committee
is mindful of both the direct and indirect impact the Group has on climate risk and receives a regular and comprehensive dashboard
of climate-related metrics.
The Committee heard directly from the business Managing Directors, to discuss performance and risks/challenges relevant to their
business area, as well as receiving regular updates on key topics from other key executives and risk subject matter experts from across
the business.
The Risk and Compliance teams have continued to provide the Committee with effective oversight of the changing risk landscape
of the Group. Regulatory updates and ongoing horizon scanning of emerging regulatory requirements and consequential impacts
on the Group were also considered. Throughout 2023, the Committee maintained its focus on financial crime and received regular
reports on the Group’s financial crime framework. Outputs of the compliance monitoring programme were also received and reviewed
regularly by the Committee.
Formal reporting from the Executive Risk Committee (‘ERC’) and Assets & Liabilities Committee (‘ALCO’) is incorporated into each
Committee agenda and the Chief Risk Officer (’CRO’) provides a detailed update on the full spectrum of risk performance and any
emerging issues. The Committee also meets periodically with the CRO without other members of management being present.
As we look ahead to 2024 and beyond, ongoing macroeconomic challenges remain a key focus. Close monitoring, clear escalation and
early warning triggers enables early identification of emerging issues and rapid judgements on any necessary changes to risk appetites
or lending policies. The Group continues to strive to provide clear and consistent borrowing experiences to our consumer and business
customers, including extending support where required by changing customer circumstances. Further information on the activities
of the Committee during the year is provided in the following report and additional information about risk-related matters can be found
in the Principal Risks and uncertainties section on pages 28 to 38.
Finally, I would again like to thank my Board colleagues for their expert input on risk matters through what has been another busy
period for the Committee.
Paul Myers
Chairman of the Risk Committee
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Composition
The Group has had separate Audit and Risk Committees for over a decade and both Committees continued to oversee the
development and evolution of the risk management and internal control frameworks in 2023, as they have done since inception.
The Code provides that where a company has a separate risk committee, it should be comprised of independent non-executive
directors. The Company considers that it has complied with this provision throughout 2023. The Risk Committee is required to meet
formally at least four times a year and otherwise, as required. The Committee had six scheduled meetings during the year, the chart and
table below summarises attendance of members during the year. The Company Secretary, or their alternate, acts as Secretary to the
Risk Committee. Other individuals attend at the request of the Committee. During the year, the Chief Executive Officer (‘CEO’), CRO,
Chief Financial Officer (‘CFO’), Chief Operating Officer, Chief Internal Auditor, Chief Compliance Officer, Group Head of Operational
Risk, Chief Information Security Officer, Group Treasurer, Head of Financial Crime, the Managing Directors of Commercial Finance,
Vehicle Finance & Savings and Real Estate Finance and other senior managers attended meetings to present their reports and answer
questions from the Committee. The Chairman of the Risk Committee reports to the Board on the outcome of each Committee meeting
and any recommendations arising from the Committee. The CRO is invited to attend sessions with the Committee members without
Executive Directors present.
Role of the Risk Committee
The Risk Committee reviews the design and implementation of risk management policies and systems as well as risk-related strategies
and the procedures for monitoring the adequacy and effectiveness of this process. It considers the Group’s risk appetite in relation
to the current and future strategy of the Group; confirms the Group’s Recovery Plan, Internal Capital Adequacy Assessment Process
(’ICAAP‘) and Internal Liquidity Adequacy Assessment Process (’ILAAP’) scenario selection, and principal risks (see pages 28 to 38 for
more information) whilst overseeing the processes and outputs from these; and oversees the risk and credit exposures of the Group.
The Committee exercises its internal control and risk management role through the comprehensive management information and
reporting it receives across all risk disciplines. This includes regular updates from the ERC (via the CRO), the ALCO (via the CFO) and the
Executive Committee, as well as other reports via the Chief Internal Auditor, the CEO, other members of management. The Committee
assesses emerging trends impacting the Group’s inherent risks with particular focus on operational resilience and model risk.
Risk Committee attendance and composition
Members
No. of scheduled meetings
eligible to attend
Attended
Paul Myers
6
6
Ann Berresford
6
6
Finlay Williamson
6
6
Risk
Committee
composition as at
31 December 2023
iNED
3
ED
0
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Matters discussed at Risk Committee meetings since 1 January 2023
The Risk Committee has a forward look agenda that details standing agenda items for discussion at each of the scheduled meetings.
The forward look agenda is presented at each scheduled meeting with a 12-month look ahead. It is updated in real time
to include any new or emerging issues pertinent to the Group. The principal matters discussed during the year and up to the
date of this report were:
Subject area
Matters considered
Group risk appetite statement and key
risk indicators
The Group’s key risk appetite metrics, which are reviewed annually and recommended
for approval to the Board. The Committee reviewed performance against agreed risk
appetites by reference to the key risk indicator metrics and supporting management
information provided to each meeting. A number of changes and enhancements were
made, reflecting latest views on local and macro risk environments.
Strategic and operational risks
The Committee oversees the management of strategic and operational risk across the
Group. The Head of Operational Risk presented the outcomes of the Strategic and
Operational Risk Review to the Committee and responded to challenges raised on
the robustness of the approach taken. Strategic risks were discussed and challenged
throughout the year. In assessing strategic risks, the Committee considers the existing
process and internal controls in operation and reviews the recommendations from the
Risk and Compliance functions on how to adapt the controls to mitigate those risks.
When reviewing the strategic and operational risks the Committee also considered
emerging risks, including the likelihood and impact upon the Group. During the year, the
consequential impact of the trading environment for our customers has been considered
against existing risk appetites. Risk assessments for growth opportunities have also taken
place. More information on this process can be found on page 38 and in the Internal
Control section on page 71.
Climate risk
The Committee received reports from management on the Group’s direct and indirect
exposure to climate risk. Risk appetite thresholds, such as flood risk for the Real Estate
Finance business, have been challenged and approved by the Committee during the
year. For further information on the Group’s response to climate risk please see the
Group’s climate-related financial disclosures on pages 55 to 64 for more information.
Macro risk
Updates from the CRO were provided to the Committee on the impacts of customer
affordability, the geopolitical environment, monetary and fiscal policy on the Group.
Credit risk
The Committee receives reports on key risk indicators for credit risk, together with
quarterly assessments of each portfolio’s credit profile, including impairments, bad debts,
watch-lists, collections data and any policy exceptions. Credit risk performance for all
businesses was kept under regular scrutiny and the changing trading environment
of businesses was considered along with concentration risk. The Committee were
presented with reviews of debtor concentration across the Commercial Finance portfolio
as well as credit performance within Vehicle Finance.
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Subject area
Matters considered
Operational resilience and risk, including
cyber, information security resilience risk
and business continuity
The Committee oversees the operational risk policy, including metrics and key risk
indicators reporting and business unit management risk and control self-assessment.
To assist in understanding how the risk framework is embedded within the Group and
to challenge the effectiveness of the risk management function, the Committee receives
a quarterly review of material operational risk events/losses, performance against the
key operational risk appetite metrics, together with the key findings from annual Risk
and Control Self Assessments. This includes a key focus on the effectiveness of the
Operational resilience control framework and plan.
The Committee received updates on the strategies undertaken within the Group
to understand, identify, monitor and respond to current and upcoming cyber threats and
received regular reporting from the Head of Information Security on the Group’s cyber
resilience profile.
The Committee reviewed ongoing progress on development of the Operational
Resilience Plan and frameworks against agreed tolerances. The Committee challenges
Management on the ratings recommended in reporting to assess whether the tolerances
applied remain appropriate.
Please see page 54 in Managing our Business Responsibly for further information
on how this has factored into our supplier relationships.
Capital and liquidity risk
The Committee has primary responsibility for reviewing and making a recommendation
to the Board on the Group’s ICAAP, ILAAP and the Recovery Plan and Resolution Pack.
The Committee also reviewed key assumptions, stress test scenarios and outputs used
in these processes. The Committee also reviewed and approved the Group’s annual
Pillar 3 disclosures.
Regulatory and conduct risk
The Committee receives regular reports on key risk indicators for regulatory, reputational
and conduct risk, regulatory incidents and key advisory activities of note, horizon
scanning and actions to implement new and revised regulations or legislation and the
outputs of the 2023 Compliance Monitoring Plan. Any exceptions were discussed and
challenged with management, including effectiveness and resourcing of the Compliance
function. The Committee reviewed the Data Protection Officer’s Report, as well as six-
monthly complaints data. The Committee challenged and approved the Compliance
Monitoring Plan for 2024 and reviewed the Group’s Consumer Duty implementation plan.
The Committee received and considered reports related to collections processes,
procedures and policies, following the FCA’s review of Borrowers in Financial Difficulty
(‘BiFD’) across the industry.
The Committee oversees the management of regulatory risk for the Group. Conduct risk
and culture remain a key focus within the Group, particularly with the continued hybrid
working model.
Financial crime
The Committee received regular reports from the Financial Crime Team, including
the Annual Report from the Money Laundering Reporting Officer and updates on
the progress of the Financial Crime Transformation Programme, which is expected to
completed in the first half of 2024, and approved the Financial Crime Monitoring Plan, as
part of the wider Compliance Monitoring Plan for 2024.
Governance
During the year, the Risk Committee reviewed its terms of reference and various policies.
A full copy of the terms of reference for the Risk Committee can be obtained via the
Group’s website.
During the reporting period, the Committee undertook an internal review of its
performance, facilitated by the use of third party system provided by Independent Audit
Limited. The result of the evaluation, reviewed in early 2024, was that the Committee and
other participants considered that the Committee was performing effectively. Please see
the Nomination Committee report, starting on page 72 for more information.
This table is not a complete list of matters considered by the Committee, but highlights the most significant matters for the period
in the opinion of the Risk Committee. For more information on the framework for managing risks within the business please see the
Principal risks and uncertainties section on pages 28 to 38.
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Directors’ Remuneration Report
Statement by Chairman of the Remuneration Committee
On behalf of the Remuneration Committee, I am pleased to present the Directors’ Remuneration Report for the year ended
31 December 2023.
This has been another busy year for the Committee and at our 2023 Annual General Meeting (‘AGM’) we renewed our three-year
Directors’ Remuneration Policy. We thank our shareholders for their continued support. Towards the end of the year, we also welcomed
Victoria Mitchell as a member of the Committee (with effect from 1 November 2023).
In the first quarter of 2023, the Committee reviewed the bonus pool and staff pay increases for the employee population. Pay increases
were focused on lower salary banded individuals for both 2023 and 2024, average pay increases across the Group for 2024 will be 5%.
As part of the annual deep dive of remuneration for the wider workforce, we considered the performance linkage to bonus assessments
and pay reviews for those employees outside of Senior Management. In addition, the Committee received updates on the Gender
Pay Gap actions and Equity, Diversity & Inclusion progress and initiatives being undertaken across the Group. The Committee also
approved an increase to the employer pension contributions from the Group to 5% for lower paid colleagues.
The 2020 Sharesave grant matured in November 2023 and the majority of participants have exercised their options. Employees were
offered education in financial wellbeing to inform them of each of their choices and the potential implications of these.
Executive remuneration – pay and performance
In October 2023, our 2020 Long Term Incentive Plan (‘LTIP’) award (the grant of which had been delayed in 2020) matured and
this award vested at 15% representing partial attainment on our risk management metric (which had a 25% weighting). The other
metrics, all of which were based on Total Shareholder Return (‘TSR’) performance, did not attain the threshold performance levels
set. The assessment for the risk management condition reflected performance over the full three year period, including the positive
management of challenges which arose when COVID-19 required new ways of working. Further details are available on page 93.
In the first quarter of 2024, the Committee determined the out-turn against the agreed metrics for the 2023 annual bonus.
The Committee approved the out-turn of 17.29% (out of a possible 65%) for financial performance metrics. The out-turn for non-
financial metrics was 23.75% (out of a possible 35%) for the Chief Executive Officer (‘CEO’) and 25.00% (out of a possible 35%) for the
Chief Financial Officer (‘CFO’) which resulted in an overall bonus of 41.04% (out of a possible 100% of base salary) and 42.29% (out
of a possible 100% of base salary) for the CEO and CFO respectively. Further details are shown on pages 91 and 92. In accordance
with the Directors’ Remuneration Policy, 50% of bonus outcomes for Executive Directors are deferred into shares under the Deferred
Bonus Plan (‘DBP’). Deferred shares will vest in equal tranches after one, two and three years following deferral. While the business has
faced a number of challenges in the year, these outcomes for the 2023 annual bonus were considered appropriate and reflected good
underlying business performance in the year and the contributions of the CEO and CFO. Risk related matters were considered fully
before confirming all 2023 annual bonus outcomes and, where appropriate, adjustments were made.
The Committee has continued to focus on
aligning remuneration with Secure Trust Bank’s
corporate strategy.”
Victoria Stewart
Chairman of the Remuneration Committee
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Statement by Chairman of the Remuneration Committee
The 2021 LTIP award, in which both of the Executive Directors participate, is due to mature in April 2024. In Q1 2024, the Committee
has assessed the extent to which the performance conditions have been met over the three year performance period measured to
31 December 2023. Again there is partial vesting under the risk management metrics (15% of 25% weighting). Under the TSR metrics
(75% weighting in total), we achieved a partial vesting for that element which measured our TSR performance against a group of
selected smaller banks (6.25% vesting from a total 25% weighting). The remaining TSR elements which measured absolute TSR growth
and our performance against the FTSE SmallCap (ex IT) constituents on a relative basis lapsed in full. Combining the partial vesting
under the risk management condition and the partial vesting under the TSR condition gave an overall vesting of 21.25%, which the
Committee considered appropriate given overall performance across the performance period.
Use of discretion during 2023
During the year, the Committee did not exercise discretion in assessing performance for any incentive plans. When calculating the
number of shares to be included in the March 2023 LTIP awards, the Committee used its judgement to reduce the number of shares
awarded to reflect share price performance in the preceding year; awards were more than 33% lower than the number of shares that
would have been granted had awards been calculated using share prices in March 2023.
Forward look
The Committee has taken time to carefully consider both the annual bonus metrics and LTIP performance metrics for awards due to be
granted this year. Please see page 99 for more information. These metrics are substantially similar to the metrics which we applied for
our incentive plans in 2023, and are considered to remain appropriate for the business.
One change which has been approved for Executive Directors’ remuneration for 2024 relates to the salary of our CFO, Rachel Lawrence.
When Rachel was appointed as our CFO in September 2020, Rachel’s salary was set at a level below that of the prior CFO. This was
considered appropriate at that time given that this was Rachel’s’ first role as a CFO within a public limited company.
In the now over 3-year period since appointment, Rachel has demonstrated performance and progression as our CFO and we have
accordingly repositioned Rachel’s salary to £495.000 p.a., with effect from 1 April 2024, (£432,848 p.a. from April 2023). We regard the
new salary as being at a level which is appropriate for a CFO within our sector who is now experienced in the role. We have taken
account of Rachel’s continuing strong contribution to the business in approving this change of base salary.
We are aware that increases of this nature can sometimes be ‘phased’ across two financial years. However, this was not considered
appropriate given the length of time that Rachel has now been our CFO, Rachel’s growth in this business-critical role and our stated
remuneration principles where we aim to be simple and transparent.
Concluding thoughts
I would like to thank all of the Committee members for their contributions this year.
Going forwards into 2024, as the Group continues to execute its strategy, the Committee will continue to seek to ensure that the
management team is aptly incentivised and retained. The Committee welcomes all input on remuneration and if you have any
comments or questions on any element of the Annual Report regarding remuneration please email me via the Company Secretary
at companysecretariat@securetrustbank.co.uk.
Finally, I would like to thank our shareholders for their continued support throughout the year.
Victoria Stewart
Chairman of the Remuneration Committee
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Executive Directors: Remuneration at a glance
Executive Director
Pay as at 31 December 2023
David McCreadie
Appointed CEO 5 January 2021
• Base salary – £689,585 per annum
• Pension contribution – 5% base salary
• Annual bonus – 100% base salary maximum bonus
• LTIP – to participate in 2024 LTIP; annual award 100% base salary
Rachel Lawrence
Appointed CFO 7 September 2020
• Base salary – £432,848 per annum (£495,000 from 1 April 2024)
• Pension contribution – 5% base salary
• Annual bonus –100% base salary maximum bonus
• LTIP – to participate in 2024 LTIP; annual award 100% base salary
As at 31 December 2023, the Remuneration Committee comprised four members and was compliant with the Code provision, to be
formed of at least two independent Non-Executive Directors, throughout the year. The Company Chairman was also a member of the
Committee, as he was considered independent on appointment as Chairman.
The Remuneration Committee meets ordinarily four times a year and when required to address non-routine matters. The Committee
held four scheduled and three ad hoc meetings during the course of 2023.
The Company Secretary, or their alternate, acts as Secretary to the Remuneration Committee. Other individuals attend at the request of
the Remuneration Committee Chairman, and during the year the CEO, HR Director, Chief Internal Auditor, Chief Risk Officer, other senior
managers and the external remuneration consultant attended meetings to report to or advise the Committee.
The Chairman of the Remuneration Committee reports to the Board on the outcome of Committee meetings and any recommendations
arising from the Committee.
A copy of the Committee’s terms of reference can be obtained via the Group’s website.
Role of the Remuneration Committee
The Remuneration Committee assists the Board in fulfilling its responsibilities in relation to remuneration including, amongst other
matters, determining the policy for the individual remuneration and benefits packages of the Executive Directors and the Senior
Management below Board level. The Committee also reviews workforce remuneration, related policies and how executive and wider
workforce pay are aligned to the culture of the Group.
Remuneration Committee attendance and composition
Members
No. of scheduled
meetings eligible
to attend
Attended
Victoria Stewart
7
7
Lord Forsyth
7
7
Victoria Mitchell
2
2
Paul Myers
7
7
iNED
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ED
0
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Committee
composition as at
31 December 2023
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Key matters considered by the Committee from 1 January 2023 to 31 December 2023 were:
Subject area
Matters considered
Executive Directors’
remuneration
The Committee reviewed the recommendations and approved the annual bonus outcomes for both the
CFO and CEO for the 2022 performance year, as well as their respective salary increases for 2023, which
were made broadly in line with the average senior employee salary increase and at a lower percentage than
the average all-employee increase. The Committee reviewed and approved the financial and non-financial
performance criteria for the 2023 financial year bonus of both the Executive Directors and the LTIP criteria.
Senior Managers’
remuneration
The Committee identified and approved individual remuneration for Material Risk Takers (‘MRTs’) using
benchmarking data and assessed the outcomes of scorecards used to assess performance for bonuses.
The Committee approved the quantum of awards used for the LTIP and DBP grants. The Committee
reviewed and approved remuneration packages for several MRT roles within the business, balancing the
need for packages to remain competitive whilst appropriate for a group the size of Secure Trust Bank PLC.
Chairman’s
remuneration
The Committee considered the Chairman’s fee during the year. A mechanical process was implemented
in 2019 to increase the Chairman’s and Non-Executive Directors’ fees in line with employees’ average
salary increases in the prior year. The Committee, at the request of the Board Chairman, considered and
approved a proposal to deviate from this process, in the current year, and agreed a reduced increase in
line with the Executive Director and Senior Managers average salary increase, which was below that for the
wider workforce.
Wider workforce
remuneration
In March 2023, the Committee reviewed the proposed Group bonus pool to be paid in April 2023 in respect
of performance for the 2022 financial year. The Committee, having regard to the guidelines issued by
institutional investors regarding reward, guidance from the Group’s regulators, as well as the review of the
going concern and viability assessments conducted by the Audit Committee and conduct review by the
Chief Risk Officer, concluded that the payment of a bonus to all employees was appropriate and in the best
interests of the Company. The Committee reviewed and agreed the proposed distribution and quantum
of the Group bonus pool. Pay rises were focused towards lower salaried employees. The Committee
also considered and approved a proposal to increase employee pension contributions for lower salaried
employees to take effect in Q2 2024. The Committee reviewed dashboard information, processes and
guidelines for annual remuneration for the entire employee workforce, including the Compliance and Risk
functions. The Committee reviewed the Group’s benefits package and recommended approvals to the
Board. The Committee also reviewed the outcomes of the Group’s Gender Pay Gap reporting which, whilst
not where we would seek it to be, has improved year-on-year.
Discretionary
share plans
The Committee reviewed and agreed the updated metrics for the 2023 LTIP grant. The Committee
considered and agreed to reintroduce metrics on core Earnings Per Share (‘EPS’) and introduce Return on
Average Equity (‘ROAE’) whilst retaining TSR and risk management performance conditions. The change in
performance metrics was considered appropriate, given the market conditions at the time of grant, as well
as being stretching and in line with shareholders’ interests, please see page 93 for more details.
The Committee reviewed and approved the participants under the DBP 2023 grant and agreed the
quantum of share options to be granted relative to the portion of bonus to be deferred into shares.
The Committee further agreed the vesting of tranches of the DBP under the 2020, 2021 and 2022 grants.
Malus and clawback provisions were reviewed, with relevant clauses being included in all LTIP and DBP
standard documentation.
The Committee reviewed the outcome of the performance metrics for the 2020 LTIP grant, which matured
in October 2023 with a 15% vesting. The Committee elected not to utilise its discretion to modify the
formulaic outcome of the vesting of the awards.
The 2024 LTIP grant performance conditions were also discussed during the year. The Committee agreed
to use the same metrics as those for the 2023 LTIP grant as these remained appropriate and in line with
strategy. The awards are subject to a performance condition underpin.
The Committee discussed the dilution impact to shareholders as a result of settling awards via issuance
of new shares. Following creation of the Employee Benefit Trust (‘EBT’) in October 2022, exercises under
discretionary awards can be satisfied from shares purchased in the market by the EBT which will not impact
dilution levels. Dilution limits will continue to be monitored.
All-Employee
Sharesave
plan and dilution
The Committee reviewed and approved the 2023 Sharesave plan invitation to all eligible employees in line
with recommendations for managing dilution to existing shareholders with respect to the number of shares
in issue.
The 2020 Sharesave grant matured in November 2023, with the majority of participants electing to exercise
their share options following vesting.
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Subject area
Matters considered
Directors’
Remuneration
Report (‘DRR’) and
other disclosures in
the Annual Report
and Accounts
The Committee considered the disclosures required in the Annual Report and Accounts and recommended
its approval to the Board. The Committee received advice from the Company Secretary, HR Director and
FIT Remuneration Consultants LLP (‘FIT’) when compiling the DRR and the additional disclosures in the
Annual Report and Accounts.
Governance
matters
The Committee received and reviewed the outcomes of the annual internal audit of the
implementation of the remuneration policy. During the reporting period an externally facilitated internal
assessment considered the Committee’s performance as part of the wider Board effectiveness review. The
result of the evaluation confirmed that the Committee was considered to be performing effectively. Please
see the Nomination Committee report (starting on page 72) for more information. The Committee has
reviewed a number of workforce policies, including the Application of Proportionality and Material Risk
Takers policies, as well as the All-Employee Remuneration Policy. The Remuneration Policy Statement was
also approved. The Committee agreed a forward-looking agenda for 2024. Four meetings are scheduled to
be held in 2024 to address routine matters. A review of the effectiveness of FIT, as remuneration advisers,
took place in February 2024, and it was concluded that they remained appropriate advisers for STB.
This table is not a complete list of matters considered by the Committee, but highlights the most significant matters for the period in the
opinion of the Remuneration Committee.
Remuneration Consultant and Committee advice
During the year, the Committee received external advice from FIT. The appointment of FIT to advise the Committee was made in
September 2020 following a competitive tender process.
FIT has no other significant connection with the Group or its Directors other than the provision of advice on executive and employee
remuneration, and related matters. FIT is a member of the Remuneration Consultants’ Group and abides by its code of conduct that
requires remuneration advice to be given objectively and independently. The total fee paid for the provision of advice to the Committee
during the year was £105,442 (excluding VAT) (2022: £104,221). FIT also provided support to the HR and Legal teams on remuneration
implementation. The Committee is satisfied that the advice provided in the year by FIT on remuneration matters is objective
and independent.
The Committee received advice on specific matters from internal advisers, management and the Company Secretary.
The Committee is satisfied that the Committee has exercised independent judgement when evaluating the advice received from all
its advisers.
Directors’ Remuneration Report
The information contained in the Directors’ Remuneration Report is subject to audit, where indicated in the Report, in accordance
with The Large and Medium- sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). The Directors’
Remuneration Report contains the Annual Remuneration Report, which explains the operation of remuneration-related arrangements
for 2023.
A full copy of the existing Directors’ Remuneration Policy, which was approved by shareholders at the 2023 AGM, can be found on the
Group’s website as part of our 2022 Annual Report and Accounts.
How we link executive remuneration to our strategy
The key principles behind the Directors’ Remuneration Policy are to:
• be simple and transparent in order to reflect the Group’s purpose;
• promote the long-term success of the Group, with transparent and demanding performance conditions;
• provide alignment between executive reward and the Group’s values, risk appetite and shareholder returns; and
• have a competitive mix of base salary and short and long-term incentives, with an appropriate proportion of the package linked to
the delivery of sustainable long-term returns.
In developing and implementing the Directors’ Remuneration Policy we have also had regard to regulatory requirements for
senior managers under the Senior Manager Regime. The Group is currently a Level 3 firm within the classifications applied by the
financial regulators for regulated entities. This means that the Group is not required to satisfy in full all elements of the FCA and PRA
remuneration codes.
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Notwithstanding this, in formulating and applying the Directors’ Remuneration Policy the Committee has had regard to the
remuneration codes when considering existing and proposed remuneration and also the remuneration related provisions of the UK
Corporate Governance Code. The Committee has been compliant with the existing Directors’ Remuneration Policy approved by
shareholders at the 2023 AGM.
Single figure table (audited information)
The following table sets out total remuneration earned for each Director in respect of the year ended 31 December 2023 and the
prior year.
Salary and fees
1
Benefits
Annual bonus
2
Pension
Shares
3, 4
Total remuneration
Total fixed
remuneration
Total variable
remuneration
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
Executive Directors
David McCreadie
685
665
1
1
283
362
35
32
75
– 1,079 1,060
721
698
358
362
R Lawrence
430
417
22
22
183
227
21
21
57
–
713
687
473
460
240
227
Non-Executive
Directors
5
M Forsyth
230
224
3
2
–
–
–
–
–
–
233
226
233
226
–
–
A Berresford
120
118
1
1
–
–
–
–
–
–
121
119
121
119
–
–
V Mitchell
6
13
–
–
–
–
–
–
–
–
–
13
–
13
–
–
–
P Myers
7
105
98
–
–
–
–
–
–
–
–
105
98
105
98
–
–
V Stewart
100
98
1
1
–
–
–
–
–
–
101
99
101
99
–
–
F Williamson
8
90
79
1
1
–
–
–
–
–
–
91
80
91
80
–
–
Total
1,773 1,699
29
28
466
589
56
53
132
– 2,456 2,369 1,858 1,780
598 589
1.
The 2023 base salary figures are based on 3 months of salaries approved in April 2022 (David McCreadie £669,500 and Rachel Lawrence £420,240), and 9 months of salaries approved in
April 2023 (David McCreadie £689,585 and Rachel Lawrence £432,848). The 2022 base salary figures are based on 3 months of salaries approved in April 2021 (David McCreadie £650,000 and Rachel
Lawrence £408,000), and 9 months of salaries approved in April 2022 (David McCreadie £669,500 and Rachel Lawrence £420,240).
2.
In respect of the 2023 financial year, David McCreadie received an annual bonus of £283,006 of which £141,502 will be deferred into share awards and Rachel Lawrence received an
annual bonus of £183,051 of which £91,525 will be deferred into share awards.
3.
The Shares values for David McCreadie and Rachel Lawrence reflect the performance vesting of the 21 April 2021 LTIP award where performance was measured to 31 December 2023.
This award
partially vested giving David McCreadie 11,755 vested shares and Rachel Lawrence 7,378 vested shares which for the purpose of providing an estimated value for this table was multiplied by the
average share price in the 3 month period to 31 December 2023 (637.52p). The value for Rachel Lawrence also includes value from the 2020 LTIP award which partially vested on 23 October 2023 giving
1,530 vested shares and when the share price was 608p.
No element of the values shown represent share price growth as the share prices at vesting for the 2020 awards and the 2021 awards were
lower than the share prices at the respective dates of award (22 October 2020: 732p; 21 April 2021: 1175p). Details of awards made under the LTIP and DBP can be found on pages
93 and 94.
4.
This includes the value of the Sharesave option granted to Rachel Lawrence on 25 September 2023 (calculating the number of shares in the option (1,708 shares) multiplied by the
difference in the option price (543.0p) and the market value of the shares on 25 September 2023 (630.0p)).
5.
Non-Executive Directors are reimbursed expenses that are incurred for business reasons. Any tax that arises on these reimbursed expenses is paid by the Company. These expenses
and the related tax have not been included in benefits listed in the table above.
6.
Victoria Mitchell was appointed as a Non-Executive Director on 1 November 2023 and was appointed to the Remuneration and Nomination Committees.
7.
Paul Myers was appointed as the Non-Executive Director designated for workforce engagement on 27 October 2022 and his fee was increased accordingly (please see page 98 for
more information).
8
Finlay Williamson was appointed to the Audit Committee and appointed as the Consumer Duty Champion with effect from 27 October 2022 and his fee was increased accordingly (please see page 98
for more information).
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The figures in the single figure tables above are derived from the following:
Salary and fees
The amount of salary/fees received in the year.
Benefits
The taxable value of benefits received in the year. These are principally private medical health insurance
and travel allowances.
Annual bonus
The value of the bonus earned in respect of the financial year (including the proportion of the amount
earned which is subject to deferral).
Pension
The amount of payments in lieu of Company pension contributions received in the year.
Shares
The value of LTIP awards vesting in relation to performance periods ending in 2023 received in the year
and also the value of Sharesave options granted during the year.
Additional disclosures in respect of the single figure table (audited information)
Base salary and fees
Base salaries for the Executive Directors in respect of the year ended 31 December 2022 and 31 December 2023 are as follows:
2023
base salary
£’000
2022
base salary
£’000
David McCreadie
690
670
R Lawrence
433
420
The Executive Director base salaries are the annual salaries as agreed by the Remuneration Committee for each year.
Bonus arrangements
For the financial year ended 31 December 2023, Executive Directors were eligible for an annual bonus award of up to 100% of salary;
65% of the bonus was subject to financial metrics and risk performance metrics and 35 % of the bonus was subject to a mixture of
strategic, customer, operational and employee performance (‘Non-financial’) metrics.
Financial and risk performance metrics
The financial and risk performance metrics were based on the delivery of Board agreed key performance indicators in accordance with
the schedule below.
Objective
1
Threshold
(0% payable)
On-target
(50% payable)
Stretch
(100% payable)
Achieved
Weight
Bonus
payable
Grow
Group continuing profit before tax
£40.04m
£44.49m
£48.94m
£42.6m
25%
7.23%
Group net interest margin
5.38%
5.63%
5.88%
5.40%
10%
0.47%
Sustain
Costs
2
104.37
99.40
94.43
99.65
10%
4.74%
Cost of risk
1.52%
1.38%
1.24%
1.38%
10%
4.85%
Adjusted common equity tier 1 ratio
3
13.34%
13.68%
14.02%
12.92%
10%
0.0%
Total
65%
17.29%
1.
Please refer to the key performance indicators on pages 6 and 7 for an explanation of why these are measured and how they are linked to our strategy.
2.
Figures include continuing operations only, which exclude exceptional items (see Note 8 to the Financial Statements).
3
Adjusted for exceptional items, discontinued operations, and own shares.
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Non-financial metrics
Objective
Targets (summary)
Achievement
Weight
Bonus
payable
CEO
Bonus
payable
CFO
CEO
Stakeholder
engagement
• Maintain effective and
constructive relationships
with the Group’s
various stakeholders;
• Deliver the initiatives for 2023
in the Environmental Strategy
that are required to deliver
the 2025 Scope 1 and 2 CO
2
equivalent (CO
2
e) emissions
reduction targets;
• Communicate progress
against the Environmental,
Social and Governance
(‘ESG’) strategy to colleagues
and external stakeholders;
• Customer satisfaction -
maintain Feefo ratings at
targeted levels in Retail
Finance, Vehicle Finance
and Savings;
• Develop an action plan
following feedback from
the employee survey and
maintain the Colleague
Trust score.
• November 2023 Capital Markets Day.
Positive relationships with PRA and FCA
supervisory teams;
• Total emissions in 2023 reduced by c100
tonnes CO
2
e.
• ESG strategy fully communicated in 2022
Annual Report and Accounts; internal
TeamBrief meeting on environmental strategy;
• Maintained Feefo ratings for Retail Finance
and improved for Vehicle Finance and Savings;
• 2023 Trust Score ahead of target.
Survey
responses scores ahead of Financial Services
benchmark levels;
5%
3.75%
N/A
Leadership
and Development
• Leadership development and
talent programme.
• Programmes for development to build
the talent pool of internal candidates for
senior roles.
5%
2.5%
N/A
CFO
Develop the
Group’s medium to
long-term capital
plan in line with
Group strategy
• Complete the refinancing of
Tier 2 Debt during H1 2023;
• Develop plan of activity
and resource requirements
to build securitisation
requirements for the Group.
• Tier 2 debt refinanced optimally
in volatile
markets; ensured continued capital funding
credibility with investors;
• Securitisation capability developed and
explored with external arrangers.
10%
N/A
7.5%
Shared
objectives
Strategic
Development
• Oversight and leadership of
initiatives to deliver medium
term financial targets both
through growth initiatives and
cost savings.
• Appropriate leadership and oversight of
all strategic initiatives in the year including
providing clear and timely analysis to
the Board to allow required and efficient
decision taking, management of external
resources (including as to costs) and liaison
with regulators as required;
• Financial focus through property costs
savings and growth encouraged by two app
launches for customers.
20%
15%
15%
Diversity
and inclusion
• Develop and implement
effective strategies to
recruit and attract a more
diverse applicant pool for all
role vacancies;
• Develop plans to improve
diverse talent pipeline for
senior levels.
• Senior recruits and senior internal
promotions in 2023 were majority female;
• Diversity dashboard developed to track
diversity
of interviewed candidates and
those receiving placements;
• First Women in Finance submission
completed with five targets achieved.
5%
2.5%
2.5%
Totals:
35% 23.75%
25%
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2020 LTIP awards maturing by reference to 2023 performance
LTIP awards were granted on 22 October 2020, and were capable of vesting by reference to performance conditions measured to
30 September 2023. Within the current Executive Directors, only Rachel Lawrence received these awards as David McCreadie was
not appointed as CEO until January 2021. The 2020 awards were subject to four metrics:
• Relative TSR vs FTSE SmallCap (excluding investment trusts)- 25% weighting;
• Relative TSR vs selected banks – 25% weighting;
• Absolute TSR growth of 20% to 40% Compound Annual Growth Rate (‘CAGR’) – 25% weighting; and
• Risk management – 25% weighting.
Only the risk management objective was achieved (15% of 25% weighting). In assessing this element, the Committee considered
risk practices over the performance period reflecting the longer- term strategic risk management of the Group including:
• customer complaints performance and proactive management regarding complaints resolution;
• regulatory capital limits performance which was maintained throughout;
• management of issues identified as material risks;
• credit losses and adherence to risk appetite; and
• the positive management of risk issues associated with the COVID-19 pandemic in the period, including the rapid
implementation of payment deferrals across both consumer businesses.
Recipient
Date of grant
Basis of award
Number of shares
Vested
Performance period
Rachel Lawrence
22-Oct-20
25% of salary
10,204
1,530
1 October 2020 to 30 September 2023
Awards are subject to a further two-year holding period from vesting.
2021 LTIP awards maturing by reference to 2023 performance
LTIP awards were granted on 26 April 2021 which are capable of vesting by reference to performance conditions measured to
31 December 2023. Both David McCreadie and Rachel Lawrence received these awards. The 2021 awards were subject to four metrics:
• Relative TSR vs FTSE SmallCap (excluding investment trusts) – 25% weighting;
• Relative TSR vs selected banks – 25% weighting;
• Absolute TSR growth of 10% to 30% CAGR – 25% weighting; and
• Risk management – 25% weighting.
Performance outcomes were determined as follows:
Measurement basis
and % weighting
Relative TSR vs comparator
group* (25%)
Relative TSR vs FTSE SmallCap
(ex. investment trusts) (25%)
Absolute TSR Growth (25%)
Risk management (25%)
Performance
Range
Median (25% vests)
to upper quartile
(100% vests).
Median (25% vests)
to upper quartile
(100% vests).
10% to 30% 3-year
CAGR
Maintaining appropriate risk
practices over the performance
period reflecting the longer- term
strategic risk management of the
Group
Vesting
Outcome
Median ranking
6.25% vesting of this
part (25% of total
award)
Below median ranking.
Nil vesting of this part
Below threshold
Nil vesting of this part
Vesting at 15% of this part (25% of
total award) See further details below
In assessing the Risk management condition, the Committee considered risk practices over the performance period reflecting the
longer- term strategic risk management of the Group including risk management of the Group including the items outlined above
for the vesting of the 2020 LTIP.
There had been no material deterioration in risk management performance in the period from the
assessment of this metric which was carried out for the 2020 LTIP in October 2023.
Recipient
Date of Grant
Basis of award
Number of shares
Vested
Performance period
David McCreadie
26 April 2021
100% of salary
55,319
11,755
1 January 2021 to 31 December 2023
Rachel Lawrence
26 April 2021
100% of salary
34,723
7,378
1 January 2021 to 31 December 2023
Awards are subject to a further two-year holding period from vesting.
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Awards exercised during the financial year (audited information)
Neither Executive Director exercised an award during 2023.
Awards granted during the financial year (audited information)
2017 Long Term Incentive Plan (‘LTIP’)
Nominal-cost share options were granted to Executive Directors on 31 March 2023 in accordance with the rules of the LTIP as follows:
Recipient
Date of grant
Basis of award
Number of shares
Face value of
award £’000
1
Performance
David McCreadie
31-Mar-23
100% of salary
66,306
690
1 January 2023 to 31 December 2025
Rachel Lawrence
31-Mar-23
100% of salary
41,619
433
1 January 2023 to 31 December 2025
1.
Based on a share price of £10.40 being the average mid-market price determined between 1 January 2022 and 31 December 2022.
Vesting of the share options is subject to a blend of a TSR, ROAE, EPS and risk management performance metrics, assessed over a
three-year performance period as summarised below.
Measurement basis
and % weighting
Core EPS (25%)
Relative TSR vs FTSE SmallCap
(ex. investment trusts) (25%)
ROAE (25%)
Risk management (25%)
Target range
Core diluted earnings
per ordinary share of
the Company for the
relevant financial year of
the Group as
determined by
the Board. There is a
range of 20% to 30%
CAGR over three
financial years.
Median to upper
quartile vesting range.
Measured against
constituents of FTSE
SmallCap (excluding
investment trusts)
Return on average
equity for the financial
year ending
31 December 2025.
There is a range of
14% to 16% ROAE.
• Maintaining appropriate risk practices
over the performance period
reflecting the longer-term strategic
risk management of the Group,
including consideration of:
• the number of customer
complaints received;
• the number and nature of material
risk events within the Group;
• credit losses compared to the Board’s
assessment of the Group’s risk
appetite; and
• management of regulatory
capital limits.
Underpin
Vesting for each of the elements is also subject to an underpin as follows:
(a) the Board’s assessment of the Group’s general financial performance and shareholder experience over the
performance period;
(b) the Board’s assessment of the Group’s risk management performance over the performance period; and
(c) the Board’s assessment of progress against, in particular growth in responsible lending, progress on balance
sheet management and customer satisfaction.
For each metric, threshold attainment is 25% of that part, with vesting on a straight-line basis to 100% for maximum attainment.
For the TSR element, TSR will be measured using a market normal three-month average TSR to the beginning and end of the
performance period (which is the three year period from 1 January 2023).
Awards vest to the extent that the performance metrics are achieved and are subject to a further two-year holding period.
2017 Deferred Bonus Plan (‘DBP’)
Nominal-cost share options were granted to Executive Directors on 31 March 2023 in accordance with the rules of the DBP as follows:
Recipient
Date of grant
Number of shares
Tranche 1
Tranche 2
Tranche 3
Face value of award
£’000
1
D McCreadie
31-Mar-23
17,410
5,803
5,803
5,804
181
R Lawrence
31-Mar-23
10,928
3,642
3,642
3,644
114
1.
Based on a share price of £10.40 being the average mid-market price determined between 1 January 2022 and 31 December 2022.
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Statement of Directors’ shareholding and share interests (audited information)
A formal shareholding guideline requires Executive Directors to build up and maintain a shareholding of at least 200% of base salary,
over time, by retaining shares from awards granted under the Group’s share plans that vest (net of income tax and National Insurance).
The interests of the Directors and their connected persons in the Company’s ordinary shares as at 31 December 2023 were as set out
below. Any changes to a Director’s shareholding are set out in the notes below the table.
Directors’ shareholding and share interests
Director
Type
Total as at
1 January
2023
Shares
purchased
during the
year
Options
granted
during the
year
4,5
Options
(exercised)
during the
year
Options
(lapsed)
during the
year
Total as at
31 December
2023
Owned
outright
Vested but
unexercised
Unvested,
not subject to
performance
conditions
Unvested,
subject to
performance
conditions
D McCreadie
1,2
Shares
3
10,847
28,587
–
–
–
39,434
39,434
–
–
–
2017 LTIP
108,384
–
66,306
–
–
174,690
–
–
–
174,690
2017 DBP
19,216
–
17,410
–
–
36,626
–
6,405
30,221
–
2017 SAYE
1,683
–
–
–
–
1,683
–
–
1,683
–
R Lawrence
1,2
Shares
6
3,648
3,500
–
–
–
7,148
7,148
–
–
–
2017 LTIP
78,235
–
41,619
–
(8,674)
111,180
–
1,530
–
109,650
2017 DBP
12,062
–
10,928
–
–
22,990
–
4,020
18,970
–
2017 SAYE
7
3,388
–
1,708
–
–
5,096
–
3,388
1,708
–
M Forsyth
Shares
6,500
1,000
–
–
–
7,500
7,500
–
–
–
A Berresford
Shares
–
–
–
–
–
–
–
–
–
–
V Mitchell
Shares
–
–
–
–
–
–
–
–
–
–
P Myers
Shares
5,500
3,466
–
–
–
8,966
8,966
–
–
–
V Stewart
Shares
–
–
–
–
–
–
–
–
–
–
F Williamson
Shares
–
–
–
–
–
–
–
–
–
–
249,463
36,553 137,971
–
(8,674) 415,313
63,048 15,343
52,582 284,340
1.
Executive Directors are required to hold shares not purchased on the open market post their employment in line with the minimum shareholding requirements policy.
2.
Neither David McCreadie nor Rachel Lawrence have achieved the required 200% of base salary shareholding requirement based on shares owned outright. Both are calculated using the number
of shares owned outright, the Group’s Sharesave and 53% of unvested and vested share awards that are not subject to performance conditions (2017 DBP). Shares held by David McCreadie (60,528
shares), are worth £416,433 when using the 2023 year end share price of £6.88 (60.39% of 2023 annual base salary). Shares held by Rachel Lawrence (24,428 shares) are worth £168,065 when using the
2023 year end share price of £6.88 (38.83% of base salary).
3.
On 13 June 2023, a person closely associated with David McCreadie purchased, through an automated Dividend Reinvestment Plan attached to their ISA, 86 shares. On 9 August 2023 David, and a
person closely associated to him, collectively purchased 17,316 shares. David McCreadie purchased 11,185 shares on 17 August 2023.
4.
Awards granted under LTIP rules on 31 March 2023 are set out on page 94.
5.
Awards granted under DBP rules on 31 March 2023 are set out on page 94.
6.
On 9 August 2023, Rachel Lawrence purchased 3,500 shares.
7.
Rachel Lawrence participated in the 2023 SAYE scheme, granted on 25 September 2023, to the maximum monthly saving amount.
There have not been any changes to the above interests since 31 December 2023 and the date of this report.
Payments made to former Directors during the year (audited information)
No payments were made to former Directors during 2023.
Payments for loss of office made during the year (audited information)
No payments for loss of office were made in the year to any Director of the Company.
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Performance graph and historical CEO remuneration outcomes
Total shareholder return
The graph below shows the TSR performance for the Company’s shares in comparison to the FTSE SmallCap Index (excluding
investment trusts) for the period from 1 January 2012 to 31 December 2023. For the purpose of the graph, TSR has been calculated as
the percentage change during the period in the market price of the shares, assuming that dividends are reinvested. The graph shows
the value, by 31 December 2023, of £100 invested in the Group over the period compared with £100 invested in the FTSE SmallCap
Index (excluding investment trusts). The FTSE SmallCap Index (excluding investment trusts) has been chosen as a comparator as this
is the most appropriate reference point given the market capitalisation of the Company.
0
50
100
150
200
250
300
350
FTSE SmallCap (excluding investment trusts)
Secure Trust
Source: Datastream
31.12.
2014
31.12.
2022
31.12.
2023
31.12.
2021
31.12.
2020
31.12.
2019
31.12.
2018
31.12.
2015
31.12.
2017
31.12.
2016
31.12.
2013
TSR Index
Date
The table below shows details of the total remuneration, bonus and share options vesting (as a percentage of the maximum
opportunity) for the CEO over the last ten financial years.
Total
remuneration
£’000
Bonus as a %
of maximum
opportunity
1
LTIP as a %
of maximum
opportunity
2
2023
3
1,079
41.04
21.25
2022
3
1,060
53.1
N/A
2021
3
1,170
74.6
N/A
2020
1,045
nil
nil
2019
1,804
45
15
2018
1,857
50
N/A
2017
1,657
33.3
N/A
2016
5,542
N/A
100
2015
1,459
N/A
N/A
2014
3,671
N/A
100
1.
Pre Main Market admission, bonuses were determined by the Committee on a discretionary basis taking into account Group financial and individual performance during the financial year.
2.
No LTIP shares were eligible to vest in respect of the years 2015, 2017, 2018, 2021 and 2022.
3.
2021,2022 and 2023 reflects David McCreadie as CEO.
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Financial Statements
Directors’ Remuneration Report
Directors’ pay increase in relation to all employees
The table below shows the percentage change in remuneration of the Directors and employees of the business between 2020, 2021,
2022 and 2023 financial years. Over time, this table will show five years’ worth of information.
2023
Salary or
base fee
%
2023
Benefits
%
2023
Bonus
%
2022
Salary or base
fee
%
2022
Benefits
%
2022
Bonus
%
2021
Salary or
base fee
%
2021
Benefits
%
2021
Bonus
%
Employees
1
4.9
2
0.0
7.6
2.9
0.0
(3.3)
2.9
0.0
6.9
Executive Directors:
3
D McCreadie
4
3.0
0.0
(21.9)
3.0
0.0
(25.4)
N/A
N/A
N/A
R Lawrence
5
3.0
0.0
(19.5)
3.0
0.0
(25.3)
2.0
N/A
N/A
Non-Executive Directors:
3,6
M Forsyth
3.0
50.0
7
N/A
2.9
0.0
N/A
3.0
0.0
N/A
A Berresford
3.0
0.0
N/A
2.9
0.0
N/A
3.0
0.0
N/A
V Mitchell
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
P Myers
3.0
0.0
N/A
2.9
0.0
N/A
3.0
0.0
N/A
V Stewart
3.0
0.0
N/A
2.9
0.0
N/A
3.0
0.0
N/A
F Williamson
3.0
0.0
N/A
2.9
0.0
N/A
N/A
N/A
N/A
1.
The strict legal requirement is to only provide details of employees of Secure Trust Bank plc, however we have decided to voluntarily disclose in respect of all Group employees.
2.
The calculation is prepared on a full time equivalent basis.
3.
Where figures are shown as N/A it reflects that the individual commenced a role part way through the relevant year or left during the relevant year; and accordingly, there is no comparable
previous year figure. In addition N/A it also stated as Non-Executive Directors are not eligible for bonuses.
4.
David McCreadie was appointed as CEO with effect from 5 January 2021 therefore no increase in salary, benefits or bonus was awarded for 2021.
5.
Rachel Lawrence received an increase to salary in line with employees for 2021, adjusted to reflect her joining the Group part way through the year.
6.
Each of the Non-Executive Directors received a 2.9% increase to their base fee with effect from 1 January 2023 which was based on the employee salary increase for 2022.
7.
Represents an increase in the cost of renewing existing private medical insurance.
2023 CEO pay ratio
Our finalised CEO pay ratio for 2023 is set out in the table below. These figures are on a Group-wide basis, as per the regulations:
Year
Method
25th percentile
pay ratio
Median pay ratio
75th percentile
pay ratio
2023
Option A
35:1
26:1
17:1
2022
Option A
40:1
29:1
17:1
2021
Option A
43:1
31:1
17:1
2020
Option A
47:1
36:1
19:1
2019
Option A
96:1
71:1
36:1
Total UK employee pay and benefits figures used to calculate the CEO pay ratio for 2023:
25th percentile
pay ratio
Median
pay ratio
75th percentile
pay ratio
Salary
£26,677
£34,650
£54,595
Total pay and benefits
£27,328
£42,639
£63,963
The Company has chosen Option A methodology to prepare the CEO pay ratio calculation as this is the most statistically robust
method and is in line with the general preference of institutional investors. The value of each employee’s total pay and benefits, as
at 31 December 2023, was calculated using the single figure methodology consistent with the CEO. No elements of pay have been
omitted. Where required, remuneration was approximately adjusted to be full-time and full-year equivalent basis based on the
employee’s average full-time equivalent hours for the year and the proportion of the year they were employed.
The Committee considers that the median pay ratio for 2023 that is disclosed in the above table is consistent with the pay, reward and
progression policies for the Group’s UK employees taken as a whole.
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Spend on pay
The following table sets out the percentage change (from the financial year ended 31 December 2022) in dividends and the overall
expenditure on pay (as a whole across the organisation).
2023
£million
2022
£million
Change
%
Dividends, excluding special dividends, and share buybacks
6.1
8.4
(27.4)
Dividends, including special dividends, and share buybacks
6.1
8.4
(27.4)
Overall expenditure on pay¹
56.9
55.7
2.2
1.
Further information can be found in Note 6 to the Financial Statements.
Service agreements and letters of appointment
Details of the Directors’ service agreements, letters of appointment and notice periods are set out below:
Name
Commencement of current service agreement/letter of appointment
1,2,3
Notice period
D McCreadie
5 January 2021
12 months
R Lawrence
11 May 2020
12 months
M Forsyth
4
6 October 2016
6 months
A Berresford
22 November 2016
6 months
P Myers
28 November 2018
6 months
V Stewart
22 November 2016
6 months
F Williamson
30 June 2021
6 months
V Mitchell
1 November 2023
6 months
1.
Each of the Non-Executive Directors’ letter of appointment was amended in 2024 by a side letter confirming their respective Committee membership and their total fee. No other changes were made
to their existing letter of appointment.
2.
All Directors are subject to annual re-election by shareholders.
3.
Those Non-Executive Directors who are members of the Remuneration Committee are set out on page 87.
4.
Entered into new letters of appointment prior to the Company’s transition from AIM to the Main Market.
Implementation of Directors’ Remuneration Policy for the financial year ending
31 December 2024
Details on how Secure Trust Bank intends to implement the 2023 Directors’ Remuneration Policy for the financial year ending
31 December 2024 are set out as follows.
Salary
As at the date of this report, David McCreadie receives an annual base salary of £689,585.
The annual salary review date is 1 April 2024, and if any increase is made to David McCreadie’s base salary, this will be in line with
firm-wide employee level salary increases.
As was explained in the Committee Chair’s statement introducing this report, Rachel Lawrence’s salary is being increased to £495,000
with effect from 1 April 2024 (2023: £432,848).
Pensions
David McCreadie and Rachel Lawrence will each receive a 5% of base salary pension contribution, being aligned to the rate of pensions
contribution for the majority of Group employees.
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Financial Statements
Fees
The following table sets out the Non-Executive Director fee structure effective from 1 January 2024.
Role
2023 fee
£’000
Chairman
1
237
Non-Executive Director (basic fee)
2
77
Senior Independent Director and Committee Chairman
20
Member of Audit, Risk or Remuneration Committee
5
Designated Non-Executive Director with responsibility for workforce engagement
5
Consumer Duty Champion
5
1.
The Chairman does not receive any additional fees for his membership of any of the Board’s committees.
2.
With effect from 2020 the base fee payable to the Chairman and the Non-Executive Directors increases in line with the average increase of remuneration for employees implemented within the annual
review of remuneration in the previous year. The increase takes effect from 1 January each year in respect of the preceding employee level salary increase.
Annual bonus
The proposed maximum annual bonus opportunity for the year ending 31 December 2024 will be equal to 100% of salary. The bonus
will be subject to stretching performance metrics based on a balanced scorecard. 65% of the bonus will be subject to financial and risk
performance metrics and 35% of the bonus will be subject to a mixture of non-financial strategic, customer, operational and employee
performance metrics. The financial metrics will include underlying continuing profit before tax (25%), net interest margin (10%), costs
(10%), capital ratios (10%) and cost of risk (10%). The shared non-financial metrics will include strategic development, diversity and
inclusion and personal objectives.
The Committee is able to consider corporate performance on ESG issues when setting Executive Director remuneration and has
considered whether the incentive structure for senior management raises ESG risks by inadvertently motivating irresponsible behaviour.
The Committee considers that the targets are commercially sensitive. A description of the performance targets will be disclosed in the
Annual Report on Remuneration for the year ending 31 December 2024 or at such time when the targets are no longer considered
commercially sensitive.
50% of any bonus earned will be deferred into shares under the DBP. Deferred shares will vest in equal tranches after one, two and three
years following deferral.
LTIP
The Company proposes to grant LTIP awards to the Executive Directors in the form of nominal share options at the level of up to 100%
of salary for the CEO and CFO. For the 2024 LTIP grant, similar to those for 2023 LTIP awards, the performance metrics are:
• 25% relative TSR (measured vs the constituents of the FTSE SmallCap (Ex IT);
• 25% ROAE (14% to 16% target range);
• 25% growth in EPS (20% to 30% CAGR, measured using underlying diluted EPS for continuing business); and
• 25% risk management
Statement of voting at AGM
The Directors’ Remuneration Policy was approved by shareholders at the AGM in 2023. The most recent Directors’ Remuneration
Report was approved at the AGM in 2023; the votes cast were as detailed below.
Resolution
Proxy
votes for
% of proxy
votes cast
Proxy votes
against
% of proxy
votes cast
Votes
withheld
To approve the Directors’ Remuneration Policy
(2023 AGM)
15,157,928
95.88
650,863
4.12
1,055
To receive and approve the Directors’ Remuneration
Report (2023 AGM)
15,130,960
95.71
677,831
4.29
1,055
Approval
This Report was approved by the Board on 20 March 2024 and signed on its behalf by:
Victoria Stewart
Chair of the Remuneration Committee
Directors’ Remuneration Report
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Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Directors’ Report
The Directors submit their report, the related Strategic Report and Corporate Governance Report,
and the audited financial statements of Secure Trust Bank PLC and its subsidiaries (the ‘Group’) for
the year ended 31 December 2023.
Relevant information required to be included in the Directors’ Report includes disclosures required by the FCA’s Disclosure and
Transparency Rules and Listing Rules (LR 9.8.4) and is incorporated by reference into this report as well as the following sections:
Item
Page/Note reference
Further detail
Strategic report
Pages 1 to 64
Includes particulars of important events affecting the Company to have
occurred since the end of the financial year.
Business review and information
about future development
Pages 3 to 27
Describes the principal activity as a bank (including deposit taking and secured
and unsecured lending).
Key performance indicators
Pages 6 to 7
Principal risks
Pages 28 to 38
Corporate Governance Report
Pages 65 to 113
Contains information about the Group’s corporate governance arrangements.
Statement of compliance with UK
Corporate Governance Code in
respect of the year
Page 69
Results
Pages 10 to 15
The Group made a total profit before tax of £33.4 million (2022: £44.0 million).
For the purposes of DTR 4.1.5R2 and DTR 4.1.8 this Directors’ report and the
Strategic Report on pages 1 to 64 comprise the management report.
Share capital
Note 32, Page 160
Details of the Company’s share capital and movements in the Company’s
issued share capital during the year.
Allotments of cash or equity
securities otherwise than to
shareholders in proportion
to their holdings
Note 32, Page 160
In accordance with LR 9.8.4R.
Share plans
Note 34, Pages 161
to 164
The Company operates a Long Term Incentive Plan, Sharesave Plan and a
Deferred Bonus Share Plan. Upon exercise, shares awarded under these plans
have the same rights and rank pari passu with existing ordinary shares.
Details of any long-term
incentive plans
Pages 85 to 99 and
Note 34, Page 162
In accordance with LR 9.8.4R.
Directors in office during the year
Pages 66 to 68
All Directors will be retiring and standing for either election
or re-election at the Annual General Meeting to be held
on 16 May 2024, with the exception of Lord Forsyth who
is stepping down from the Board.
Directors’ interests in share capital
Pages 85 to 99
Including connected persons.
Related party transactions
Note 42, Pages 172
to 173
Going concern and viability
Pages 39 to 40
Future developments
Pages 3 to 27
Financial risk management
objectives and policies
Page 28
Financial risk management objectives and policies in relation to the
use of financial instruments can be found on the Group’s website:
www.securetrustbank.com/our-corporate-information/risk-management
Climate-related financial disclosures
Pages 55 to 64
Required under the Companies Act 2006 (Strategic Report and Directors’
Report) Regulation 2013 and LR 9.8.6R.
Engagement with stakeholders
Pages 44 to 54
Relevant information related to s.172 of the Companies Act 2006, Companies
(Miscellaneous Reporting) Regulations 2018.
TCFD disclosures
Pages 55 to 64
Explains how we have complied and details any non-compliance under
Taskforce on Climate-Related Financial Disclosures (‘TCFD’).
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Financial Statements
Directors’ Report
Dividends
The Board recommends the payment of a final dividend of 16.2 pence per share, which represents total dividends for the year of
32.2 pence per share (2022: 45.1pence per share). The final dividend, if approved by shareholders at the Annual General Meeting,
will be paid on 23 May 2024 to shareholders on the register at the close of business on 26 April 2024.
Dividend Policy
The Board maintained a dividend policy for the year ended 31 December 2023 that took into account the Company’s capital
requirements, earnings and cash flow that resulted in the distribution of 25% of its annual earnings.
The Board has, subsequent to the year end, adopted a new dividend policy, whereby the Company will implement a progressive
dividend policy with effect from the 2024 Annual General Meeting. The Directors will have regard to current and projected capital,
liquidity, earnings and market expectations in determining the amount of the dividend. On occasion, the Company may declare and
pay a special dividend resulting from special circumstances, however no such special dividend is currently envisaged.
Share capital
The share capital of the Company comprises one class of ordinary shares with a nominal value of 40 pence each. As at 31 December
2023, the Company had 19,017,795 ordinary shares in issue. Each ordinary share entitles the holder to one vote.
An additional 326,361 ordinary shares of 40 pence each were issued during 2023 (2022: 43,629) subsequent to requests to exercise
under STB’s employee share schemes and as authorised by shareholders at the 2023 Annual General Meeting. Since 1 January 2024
and until the date of the report, a further 18,680 ordinary shares of 40 pence each were issued in the Company. All the ordinary shares
are fully paid and rank equally in all respects and there are no special rights to dividends or in relation to control of the Company.
Powers to issue shares and buy back shares
The Directors were granted authority at the 2023 AGM to allot shares in the Company and to grant rights to subscribe for or convert any
securities into shares in the Company up to an aggregate nominal amount of £2,493,046 in any circumstances. This amount represented
approximately one-third of the Company’s issued share capital prior to that meeting. The Directors were also authorised to allot shares
and to grant rights up to an aggregate nominal amount of £4,986,092 in connection with a fully pre-emptive offer (but such amount to be
reduced by any allotments made under the first limb of the authority). This amount represented approximately two-thirds of the Company’s
issued share capital prior to the meeting.
At the same time, the Directors were also granted authority to allot shares in the Company and to grant rights to subscribe for or convert
any securities into shares up to an aggregate nominal amount of £2,493,046 in relation to any issue of Additional Tier 1 Securities.
This amount represented approximately one-third of the Company’s issued share capital prior to that meeting.
The Directors were also empowered at the 2023 AGM to allot shares for cash on a non-pre-emptive basis, both in connection with a rights
issue or similar pre-emptive issue and, otherwise than in connection with any such issue, up to a maximum aggregate nominal amount
of £747,913 of the Company’s issued share capital (representing approximately 10% of the Company’s issued share capital prior to the
meeting). The Directors were further empowered to allot shares for cash on a non-pre-emptive basis representing approximately 2% of
issued ordinary share capital, to be used only for the purposes of a follow-on offer as prescribed by the most recent version of the Pre-
Emption Group’s Statement of Principles. As permitted by those Principles, the Directors were also empowered to allot shares for cash on a
non-pre-emptive basis up to the same amount for use only in connection with an acquisition or specified capital investment. The Directors
were also empowered to allot shares for cash on a non-pre-emptive basis specifically in relation to the issue of Additional Tier 1 Securities.
The Directors were also authorised at the 2023 AGM to repurchase shares in the capital of the Company up to a maximum aggregate
number of 1,869,784 shares. This represented approximately 10% of the Company’s issued share capital prior to the meeting.
These share capital authorities and powers are due to lapse at the 2024 AGM, at which time the Board intends to seek fresh authorities
and powers.
Shares held by the Company’s Employee Benefit Trust
In October 2022, the Company established an Employee Benefit Trust (‘EBT’), to acquire and hold ordinary shares of the Company in
trust for the benefit of employees who exercise their options under the Group’s share options schemes. The purchase of shares by the
EBT is funded by way of a loan from the Company. Full details of the EBT’s holdings are outlined in Note 33.1.
Shareholder Rights
Ordinary shareholders have the right to receive notice of, attend, vote and speak at general meetings of the Company (whether in
person or by proxy). On a show of hands, each ordinary shareholder has the right to one vote at general meetings. On a poll, each
ordinary shareholder is entitled to one vote for every share held.
Shareholders also have the right to receive a dividend, if recommended and declared. The ordinary shares carry no rights to fixed
income. Shareholders may transfer all or any of their certificated or uncertificated shares in the Company. All such rights are subject to
certain exceptions and restrictions provided in the Company’s Articles and in any applicable legislation. These include where rights are
suspended for non-disclosure of an interest in shares, where share transfers do not comply with specific requirements, and where any
amounts on shares owing by a shareholder to the Company remain unpaid.
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The rights and obligations of shareholders, and restrictions on transfer, are set out in full in the Articles. No person has any special rights
of control over the Company’s share capital. The Company is not aware of any agreements between shareholders that may result in
restrictions on the transfer of securities and/or voting rights.
Substantial shareholders
In accordance with Disclosure and Transparency Rules DTR5, as at 31 December 2023, the Company has been notified of disclosable
interests in its issued ordinary shares as set out in the table below.
Substantial shareholders
No. of ordinary shares
%
Fidelity Worldwide Investment
1,784,097
9.38
Mr Steven A Cohen
1,510,412
7.94
Wellington Management
1,494,349
7.86
lnvesco
1,326,860
6.98
Ameriprise Financial
1,315,476
6.92
Ennismore Fund Management
1,119,992
5.89
Unicorn Asset Management Limited
1,103,530
5.80
Premier Miton Group plc
975,119
5.13
Affiliated Managers Group
919,823
4.84
Hargreaves Lansdown plc
896,090
4.71
Following the year end on 31 December 2023 and up to the date of this report, the Company has been notified that Ennismore Fund
Management increased their holding, resulting in 1,191,222 shares held (6.26% of issued share capital) and Premier Miton Group plc
reduced their holding, resulting in 820,877 shares held (4.32% of issued share capital).
Powers of Directors
The Directors’ powers are conferred on them by UK legislation and the Company’s Articles of Association.
Appointment and replacement of directors
The Company’s Articles of Association empower the Board to appoint as a Director any person who is willing to act as such.
Such person shall hold office only until the next Annual General Meeting, but shall then be eligible for reappointment by the
shareholders. The Articles also provide that the Company may fill any vacancies on the Board.
The Articles provide that the Company may by ordinary resolution of which special notice is given, remove any Director from office and
elect another person in his or her place. The Articles also set out the specific circumstances in which a Director shall vacate office.
The Articles require that at each Annual General Meeting one-third of the Directors (or, if their number is not a multiple of three, the
number nearest to but not exceeding one-third) shall retire from office by rotation. Notwithstanding the provisions of the Articles, it
is the Company’s practice that all Directors retire and stand for reappointment in accordance with the recommendations of the UK
Corporate Governance Code.
Directors’ indemnities
The Company’s Articles of Association provide that, subject to the provisions of the Companies Act 2006, the Company may indemnify
any Director or former Director of the Company or any associated company against any liability and may purchase and maintain for any
Director or former Director of the Company or any associated company insurance against any liability.
The Group has maintained Directors’ and Officers’ liability insurance throughout 2023.
The letters of appointment of the Non-Executive Directors incorporate by reference the provisions of the Articles of Association
in relation to the indemnity of Directors into the contract established by the letter of appointment between the Non-Executive Director
and the Company.
Conflicts of interest
Directors are invited to declare new conflicts of interest at each Board meeting, and where an actual or potential conflict of interest has
been identified, appropriate steps are taken to deal with the conflict.
A separate register of Directors’ conflicts of interest is maintained by the Company.
Significant contracts
There are no contracts of significance in which a Director is interested.
There are no agreements between any Group company and any of its employees or any Director of any Group company that provide
for compensation to be paid to an employee or a Director for termination of employment or for loss of office as a consequence of
a takeover of the Company.
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There are no significant agreements to which the Company is party that take effect, alter or terminate upon a change of control
following a takeover bid for the Company.
Employment policies and equal opportunities
The Group is an inclusive and equal opportunities employer and opposes all forms of discrimination. Applications from people with
disabilities will be considered fairly, and if existing employees become disabled, every effort is made to retain them within the workforce
wherever reasonable and practicable. The Group also endeavours to provide equal opportunities in the training, promotion and
general career development of disabled employees.
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.
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 employees 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. Further information on how the Group communicates with its employees
is set out in the ‘Managing our Business Responsibly’ section, starting on page 41.
Research and development
The Group does not undertake research and development activities.
Political donations and expenditure
The Group made no political donations and incurred no political expenditure during the year (2022: £nil).
Post balance sheet events
For details of post balance sheet events see Note 45 to the Financial Statements on page 173.
Disclosure of information to Auditor
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 reasonable 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.
This confirmation is given and should be interpreted in accordance with the provisions of the Companies Act 2006.
Fair, balanced and understandable
The Directors are satisfied that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable, and
provide the information necessary for members and other stakeholders to assess the Group’s position and performance, strategy
and business model.
Internal control and risk management
The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Group, including
those that would threaten its business model, future performance, solvency or liquidity. The Board considers that the information
it receives enables it to review the effectiveness of the Group’s internal controls in accordance with the FRC’s Guidance on Risk
Management, Internal Control and Related Financial and Business Reporting. Areas where financial control can be improved are
identified and appropriate actions agreed as part of our internal control systems. Senior management, the Board and the Risk
Committee regularly monitor progress towards completion of these actions. The Board considers that none of the identified areas for
improvement constitute a significant failing or weakness.
Articles of Association
Changes to the Company’s Articles of Association must be approved by shareholders by way of a special resolution and must comply
with the provisions of the Companies Act 2006 and other regulatory requirements, as applicable.
Auditor
Deloitte LLP was reappointed as Auditor at the Annual General Meeting held in 2023. As detailed on page 79 in the Audit Committee
report, the Board is recommending the reappointment of Deloitte LLP as Auditor at the 2024 Annual General Meeting.
Annual General Meeting
The 2024 Annual General Meeting will be held at 3pm on 16 May 2024 at the office of Freshfields Bruckhaus Deringer,
100 Bishopsgate, London EC2P 2SR. For more information, please see the Notice of Meeting.
This Directors Report was approved by the Board of Directors on 20 March and is signed on its behalf by:
David McCreadie
Chief Executive Officer
20 March 2024
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Director’s responsibility statement
The Directors are responsible for preparing the Annual Report and the Financial Statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors are required
to prepare the Group Financial statements in accordance with United Kingdom adopted international accounting standards.
The Financial Statements also comply with International Financial Reporting Standards (IFRSs) as issued by the IASB. The Directors
have also chosen to prepare the parent Company Financial Statements under United Kingdom adopted international accounting
standards. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these Financial Statements, International Accounting Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the specific requirements of the financial reporting framework are insufficient
to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position
and financial performance; and
• make an assessment of the company’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that
the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement
Each of the Directors who are in office at the date of this report and whose names and roles are listed on pages 66 to 68 of this Annual
Report confirm that to the best of our knowledge:
• the Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as
a whole;
• the Strategic Report includes a fair review of the development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face; and
• the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s position and performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 20 March and is signed on its behalf by:
Lord Forsyth
David McCreadie
Chairman
Chief Executive Officer
20 March 2024
20 March 2024
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Report on the audit of the Financial Statements
1. Opinion
In our opinion:
• the Financial Statements of Secure Trust Bank PLC (the ‘Company’) and its subsidiaries (the ‘Group’) give a true and fair view of
the state of the Group’s and of the Company’s affairs as at 31 December 2023 and of the Group’s profit for the year then ended;
• the Group Financial Statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and International Financial Reporting Standards (IFRSs) as issued by the International Accounting
Standards Board (IASB);
• the Company Financial Statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and
• the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the Financial Statements which comprise:
• the Consolidated statement of comprehensive income;
• the Consolidated and Company statements of financial position;
• the Consolidated and Company statements of changes in equity;
• the Consolidated and Company statements of cash flows; and
• the related Notes 1 to 45.
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom adopted
international accounting standards and as regards the Company financial statements, as applied in accordance with the provisions of
the Companies Act.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the Financial
Statements section of our report.
We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the
Financial Statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services
provided to the Group and Company for the year are disclosed in Note 6 to the Financial Statements. We confirm that we have not
provided any non-audit services prohibited by the FRC’s Ethical Standard to the Group or the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Impairment of loans and advances to customers; and
• Regulatory matters.
Within this report, key audit matters are identified as follows:
Newly identified
Similar level of risk
Materiality
The materiality that we used for the Group Financial Statements and Company Financial Statements was £2.6 million
(2022: £2.4 million) and £2.4 million (2022: £2.3 million) respectively. This was determined on the basis of 0.75% of net assets
(2022: 0.75% of net assets).
Scoping
We have performed a full scope audit on the Company, with the remaining entities in the Group subject to testing of specific
account balances.
Significant changes in
our approach
As a result of the specific feedback received by the Group following the Financial Conduct Authority’s (‘FCA’) thematic review
of processes relating to Borrowers in Financial Difficulty (‘BiFD’), as well as the FCA current industry-wide review of historic
discretionary motor commission arrangements, we have identified a new key audit matter relating to regulatory matters.
4. Conclusions relating to going concern
In auditing the Financial Statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the Financial Statements is appropriate.
Our evaluation of the Directors’ assessment of the Group’s and Company’s ability to continue to adopt the going concern basis
of accounting included:
• Obtaining an understanding of relevant controls around the going concern assessment including Board approval;
• With the involvement of prudential regulation specialists, we read the most recent Internal Capital Adequacy Assessment Process
(‘ICAAP’) and Internal Liquidity Adequacy Assessment Process (‘ILAAP’) documents, assessed the capital and liquidity projections,
assessed the results of the capital and liquidity stress testing, evaluating key assumptions and methods used in the capital and
liquidity stress testing models, and tested the mechanical accuracy of the forecasts;
• Read correspondence with regulators to understand the capital and liquidity requirements imposed by the Group’s regulators
during the year;
• Obtained the capital and liquidity forecasts and assessed key assumptions and their projected impact on capital and liquidity ratios,
particularly with respect to loan book growth and potential credit losses;
• Evaluated the impact of the regulatory matters outlined in section 5.2 on the Group’s capital and liquidity position over the
planning horizon;
• Assessed the historical accuracy of forecasts; and
• Assessed the appropriateness of the disclosures made in the Financial Statements in view of the FRC guidance.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s and Company’s ability to continue as a going concern for
a period of at least twelve months from when the Financial Statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the Directors’ statement in the Financial Statements about whether the Directors considered
it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
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5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial
Statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
5.1. Impairment of loans and advances to customers
Key audit matter
description
The Group held allowances for impairment of loans and advances to customers of £88.1 million (2022: £78.0 million) against loans
and advances to customers of £3,403.4 million (2022: £2,997.5 million).
For financial assets measured at amortised cost, IFRS 9 Financial Instruments requires the carrying value to be assessed for
impairment using unbiased forward-looking information. The measurement of expected credit losses (‘ECL’) is complex and
involves judgements and estimates relating to probability of default (‘PD’), exposure at default (‘EAD’), loss given default (‘LGD’)
including collateral valuations and vehicle recovery rates (‘VRR’), significant increases in credit risk (‘SICR’) and macroeconomic
scenario modelling. Where model or other limitations exist, Expert Credit Judgements (‘ECJs’) are applied to the model output.
These assumptions are prepared using historical behaviour and the Director’s experience.
We identified three specific areas in relation to the ECL that require significant judgement or relate to assumptions to which the
overall ECL provision is particularly sensitive:
•
The accuracy of macroeconomic scenarios (‘MES’) and weightings applied to the Consumer Lending portfolio. The Group
obtains its scenarios from an external economic provider;
• The appropriateness of the PD rates applied to the near prime Vehicle Finance portfolio; and
•
The accuracy of components used in determining the LGD on the near prime Vehicle Finance portfolio.
Given the material effect of the significant judgements taken in deriving the above, we also considered that there is a potential for
fraud through possible manipulation of this balance.
Impairment of loans and advances to customers, including associated accounting policies is included in Note 16 of the Financial
Statements. The corresponding area in the Audit Committee report is on page 78.
How the scope
of our audit
responded to the
key audit matter
Our audit procedures included obtaining an understanding of the relevant controls over the impairment provision with particular
focus on controls over significant assumptions and judgements used in the calculation of ECL.
To challenge the accuracy of macroeconomic scenarios and weightings applied to the Consumer Lending portfolio we:
•
Assessed the scenarios and weightings adopted by the Directors, with support from our economic specialists. The forecasts
and weightings were compared against external sources and historic macroeconomic trends to assess their reasonableness;
and
• Evaluated the competence, capabilities and objectivity of the external economic provider.
To assess the appropriateness of the PD rates applied to the near prime Vehicle Finance portfolio we:
•
Performed a full methodology review and independent re-code of the near prime Vehicle Finance PD model, with support from
our credit risk specialists; and
• Assessed the rationale and appropriateness of the methodology applied to release previously recognised
ECJs that addressed
previous model limitations.
To challenge the accuracy of components used in determining the LGD on the near prime Vehicle Finance portfolio we:
•
Assessed the historical data used to support the VRR applied and considered how the forecast rate may be impacted by both
internal and external factors;
•
Following the FCA’s formal discussions with the Group, assessed the impact on recovery rates of changes in collections
processes, procedures and policies for BiFD, including the associated ECJ recognised by the Group; and
• Tested the mathematical accuracy of the calculations used to develop the
BiFD ECJ.
As part of our wider assessment of impairment of loans and advances to customers we:
•
Assessed the accuracy and completeness of source data and report logic used to extract source data from the underlying
lending systems for input into the impairment models;
•
With support from our real estate valuation specialists, assessed a sample of collateral valuations used in the LGD calculation
for the Real Estate Finance portfolio;
•
Reconciled the impairment models to the general ledger and substantively tested a sample of loans to assess whether the data
used in the provision calculation was complete and accurate;
•
Assessed the quantitative and qualitative factors used in the SICR assessment by reference to standard validation metrics
including the proportion of transfers to stage two driven solely by being 30 days past due, the volatility of loans in stage two
and the proportion of loans that spend little or no time in stage two before moving to stage three;
•
Tested the completeness and accuracy of data used in applying the quantitative and qualitative criteria in the SICR assessment
on whether loans are assigned to the correct stage; and
•
As a stand back test, considered potential contradictory evidence, assessed changes in the overall coverage ratios and the
completeness of key judgements and
ECJs adopted by the Directors through comparison to industry peers.
Key
observations
Based on the evidence obtained, we found that the judgements and assumptions underpinning the allowances for impairment
of loans and advances to customers are determined and applied appropriately, and therefore that the recognised provision
is reasonable.
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5.2. Customer redress
Key audit matter
description
In the current year, the Group has been impacted by two regulatory matters which may result in customer redress or goodwill
payments (collectively ‘redress’):
Borrowers in Financial Difficulty (‘BiFD’)
As disclosed on page 12 and Note 29, during the year, the Group engaged in formal discussions with the FCA on their consumer
finance collections processes, procedures and policies for BiFD. The Directors have subsequently recognised a provision for costs
of £4.7 million (comprising £2.7 million costs and £2.0 million redress for vehicle finance customers).
The review is ongoing and there is significant judgement required in determining the redress approach, including the customer
cohorts potentially impacted and average level of any redress. Our key audit matter is focused on the accuracy and completeness
of the provision recognised.
Discretionary commissions
On 11 January 2024, the FCA announced a review of historical motor finance commission arrangements. The Group operated
some discretionary commission arrangements until June 2017. The Directors do not consider that a legal or constructive
obligation exists that would require a provision to be recognised at this stage. However, a contingent liability has been disclosed
in relation to the matter in Note 31.
Given the varied response of the industry to the FCA announcement and the uncertainty of any scope, extent and timing of the
potential redress arising from the FCA’s review, we have identified the judgements involved in determining whether a provision
should be recognised as a key audit matter.
In respect of both these matters, significant judgement is required by the Group in determining whether, under IAS 37 ‘Provisions,
Contingent Liabilities and Contingent Assets’:
• The recognition criteria for provisions and contingent liabilities are met;
•
Amounts recorded are representative of the Group’s best estimate to settle the obligation based on the information available
to the Group; and
• Any contingent liabilities and underlying significant estimation uncertainties are adequately disclosed.
Details of the BiFD provision and accounting estimate is included in Note 29, and the contingent liability in relation to motor
finance commissions and critical accounting judgement is disclosed in Note 31. The corresponding area in the Audit Committee
report is on page 78.
How the scope
of our audit
responded to the
key audit matter
Our audit procedures included obtaining an understanding of the relevant controls around the two regulatory matters identified.
BiFD
To assess the accuracy and completeness of the provision recognised, we performed the following procedures:
•
Inquired directly with independent third parties involved in the review, and inquired directly with the FCA;
• Challenged whether it was appropriate to recognise a provision with reference to IAS 37 requirements;
•
With support from our internal regulatory specialists, assessed management’s approach to quantifying the £2.0 million redress
provision, including the redress approach, customer cohorts impacted and average level of redress;
• Tested the accuracy and completeness of input data supporting management’s provision calculation;
•
Tested the accuracy and completeness of the £2.7 million costs incurred or provided for in relation to the FCA’s review,
including their disclosure as exceptional items; and
•
Recognising that the review is still ongoing and the provision may therefore be subject to change, challenged the
completeness of disclosures including sensitivity analysis included in Note 29.
Discretionary commissions
To challenge whether a provision is required in relation to the FCA’s review of historical motor finance commission arrangements,
we involved our internal regulatory
and accounting specialists and:
•
Assessed whether the IAS 37 provision recognition criteria had been met, including whether the Group has a legal or
constructive obligation. We inspected the Group’s historic and current levels of complaints including the outcome of
complaints settlements to date, as well as the limited number of decisions made by the Financial Ombudsman Service and the
FCA announcements;
•
Assessed the likelihood of any potential outflows arising and the ability to estimate reliably any outflows based on the current
status of the FCA’s review; and
• Considered the adequacy of disclosures included in Note 31.
Key
observations
Based on the evidence obtained, we found that the judgements and assumptions underpinning the conclusions reached for the
BiFD provision were appropriate.
In respect of the FCA’s industry review of historical motor finance commission arrangements, we do not consider it unreasonable
for the Directors to conclude that, at this stage, the IAS 37 provision recognition criteria is not met. We concur that it is
appropriate to disclose a contingent liability due to the possibility of future redress.
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6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of
our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
Group Financial Statements
Company Financial Statements
Materiality
£2.6 million (2022: £2.4 million)
£2.4 million (2022: £2.3 million)
Basis for determining
materiality
0.75% of net assets (2022: 0.75% of net assets)
0.75% of net assets (2022: 0.75% of net assets)
Rationale for the
benchmark applied
We have chosen net assets as it is considered a key metric for users of the Financial Statements given
the capital requirements which arise from being a regulated bank. As most of the Group’s operations are
carried out by the Company, the same materiality basis was used for both.
Net assets
Group materiality
Company
materiality
£2.4 million
Audit Committee
reporting threshold
£0.1 million
Group materiality
£2.6 million
Net assets
£344.5 million
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the Financial Statements as a whole.
Group Financial Statements
Company Financial Statements
Performance materiality
70% (2022: 70%) of Group materiality
70% (2022: 70%) of Company materiality
Basis and rationale
for determining
performance materiality
In determining performance materiality, we considered a number of factors, including:
• our understanding of the control environment and whether we were able to rely on controls;
• our understanding of the business; and
• the number of corrected and uncorrected misstatements identified in the prior year.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.1 million
(2022: £0.1 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the
Financial Statements.
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7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group–wide controls, and
assessing the risks of material misstatement at the Group level. Based on that assessment, we performed a full scope audit on the
Company which accounts for over 98% (2022: 98%) of the Group’s net assets. For the remaining entities, we have performed testing of
specific account balances.
Audit testing to respond to the risks of material misstatement was performed directly by the Group audit engagement team. We have
also performed testing over the consolidation process of Group entities.
7.2. Our consideration of the control environment
We identified relevant IT systems for the Group in respect of the financial reporting system, lending systems for Vehicle Finance, Real
Estate Finance, Commercial Finance, Retail Finance, and the deposits system. With involvement of our IT specialists, we performed
testing of the general IT controls (‘GITCs’) associated with these systems and relied upon IT controls in respect of these systems.
We planned to take a controls reliance approach in relation to both the lending and deposits business cycles. We tested relevant
automated and manual controls for these business cycles and were able to adopt a controls reliance approach. We did not plan to
obtain controls reliance over impairment of loans and advances to customers.
7.3. Our consideration of climate-related risks
We have obtained an understanding of the process for considering the impact of climate-related risks and controls and assessed
whether the risks identified are complete and consistent with our understanding of the entity as part of our own risk assessment
procedures. These risks and Task Force on Climate-Related Financial Disclosures (‘TCFD’) are contained within pages 55 to 64 of the
Annual Report.
In conjunction with our climate risk specialists, we have held discussions with the Group to understand the process for identifying
affected operations, including the governance and controls over this process, and the subsequent effect on the financial reporting for
the Group and the long-term strategy to respond to climate change risks as they evolve.
Our audit work has involved assessing the completeness of the physical and transition risks identified and considered in the Group’s
climate risk assessment. The conclusion is that there is no material impact of climate change risk on current year financial reporting.
As set out in Note 16, the Directors do not consider that climate change risk is currently a key source of estimation uncertainty nor that
it presents a material impact to the judgements made in the financial statements.
We performed our own risk assessment of the potential impact of climate change on the Group’s account balances and classes of
transactions and did not identify any additional risks of material misstatement.
8. Other information
The other information comprises the information included in the Annual Report, other than the Financial Statements and our Auditor’s
Report thereon. The Directors are responsible for the other information contained within the Annual Report.
Our opinion on the Financial Statements does not cover the other information and, except to the extent otherwise explicitly stated in
our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the Financial Statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to
a material misstatement in the Financial Statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of Directors
As explained more fully in the directors’ responsibilities statement, the Directors are responsible for the preparation of the Financial
Statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as
a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance,
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but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these Financial Statements.
A further description of our responsibilities for the audit of the Financial Statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws
and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for Directors’ remuneration, bonus levels and performance targets;
• the Group’s own assessment of the risk that irregularities may occur either as a result of fraud or error;
• results of our enquiries of the Directors, Internal Audit, the Directors and the Audit Committee about their own identification and
assessment of the risks of irregularities, including those that are specific to the Group’s sector;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
• the matters discussed among the audit engagement team and relevant internal specialists, including tax, real estate valuation,
economic advisory, climate risk, regulatory, share based payments, data analytics, information technology, prudential regulatory and
credit risk specialists regarding how and where fraud might occur in the Financial Statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in relation to impairment of loans and advances to customers. In common with all audits
under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the Group operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of material amounts and disclosures in the Financial Statements.
The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the Financial Statements
but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the
regulation set by the FCA and Prudential Regulation Authority (‘PRA’) relating to regulatory capital and liquidity requirements, which
are fundamental to the Group’s ability to continue as a going concern.
11.2. Audit response to risks identified
As a result of performing the above, we identified impairment of loans and advances to customers as a key audit matter related to the
potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific
procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on the Financial Statements;
• enquiring of the Directors, the Audit Committee and in-house legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence
with HMRC, FCA and PRA; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
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Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• 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; and
• the Strategic Report and the Directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ report.
13. Opinion on other matter prescribed by the Capital Requirements (Country-by-Country
Reporting) Regulations 2013
In our opinion the information given in Note 44 to the Financial Statements for the financial year ended 31 December 2023 has
been properly prepared, in all material respects, in accordance with the Capital Requirements (Country-by Country Reporting)
Regulations 2013.
14. Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the Financial Statements and our knowledge obtained during the audit:
• the Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any
material uncertainties identified set out on pages 39 and 40;
• the Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the
period is appropriate set out on pages 39 and 40;
• the Directors’ statement on fair, balanced and understandable set out on page 104;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 28 to 38;
• the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems
set out on page 71; and
• the section describing the work of the Audit Committee set out on pages 76 to 80.
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Independent Auditor’s Report
to the members of Secure Trust Bank PLC
15. Matters on which we are required to report by exception
15.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the Company Financial Statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
15.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have
not been made or the part of the Directors’ remuneration report to be audited is not in agreement with the accounting records
and returns.
We have nothing to report in respect of these matters.
16. Other matters which we are required to address
16.1. Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the Board of Directors on 16 May 2018 to audit the
Financial Statements for the year ending 31 December 2018 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is six years, covering the years ending 31 December 2018
to 31 December 2023.
16.2. Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
ISAs (UK).
17. Use of our report
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. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to
state to them in an Auditor’s Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
As required by the FCA’s Disclosure Guidance and Transparency Rule (DTR) 4.1.15R – DTR 4.1.18R, these Financial Statements form
part of the Electronic Format Annual Financial Report filed on the National Storage Mechanism of the FCA in accordance with DTR
4.1.15R – DTR 4.1.18R. This Auditor’s Report provides no assurance over whether the Electronic Format Annual Financial Report has
been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R.
Neil Reed FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
20 March 2024
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Financial Statements
Note
2023
£million
Restated¹
2022
£million
Income statement
Continuing operations
Interest income and similar income
4.1
Interest expense and similar charges
4.1
(136.5 )
(50.4 )
Net interest income
4.1
Fee and commission income
4.2
Fee and commission expense
4.2
(0.1 )
(0.4 )
Net fee and commission income
4.2
Operating income
Net impairment charge on loans and advances to customers
16
(43.2 )
(38.2 )
Gains on modification of financial assets
Fair value and other gains/(losses) on financial instruments
5
(0.3 )
Operating expenses
6
(99.7 )
(93.2 )
Profit before income tax from continuing operations before exceptional items
Exceptional items
8
(6.5 )
Profit before income tax from continuing operations
Income tax expense
9
(9.7 )
(9.4 )
Profit for the year from continuing operations
Discontinued operations
(Loss)/profit before income tax from discontinued operations
10
(2.7 )
Income tax credit/(expense)
10
(0.9 )
(Loss)/profit for the year from discontinued operations
10
(2.1 )
Profit for the year
Other comprehensive income
Items that may be reclassified to the income statement
Cash flow hedge reserve movements
(0.8 )
Reclassification to the income statement
Taxation
(0.1 )
Other comprehensive income/(loss) for the year, net of income tax
(0.5 )
Total other comprehensive income
Profit attributable to equity holders of the Company
Total comprehensive income attributable to equity holders of the Company
Earnings per share for profit attributable to the equity holders of the Company during the
year (pence per share)
Basic earnings per ordinary share
11.1
Diluted earnings per ordinary share
11.2
Basic earnings per ordinary share – continuing operations
Diluted earnings per ordinary share – continuing operations
1.
Restated to reflect a change in accounting policy relating to land and buildings, which are now presented at historical cost. See Note 1.3 for further details.
Consolidated statement of comprehensive income
For the year ended 31 December
The Notes on pages 121 to 173 are an integral part of these consolidated financial statements.
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Consolidated statement of financial position
As at 31 December
Note
2023
£million
Restated¹
2022
£million
Restated¹
2021
£million
ASSETS
Cash and Bank of England reserve account
Loans and advances to banks
13
Debt securities
Loans and advances to customers
14, 15
Fair value adjustment for portfolio hedged risk
17
(3.9 )
(32.0 )
(3.5 )
Derivative financial instruments
17
Assets held for sale
Investment property
18
Property, plant and equipment
19
Right-of-use assets
20
Intangible assets
21
Current tax assets
Deferred tax assets
23
Other assets
24
Total assets
LIABILITIES AND EQUITY
Liabilities
Due to banks
25
Deposits from customers
26
Fair value adjustment for portfolio hedged risk
17
(1.4 )
(23.0 )
(5.3 )
Derivative financial instruments
17
Liabilities directly associated with assets held for sale
Current tax liabilities
Lease liabilities
27
Other liabilities
28
Provisions for liabilities and charges
29
Subordinated liabilities
30
Total liabilities
Equity attributable to owners of the parent
Share capital
32
Share premium
Other reserves
33
(1.7 )
(1.1 )
(0.3 )
Retained earnings
Total equity
Total liabilities and equity
1.
Restated to reflect a change in accounting policy relating to land and buildings, which are now presented at historical cost. See Note 1.3 for further details.
signed on its behalf by:
Lord Forsyth
David McCreadie
Chairman
The Notes on pages 121 to 173 are an integral part of these consolidated financial statements.
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Company statement of financial position
As at 31 December
Note
2023
£million
Restated¹
2022
£million
Restated¹
2021
£million
ASSETS
Cash and Bank of England reserve account
351.6
370.1
235.7
Loans and advances to banks
13
53.0
48.9
47.4
Debt securities
–
–
25.0
Loans and advances to customers
14, 15
3,315.3
2,919.5
2,450.3
Fair value adjustment for portfolio hedged risk
17
(3.9)
(32.0)
(3.5)
Derivative financial instruments
17
25.5
34.9
3.8
Investment property
18
0.9
1.0
5.7
Property, plant and equipment
19
6.3
4.9
3.9
Right-of-use assets
20
1.6
1.3
1.5
Intangible assets
21
3.5
4.4
5.4
Investments in group undertakings
22
5.9
5.7
4.3
Current tax assets
–
–
1.5
Deferred tax assets
23
4.3
5.3
6.9
Other assets
24
14.4
15.1
99.8
Total assets
3,778.4
3,379.1
2,887.7
LIABILITIES AND EQUITY
Liabilities
Due to banks
25
402.0
400.5
390.8
Deposits from customers
26
2,871.8
2,514.6
2,103.2
Fair value adjustment for portfolio hedged risk
17
(1.4)
(23.0)
(5.3)
Derivative financial instruments
17
22.0
26.7
6.2
Current tax liabilities
0.3
0.6
–
Lease liabilities
27
2.1
1.9
2.3
Other liabilities
28
44.7
85.9
43.8
Provisions for liabilities and charges
29
5.6
2.0
1.3
Subordinated liabilities
30
93.1
51.1
50.9
Total liabilities
3,440.2
3,060.3
2,593.2
Equity attributable to owners of the parent
Share capital
32
7.6
7.5
7.5
Share premium
83.8
82.2
82.2
Other reserves
33
(1.7)
(1.1)
(0.3)
Retained earnings
248.5
230.2
205.1
Total equity
338.2
318.8
294.5
Total liabilities and equity
3,778.4
3,379.1
2,887.7
1.
Restated to reflect a change in accounting policy relating to land and buildings, which are now presented at historical cost. See Note 1.3 for further details.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not present the parent company income
statement. The profit for the parent company for the year of £25.6 million is presented in the Company statement of changes in equity.
The consolidated financial statements on pages 114 to 173 were approved by the Board of Directors on 20 March 2024 and were
signed on its behalf by:
Lord Forsyth
David McCreadie
Chairman
Chief Executive Officer
Registered number: 00541132
The Notes on pages 121 to 173 are an integral part of these consolidated financial statements.
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Consolidated statement of changes in equity
Share
capital
£million
Share
premium
£million
Other reserves
Retained
earnings
£million
Total
£million
Cash flow
hedge reserve
£million
Revaluation
reserve
£million
Own
shares
£million
Balance at 1 January 2022
(0.3 )
Land and buildings prior year restatement
net of tax (see Note 1.3)
(1.3 )
(0.2 )
Balance at 1 January 2022 (restated)
(0.3 )
Total comprehensive income for the year
Profit for 2022
Total other comprehensive income, net of income tax
Cash flow hedge reserve movements
(0.7 )
(0.7 )
Tax on cash flow hedge reserve movements
Total other comprehensive loss
(0.5 )
(0.5 )
Total comprehensive income for the year
(0.5 )
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Purchase of own shares
(0.3 )
(0.3 )
Dividends paid
(10.7 )
(10.7 )
Share-based payments
Total contributions by and distributions to owners
(0.3 )
(8.7 )
(9.0 )
Balance at 31 December 2022
(0.8 )
(0.3 )
Total comprehensive income for the year
Profit for 2023
Total other comprehensive income, net of income tax
Cash flow hedge reserve movements
Tax on cash flow hedge reserve movements
(0.1 )
(0.1 )
Total other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Purchase of own shares
(1.2 )
(1.2 )
Sale of own shares
Issue of shares
Dividends paid
(8.4 )
(8.4 )
Share-based payments
Total contributions by and distributions to owners
(1.1 )
(7.3 )
(6.7 )
Balance at 31 December 2023
(0.3 )
(1.4 )
The Notes on pages 121 to 173 are an integral part of these consolidated financial statements.
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Company statement of changes in equity
Other reserves
Share
capital
£million
Share
premium
£million
Cash flow
hedge reserve
£million
Revaluation
reserve
£million
Own
shares
£million
Retained
earnings
£million
Total
£million
Balance at 1 January 2022
7.5
82.2
(0.3)
0.7
–
204.1
294.2
Land and buildings prior year restatement
net of tax (see Note 1.3)
–
–
–
(0.7)
–
1.0
0.3
Balance at 1 January 2022 (restated)
7.5
82.2
(0.3)
–
–
205.1
294.5
Total comprehensive income for the year
Profit for 2022
–
–
–
–
–
33.8
33.8
Total other comprehensive income, net of income tax
Cash flow hedge reserve movements
–
–
(0.7)
–
–
–
(0.7)
Tax on cash flow hedges reserve movements
–
–
0.2
–
–
–
0.2
Total other comprehensive loss
–
–
(0.5)
–
–
–
(0.5)
Total comprehensive income for the year
–
–
(0.5)
–
–
33.8
33.3
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Own shares
–
–
–
–
(0.3)
–
(0.3)
Dividends paid
–
–
–
–
–
(10.7)
(10.7)
Share-based payments
–
–
–
–
–
2.0
2.0
Total contributions by and distributions to owners
–
–
–
–
(0.3)
(8.7)
(9.0)
Balance at 31 December 2022
7.5
82.2
(0.8)
–
(0.3)
230.2
318.8
Total comprehensive income for the year
Profit for 2023
–
–
–
–
–
25.6
25.6
Total other comprehensive income, net of income tax
Cash flow hedge reserve movements
–
–
0.6
–
–
–
0.6
Tax on cash flow hedge reserve movements
–
–
(0.1)
–
–
–
(0.1)
Total other comprehensive income
–
–
0.5
–
–
–
0.5
Total comprehensive income for the year
–
–
0.5
–
–
25.6
26.1
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Purchase of own shares
–
–
–
–
(1.2)
–
(1.2)
Sale of own shares
–
–
–
–
0.1
–
0.1
Issue of shares
0.1
1.6
–
–
–
–
1.7
Dividends paid
–
–
–
–
–
(8.4)
(8.4)
Share-based payments
–
–
–
–
–
1.1
1.1
Total contributions by and distributions to owners
0.1
1.6
–
–
(1.1)
(7.3)
(6.7)
Balance at 31 December 2023
7.6
83.8
(0.3)
–
(1.4)
248.5
338.2
The Notes on pages 121 to 173 are an integral part of these consolidated financial statements.
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Financial Statements
Consolidated statement of cash flows
For the year ended 31 December
Note
2023
£million
2022
£million
Cash flows from operating activities
Profit for the year
Adjustments for:
Income tax expense
9
Depreciation of property, plant and equipment
19
Depreciation of right-of-use assets
20
Amortisation of intangible assets
21
Loss on disposal of property, plant and equipment, right of use assets and intangible assets
Impairment charge on loans and advances to customers
Share-based compensation
34
Gain on disposal of loan books
10
(8.9 )
Provisions for liabilities and charges
29
Other non-cash items included in profit before tax
(0.8 )
Cash flows from operating profits before changes in operating assets and liabilities
Changes in operating assets and liabilities:
– loans and advances to customers
(439.0 )
(497.1 )
– loans and advances to banks
(1.3 )
– other assets
(1.5 )
– deposits from customers
– provisions for liabilities and charges utilisation
(4.7 )
(1.1 )
– other liabilities
(37.8 )
Income tax paid
(8.6 )
(7.0 )
Net cash (outflow)/inflow from operating activities
(45.4 )
Cash flows from investing activities
Consideration on sale of loan books
10
Sale of investment property
18
Maturity and sales of debt securities
Purchase of debt securities
(80.0 )
Purchase of property, plant and equipment and intangible assets
20, 21
(2.7 )
(2.7 )
Net cash (outflow)/inflow from investing activities
(2.7 )
Cash flows from financing activities
Issue of subordinated debt
30
Redemption of subordinated debt
30
(28.8 )
(Repayment)/drawdown of amounts due to banks
(0.9 )
Purchase of own shares
(1.2 )
(0.3 )
Issue of shares
Dividends paid
12
(8.4 )
(10.7 )
Repayment of lease liabilities
21
(0.9 )
(1.0 )
Net cash inflow/(outflow) from financing activities
(5.0 )
Net (decrease)/increase in cash and cash equivalents
(16.6 )
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
35
The Notes on pages 121 to 173 are an integral part of these consolidated financial statements.
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Company statement of cash flows
For the year ended 31 December
Note
2023
£million
2022
£million
Cash flows from operating activities
Profit for the year
25.6
33.8
Adjustments for:
Income tax expense
9
6.7
6.9
Depreciation of property, plant and equipment
19
0.6
0.7
Depreciation of right-of-use assets
20
0.6
0.4
Amortisation of intangible assets
21
1.0
1.1
Loss on disposal of property, plant and equipment
0.1
–
Impairment charge on loans and advances to customers
43.2
37.8
Share-based compensation
34
0.9
1.6
Dividends received from subsidiaries
(10.2)
(14.0)
Provisions for liabilities and charges
29
7.2
1.4
Other non-cash items included in profit before tax
1.4
(0.3)
Cash flows from operating profits before changes in operating assets and liabilities
77.1
69.4
Changes in operating assets and liabilities:
– loans and advances to customers
(439.0)
(505.7)
– loans and advances to banks
(1.3)
0.6
– other assets
8.7
98.7
– deposits from customers
357.2
411.4
– provisions for liabilities and charges utilisation
(3.3)
(1.1)
– other liabilities
(38.6)
44.0
Income tax paid
(5.9)
(3.0)
Net cash (outflow)/inflow from operating activities
(45.1)
114.3
Cash flows from investing activities
Sale of investment property
18
–
3.3
Purchase of subsidiary undertaking
22
–
(1.0)
Maturity and sales of debt securities
–
80.0
Purchase of debt securities
–
(80.0)
Purchase of property, plant and equipment and intangible assets
20, 21
(2.2)
(0.4)
Net cash (outflow)/inflow from investing activities
(2.2)
1.9
Cash flows from financing activities
Issue of subordinated debt
30
70.0
–
Redemption of subordinated debt
30
(28.8)
–
(Repayment)/drawdown of amounts due to banks
(0.9)
7.0
Purchase of own shares
33
(1.2)
(0.3)
Issue of shares
32
1.7
–
Dividends paid
12
(8.4)
(10.7)
Repayment of lease liabilities
21
(0.8)
(0.7)
Net cash inflow/(outflow) from financing activities
31.6
(4.7)
Net (decrease)/increase in cash and cash equivalents
(15.7)
111.5
Cash and cash equivalents at 1 January
415.3
303.8
Cash and cash equivalents at 31 December
35
399.6
415.3
The Notes on pages 121 to 173 are an integral part of these consolidated financial statements.
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Notes to the consolidated financial statements
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below, and if
applicable, directly under the relevant note to the consolidated financial statements. These policies have been consistently applied to
all of the years presented, unless otherwise stated.
1.1. Reporting entity
‘the Company’) and is limited by shares. The Company is registered in England and Wales and has the registered number 00541132.
The registered address of the Company is Yorke House, Arleston Way, Solihull, B90 4LH. The consolidated financial statements of the
Company as at and for the year ended 31 December 2023 comprise Secure Trust Bank PLC and its subsidiaries (together referred to
as ‘the Group’ and individually as ‘subsidiaries’). The Group is primarily involved in the provision of banking and financial services.
UK adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006 and UK adopted
International Financial Reporting Standards. The consolidated financial statements also comply with International Financial Reporting
Standards (‘IFRSs’) as issued by the IASB, including interpretations issued by the IFRS interpretations Committee. They have been
prepared under the historical cost convention, as modified by the valuation of derivative financial instruments and investment
properties. The consolidated financial statements are presented in pounds Sterling, which is the functional and presentational
There are no IFRSs that are issued but not yet effective that will have a material impact on the Group.
The preparation of consolidated 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.
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, as set out in the
IAS 16 Property, plant and equipment offers a choice of two methods of measuring the carrying amount of land and buildings:
• The historical model or;
• The revaluation model.
The Group’s previous accounting policy was to hold land and buildings at its revalued amount, being its fair value at the date
of valuation less any subsequent accumulated depreciation. Revaluations were carried out annually at the reporting date, and
movements were recognised in Other Comprehensive Income, net of any applicable deferred tax. External valuations were performed
on a triennial basis.
Following a review, the Directors have concluded that the historical cost model is a more appropriate and relevant approach due to
the nature of the Group’s business which is that of an owner occupier of property. This will reduce volatility in the income statement
and revaluation reserve, allowing for a more appropriate presentation of the Group’s financial performance. Furthermore, the historical
model approach is adopted by the majority of our peer group, which will allow for better comparability.
Therefore, under IAS 8.14(b) Accounting Policies, Changes in Accounting Estimates and Errors, the Group is changing its accounting
policy to measure land and buildings at historical cost less depreciation, less any impairment, and to adjust the depreciation charge
accordingly. The Group’s policy to depreciate buildings over 50 years remains unchanged. This has also resulted in the removal of the
Group’s revaluation reserve and associated deferred tax.
Strategic Report
Corporate Governance Report
Financial Statements
Notes to the consolidated financial statements
1. Accounting policies
continued
Secure Trust Bank PLC
122
Annual Report & Accounts 2023
Due to the change in accounting policy, the Group is required to restate its comparatives in accordance with IAS 8.28. A summary of
the impact on the primary statements is as follows:
As originally | Prior year | As originally | Prior year | |||
stated | adjustment | Restated | stated | adjustment | Restated | |
1 January | 1 January | 1 January | 1 January | 1 January | 1 January | |
2022 | 2022 | 2022 | 2022 | 2022 | 2022 | |
Group | Group | Group | Company | Company | Company | |
Statement of financial position | £million | £million | £million | £million | £million | £million |
Property, plant and equipment | 9.3 | (0.5) | 8.8 | 3.7 | 0.2 | 3.9 |
Deferred tax assets | 6.9 | 0.3 | 7.2 | 6.8 | 0.1 | 6.9 |
Other assets | 2,869.7 | – | 2,869.7 | 2,876.9 | – | 2,876.9 |
Total assets | 2,885.9 | (0.2) | 2,885.7 | 2,887.4 | 0.3 | 2,887.7 |
Total liabilities | 2,583.5 | – | 2,583.5 | 2,593.2 | – | 2,593.2 |
Retained earnings | 211.7 | 1.1 | 212.8 | 204.1 | 1.0 | 205.1 |
Revaluation reserve | 1.3 | (1.3) | – | 0.7 | (0.7) | – |
Other equity/reserves | 89.4 | – | 89.4 | 89.4 | – | 89.4 |
Total equity | 302.4 | (0.2) | 302.2 | 294.2 | 0.3 | 294.5 |
Total liabilities and equities | 2,885.9 | (0.2) | 2,885.7 | 2,887.4 | 0.3 | 2,887.7 |
As originally | Prior year | As originally | Prior year | |||
stated | adjustment | Restated | stated | adjustment | Restated | |
1 January | 1 January | 1 January | 1 January | 1 January | 1 January | |
2023 | 2023 | 2023 | 2023 | 2023 | 2023 | |
Group | Group | Group | Company | Company | Company | |
Statement of financial position | £million | £million | £million | £million | £million | £million |
Property, plant and equipment | 10.3 | (0.6) | 9.7 | 4.7 | 0.2 | 4.9 |
Deferred tax assets | 5.5 | 0.1 | 5.6 | 5.3 | – | 5.3 |
Other assets | 3,364.5 | – | 3,364.5 | 3,368.9 | – | 3,368.9 |
Total assets | 3,380.3 | (0.5) | 3,379.8 | 3,378.9 | 0.2 | 3,379.1 |
Total liabilities | 3,053.4 | - | 3,053.4 | 3,060.3 | – | 3,060.3 |
Retained earnings | 237.5 | 0.3 | 237.8 | 230.0 | 0.2 | 230.2 |
Revaluation reserve | 0.8 | (0.8) | – | – | – | – |
Other equity/reserves | 88.6 | – | 88.6 | 88.6 | – | 88.6 |
Total equity | 326.9 | (0.5) | 326.4 | 318.6 | 0.2 | 318.8 |
Total liabilities and equities | 3,380.3 | (0.5) | 3,379.8 | 3,378.9 | 0.2 | 3,379.1 |
Subsidiaries
Subsidiaries are all investees controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable
returns from its involvement with the investee, and has the ability to affect those returns through its power over the investee.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition
is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange,
plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling
interest. The excess of the cost of acquisition, excluding directly attributable costs, over the fair value of the Group’s share of the
identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognised directly in the income statement.
The parent company’s investments in subsidiaries are recorded at cost less, where appropriate, provision for impairment. The fair
value of the underlying business of the Company’s only material investment was significantly higher than carrying value, and therefore
no impairment was required.
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Financial Statements
Notes to the consolidated financial statements
1. Accounting policies
continued
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Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated.
Accounting policies of subsidiaries have been changed, where necessary, to ensure consistency with the policies adopted by
the Group.
Discontinued operations are a component of an entity that has been disposed of and represents a major line of business and/or is
The Group classifies its financial assets at inception into three measurement categories; ‘amortised cost’, ‘Fair Value Through Other
Comprehensive Income’ (‘FVOCI’) and ‘Fair Value Through Profit or Loss’ (‘FVTPL’). A financial asset is measured at amortised cost if
both the following conditions are met and it has not been designated as at FVTPL:
• the asset is held within a business model whose objective is to hold the asset to collect its contractual cash flows; and
• the contractual terms of the financial asset give rise to cash flows on specified dates that are Solely Payments of Principal and
Interest (‘SPPI’).
The Group’s current business model for all financial assets, with the exception of derivative financial instruments, is to hold to
collect contractual cash flows, and all assets held give rise to cash flows on specified dates that represent SPPI on the outstanding
principal amount. All of the Group’s financial assets are therefore currently classified as amortised cost, except for derivative financial
instruments. Loans are recognised when funds are advanced to customers and are carried at amortised cost using the Effective
Interest Rate (‘EIR’) method.
A debt instrument would be measured at FVOCI only if both the below conditions are met and it has not been designated as FVTPL:
• the asset is held within a business model whose objective is achieved by both collecting its contractual cash flows and selling the
financial asset; and
• the contractual terms of the financial asset give rise to cash flows on specified dates that represent SPPI on the outstanding
principal amount.
The Group currently has no financial instruments classified as FVOCI.
See below for further details of the business model assessment and the SPPI test.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent
changes in fair value in other comprehensive income. This election would be made on an investment-by-investment basis. The Group
currently holds no such investments.
All other assets are classified as FVTPL.
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business
model for managing financial assets. The Group has not reclassified any financial assets during the reporting period.
Assessment whether contractual cash flows are SPPI
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is
defined as consideration for the cost of funds and for the credit risk associated with the principal amount outstanding during a
particular period of time and for other basic lending risks and costs (e.g. administrative costs), as well as profit margin.
In assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument. This includes
assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows
such that it would not meet the condition.
In making the assessment, the Group considers:
• Contingent events that would change the amount and timing of cash flows;
• Prepayments and extension terms;
• Terms that limit the Group’s claim to cash flows from specific assets (e.g. non-recourse asset arrangements); and
• Features that modify consideration of the time value of money (e.g. periodical reset of interest rate).
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Notes to the consolidated financial statements
1. Accounting policies
continued
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Business model assessment
The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best
reflects the way the business is managed and information is provided to management. The information considered includes:
• The stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether
management’s strategy focuses on managing the portfolio in order to collect contractual cash flows or whether it is managed in
order to trade to realise fair value changes;
• How the performance of the portfolio is evaluated and reports to management;
• The risks that affect the performance of the business model (and the financial assets held within that business model) and how those
risks are managed; and
• The frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity.
However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Bank’s stated
objective for managing the financial assets is achieved and how cash flows are realised.
Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are classified as
FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell
financial assets.
The Group currently has no financial instruments classified as FVTPL.
Amortised cost measurement
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at
initial recognition, plus or minus the cumulative amortisation using the EIR, which is the rate that exactly discounts estimated future
cash payments or receipts through the expected life of the financial instrument, minus any reduction for impairment.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has
transferred substantially all of the risks and rewards of ownership or in the event of a substantial modification. There have not been any
A customer’s account may be modified to assist customers, who are in or have recently overcome financial difficulties, and have
demonstrated both the ability and willingness to meet the current or modified loan contractual payments. Substantial loan
modifications result in the derecognition of the existing loan, and the recognition of a new loan at the new origination EIR based on
the expected future cash flows at origination. Determination of the origination Probability of Default (‘PD’) for the new loan is required,
based on the PD as at the date of the modification, which is used for the calculation of the impairment provision against the new loan.
Any deferred fees or deferred interest, and any difference between the carrying value of the derecognised loan and the new loan, is
written off to the income statement on recognition of the new loan.
Where the modification is not considered to be substantial, neither the origination EIR nor the origination probability of default for
the modified loan changes. The net present value of changes to the future contractual cash flows adjusts the carrying amount of the
original asset with the difference immediately being recognised in profit or loss. The adjusted carrying amount is then amortised over
The Group classifies its financial liabilities as measured at amortised cost. Such financial liabilities are recognised when cash is received
from depositors and carried at amortised cost using the EIR method. Financial liabilities are derecognised when they are extinguished
Financial assets and financial liabilities are not offset in the consolidated financial statements unless the Group has both a legally
Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are retranslated into the Company’s functional currency at the rates
prevailing on the consolidated statement of financial position date. Exchange differences arising on the settlement of monetary items,
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2.1. Judgements
Critical judgements are disclosed in
• Note 16.2.
• Note 31.1.2.
Estimations that could have a material impact on the Group’s financial results, and are therefore considered to be key sources of
estimation uncertainty. Key sources of estimation can be found in:
• Note 16.1. Allowances for impairment of loans and advances to customers
The Group is organised into four operating segments, which consist of the different products available, as disclosed below.
Continuing operations
Consumer Finance
• Retail Finance: a market leading online e-commerce service to retailers, providing unsecured lending products to prime UK customers
to facilitate the purchase of a wide range of consumer products, including bicycles, musical instruments and equipment, furniture,
outdoor/leisure, electronics, dental, jewellery, home improvements and football season tickets.
• Vehicle Finance: hire purchase lending for used cars to prime and near-prime customers and Personal Contract Purchase lending
into the consumer prime credit market, both secured against the vehicle financed. In addition, a Stocking Funding product is also
offered, whereby funds are advanced and secured against dealer forecourt used car stock; sourced from auctions, part exchanges
or trade sources.
Business Finance
• Real Estate Finance: lending secured against property assets to a maximum 70% loan-to-value ratio, on fixed or variable rates over
a term of up to five years.
• Commercial Finance: lending is predominantly against receivables, typically releasing 90% of qualifying invoices under invoice
discounting facilities. Other assets can also be funded either long or short-term and for a range of loan-to-value ratios alongside
these services. Additional lending to existing customers through the Government-guaranteed Coronavirus Business Interruption
Loan Scheme, Coronavirus Large Business Interruption Loan Scheme and Recovery Loan Scheme is also provided.
Other
• This principally includes interest receivable from central banks, interest receivable and payable on derivatives and interest payable
on deposits from customers, amounts due to banks and subordinated liabilities which are not recharged to the operating segments.
The Group’s chief operating decision-maker, the Group Chief Executive Officer, regularly reviews these segments by looking at the
operating income, size of the loan books and impairments.
Interest expense is charged to the operating segments in accordance with the
Group’s internal funds transfer pricing policy.
Operating expenses are not aligned to operating segments for the day-to-day management of the business, so they cannot
be allocated on a reliable basis. Additionally, no balance sheet items are allocated to segments other than loans and advances
to customers.
Discontinued operations
Debt Management: a credit management services business that primarily invested in purchased debt portfolios from third
parties, as well as fellow group undertakings. The Debt Management loan book was sold during 2022 and the residual operations
wound down.
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Financial Statements
Notes to the consolidated financial statements
3. Operating segments
continued
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Operating | Net impairment | ||||||
Interest income | Interest expense | Net fee and | income from | charge on loans | Loans and | ||
and similar | and similar | Net interest | commission | external | and advances to | advances to | |
income | charges | income | income | customers | customers | customers | |
£million | £million | £million | £million | £million | £million | £million | |
31 December 2023 | |||||||
Retail Finance | 106.5 | (33.4) | 73.1 | 3.2 | 76.3 | 15.9 | 1,223.2 |
Vehicle Finance | 59.1 | (15.0) | 44.1 | 1.8 | 45.9 | 14.8 | 467.2 |
Consumer Finance | 165.6 | (48.4) | 117.2 | 5.0 | 122.2 | 30.7 | 1,690.4 |
Real Estate Finance | 74.4 | (44.7) | 29.7 | 0.9 | 30.6 | 4.5 | 1,243.8 |
Commercial Finance | 27.2 | (14.0) | 13.2 | 11.3 | 24.5 | 8.0 | 381.1 |
Business Finance | 101.6 | (58.7) | 42.9 | 12.2 | 55.1 | 12.5 | 1,624.9 |
Other | 36.8 | (29.4) | 7.4 | – | 7.4 | – | – |
304.0 | (136.5) | 167.5 | 17.2 | 184.7 | 43.2 | 3,315.3 |
Net impairment | |||||||
Interest income | Interest expense | Net fee and | Operating income | charge on loans | Loans and | ||
and similar | and similar | Net interest | commission | from external | and advances to | advances to | |
income | charges | income | income | customers | customers | customers | |
£million | £million | £million | £million | £million | £million | £million | |
31 December 2022 | |||||||
Retail Finance | 74.4 | (13.2) | 61.2 | 3.6 | 64.8 | 14.8 | 1,054.5 |
Vehicle Finance | 46.6 | (7.7) | 38.9 | 1.4 | 40.3 | 21.3 | 373.1 |
Debt Management | 5.3 | (0.8) | 4.5 | 4.1 | 8.6 | 0.8 | – |
Consumer Finance | 126.3 | (21.7) | 104.6 | 9.1 | 113.7 | 36.9 | 1,427.6 |
Real Estate Finance | 57.4 | (27.7) | 29.7 | 0.2 | 29.9 | 1.3 | 1,115.5 |
Commercial Finance | 17.5 | (6.1) | 11.4 | 11.6 | 23.0 | 0.8 | 376.4 |
Business Finance | 74.9 | (33.8) | 41.1 | 11.8 | 52.9 | 2.1 | 1,491.9 |
Other | 7.1 | 4.3 | 11.4 | 0.2 | 11.6 | – | – |
208.3 | (51.2) | 157.1 | 21.1 | 178.2 | 39.0 | 2,919.5 | |
Of which: | |||||||
Continuing | 203.0 | (50.4) | 152.6 | 17.0 | 169.6 | 38.2 | 2,919.5 |
Discontinued (Note 10) | 5.3 | (0.8) | 4.5 | 4.1 | 8.6 | 0.8 | – |
All of the Group’s operations are conducted wholly within the United Kingdom and geographical information is therefore
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2023 | 2022 | |
£million | £million | |
Loans and advances to customers | 267.0 | 201.1 |
Cash and Bank of England reserve account | 17.5 | 4.6 |
Debt securities | – | 0.1 |
284.5 | 205.8 | |
Income on financial instruments hedging assets | 19.5 | 2.5 |
Interest income and similar income | 304.0 | 208.3 |
Of which: | ||
Continuing | 304.0 | 203.0 |
Discontinued (Note 10) | – | 5.3 |
Deposits from customers | (88.2) | (38.4) |
Due to banks | (18.7) | (5.7) |
Subordinated liabilities | (10.7) | (3.4) |
Other | (0.1) | (0.1) |
(117.7) | (47.6) | |
Expense on financial instruments hedging liabilities | (18.8) | (3.6) |
Interest expense and similar charges | (136.5) | (51.2) |
Of which: | ||
Continuing | (136.5) | (50.4) |
Discontinued (Note 10) | – | (0.8) |
For all financial instruments measured at amortised cost, the EIR method is used to measure the carrying value and allocate
interest income or expense. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the
expected life of the financial instrument to:
• the gross carrying amount of the financial asset; or
• the amortised cost of the financial liability.
In calculating the EIR for financial instruments, other than assets that were credit-impaired on initial recognition, the Group
estimates cash flows considering all contractual terms of the financial instrument (for example, early redemption penalty charges
and broker commissions) and anticipated customer behaviour but does not consider future credit losses.
The calculation of the EIR includes all fees received and paid that are an integral part of the loan, transaction costs and all other
premiums or discounts. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a
financial instrument.
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Corporate Governance Report
Financial Statements
Notes to the consolidated financial statements
4. Operating income
continued
4.1 Net interest income
continued
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For financial assets that are not considered to be credit-impaired (‘Stage 1’ and ‘Stage 2’ assets), interest income is recognised by
applying the EIR to the gross carrying amount of the financial asset. For financial assets that become credit-impaired subsequent
to initial recognition (‘Stage 3’ assets), from the next reporting period onwards interest income is recognised by applying the EIR
to the amortised cost of the financial asset. The credit risk of financial assets that become credit-impaired are not expected to
improve such that they are no longer considered credit-impaired, however, if this were to occur the calculation of interest income
would revert back to the gross basis. The Group’s definition of Stage 1, Stage 2 and Stage 3 assets is set out in Note 16.
For financial assets that were credit-impaired on initial recognition (‘POCI’ assets), income is calculated by applying the credit
adjusted EIR to the amortised cost of the asset. Collection activity costs are not included in the amortised cost of the assets, but
are included in operating expenses in the income statement, and are recognised as incurred, in common with other businesses in
the sector. For such financial assets the calculation of interest income will never revert to a gross basis, even if the credit risk of the
asset improves.
2023 | 2022 | |
£million | £million | |
Fee and disbursement income | 16.4 | 19.8 |
Commission income | 0.9 | 1.4 |
Other income | – | 0.3 |
Fee and commission income | 17.3 | 21.5 |
Of which: | ||
Continuing | 17.3 | 17.4 |
Discontinued (Note 10) | – | 4.1 |
Other expenses | (0.1) | (0.4) |
Fee and commission expense - Continuing | (0.1) | (0.4) |
Fees and commission income is all recognised under IFRS 15 Revenue from contracts to customers and consists principally of
the following:
• Commercial Finance – discounting, service and arrangement fees.
• Retail Finance – principally comprises of account management fees received from customers and referral fees received from
third parties.
• Vehicle Finance – primarily relates to vehicle collection and damage charges made to customers and loan administration fees
charged to dealers in respect of the Stock Funding product.
Fees and commission income that is not considered an integral part of the EIR of a financial instrument are recognised under
IFRS 15 when the Group satisfies performance obligations by transferring promised services to customers and presented in the
income statement as fee and commission income. All of the Group’s fees and commissions relate to performance obligations
that are recognised at a point in time.
Fees and commission income and expenses that are an integral part of the EIR of a financial instrument are included in the EIR
and presented in the income statement as interest income or expense.
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2023 | 2022 | |
£million | £million | |
Fair value movement during the year – Interest rate derivatives | (6.1) | 10.6 |
Fair value movement during the year – Hedged items | 6.2 | (10.9) |
Hedge ineffectiveness recognised in the income statement | 0.1 | (0.3) |
Losses recognised on derivatives not in hedge relationships | (0.8) | – |
Extinguishment gain on redemption of subordinated debt | 1.2 | – |
0.5 | (0.3) |
The extinguishment gain on redemption of subordinated debt relates to the redemption during the year at a discount to par of the
£50 million 6.75% Fixed Rate Reset Callable Subordinated Notes due in 2028.
As a part of its risk management strategy, the Group uses derivatives to economically hedge financial assets and liabilities. For further
information on the Group’s risk management strategy for market risk see page 33 of the Group’s Strategic Report.
Hedge accounting is employed by the Group to minimise the accounting volatility associated with the change in fair value of
derivative financial instruments. This volatility does not reflect the economic reality of the Group’s hedging strategy, the Group only
uses derivatives for the hedging of risks.
5.1 Fair value gain/(loss) recognised in other comprehensive income
2023 | 2022 | |
£million | £million | |
Cash flow hedges | ||
Fair value movement in year – Interest rate derivatives | – | (0.8) |
Interest reclassified to the income statement during the year | 0.6 | 0.1 |
Fair value gain/(loss) recognised in other comprehensive income | 0.6 | (0.7) |
Although the Group uses interest rate derivatives exclusively to hedge interest rate risk exposures, income statement volatility can still
arise due to hedge accounting ineffectiveness or because hedge accounting is not achievable. Where such volatility arises it will net
to zero over the life of the hedging relationship. All derivatives held by the Group have been highly effective in the year, resulting in
minimal hedge accounting ineffectiveness recognised in the income statement. Future ineffectiveness may arise as a result of:
• differences between the expected and actual volume of prepayments, as the Group hedges to the expected repayment date taking
into account expected prepayments based on past experience; or
• differences in the timing of cash flows for the hedged item and the hedging instrument.
How fair value and cash flow hedge accounting affect the consolidated financial statements and the main sources of the residual
hedge ineffectiveness remaining in the income statement are set out below. Further information on the current derivative portfolio
and the allocation to hedge accounting types is included in Note 17.
The Group enters into derivatives to manage exposures to fluctuations in interest rates. Derivatives are not used for speculative
purposes. Derivatives are carried at fair value, with movements in fair value recognised in the income statement or other
comprehensive income. Derivatives are valued by discounted cash flow models using yield curves based on Overnight Indexed
Swap (‘OIS’) rates. All derivatives are carried as assets where fair value is positive and as liabilities when fair value is negative.
Derivatives are not offset in the consolidated financial statements unless the Group has both a legally enforceable right and
intention to offset. The Group does not hold contracts containing embedded derivatives.
Where cash collateral is received, to mitigate the risk inherent in the amounts due to the Group, it is included as a liability within
the due to banks line within the statement of financial position. Where cash collateral is given, to mitigate the risk inherent
in amounts due from the Group, it is included as an asset in the loans and advances to banks line within the statement of
Strategic Report
Corporate Governance Report
Financial Statements
Notes to the consolidated financial statements
5. Fair value and other gains/(losses) on financial instruments
continued
5.1 Fair value gain/(loss) recognised in other comprehensive income
continued
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Following the implementation of IFRS 9, the Group elected to apply IAS 39 for all of its hedge accounting requirements.
When transactions meet specified criteria the Group can apply two types of hedge accounting:
• Hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedges).
• Hedges of highly probable future cash flows attributable to a recognised asset or liability (cash flow hedges).
The Group does not have hedges of net investments.
At inception of a hedge, the Group formally documents the relationship between the hedged items and hedging instruments,
as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in fair values of the hedged items (i.e. the fair value offset between the hedged item
and hedging instrument is within the 80% –125% range).
When the European Union adopted IAS 39 in 2004, it removed certain hedge accounting requirements, commonly referred
to as the EU carve-out. The relaxed requirements under the carve-out allow the Group to apply the ‘bottom up’ method
when calculating macro-hedge ineffectiveness. This option is not allowed under full IFRS. The Group has applied the EU
carve-out accordingly.
Fair value hedge accounting
Fair value hedge accounting results in the carrying value of the hedged item being adjusted to reflect changes in fair value
attributable to the hedged risk, thereby offsetting the effect of the related movement in the fair value of the derivative.
Changes in the fair value of derivatives and hedged items that are designated and qualify as fair value hedges are recorded in the
income statement.
In a one-to-one hedging relationship, in which a single derivative hedges a single hedged item, the carrying value of the
underlying asset or liability (the hedged item) is adjusted for the hedged risk to offset the fair value movement of the related
derivative. In the case of a portfolio hedge, an adjustment is included in the fair value adjustments for portfolio hedged risk
line in the statement of financial position to offset the fair value movements in the related derivative. The Group currently only
designates portfolio hedges.
If the hedge no longer meets the criteria for hedge accounting, expires or is terminated, the cumulative fair value adjustment
to the carrying amount of a hedged item is amortised to the income statement over the period to maturity of the previously
designated hedge relationship and recorded as net interest income. If the underlying item is sold or repaid, the unamortised fair
value adjustment is immediately recognised in the income statement.
Cash flow hedge accounting
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are
recognised in other comprehensive income and presented in the cash flow hedge reserve in equity. Any ineffective portion of
changes in the fair value of the derivative is recognised immediately in the income statement. Amounts recognised in the cash
flow hedge reserve are subsequently reclassified to the income statement when the underlying asset or liability being hedged
impacts the income statement, for example, when interest payments are recognised, and are recorded in the same income
statement line in which the income or expense associated with the related hedged item is reported.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognised in the periods when the hedged
item affects the income statement. When a forecast transaction is no longer expected to occur (for example, the recognised
hedged item is disposed of), the cumulative gain or loss previously recognised in other comprehensive income is immediately
reclassified to the income statement.
The cash flow hedge reserve represents the cumulative amount of gains and losses on hedging instruments deemed effective
in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only when
the hedged transaction impacts the profit or loss or is included directly in the initial cost or other carrying amount of the hedged
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2023 | 2022 | |
£million | £million | |
Employee costs, including those of Directors: | ||
Wages and salaries | 49.5 | 47.9 |
Social security costs | 5.6 | 5.7 |
Pension costs | 1.8 | 2.1 |
Share-based payment transactions | 1.1 | 1.8 |
Depreciation of property, plant and equipment (Note 19) | 0.9 | 1.2 |
Depreciation of lease right-of-use assets (Note 20) | 0.7 | 0.7 |
Amortisation of intangible assets (Note 21) | 1.2 | 1.4 |
Operating lease rentals | 0.7 | 0.7 |
Other administrative expenses | 40.9 | 40.6 |
Total operating expenses | 102.4 | 102.1 |
Of which: | ||
Continuing | 99.7 | 93.2 |
Discontinued (Note 10) | 2.7 | 8.9 |
As described in Note 3, operating expenses are not aligned to operating segments for the day-to-day management of the business,
so they cannot be allocated on a reliable basis.
The Group contributes to defined contribution schemes for the benefit of certain employees. The schemes are funded through
payments to insurance companies or trustee-administered funds at the contribution rates agreed with individual employees.
The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an
2023 | 2022 | |
£million | £million | |
Fees payable to the Company’s Auditor for the audit of the Company’s annual accounts | 1.0 | 0.8 |
Fees payable to the Company’s Auditor for other services: | ||
Other assurance services | 0.2 | 0.1 |
1.2 | 0.9 |
Other assurance services related to the Interim independent review report and profit certification and a comfort letter in relation to
2023 | 2022 | |
Number | Number | |
Directors | 7 | 8 |
Other senior management | 23 | 28 |
Other employees | 849 | 904 |
879 | 940 |
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Borrowers in financial difficulty (‘BiFD’) Vehicle Finance collections review
Following the Financial Conduct Authority’s review of BiFD across the industry, and in response to the specific feedback we received
on our own collection activities, we have engaged external support to assist us and, where necessary, are enhancing our approach,
which includes offering a wider range of forbearance options to our customers. We have incurred or provided for costs of £4.7 million
(comprising £2.7 million costs and £2.0 million potential redress/goodwill) (2022: £nil) relating to processes, procedures and policies
in our Vehicle Finance collections operations. Costs associated with these activities are outside the normal course of business and are
treated as exceptional. We expect the review to be completed in H2 2024.
Corporate activity
Corporate activities undertaken outside the normal course of business and amounted to £1.8 million (2022: £nil).
Income tax on exceptional items
Income tax on exceptional items amount to £0.6 million credit (2022: £nil).
Exceptional items are expenses that do not relate to the Group’s core activities, which are material in the context of the
2023 | 2022 | |
£million | £million | |
Current taxation | ||
Corporation Tax charge – current year | 8.0 | 8.4 |
Corporation Tax (credit)/charge – adjustments in respect of prior years | (0.1) | 0.1 |
7.9 | 8.5 | |
Deferred taxation | ||
Deferred tax charge – current year | 1.3 | 1.9 |
Deferred tax credit – adjustments in respect of prior years | (0.1) | (0.1) |
1.2 | 1.8 | |
Income tax expense | 9.1 | 10.3 |
Of which: | ||
Continuing | 9.7 | 9.4 |
Discontinued (Note 10) | (0.6) | 0.9 |
Tax reconciliation | ||
Profit before tax | 33.4 | 44.0 |
Tax at 23.50% (2022: 19.00%) | 7.8 | 8.4 |
Permanent differences on exceptional items | 0.9 | – |
Other permanent differences | 0.3 | 0.4 |
Rate change on deferred tax assets | 0.1 | 1.2 |
Other adjustments including prior year adjustments | – | 0.3 |
Income tax expense for the year | 9.1 | 10.3 |
The Corporation Tax rate increased from 19% to 25%, with effect from 1 April 2023, giving a rate of 23.5% for the year to 31 December
2023. At the same time, the banking surcharge reduced from 8% to 3% and the surcharge allowance available to a banking group
increased from £25 million to £100 million. These changes were enacted prior to the start of 2023, and so opening and closing 2023
deferred asset values have been calculated from expected future tax relief based on these enacted rates. There was a deferred tax
charge in 2022, arising from the changes to the banking surcharge enacted in 2022. The main component of the deferred tax asset is
deferred tax on the IFRS 9 transition adjustment, which reverses on a straight-line basis over 10 years commencing in 2018.
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Notes to the consolidated financial statements
9. Income tax expense
continued
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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
The Group sold Debt Managers (Services) Limited’s (‘DMS’) portfolio of loans during 2022. As the Group has exited this market, the
results of the Debt Management business have presented as discontinued operations.
2023 | 2022 | |
Income statement | £million | £million |
Interest income and similar income | – | 5.3 |
Interest expense and similar charges | – | (0.8) |
Net interest income | – | 4.5 |
Fee and commission income | – | 4.1 |
Net fee and commission income | – | 4.1 |
Operating income | – | 8.6 |
Net impairment charge on loans and advances to customers | – | (0.8) |
Overall profit on disposal of loan portfolios (see below) | – | 6.1 |
Operating expenses | (2.7) | (8.9) |
(Loss)/profit before income tax from discontinued operations | (2.7) | 5.0 |
Income tax credit/(charge) | 0.6 | (0.9) |
(Loss)/profit for the year from discontinued operations | (2.1) | 4.1 |
Basic earnings per ordinary share – discontinued operations | (11.2) | 22.0 |
Diluted earnings per ordinary share – discontinued operations | (10.9) | 21.3 |
2023 operating expenses relate to the costs of winding down the business.
2022 | |
£million | |
Consideration received | 81.9 |
Carrying value of loan books disposed | (71.8) |
Selling costs | (1.2) |
Profit on disposal of loan book (including selling costs) | 8.9 |
Other closure costs | (2.8) |
Overall profit on disposal of loan portfolio | 6.1 |
2023 | 2022 | |
Net cash flows | £million | £million |
Operating | (2.7) | (82.6) |
Investing | – | 81.9 |
Financing | – | (0.1) |
Net cash outflow | (2.7) | (0.8) |
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11.1 Basic
Basic earnings per ordinary share are calculated by dividing the profit attributable to equity holders of the parent by the weighted
average number of ordinary shares as follows:
2023 | 2022 | |
Profit attributable to equity holders of the parent (£million) | 24.3 | 33.7 |
Weighted average number of ordinary shares (number) | 18,751,059 | 18,672,650 |
Earnings per share (pence) | 129.6 | 180.5 |
11.2 Diluted
Diluted earnings per ordinary share are calculated by dividing the profit attributable to equity holders of the parent by the weighted
average number of ordinary shares in issue during the year, as noted above, as well as the number of dilutive share options in issue
during the year, as follows:
2023 | 2022 | |
Weighted average number of ordinary shares | 18,751,059 | 18,672,650 |
Number of dilutive shares in issue at the year-end | 515,782 | 617,340 |
Fully diluted weighted average number of ordinary shares | 19,266,841 19,289,990 | |
Dilutive shares being based on: | ||
Number of options outstanding at the year-end | 1,210,544 | 1,206,639 |
Weighted average exercise price (pence) | 225 | 304 |
Average share price during the year (pence) | 719 | 1,040 |
Diluted earnings per share (pence) | 126.1 | 174.7 |
2023 | 2022 | |
£million | £million | |
2023 interim dividend – | 3.0 | – |
2022 final dividend – | 5.4 | – |
2022 interim dividend – | – | 3.0 |
2021 final dividend – | – | 7.7 |
The Directors recommend the payment of a final dividend of 16.2 pence per share (2022: 29.1 pence per share). The final dividend,
if approved by members at the Annual General Meeting, will be paid on 23 May 2024, with an associated record date of 26 April 2024.
Final dividends on ordinary shares are recognised in equity in the period in which they are approved by shareholders.
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Moody’s long-term ratings are as follows:
Group | Group | Company | Company | |
2023 | 2022 | 2023 | 2022 | |
£million | £million | £million | £million | |
Aaa - Aa3 | 4.8 | 3.7 | 4.8 | 3.7 |
A1 | 48.9 | 41.6 | 48.2 | 40.0 |
Arbuthnot Latham & Co. Limited – Unrated | – | 5.2 | – | 5.2 |
53.7 | 50.5 | 53.0 | 48.9 |
None of the loans and advances to banks are either past due or impaired. Loans and advances to banks includes £5.0 million
(2022: £3.7 million), which the Group and Company does not have access to, and are therefore excluded from cash and cash
Group and Company
2023 | 2022 | |
£million | £million | |
Gross loans and advances | 3,403.4 | 2,997.5 |
Less: allowances for impairment of loans and advances (Note 16) | (88.1) | (78.0) |
3,315.3 | 2,919.5 |
The fair value of loans and advances to customers is shown in Note 41. Loans and advances to customers includes finance lease
receivables of £450.3 million (2022: £371.2 million). See Note 15 for further details.
Retail Finance assets of £1,004.9 million (2022: £810.6 million) were pre-positioned under the Bank of England’s liquidity support
operations and Term Funding Scheme with additional incentives for SMEs and are available for use as collateral within the schemes.
57% at 31 December 2023 (2022: 58%).
Under its credit policy, the Real Estate Finance business lends to a maximum loan-to-value of:
• 70% for investment loans;
• 60% for residential development loans*;
• 65% for certain residential higher leveraged development loans*, which is subject to an overall cap on such lending agreed by
management according to risk appetite; and
• 65% for commercial development loans*.
* based on gross development value.
All property valuations at loan inception, and the majority of development stage valuations, are performed by independent Chartered
Surveyors, who perform their work in accordance with the Royal Institution of Chartered Surveyors Valuation – Professional Standards.
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Group and Company
Loans and advances to customers include finance lease receivables as follows:
2023 | 2022 | |
£million | £million | |
Gross investment in finance lease receivables: | ||
– Not more than one year | 186.2 | 157.6 |
– Later than one year and no later than five years | 446.1 | 365.6 |
632.3 | 523.2 | |
Unearned future finance income on finance leases | (182.0) | (152.0) |
Net investment in finance leases | 450.3 | 371.2 |
The net investment in finance leases may be analysed as follows: | ||
– Not more than one year | 113.3 | 93.7 |
– Later than one year and no later than five years | 337.0 | 277.5 |
450.3 | 371.2 |
Finance lease receivables include Vehicle Finance loans to consumers.
The present value of the lease payments on assets leased to customers under agreements that transfer substantially all the risks
and rewards of ownership, with or without ultimate legal title, are recognised as a receivable. The difference between the gross
receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over
Group and Company
Not credit-impaired | Credit-impaired | |||||
Stage 1: | Stage 2: | Stage 3: | Gross loans and | |||
Subject to | Subject to | Subject to | advances to | Provision | ||
12-month ECL | lifetime ECL | lifetime ECL | Total provision | customers | coverage | |
£million | £million | £million | £million | £million | % | |
31 December 2023 | ||||||
Consumer Finance: | ||||||
Retail Finance | 12.0 | 11.8 | 8.3 | 32.1 | 1,255.3 | 2.6% |
Vehicle Finance: | ||||||
Voluntary termination provision | 6.7 | – | – | 6.7 | ||
Other impairment | 10.0 | 5.6 | 23.6 | 39.2 | ||
16.7 | 5.6 | 23.6 | 45.9 | 513.1 | 8.9% | |
Business Finance: | ||||||
Real Estate Finance | 0.3 | 0.7 | 7.0 | 8.0 | 1,251.8 | 0.6% |
Commercial Finance | 0.5 | 0.1 | 1.5 | 2.1 | 383.2 | 0.5% |
29.5 | 18.2 | 40.4 | 88.1 | 3,403.4 | 2.6% | |
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Notes to the consolidated financial statements
16. Allowances for impairment of loans and advances
continued
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Not credit-impaired | Credit-impaired | |||||
Stage 1: | Stage 2: | Stage 3: | Gross loans and | |||
Subject to | Subject to | Subject to | advances to | Provision | ||
12-month ECL | lifetime ECL | lifetime ECL | Total provision | customers | coverage | |
£million | £million | £million | £million | £million | % | |
31 December 2022 | ||||||
Consumer Finance: | ||||||
Retail Finance | 12.7 | 9.8 | 5.7 | 28.2 | 1,082.7 | 2.6% |
Vehicle Finance: | ||||||
Voluntary termination provision | 3.7 | – | – | 3.7 | ||
Other impairment | 7.3 | 16.4 | 17.0 | 40.7 | ||
11.0 | 16.4 | 17.0 | 44.4 | 417.5 | 10.6% | |
Business Finance: | ||||||
Real Estate Finance | 0.3 | 1.1 | 2.0 | 3.4 | 1,118.9 | 0.3% |
Commercial Finance | 0.3 | 1.3 | 0.4 | 2.0 | 378.4 | 0.5% |
24.3 | 28.6 | 25.1 | 78.0 | 2,997.5 | 2.6% | |
The impairment charge disclosed in the income statement can be analysed as follows:
2023 | 2022 | |
£million | £million | |
Expected credit losses: impairment charge | 37.3 | 38.9 |
(Credit)/charge in respect of off balance sheet loan commitments (Note 29) | (0.3) | 0.2 |
Loans written off/(recovered) directly to the income statement ¹ | 6.2 | (0.1) |
43.2 | 39.0 | |
Of which: | ||
Continuing | 43.2 | 38.2 |
Discontinued (Note 10) | – | 0.8 |
1. The impairment charge for 2023 includes a £7.2 million charge relating to a single long-running debt case, of which £6.3 million was written off directly to the income statement.
Total provisions above include expert credit judgements as follows:
2023 | 2022 | |
£million | £million | |
Specific overlays held against credit-impaired secured assets held within the Business Finance portfolio | (1.0) | 0.7 |
Management judgement in respect of: | ||
– Consumer Finance affordability | – | 2.5 |
– Vehicle Finance used car valuations | – | 1.3 |
– Vehicle Finance LGD on Stage 3 balances | (2.1) | – |
Other | 1.9 | (1.6) |
Expert credit judgements over the IFRS 9 model results | (1.2) | 2.9 |
The specific overlays for Business Finance have been estimated on an individual basis by assessing the recoverability and condition of
the secured asset, along with any other recoveries that may be made.
For further details on Vehicle Finance used car valuations and Consumer Finance affordability, see Notes 16.1.4 and 16.2.1,
respectively.
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Reconciliations of the opening to closing allowance for impairment of loans and advances are presented below:
Not credit-impaired | Credit-impaired | |||
Stage 1: | Stage 2: | Stage 3: | ||
Subject to | Subject to | Subject to | ||
12-month ECL | lifetime ECL | lifetime ECL | Total | |
£million | £million | £million | £million | |
At 1 January 2023 | 24.3 | 28.6 | 25.1 | 78.0 |
(Decrease)/increase due to change in credit risk | ||||
– Transfer to Stage 2 | (10.4) | 56.1 | – | 45.7 |
– Transfer to Stage 3 | (0.1) | (30.6) | 41.9 | 11.2 |
– Transfer to Stage 1 | 10.2 | (35.3) | – | (25.1) |
Passage of time | (9.1) | 3.5 | 3.7 | (1.9) |
New loans originated | 20.5 | – | – | 20.5 |
Matured and derecognised loans | (2.3) | (4.6) | (4.7) | (11.6) |
Changes to credit risk parameters | (5.3) | 0.5 | 0.3 | (4.5) |
Other adjustments | 3.0 | – | – | 3.0 |
Charge/(credit) to income statement | 6.5 | (10.4) | 41.2 | 37.3 |
Allowance utilised in respect of write-offs | (1.3) | – | (25.9) | (27.2) |
31 December 2023 | 29.5 | 18.2 | 40.4 | 88.1 |
Group
Not credit-impaired | Credit-impaired | |||
Stage 1: | Stage 2: | Stage 3: | ||
Subject to | Subject to | Subject to | ||
12-month ECL | lifetime ECL | lifetime ECL | Total | |
£million | £million | £million | £million | |
At 1 January 2022 | 18.5 | 20.0 | 29.0 | 67.5 |
(Decrease)/increase due to change in credit risk | ||||
– Transfer to Stage 2 | (8.8) | 46.3 | – | 37.5 |
– Transfer to Stage 3 | (0.4) | (21.4) | 29.5 | 7.7 |
– Transfer to Stage 1 | 2.3 | (4.6) | - | (2.3) |
Passage of time | (6.3) | (0.7) | (2.5) | (9.5) |
New loans originated | 23.2 | – | – | 23.2 |
Matured and derecognised loans | (2.9) | (3.8) | (5.2) | (11.9) |
Changes to credit risk parameters | (2.9) | (7.2) | 1.9 | (8.2) |
Other adjustments | 2.4 | – | – | 2.4 |
Charge to income statement | 6.6 | 8.6 | 23.7 | 38.9 |
Allowance utilised in respect of write-offs | (0.8) | – | (27.6) | (28.4) |
31 December 2022 | 24.3 | 28.6 | 25.1 | 78.0 |
During the prior year, £8.1 million was utilised in respect of the DMS book sale.
The tables above have been prepared based on monthly movements in the ECL.
Passage of time represents the impact of accounts maturing through their contractual life, the associated reduction in PDs and the
unwind of the discount applied in calculating the ECL.
Changes to credit risk parameters represent movements that have occurred due to the Group updating model inputs. This would
include the impact of, for example, updating the macroeconomic scenarios applied to the models.
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Other adjustments represents the movement in the Vehicle Finance voluntary termination provision.
Stage 1 write-offs arise on Vehicle Finance accounts where borrowers have exercised their right to voluntarily terminate
their agreements.
A breakdown of the gross receivable by internal credit risk rating is shown below:
Group and Company
| 2023 | 2022 | |||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
£million | £million | £million | £million | £million | £million | £million | £million | |
Business Finance: | ||||||||
Strong | 57.9 | – | – | 57.9 | 127.5 | – | – | 127.5 |
Good | 1,087.8 | 4.5 | – | 1,092.3 | 962.4 | 28.5 | – | 990.9 |
Satisfactory | 236.5 | 82.0 | 28.8 | 347.3 | 195.7 | 125.7 | 1.8 | 323.2 |
Weak | – | 59.3 | 78.2 | 137.5 | – | 40.2 | 15.5 | 55.7 |
1,382.2 | 145.8 | 107.0 | 1,635.0 | 1,285.6 | 194.4 | 17.3 | 1,497.3 | |
Consumer Finance: | ||||||||
Good | 706.0 | 58.9 | 10.1 | 775.0 | 601.5 | 77.6 | 6.0 | 685.1 |
Satisfactory | 596.5 | 54.4 | 18.4 | 669.3 | 495.3 | 60.5 | 9.3 | 565.1 |
Weak | 266.8 | 38.7 | 18.6 | 324.1 | 197.4 | 38.2 | 14.4 | 250.0 |
1,569.3 | 152.0 | 47.1 | 1,768.4 | 1,294.2 | 176.3 | 29.7 | 1,500.2 | |
Internal credit risk rating is based on the most recent credit risk score of a customer.
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Company
All Company allowances for impairment of loans and advances are the same as Group, except for the table below. For the Company
disclosure, see the Group tables on pages 136 to 139 and Note 24.
Not credit-impaired | Credit-impaired | |||
Stage 1: | Stage 2: | Stage 3: | ||
Subject to | Subject to | Subject to | ||
12-month ECL | lifetime ECL | lifetime ECL | Total | |
£million | £million | £million | £million | |
At 1 January 2022 | 18.6 | 20.3 | 22.0 | 60.9 |
(Decrease)/increase due to change in credit risk | ||||
– Transfer to Stage 2 | (8.8) | 46.3 | – | 37.5 |
– Transfer to Stage 3 | (0.4) | (21.4) | 29.5 | 7.7 |
– Transfer to Stage 1 | 2.3 | (4.6) | – | (2.3) |
Passage of time | (6.4) | (1.0) | (1.8) | (9.2) |
New loans originated | 23.2 | – | – | 23.2 |
Matured and derecognised loans | (2.9) | (3.8) | (5.2) | (11.9) |
Changes to credit risk parameters | (2.9) | (7.2) | 1.0 | (9.1) |
Other adjustments | 2.4 | – | (0.2) | 2.2 |
Charge to income statement | 6.5 | 8.3 | 23.3 | 38.1 |
Allowance utilised in respect of write-offs | (0.8) | – | (20.2) | (21.0) |
31 December 2022 | 24.3 | 28.6 | 25.1 | 78.0 |
The tables above have been prepared based on monthly movements in the ECL.
Passage of time represent the impact of accounts maturing through their contractual life, the associated reduction in PDs and the
unwind of the discount applied in calculating the ECL.
Changes to credit risk parameters represent movements that have occurred due to the Group updating model inputs. This would
include the impact of, for example, updating the macroeconomic scenarios applied to the models.
Other adjustments represents the movement in the Vehicle Finance voluntary termination provision.
Stage 1 write-offs arise on Vehicle Finance accounts that have exercised their right to voluntarily terminate their agreements.
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Notes to the consolidated financial statements
16. Allowances for impairment of loans and advances
continued
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The Group recognises loss allowances for Expected Credit Losses (‘ECL’) on all financial assets carried at amortised cost,
including lease receivables and loan commitments. Credit loss allowances on Stage 1 assets are measured as an amount equal
to 12-month ECL and credit loss allowances on Stage 2 and Stage 3 assets are measured as an amount equal to lifetime ECL.
Stage 1 assets
Stage 1 assets comprise of the following:
• Financial assets determined to have low credit risk at the reporting date.
• Financial assets that have not experienced a significant increase in credit risk since their initial recognition.
• Financial assets that have experienced a significant increase in credit risk since their initial recognition, but have subsequently
met the Group’s cure policy, as set out below.
A low credit risk asset is considered to have low credit risk when its credit risk rating is equivalent to the widely understood
definition of ‘investment grade’ assets. This is not applicable to loans and advances to customers, but the Group has assessed
all its debt securities, which represents UK Treasury bills, to be low credit risk.
Stage 2 assets
Loans and advances to customers that have experienced a significant increase in credit risk since their initial recognition and
have not subsequently met the Group’s cure policy are classified as Stage 2 assets and are reclassified from stage 1 to stage 2.
The Group’s definitions of a significant increase in credit risk and default are set out below.
For Consumer Finance, the credit risk of a financial asset is considered to have experienced a significant increase in credit risk
since initial recognition where there has been a significant increase in the remaining lifetime probability of default of the asset.
The Group may also use its expert credit judgement, and where possible, relevant historical and current performance data,
including bureau data, to determine that an exposure has undergone a significant increase in credit risk.
For Business Finance, the credit risk of a financial asset is considered to have experienced a significant increase in credit
risk where certain early warning indicators apply. These indicators may include notification of county court judgements or,
specifically for the Real Estate Finance portfolio, cost over-runs and timing delays experienced by borrowers.
As a backstop, the Group considers that a significant increase in credit risk occurs no later than when an asset is more than 30
days past due for all portfolios.
Stage 3 assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired or defaulted
(Stage 3). A financial asset is considered to be credit-impaired when an event or events that have a detrimental impact on
estimated future cash flows have occurred, or have other specific unlikeliness to pay indicators. Evidence that a financial asset
is credit-impaired includes the following observable data:
• Initiation of bankruptcy proceedings.
• Notification of bereavement.
• Identification of loan meeting debt sale criteria.
• Initiation of repossession proceedings.
• A material covenant breach that has remained unremedied for more than 90 days.
In addition, a loan that is 90 days or more past due is considered credit-impaired for all portfolios. The credit risk of financial
assets that become credit-impaired are not expected to improve so they remain credit-impaired.
For Commercial Finance facilities that do not have a fixed term or repayment structure, evidence that a financial asset is
credit-impaired includes:
• the client ceasing to trade; or
• unpaid debtor balances that are dated at least six months past their normal recourse period.
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16. Allowances for impairment of loans and advances
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Cure policy
The credit risk of a financial asset may improve such that it is no longer considered to have experienced a significant increase in
credit risk if it meets the Group’s cure policy. The Group’s cure policy for all portfolios requires sufficient payments to be made to
bring an account back within less than 30 days past due and for such payments to be maintained for six consecutive months in
Vehicle Finance and three months in Retail Finance.
For Consumer Finance loans, the Group has determined Stage 3 to be an absorbing state. Once a loan is in default it is not
therefore expected to cure back to Stage 1 or 2.
Calculation of expected credit loss (‘ECL’)
ECL are probability weighted estimates of credit losses that are measured as the present value of all cash shortfalls. Specifically,
this is the difference between the contractual cash flows due and the cash flows expected to be received, discounted at the
original effective interest rate. For undrawn loan commitments ECL is measured as the difference between the contractual cash
flows due if the commitment is drawn and the cash flows expected to be received.
Lifetime ECL is the ECL that results from all possible default events over the expected life of a financial asset.
12-month ECL is the portion of lifetime ECL that results from default events on a financial asset that are possible within
12 months after the reporting date.
ECL are calculated by multiplying three main components: the Probability of Default (‘PD’), Exposure At Default (‘EAD’) and Loss
Given Default (‘LGD’) discounted at the original effective interest rate of an asset. These variables are derived from internally
developed statistical models and historical data, adjusted to reflect forward-looking information and are discussed in turn
further below. Management adjustments are made to modelled output to account for situations, where known, or expected
risk factors that have not been reflected in the modelled outcome.
Probability of Default (‘PD’) and credit risk grades
Credit risk grades are a primary input into the determination of the PD for exposures. The Group allocates each exposure to
a credit risk grade at origination and at each reporting period to predict the risk of default. Credit risk grades are determined
using qualitative and quantitative factors that are indicative of the risk of default e.g. arrears status and loan applications scores.
These factors vary for each loan portfolio. Exposures are subject to ongoing monitoring, which may result in an exposure being
moved to a different credit risk grade. In monitoring exposures information, such as payment records, request for forbearance
strategies and forecast changes in economic conditions are considered for Consumer Finance. Additionally, for Business
Finance portfolios information obtained during periodic client reviews, for example, audited financial statements, management
accounts, budgets and projections are considered, with particular focus on key ratios, compliance with covenants and changes
in senior management teams.
Emergence curves modelling is used in the production of forward-looking lifetime PDs. This method defines the way that
debt emerges for differing quality accounts and their time on the books creating a clean relationship to best demonstrate the
movement in default rates as macroeconomic variables are changed. These models are extrapolated to provide PD estimates
for the future, based on forecasted economic scenarios.
Exposure at Default (‘EAD’)
EAD represents the expected exposure in the event of a default. EAD is derived from the current exposure and potential
changes to the current amount allowed under the terms of the contract, including amortisation overpayments and early
terminations. The EAD of a financial asset is its gross carrying amount. For loan commitments the EAD includes the amount
drawn, as well as potential future amounts that may be drawn under the terms of the contract, estimated based on historical
observations and forward-looking forecasts.
For Commercial Finance facilities that have no specific term, an assumption is made that accounts close 36 months after the
reporting date for the purposes of measuring lifetime ECL. This assumption is based on industry experience of average client
life. These facilities do not have a fixed term or repayment structure, but are revolving and increase or decrease to reflect the
value of the collateral i.e. receivables or inventory. The Group can cancel the facilities with immediate effect, although this
contractual right is not enforced in the normal day-to-day management of the facility. Typically, demand would only be made on
the failure of a client business or in the event of a material event of default, such as a fraud. In the normal course of events, the
Group’s exposure is recovered through receipt of remittances from the client’s debtors rather than from the client itself.
The ECL for such facilities is estimated taking into account the credit risk management actions that the Group expects to take to
mitigate against losses. These include a reduction in advance rate and facility limits or application of reserves against a facility to
improve the likelihood of full recovery of exposure from the debtors.
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Notes to the consolidated financial statements
16. Allowances for impairment of loans and advances
continued
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Alternative recovery routes mitigating ECL would include refinancing by another funding provider, taking security over other
asset classes or secured personal guarantees from the client’s principals.
Loss Given Default (‘LGD’)
LGD is the magnitude of the likely loss in the event of default. This takes into account recoveries either through curing or, where
applicable, through the auction sale of repossessed collateral and debt sale of the residual shortfall amount. For loans secured
by real estate property, loan-to-value ratios are key parameters in determining LGD. LGDs are calculated on a discounted cash
flow basis using the financial instrument’s origination effective interest rate as the discount factor.
Incorporation of forward-looking data
The Group incorporates forward-looking information into both its assessment of whether the credit risk of a financial asset has
increased significantly since initial recognition and its measurement of ECL. This is achieved by developing a number of potential
economic scenarios and modelling ECLs for each scenario. To ensure material non-linear relationships between economic factors
and credit losses are reflected in the calculation of ECL, a severe stress scenario is used as one of these scenarios. The outputs from
each scenario are combined using the estimated likelihood of each scenario occurring to derive a probability weighted expected
credit loss. The four scenarios adopted and probability weighting applied are set out on page 144.
The Group considers that the key drivers of credit risk and credit losses included in the macroeconomic scenarios are annual
unemployment rate growth and annual house price index growth. Base case assumptions applied for each of these variables
have been sourced from external consensus or Bank of England forecasts. Further details of the assumptions applied to other
scenarios are presented on page 144.
Expert credit judgements
The impairment charge comprises modelled ECLs and expert credit judgements. Where the ECL modelled output does not
reflect the level of credit risk, judgement is used to calculate expert credit judgements, which are overlaid on to the output from
the models.
Presentation of loss allowance
Loss allowances for ECLs and expert credit judgements are presented in the statement of financial position as follows with the
loss recognised in the income statement:
• Financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets.
• Other loan commitments: generally, as a provision.
For the Real Estate Finance and Commercial Finance portfolios, where a loan facility is agreed that includes both drawn and
undrawn elements and the Group cannot identify the ECL on the loan commitment separately, a combined loss allowance for
both drawn and undrawn components of the loan is presented as a deduction from the gross carrying amount of the drawn
component, with any excess of the loss allowance over the gross drawn amount presented as a provision.
When a loan is uncollectible, it is written off against the related ECL allowance. Such loans are written off after all necessary
procedures have been completed and the amount of the loss has been determined.
Vehicle Finance voluntary termination provision
In addition to recognising allowances for ECLs, the Group holds a provision for Voluntary Terminations (‘VT’) for all Vehicle
Finance financial assets. VT is a legal right provided to customers who take out hire purchase agreements. The provision is
calculated by multiplying the probability of VT of an asset by the expected shortfall on VT discounted back at the original
effective interest rate of the asset. VT allowances are not held against loans in default (Stage 3 loans).
The VT provision is presented in the statement of financial position as a deduction from the gross carrying amount of Vehicle
Finance assets with the loss recognised in the income statement.
Write off
Loans and advances to customers are written off partially or in full when the Group has exhausted all viable recovery options.
The majority of write-offs arise from Debt Relief Orders, insolvencies, Individual Voluntary Arrangements, deceased customers
where there is no estate and vulnerable customers in certain circumstances. Amounts subsequently recovered on assets
previously written off are recognised in the impairment charge in the income statement.
Intercompany receivables
The parent company’s expected credit loss on amounts due from related companies is calculated by applying probability of
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16. Allowances for impairment of loans and advances
continued
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Estimations that could have a material impact on the Group’s financial results and are therefore considered to be key sources of
estimation uncertainty all relate to the impairment charge on loans and advances to customers and are therefore set out below.
The potential impact of the current macroeconomic environment has been considered in determining reasonably possible
changes in key sources of estimation uncertainty that may occur in the next 12 months. The determination of both the PD and
LGD require estimation, which is discussed further below.
16.1.1. Incorporation of forward-looking data
The Group incorporates forward-looking information into both its assessment of whether the credit risk of a financial asset has
increased significantly since initial recognition and its measurement of expected credit loss by developing a number of potential
economic scenarios and modelling expected credit losses for each scenario. Further detail on this process is provided on page
143. The macroeconomic scenarios used were provided by external economic advisers. The scenarios and weightings applied
are summarised below:
December 2023 | UK unemployment rate – Annual Average | UK HPI – movement from December 2023 | |||||||
2024 | 2025 | 2026 | 5 Yr Average | 2024 | 2025 | 2026 | 5 Yr Average | ||
Scenario | Weightings | % | % | % | % | % | % | % | % |
Upside | 20% | 4.2 | 3.9 | 3.8 | 3.9 | (0.7) | 2.4 | 9.4 | 3.7 |
Base | 50% | 4.5 | 4.4 | 4.1 | 4.1 | (4.3) | (3.3) | 0.9 | 2.1 |
Downside | 25% | 5.4 | 6.5 | 7.1 | 6.5 | (10.4) | (13.8) | (14.3) | (0.9) |
Severe | 5% | 5.7 | 7.0 | 7.6 | 7.0 | (15.1) | (21.8) | (26.0) | (3.5) |
December 2022 | UK unemployment rate – Annual Average | UK HPI – movement from December 2022 | |||||||
2023 | 2024 | 2025 | 5 Yr Average | 2023 | 2024 | 2025 | 5 Yr Average | ||
Scenario | Weightings | % | % | % | % | % | % | % | % |
Upside | 20% | 4.1 | 4.0 | 3.8 | 3.8 | (5.2) | (6.3) | (2.0) | 1.9 |
Base | 50% | 4.4 | 4.4 | 4.0 | 4.1 | (8.4) | (11.4) | (9.2) | 0.4 |
Downside | 25% | 5.4 | 6.5 | 7.1 | 6.5 | (14.6) | (21.3) | (23.5) | (2.6) |
Severe | 5% | 5.6 | 7.0 | 7.6 | 6.9 | (19.2) | (28.8) | (34.3) | (5.2) |
The sensitivity of the ECL allowance to reasonably possible changes in scenario weighting (an increase in downside case
weighting from the upside case and an increase in severe stress case weighting from the base case) has been assessed by the
Group and computed as not material.
The Group recognised a total impairment charge of £43.2 million (2022: £39.0 million). Were each of the scenarios to be applied
at 100%, rather than using the weightings set out above, the increase/(decrease) in ECL provisions would be as follows:
| 2023 | 2022 | |||||||
Vehicle Finance | Retail Finance | Business Finance | Total Group | Vehicle Finance | Retail Finance | Business Finance | Total Group | |
Scenario | £million | £million | £million | £million | £million | £million | £million | £million |
Upside | (0.4) | (1.2) | (0.3) | (1.9) | (1.9) | (0.3) | (0.7) | (2.9) |
Base | (0.2) | (0.5) | (0.2) | (0.9) | (1.5) | 0.4 | (0.4) | (1.5) |
Downside | 0.5 | 1.5 | 0.4 | 2.4 | 0.9 | 3.0 | 0.9 | 4.8 |
Severe | 0.6 | 2.2 | 1.1 | 3.9 | 1.6 | 3.8 | 1.7 | 7.1 |
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Notes to the consolidated financial statements
16. Allowances for impairment of loans and advances
continued
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16.1.2. ECL modelled output: Estimation of PDs
Sensitivity to reasonably possible changes in PD could potentially result in material changes in the ECL allowance for Vehicle
Finance and Retail Finance.
A 15% change in the PD for Vehicle Finance would immediately impact the ECL allowance by £2.5 million (2022: a 15% change
impacted the ECL allowance by £3.1 million).
A 15% change in the PD for Retail Finance would immediately impact the ECL allowance by £4.4 million (2022: a 15% change
impacted the ECL allowance by £2.5 million).
The above sensitivities reflect the levels of defaults observed during the year.
Due to the relatively low levels of provisions on the Business Finance books, sensitivity to reasonably possible changes in PD are
not considered material.
16.1.3. ECL modelled output: Vehicle Finance recovery rates
With the exception of the Vehicle Finance portfolio, the sensitivity of the ECL allowance to reasonably possible changes in
the LGD is not considered material. The Vehicle Finance portfolio is particularly sensitive to changes in LGD due to the range
of outcomes that could crystallise, depending on whether the Group is able to recover the vehicle as security. For the Vehicle
Finance portfolio, a 20% (2022: 20%) change in the LGD is considered reasonably possible due to delays in the vehicle collection
process. A 20% (2022: 20%) reduction in the vehicle recovery rate assumption element of the LGD for Vehicle Finance would
increase the ECL by £0.9 million (2022: £1.9 million). There has been no change in the vehicle recovery rate assumption in the
ECL model in either the current or prior year.
16.1.4. ECJ: Vehicle Finance used car values
At 31 December 2022, an overlay for lower recoveries impacted the ECL by £1.0 million. At 31 December 2023, observed used
car values have now adjusted to expected levels following an initial increase in used car prices since the COVID-19 pandemic in
March 2021. As a result, a sensitivity is no longer applicable.
16.1.5. Climate-risk impact
The Group has considered the impact of climate-related risks on the consolidated financial statements, in particular climate
change negatively impacting the value of the Group’s Real Estate Finance business’ security due to the increased risk of flood
associated with climate change.
While the effects of climate change represent a source of uncertainty (in respect of potential transitional risks, such as those
that may arise from changes in future Government policy), the impact of all of the climate change risks is considered to be low.
Accordingly, the Group does not consider there to be a material impact on its judgements and estimates from the physical,
transition and other climate-related risks in the short-term on the Real Estate Finance loan book.
16.2. Critical judgments
16.2.1. ECJ: Consumer Finance customer affordability
At 31 December 2023, the ECL model now captures the impact of inflation on our Consumer Businesses. The resulting expert
credit judgement relating to Consumer Finance affordability was released. As a result, at 31 December 2023 a sensitivity was no
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Group and Company
Interest rate derivatives are held for risk mitigation purposes. The table below provides an analysis of the notional amount and fair
value of derivatives by hedge accounting relationship. The amount of ineffectiveness recognised for each hedge type is shown in
Note 5. Notional amount is the amount on which payment flows are derived and does not represent amounts at risk.
Notional | Assets | Liabilities | Notional | Assets | Liabilities | |
2023 | 2023 | 2023 | 2022 | 2022 | 2022 | |
£million | £million | £million | £million | £million | £million | |
Interest rate derivatives designated in fair value | ||||||
hedges | ||||||
In less than one year | 783.7 | 6.9 | (3.0) | 689.8 | 3.9 | (6.0) |
More than one year but less than three years | 859.4 | 13.2 | (9.0) | 718.5 | 15.4 | (16.1) |
More than three years but less than five years | 494.0 | 5.3 | (9.3) | 274.9 | 15.5 | (3.3) |
More than five years | - | - | - | 7.5 | – | – |
2,137.1 | 25.4 | (21.3) | 1,690.7 | 34.8 | (25.4) | |
Interest rate derivatives designated in cash flow | ||||||
hedges | ||||||
In less than one year | 4.7 | – | (0.2) | – | – | – |
More than one year but less than three years | 9.4 | – | (0.4) | 14.1 | – | (1.1) |
More than three years but less than five years | 2.4 | 0.1 | – | 2.4 | 0.1 | – |
16.5 | 0.1 | (0.6) | 16.5 | 0.1 | (1.1) | |
Foreign exchange derivatives | ||||||
In less than one year | 28.0 | – | (0.1) | 16.7 | – | (0.2) |
2,181.6 | 25.5 | (22.0) | 1,723.9 | 34.9 | (26.7) |
In order to manage interest rate risk arising from fixed rate financial instruments, the Group monitors its interest rate mismatch
regularly throughout each month, seeking to ‘match’ assets and liabilities in the first instance and hedging residual risk using interest
rate derivatives to maintain adherence to risk appetites. Some residual risk remains due to timing differences. The exposure from the
portfolio frequently changes due to the origination of new instruments, contractual repayments and early prepayments made in each
period. As a result, the Group adopts a dynamic hedging strategy (sometimes referred to as ‘macro’ or ‘portfolio’ hedge) to hedge
its exposure profile by closing and entering into new interest rate derivative agreements. The Group establishes the hedging ratio by
matching the derivatives with the principal of the portfolio being hedged.
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The following table sets out details of the hedged exposures covered by the Group’s hedging strategies:
Accumulated amount | Accumulated amount | |||
Carry amount of | of fair value adjustments | Carry amount of | of fair value adjustments | |
hedged item | in the hedged items | hedged item | in the hedged items | |
Asset/(liability) | (Liability)/asset | Asset/(liability) | (Liability)/asset | |
2023 | 2023 | 2022 | 2022 | |
£million | £million | £million | £million | |
ASSETS | ||||
Interest rate fair value hedges | ||||
Loans and advances to customers | ||||
Fixed rate Real Estate Finance loans | 565.5 | (3.5) | 430.7 | (22.3) |
Fixed rate Vehicle Finance loans | 130.5 | (0.3) | 110.5 | (4.0) |
Fixed rate Retail Finance loans | 393.0 | (0.1) | 249.2 | (5.7) |
1,089.0 | (3.9) | 790.4 | (32.0) | |
Interest rate cash flow hedges | ||||
Cash and Bank of England reserve account | ||||
Bank of England reserve | 16.5 | N/A | 16.5 | N/A |
1,105.5 | (3.9) | 806.9 | (32.0) | |
LIABILITIES | ||||
Interest rate fair value hedges | ||||
Deposits from customers | ||||
Fixed rate customer deposits | (957.6) | 3.6 | (900.3) | 23.0 |
Subordinated liabilities | ||||
Fixed rate Tier 2 regulatory capital | (90.0) | (2.2) | – | – |
(1,047.6) | 1.4 | (900.3) | 23.0 |
The accumulated amount of fair value hedge adjustments remaining in the statement of financial position for hedged items that have
ceased to be adjusted for hedging gains and losses is £nil (2022: £0.2 million).
The following table shows the impact of financial assets and financial liabilities relating to transactions where:
• there is an enforceable master netting agreement in place, but the offset criteria are not otherwise satisfied, and
• financial collateral is paid and received.
Gross amount | Master | Net amounts | ||
reported on | netting | Financial | after | |
balance sheet | arrangements | collateral | offsetting | |
£million | £million | £million | £million | |
31 December 2023 | ||||
Derivative financial assets | ||||
Interest rate derivatives | 25.5 | (21.9) | (3.5) | 0.1 |
25.5 | (21.9) | (3.5) | 0.1 | |
Derivative financial liabilities | ||||
Interest rate derivatives | (21.9) | 21.9 | – | – |
Foreign exchange derivatives | (0.1) | – | 0.2 | 0.1 |
(22.0) | 21.9 | 0.2 | 0.1 |
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Gross amount | Master | |||
reported on | netting | Financial | Net amounts | |
balance sheet | arrangements | collateral | after offsetting | |
£million | £million | £million | £million | |
31 December 2022 | ||||
Derivative financial assets | ||||
Interest rate derivatives | 34.9 | (26.5) | (7.7) | 0.7 |
34.9 | (26.5) | (7.7) | 0.7 | |
Derivative financial liabilities | ||||
Interest rate derivatives | (26.5) | 26.5 | – | – |
Foreign exchange derivatives | (0.2) | – | – | (0.2) |
(26.7) | 26.5 | – | (0.2) |
Master netting arrangements do not meet the criteria for offsetting in the statement of financial position. This is because the
arrangement creates an agreement for a right of set-off of recognised amounts, which is enforceable only following an event of
default, insolvency or bankruptcy of the Group or counterparties. Furthermore, the Group and its counterparties do not intend to
settle on a net basis or realise the assets and settle the liabilities simultaneously.
Group | Company | |
£million | £million | |
1 January 2022 | 4.7 | 5.7 |
Disposal | (3.3) | (3.3) |
Transfer to property, plant and equipment | (1.4) | (1.4) |
At 31 December 2022 | – | 1.0 |
Revaluation | – | (0.1) |
At 31 December 2023 | – | 0.9 |
The Company’s investment property comprises 25 and 26 Neptune Court, Vanguard Way, Cardiff CF24 5PJ, which is occupied by one
of the Company’s subsidiaries.
The transfer to Property, plant and equipment during 2022 related to a property that was previously let to a third party, which became
vacant and was subsequently occupied by the Company.
The Company’s investment property was stated at fair value as at 31 December 2023. The Directors have assessed the value of the
investment property at the year-end through comparison to current rental yields on similar properties in the same area. This has
resulted in a reduction in the carrying amount of £0.1 million since 31 December 2022. Movements in the fair value of investment
property are recognised as operating expenses in the income statement.
Investment property, which is property held to earn rentals and for capital appreciation, is measured initially at cost, including
transaction costs. Subsequent to initial recognition, investment property is measured at fair value. External valuations are
performed on a triennial basis. Gains or losses arising from changes in the fair value of investment property are included in
the income statement in the period in which they arise.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use
and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property
(calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the
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Group
Computer | ||||
Freehold land | Leasehold | and other | ||
and buildings | property | equipment | Total | |
£million | £million | £million | £million | |
Cost or valuation | ||||
At 1 January 2022 | 6.9 | 0.1 | 9.3 | 16.3 |
Land and buildings prior year restatement | ||||
(see Note 1.3) | 1.8 | – | – | 1.8 |
At 1 January 2022 (as restated) | 8.7 | 0.1 | 9.3 | 18.1 |
Additions | – | – | 1.0 | 1.0 |
Disposals | – | (0.1) | (3.4) | (3.5) |
Transfer from investment properties | 1.4 | – | – | 1.4 |
At 31 December 2022 | 10.1 | – | 6.9 | 17.0 |
Additions | – | – | 2.2 | 2.2 |
Disposals | – | – | (1.4) | (1.4) |
At 31 December 2023 | 10.1 | – | 7.7 | 17.8 |
Accumulated depreciation | ||||
At 1 January 2022 | – | – | (7.0) | (7.0) |
Land and buildings prior year restatement | ||||
(see Note 1.3) | (2.3) | – | – | (2.3) |
At 1 January 2022 (as restated) | (2.3) | – | (7.0) | (9.3) |
Depreciation charge | (0.1) | – | (1.1) | (1.2) |
Disposals | – | – | 3.2 | 3.2 |
At 31 December 2022 | (2.4) | – | (4.9) | (7.3) |
Depreciation charge | (0.1) | – | (0.8) | (0.9) |
Disposals | – | – | 1.2 | 1.2 |
At 31 December 2023 | (2.5) | – | (4.5) | (7.0) |
Net book amount | ||||
At 31 December 2022 | 7.7 | – | 2.0 | 9.7 |
At 31 December 2023 | 7.6 | – | 3.2 | 10.8 |
The Group’s freehold properties, which are occupied by the Group, comprise:
• the Registered Office of the Company;
• One Arleston Way, Solihull, B90 4LH; and
• 25 and 26 Neptune Court, Vanguard Way, Cardiff CF24 5PJ.
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Company
Computer | |||
Freehold | and other | ||
property | equipment | Total | |
£million | £million | £million | |
Cost or valuation | |||
At 1 January 2022 | 2.1 | 6.4 | 8.5 |
Land and buildings prior year restatement | |||
(see Note 1.3) | 0.3 | – | 0.3 |
At 1 January 2022 (as restated) | 2.4 | 6.4 | 8.8 |
Additions | – | 0.3 | 0.3 |
Disposals | – | (0.5) | (0.5) |
Transfer from investment properties | 1.4 | – | 1.4 |
At 31 December 2022 | 3.8 | 6.2 | 10.0 |
Additions | – | 2.1 | 2.1 |
Disposals | – | (1.2) | (1.2) |
At 31 December 2023 | 3.8 | 7.1 | 10.9 |
Accumulated depreciation | |||
At 1 January 2022 | – | (4.8) | (4.8) |
Land and buildings prior year restatement | |||
(see Note 1.3) | (0.1) | – | (0.1) |
At 1 January 2022 (as restated) | (0.1) | (4.8) | (4.9) |
Depreciation charge | – | (0.7) | (0.7) |
Disposals | – | 0.5 | 0.5 |
At 31 December 2022 | (0.1) | (5.0) | (5.1) |
Depreciation charge | (0.1) | (0.5) | (0.6) |
Disposals | – | 1.1 | 1.1 |
At 31 December 2023 | (0.2) | (4.4) | (4.6) |
Net book amount | |||
At 31 December 2022 | 3.7 | 1.2 | 4.9 |
At 31 December 2023 | 3.6 | 2.7 | 6.3 |
The Company’s freehold property comprises the Registered Office of the Company.
During the year, the accounting policy has been changed from carrying freehold properties at fair value to historic cost. Further details
are given in Note 1.3.
The carrying value of freehold land, which is included in the total carrying value of freehold land and buildings, and which is not
depreciated at 31 December 2023 and 31 December 2022 was £1.5 million for the Group and £0.8 million for the Company.
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19. Property, plant and equipment
continued
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losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Pre-installed computer
software licences are capitalised as part of the computer hardware it is installed on. Depreciation is calculated using the straight-
line method to allocate their cost to their residual values over their estimated useful lives, which are subject to regular review:
Land
not depreciated
Freehold buildings
50 years
Leasehold improvements
shorter of life of lease or seven years
Computer equipment
three to five years
Other equipment
five to ten years
The above useful economic lives have not changed since the prior year.
Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the
income statement.
| Group | Company | |||||
Leasehold | Leased motor | Leasehold | Leased motor | |||
property | vehicles | Total | property | vehicles | Total | |
£million | £million | £million | £million | £million | £million | |
Cost | ||||||
At 1 January 2022 | 4.4 | 0.3 | 4.7 | 3.1 | 0.2 | 3.3 |
Additions | – | 0.5 | 0.5 | – | 0.2 | 0.2 |
Disposals | (1.3) | (0.2) | (1.5) | – | (0.2) | (0.2) |
At 31 December 2022 | 3.1 | 0.6 | 3.7 | 3.1 | 0.2 | 3.3 |
Additions | 0.8 | 0.2 | 1.0 | 0.8 | 0.1 | 0.9 |
At 31 December 2023 | 3.9 | 0.8 | 4.7 | 3.9 | 0.3 | 4.2 |
Accumulated depreciation | ||||||
At 1 January 2022 | (2.2) | (0.3) | (2.5) | (1.6) | (0.2) | (1.8) |
Depreciation charge | (0.6) | (0.1) | (0.7) | (0.4) | – | (0.4) |
Disposals | 0.8 | 0.2 | 1.0 | – | 0.2 | 0.2 |
At 31 December 2022 | (2.0) | (0.2) | (2.2) | (2.0) | – | (2.0) |
Depreciation charge | (0.5) | (0.2) | (0.7) | (0.5) | (0.1) | (0.6) |
At 31 December 2023 | (2.5) | (0.4) | (2.9) | (2.5) | (0.1) | (2.6) |
Net book amount | ||||||
At 31 December 2022 | 1.1 | 0.4 | 1.5 | 1.1 | 0.2 | 1.3 |
At 31 December 2023 | 1.4 | 0.4 | 1.8 | 1.4 | 0.2 | 1.6 |
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20. Right-of-use assets
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The Group assesses whether a contract is or contains a lease at inception of the contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group
recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another
systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the future lease payments, discounted by using the rate implicit in
the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. It is subsequently measured
by increasing the carrying amount to reflect interest on the lease liability (using the effective interest rate method) and by
reducing the carrying amount to reflect the lease payments made, and is presented as a separate line in the consolidated
statement of financial position.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before
the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost
less accumulated depreciation and impairment charges and are depreciated over the shorter of the lease term and useful life of
the underlying asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are presented as a
separate line in the consolidated statement of financial position. The Group applies IAS 36 to determine whether a right-of-use
asset is impaired and accounts for any identified impairment loss as described in the ‘Property, plant and equipment’ policy.
Rentals made under operating leases for less than 12 months in duration, and operating leases on low value items, are
Other | ||||
Computer | intangible | |||
Goodwill | software | assets | Total | |
£million | £million | £million | £million | |
Cost or valuation | ||||
At 1 January 2022 | 1.0 | 17.3 | 2.2 | 20.5 |
Additions | – | 1.7 | – | 1.7 |
Disposals | – | (1.8) | – | (1.8) |
At 31 December 2022 | 1.0 | 17.2 | 2.2 | 20.4 |
Additions | – | 0.5 | – | 0.5 |
At 31 December 2023 | 1.0 | 17.7 | 2.2 | 20.9 |
Accumulated amortisation | ||||
At 1 January 2022 | – | (11.6) | (2.0) | (13.6) |
Amortisation charge | – | (1.2) | (0.2) | (1.4) |
Disposals | – | 1.2 | – | 1.2 |
At 31 December 2022 | – | (11.6) | (2.2) | (13.8) |
Amortisation charge | – | (1.2) | – | (1.2) |
At 31 December 2023 | – | (12.8) | (2.2) | (15.0) |
Net book amount | ||||
At 31 December 2022 | 1.0 | 5.6 | – | 6.6 |
At 31 December 2023 | 1.0 | 4.9 | – | 5.9 |
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Goodwill above relates to the V12 cash generating unit, which is part of the Retail Finance operating segment.
The recoverable amount of these cash generating units are determined on a value in use calculation, which uses cash flow projections
based on financial forecasts covering a three-year period, and a discount rate of 8% (2022: 8%). Cash flow projections during the
forecast period are based on the expected rate of new business. A zero growth based scenario is also considered. The Directors
believe that any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the
aggregate carrying amount to exceed the aggregate recoverable amount of the cash generating unit. Hence no impairment has
been recognised.
Other intangible assets were recognised as part of the V12 Finance Group acquisition, which are now fully amortised.
Company
Computer | |||
Goodwill | software | Total | |
£million | £million | £million | |
Cost or valuation | |||
At 1 January 2022 | 0.3 | 12.4 | 12.7 |
Additions | – | 0.1 | 0.1 |
At 31 December 2022 | 0.3 | 12.5 | 12.8 |
Additions | – | 0.1 | 0.1 |
At 31 December 2023 | 0.3 | 12.6 | 12.9 |
Accumulated amortisation | |||
At 1 January 2022 | – | (7.3) | (7.3) |
Amortisation charge | – | (1.1) | (1.1) |
At 31 December 2022 | – | (8.4) | (8.4) |
Amortisation charge | – | (1.0) | (1.0) |
At 31 December 2023 | – | (9.4) | (9.4) |
Net book amount | |||
At 31 December 2022 | 0.3 | 4.1 | 4.4 |
At 31 December 2023 | 0.3 | 3.2 | 3.5 |
Goodwill above relates to the Retail Finance operating segment. The recoverable amount is determined on the same basis as for
the Group.
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21. Intangible assets
continued
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Goodwill represents the excess of the cost of the acquisition over the fair value of the Group’s share of the net identifiable assets
acquired at the date of acquisition. Goodwill is held at cost less accumulated impairment charge and is deemed to have an
infinite life.
The Group reviews the goodwill for impairment at least annually or when events or changes in economic circumstances indicate
that impairment may have taken place. An impairment charge is recognised in the income statement if the carrying amount
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the
specific software.
Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred
unless the technical feasibility of the development has been demonstrated, and it is probable that the expenditure will enable
the asset to generate future economic benefits in excess of its originally assessed standard of performance, in which case they
are capitalised.
These costs are amortised on a straight-line basis over their expected useful lives, which are between three to 10 years.
(c) Other intangibles
The acquisition of subsidiaries has been accounted for in accordance with IFRS 3 ‘Business Combinations’, which requires the
recognition of the identifiable assets acquired and liabilities assumed at their acquisition date fair values. As part of this process,
it was necessary to recognise certain intangible assets that are separately identifiable and are not included on the acquiree’s
balance sheet, which are amortised over their expected useful lives, as set out above.
Company
2023 | 2022 | |
Cost and net book value | £million | £million |
At 1 January | 5.7 | 4.3 |
Addition – Investment in AppToPay Ltd | – | 1.0 |
Equity contributions to subsidiaries in respect of share options | 0.2 | 0.4 |
At 31 December | 5.9 | 5.7 |
During the prior year, the Group completed the acquisition of 100% of the issued share capital of AppToPay Ltd for £1.0 million.
AppToPay Ltd was the owner of a proprietary technology platform.
The Group elected to use the optional practical expedient within IFRS 3 Business Combinations, which allows a simplified assessment
that a purchase is accounted for as an asset purchase as opposed to a business combination if substantially all the fair value of the
gross assets acquired is concentrated in a single identifiable asset. AppToPay Ltd’s principal asset was a software development
intangible asset. Since acquisition, the assets and liabilities have been transferred across to V12 Retail Finance Limited.
Shares in subsidiary undertakings of Secure Trust Bank PLC are stated at cost less any provision for impairment. All subsidiary
undertakings are unlisted and none are banking institutions. The share capital of the subsidiary undertakings comprises solely of
ordinary shares and all are 100% owned by the Company. The subsidiary undertakings were all incorporated in the UK and wholly
owned via ordinary shares. All subsidiary undertakings are included in the consolidated financial statements and have an accounting
reference date of 31 December.
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Company number | Principal activity | |
Owned directly | ||
AppToPay Ltd | 11204449 | Non-trading |
Debt Managers (Services) Limited | 08092808 | Debt management |
Secure Homes Services Limited | 01404439 | Property rental |
STB Leasing Limited | 01648384 | Non-trading |
V12 Finance Group Limited | 07498951 | Holding company |
Owned indirectly via an intermediate holding company | ||
V12 Personal Finance Limited | 05418233 | Dormant |
V12 Retail Finance Limited | 04585692 | Sourcing and servicing of unsecured loans |
The registered office of the Company, and all subsidiary undertakings, is Yorke House, Arleston Way, Solihull, B90 4LH.
AppToPay Ltd, Debt Managers (Services) Limited, Secure Homes Services Limited, STB Leasing Limited, V12 Finance Group
Limited and V12 Personal Finance Limited are exempt from the requirements of the Companies Act 2006 relating to the audit of
individual accounts by virtue of s479A, and the Company has given guarantees accordingly under s479C in respect of the year ended
Group | Group | Company | Company | |
2023 | 2022 | 2023 | 2022 | |
£million | £million | £million | £million | |
Deferred tax assets: | ||||
Other short-term timing differences | 4.3 | 5.6 | 4.3 | 5.3 |
At 31 December | 4.3 | 5.6 | 4.3 | 5.3 |
Deferred tax assets: | ||||
At 1 January | 5.6 | 6.9 | 5.3 | 6.8 |
Land and buildings prior year restatement | ||||
(see Note 1.3) | – | 0.3 | – | 0.1 |
At 1 January (as restated) | 5.6 | 7.2 | 5.3 | 6.9 |
Income statement | (1.2) | (1.8) | (0.9) | (1.8) |
Other comprehensive income | (0.1) | 0.2 | (0.1) | 0.2 |
At 31 December | 4.3 | 5.6 | 4.3 | 5.3 |
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and
they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, when they intend to
settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
Deferred tax assets are recognised where it is probable that future taxable profits will be available against which the temporary
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Group | Group | Company | Company | |
2023 | 2022 | 2023 | 2022 | |
£million | £million | £million | £million | |
Gross amounts due from related companies | – | – | 4.8 | 3.1 |
less: allowances for impairment of amounts due from related companies | – | – | (2.1) | – |
Amounts due from related companies | – | – | 2.7 | 3.1 |
Other receivables | 2.4 | 1.7 | 2.3 | 1.5 |
Cloud software development prepayment | 4.4 | 4.7 | 4.4 | 4.7 |
Other prepayments and accrued income | 6.1 | 7.0 | 5.0 | 5.8 |
12.9 | 13.4 | 14.4 | 15.1 |
Cloud software development costs, principally relating to the Group’s Motor Transformation Programme, do not meet the intangible
asset recognition criteria and are therefore classified as a prepayment, which is expensed to the income statement over the useful
Group and Company
Group | Group | |
2023 | 2022 | |
£million | £million | |
Amounts due under the Bank of England’s liquidity support operations (Term Funding Scheme with | 390.0 | 390.0 |
additional incentives for SMEs (‘TFSME’)) | ||
Amounts due to other credit institutions | 6.8 | 7.7 |
Accrued interest | 5.2 | 2.8 |
402.0 | 400.5 |
Amounts due under TFSME bear interest at the Bank of England base rate and are due for repayment during 2025.
Group and Company
2023 | 2022 | |
£million | £million | |
Access accounts | 521.3 | 178.1 |
Fixed term bonds | 1,546.6 | 1,414.0 |
Notice accounts | 174.3 | 500.7 |
ISAs | 629.6 | 421.8 |
2,871.8 | 2,514.6 |
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Group | Group | Company | Company | |
2023 | 2022 | 2023 | 2022 | |
£million | £million | £million | £million | |
At 1 January | 2.1 | 3.1 | 1.9 | 2.3 |
New leases | 1.0 | 0.5 | 0.9 | 0.2 |
Lease termination | – | (0.6) | – | – |
Payments | (0.9) | (1.0) | (0.8) | (0.7) |
Interest expense | 0.1 | 0.1 | 0.1 | 0.1 |
At 31 December | 2.3 | 2.1 | 2.1 | 1.9 |
Lease liabilities – Gross | ||||
– No later than one year | 0.9 | 0.7 | 0.9 | 0.7 |
– Later than one year and no later than five years | 1.5 | 1.5 | 1.3 | 1.3 |
2.4 | 2.2 | 2.2 | 2.0 | |
Less: Future finance expense | (0.1) | (0.1) | (0.1) | (0.1) |
Lease liabilities – Net | 2.3 | 2.1 | 2.1 | 1.9 |
Lease liabilities – Gross | ||||
– No later than one year | 0.9 | 0.7 | 0.9 | 0.7 |
– Later than one year and no later than five years | 1.4 | 1.4 | 1.2 | 1.2 |
2.3 | 2.1 | 2.1 | 1.9 |
Group | Group | Company | Company | |
2023 | 2022 | 2023 | 2022 | |
£million | £million | £million | £million | |
Other payables | 25.9 | 68.1 | 23.7 | 65.0 |
Amounts due to related companies | – | – | 10.5 | 12.4 |
Accruals and deferred income | 11.8 | 10.0 | 10.5 | 8.5 |
37.7 | 78.1 | 44.7 | 85.9 |
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| Group | Company | |||||
ECL allowance on | ECL allowance on | |||||
loan commitments | Other | Total | loan commitments | Other | Total | |
£million | £million | £million | £million | £million | £million | |
Balance at 1 January 2022 | 0.9 | 0.4 | 1.3 | 0.9 | 0.4 | 1.3 |
Charge to income statement | 0.2 | 1.9 | 2.1 | 0.2 | 1.4 | 1.6 |
Utilised | – | (0.9) | (0.9) | – | (0.9) | (0.9) |
Balance at 31 December 2022 | 1.1 | 1.4 | 2.5 | 1.1 | 0.9 | 2.0 |
(Credit)/charge to income statement | (0.3) | 8.5 | 8.2 | (0.3) | 7.2 | 6.9 |
Utilised | – | (4.7) | (4.7) | – | (3.3) | (3.3) |
Balance at 31 December 2023 | 0.8 | 5.2 | 6.0 | 0.8 | 4.8 | 5.6 |
ECL allowance on loan commitments
In accordance with the requirements of IFRS 9, the Group holds an ECL allowance against loans it has committed to lend, but have
not yet been drawn. For the Real Estate Finance and Commercial Finance portfolios, where a loan facility is agreed that includes both
drawn and undrawn elements and the Group cannot identify the ECL on the loan commitment separately, a combined loss allowance
for both drawn and undrawn components of the loan is presented as a deduction from the gross carrying amount of the drawn
component, with any excess of the loss allowance over the gross drawn amount presented as a provision. At 31 December 2023 and
31 December 2022, no provision was held for losses in excess of drawn amounts.
Other
Other includes:
• provision for fraud, which relates to cases where the Group has reasonable evidence of suspected fraud, but further investigation
is required before the cases can be dealt with appropriately;
• s75 Consumer Credit Act 1974 provision;
• costs and redress relating to the BiFD Vehicle Finance collections review (see Note 8 for further details and key sources of
estimation uncertainty below); and
• costs and redress relating to further customer redress initiatives.
The Directors expect all provisions to be fully utilised within the next one to two years.
A provision is recognised where there is a present obligation as a result of a past event, it is probable that the obligation will be
Redress/goodwill provision amounts relating to the BiFD Vehicle Finance collections review are £2.0 million, and are based on
an estimate of customers potentially impacted over a number of years. As at 31 December 2023, the scope of the review and
amounts of potential redress/goodwill are not yet finalised. Increasing the impact period by one year potentially increases the
Group and Company
2023 | 2022 | |
£million | £million | |
Notes at par value | 90.0 | 50.0 |
Unamortised issue costs | (0.9) | (0.1) |
Accrued interest | 4.0 | 1.2 |
93.1 | 51.1 |
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On 28 February 2023, the Group issued £90.0 million 13.0% Fixed Rate Reset Callable Subordinated Notes due August 2033.
The notes are listed on the International Securities Market of the London Stock Exchange. This issuance is in line with the Group’s
funding strategy and supports the Group’s stated medium-term growth ambitions.
• The notes are redeemable for cash at their principal amount on fixed dates.
• The Company has a call option to redeem the notes early in the event of a ‘tax event’ or a ‘capital disqualification event’,
which is at the full discretion of the Company.
• Interest payments are paid at six-monthly intervals and are mandatory.
• The notes give the holders’ rights to the principal amount on the notes, plus any unpaid interest, on liquidation. Any such claims
are subordinated to senior creditors, but rank pari passu with holders of other subordinated obligations and in priority to holders
of share capital.
The above features provide the issuer with a contractual obligation to deliver cash or another financial asset to the holders,
and therefore the notes are classified as financial liabilities.
Transaction costs that are directly attributable to the issue of the notes and are deducted from the financial liability and expensed to
the income statement on an effective interest rate basis over the expected life of the notes.
The notes are treated as Tier 2 regulatory capital, which is used to support the continuing growth of the business taking into account
increases in regulatory capital buffers. The issue of the notes is part of an ongoing programme to diversify and expand the capital
base of the Group.
The Group redeemed all of its existing 6.75% Fixed Rate Reset Callable Subordinated notes due in 2028, that also qualified as Tier 2
capital, with first call dates in 2023, in two tranches: £25.0 million on 28 February 2023; and £25.0 million on 20 March 2023.
31.1.1 Laws and regulations
As a financial services business, the Group must comply with numerous laws and regulations that significantly affect the way it does
business. Whilst the Group believes there are no material unidentified areas of failure to comply with these laws and regulations,
there can be no guarantee that all issues have been identified.
In July 2023, the Group was contacted by the FCA in a follow up to a review of forbearance outcomes associated with its Borrowers
in Financial Difficulty project. The Group is responding to requirements from the FCA to review its practices in this area. In respect of
its Vehicle Finance business see Note 29. In respect of its Retail Finance business, it is not possible to estimate or reliably predict the
outcome of this review and its financial effect on the Group.
31.1.2 Discretionary motor finance commissions
On 11 January 2024, the FCA announced a review of historical motor finance commission arrangements. The Group operated some
discretionary commission arrangements from 2009 until June 2017. While it is possible that certain charges may be incurred in the
future, the Directors do not consider that a legal or constructive obligation exists that would require a provision to be recognised
at this stage. There is also significant uncertainty about the outcome of the FCA’s review, the timing and scope, and therefore the
quantum of any potential financial impact cannot be reliably estimated at present. The FCA plans to set out its next steps in Q3 2024,
when the implications for the industry should become clearer.
In determining the appropriate accounting and disclosure for potential claims in relation to historical motor finance
commissions, the Directors have considered the criteria under IAS 37 for provisioning, and have judged that the threshold is
currently not met. However, in the Directors’ judgement, it is possible, dependent on future events, that costs could be incurred
At 31 December 2023, the Group and Company had capital commitments of £nil (2022: £1.5 million).
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31.3 Credit commitments
Group and Company
Commitments to extend credit to customers were as follows:
2023 | 2022 | |
£million | £million | |
Consumer Finance | ||
Retail Finance | 91.6 | 97.2 |
Vehicle Finance | 1.3 | 1.2 |
Business Finance | ||
Real Estate Finance | 58.9 | 53.1 |
Commercial Finance | 149.5 | 146.5 |
301.3 | 298.0 |
Number | £million | |
At 1 January 2022 | 18,647,805 | 7.5 |
Issued during 2022 | 43,629 | – |
At 31 December 2022 | 18,691,434 | 7.5 |
Issued during 2023 | 326,361 | 0.1 |
At 31 December 2023 | 19,017,795 | 7.6 |
Share capital comprises ordinary shares with a par value of 40 pence each.
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issuance costs. Any amounts
received over nominal value are recorded in the share premium account, net of direct issuance costs. Costs associated with the
Group | Group | Company | Company | |
2023 | 2022 | 2023 | 2022 | |
£million | £million | £million | £million | |
Cash flow hedge reserve | (0.3) | (0.8) | (0.3) | (0.8) |
Own shares | (1.4) | (0.3) | (1.4) | (0.3) |
(1.7) | (1.1) | (1.7) | (1.1) |
33.1 Own shares
Nominal | Nominal | |||
value | value | |||
2023 | 2023 | 2022 | 2022 | |
Employee Benefit Trust (‘EBT’) | Number | £million | Number | £million |
At 1 January | 37,501 | – | – | – |
Shares acquired | 188,835 | 0.1 | 37,501 | – |
Shares disposed | (9,864) | – | – | – |
At 31 December | 216,472 | 0.1 | 37,501 | – |
Market value (£million) | 1.5 | 0.3 | ||
Accounting value (£million) | 1.4 | 0.3 | ||
Percentage of called up share capital | 1.1% | 0.2% |
These shares are held in trust for the benefit of employees, who will be exercising their options under the Group’s share options
schemes. The trustee’s expenses are included in the operating expenses of the Group. The maximum number of shares held by the
EBT during the year was 226,336 (2022: 37,501), which had a nominal value of £91,000 (2022: £15,000). Shares were disposed of during
the year for consideration of £4,000.
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Notes to the consolidated financial statements
33. Other reserves
continued
33.1 Own shares
continued
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The EBT qualifies for ‘look-through’ accounting, under which the EBT is treated as, in substance, an extension of the sponsoring
entity, which is Secure Trust Bank PLC. Own shares represent the shares of the Parent Company, Secure Trust Bank PLC, that are
At 31 December 2023 and 31 December 2022, the Group had four share-based payment schemes in operation:
• 2017 Long-Term Incentive Plan,
• 2017 Sharesave Plan,
• 2017 Deferred Bonus Plan, and
• ‘Phantom’ Share Option Scheme.
A summary of the movements in share options during the year is set out below:
Weighted | Weighted | ||||||||
average | average | ||||||||
Forfeited | exercise price | exercise price | |||||||
lapsed and | Vested and | of options | of options | ||||||
Granted | cancelled | Exercised | Outstanding at | exercisable at | outstanding at | outstanding at | |||
Outstanding at | during the | during the | during the | 31 December | 31 December | 31 December | 31 December | ||
1 January 2023 | year | year | year | 2023 | 2023 | Vesting | 2023 | 2022 | |
Number | Number | Number | Number | Number | Number | dates | £ | £ | |
Equity settled | |||||||||
2017 Long-Term | |||||||||
Incentive Plan | 611,353 | 281,282 | (161,233) | (13,304) | 718,098 | 12,336 2024-2028 | 0.40 | 0.40 | |
2017 Sharesave Plan | 545,479 | 303,937 | (123,809) | (321,694) | 403,913 | 44,843 2024-2026 | 5.93 | 6.24 | |
2017 Deferred Bonus Plan | 49,807 | 39,953 | – | (1,227) | 88,533 | 18,389 2024-2026 | 0.40 | 0.40 | |
1,206,639 625,172 (285,042) (336,225) 1,210,544 | 75,568 | 2.25 | 3.04 | ||||||
Weighted average | |||||||||
exercise price | 3.04 | 2.85 | 3.56 | 5.10 | 2.25 | 3.31 | |||
Cash settled | |||||||||
‘Phantom’ | |||||||||
share option scheme | 78,167 | – | (40,167) | – | 38,000 | 38,000 | 2019 | 25.00 | 25.00 |
Group | Group | Company | Company | |
2023 | 2022 | 2023 | 2022 | |
£million | £million | £million | £million | |
Expense incurred in relation to share-based payments | 1.1 | 1.8 | 0.9 | 1.4 |
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34.1. Long-Term Incentive Plan (‘LTIP’)
The LTIP was established on 3 May 2017. Two separate awards to a number of participants were made under this plan during the year,
as set out below.
34.1.1 LTIP Restricted share award
63,975 (2022: 54,427) options were awarded during the year that were not subject to any performance conditions. The awards
will vest three years from the date of grant. The original grant date valuation was determined using a Black-Scholes model.
Measurement inputs and assumptions used for the grant date valuation were as follows:
Awarded during | Awarded during | |
2023 | 2022 | |
Share price at grant date | £6.70 | £12.40 |
Exercise price | £0.40 | £0.40 |
Expected dividend yield | 5.20% | 4.39% |
Expected stock price volatility | 42.93% | 47.27% |
Risk free interest rate | 3.44% | 1.47% |
Average expected life (years) | 3.00 | 3.00 |
Original grant date valuation | £5.37 | £10.49 |
34.1.2 LTIP
217,307 (2022: 176,362) options were awarded during the year that are subject to four performance conditions, which are based on:
• rank of the Total Shareholder Return (‘TSR’) over the performance period against the TSR of the comparator group of peer
group companies;
• increase in Return On Average Equity (‘RoAE’) over the performance period;
• increase in Earnings Per Share (‘EPS’) over the performance period; and
• maintaining appropriate risk practices over the performance period, reflecting the longer-term strategic risk management
of the Group.
The awards have a performance term of three years. The awards will vest on the date on which the Board determines that these
conditions have been met. 109,382 options will be released to the participants on the vesting date and 107,925 options will be
released two years after the vesting date.
The original grant date valuation was determined using a Black-Scholes model for the RoAE, EPS and risk management tranches
(modified for probability of outturn), and a Monte Carlo model for the TSR tranche. Measurement inputs and assumptions used for
the grant date valuation were as follows:
Awarded during | |||
Awarded during | 2023 | ||
2023 | Two year | ||
No holding | holding | Awarded during | |
period | period | 2022 | |
Share price at grant date | £6.70 | £6.70 | £12.40 |
Exercise price | £0.40 | £0.40 | £0.40 |
Expected dividend yield | 5.20% | 5.20% | 4.39% |
Expected stock price volatility | 40.0% | 40.0% | 46.87% |
Risk free interest rate | 3.49% | 3.42% | 1.50% |
Average expected life (years) | 3.00 | 5.00 | 3.00 |
Original grant date valuation | £2.98 | £2.69 | £7.43 |
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34.2. Sharesave Plan
The Sharesave Plan was established on 3 May 2017. This plan allows all employees to save for three years, subject to a
maximum monthly amount of £250 (2022: £500), with the option to buy shares in Secure Trust Bank PLC when the plan matures.
Participants cannot change the amount that they have agreed to save each month, but they can suspend payments for up to six
months. Participants can withdraw their savings at any time but, if they do this before the completion date, they lose the option to
buy shares at the Option Price, and in most circumstances if participants cease to hold plan-related employment before the third
anniversary of the grant date, then the options are also lost. The options ordinarily vest approximately three years after grant date and
are exercisable for a period of six months following vesting.
The original grant date valuation was determined using a Black-Scholes model. Measurement inputs and assumptions used were
as follows:
Awarded during | Awarded during | |
2023 | 2022 | |
Share price at grant date | £6.30 | £9.62 |
Exercise price | £5.43 | £8.10 |
Expected stock price volatility | 37.25% | 48.47% |
Expected dividend yield | 5.20% | 4.39% |
Risk free interest rate | 4.52% | 3.24% |
Average expected life (years) | 3.00 | 3.00 |
Original grant date valuation | £1.63 | £3.14 |
34.3. Deferred Bonus Plan
The Deferred Bonus Plan was established on 3 May 2017. In 2023 and 2022, awards were granted to certain senior managers of the
Group. The awards vest in three equal tranches after one, two and three years following deferral. Accordingly, the following awards
remain outstanding under the plan, entitling the members of the scheme to purchase shares in the Company:
Awards granted | Awards granted | Awards granted | ||
Vesting after | Vesting after | Vesting after | Awards | |
one year | two years | three years | granted | |
Number | Number | Number | Total | |
At 1 January 2022 | 5,727 | 6,836 | 7,123 | 19,686 |
Granted | 12,779 | 12,779 | 12,786 | 38,344 |
Exercised | (5,727) | (2,496) | – | (8,223) |
At 31 December 2022 | 12,779 | 17,119 | 19,909 | 49,807 |
Granted | 13,315 | 13,315 | 13,323 | 39,953 |
Exercised | (401) | – | (826) | (1,227) |
At 31 December 2023 | 25,693 | 30,434 | 32,406 | 88,533 |
Vested and exercisable | 12,378 | 4,340 | 1,671 | 18,389 |
The original grant date valuation was determined using a Black-Scholes model. Measurement inputs and assumptions used were
as follows:
Granted in 2023 | Granted in 2023 | Granted in 2023 | |
Awards vesting | Awards vesting | Awards vesting | |
after one year | after two years | after three years | |
Share price at grant date | £6.70 | £6.70 | £6.70 |
Exercise price | £0.40 | £0.40 | £0.40 |
Expected dividend yield | 5.20% | 5.20% | 5.20% |
Expected stock price volatility | 44.41% | 38.77% | 42.93% |
Risk free interest rate | 3.97% | 3.40% | 3.44% |
Average expected life (years) | 1.00 | 2.00 | 3.00 |
Original grant date valuation | £5.98 | £5.66 | £5.37 |
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34. Share-based payments
continued
34.3. Deferred Bonus Plan
continued
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Granted in 2022 | Granted in 2022 | Granted in 2022 | |
Awards vesting | Awards vesting | Awards vesting | |
after one years | after two years | after three years | |
Share price at grant date | £12.40 | £12.40 | £12.40 |
Exercise price | £0.40 | £0.40 | £0.40 |
Expected dividend yield | 4.39% | 4.39% | 4.39% |
Expected stock price volatility | 32.04% | 42.03% | 47.27% |
Risk free interest rate | 1.39% | 1.46% | 1.47% |
Average expected life (years) | 1.00 | 2.00 | 3.00 |
Original grant date valuation | £11.47 | £10.97 | £10.49 |
34.4 Cash settled share-based payments
On 16 March 2015, a four-year ‘phantom’ share option scheme was established in order to provide effective long-term incentive to
senior management of the Group. Under the scheme, no actual shares would be issued by the Company, but those granted awards
under the scheme would be entitled to a cash payment. The amount of the award is calculated by reference to the increase in the
value of an ordinary share in the Company over an initial value set at £25 per ordinary share, being the price at which the shares
resulting from the exercise of the first tranche of share options under the share option scheme were sold in the market in November
2014. The options vested during 2019 and are exercisable for a period of 10 years after grant date.
As at 31 December 2023, using any reasonable range of inputs and assumptions, the fair value of the ‘phantom’ options is
£nil (2022: £0.04). Accordingly, no liability was recognised in the consolidated financial statements at 31 December 2023 or
31 December 2022.
For each award granted during the year, expected volatility was determined by calculating the historical volatility of the Group’s
share price over the period equivalent to the expected term of the options being granted. The expected life used in the
model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions,
and behavioural considerations.
The fair value of equity settled share-based payment awards are calculated at grant date and recognised over the period
in which the employees become unconditionally entitled to the awards (the vesting period). The amount is recognised
in operating expenses in the income statement, with a corresponding increase in equity. Further details of the valuation
methodology are set out above.
The fair value of cash settled share-based payments is recognised in operating expenses in the income statement with a
corresponding increase in liabilities over the vesting period. The liability is remeasured at each reporting date and at the
35.1. Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances with less than three
months’ maturity from the date of acquisition.
Group | Group | Company | Company | |
2023 | 2022 | 2023 | 2022 | |
£million | £million | £million | £million | |
Cash and Bank of England reserve account | 351.6 | 370.1 | 351.6 | 370.1 |
Loans and advances to banks (Note 13) | 53.7 | 50.5 | 53.0 | 48.9 |
Debt securities | – | – | – | – |
Less: | ||||
Cash ratio deposit | (4.8) | (3.7) | (4.8) | (3.7) |
Collateral margin account | (0.2) | – | (0.2) | – |
(5.0) | (3.7) | (5.0) | (3.7) | |
Cash and cash equivalents | 400.3 | 416.9 | 399.6 | 415.3 |
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35. Cash flow statement
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The Group and Company has no access to the cash ratio deposit or the collateral margin accounts, so these amounts do not meet
the definition of cash and cash equivalents and accordingly they are excluded from cash and cash equivalents.
35.2. Changes in liabilities arising from financing activities
All changes in liabilities arising from financing activities arise from changes in cash flows, apart from £0.1 million (2022: £0.1 million) of
lease liabilities interest expense, as shown in Note 27, and £0.2 million (2022: £0.2 million) amortisation of issue costs on subordinated
liabilities, as shown in Note 30.
cash equivalents, being highly liquid investments, which are convertible into cash with an insignificant risk of changes in value
with a maturity of three months or less at the date of acquisition, including certain loans and advances to banks and short-term
By their nature, the Group’s activities are principally related to the use of financial instruments. The Directors and senior management
of the Group have formally adopted a Group risk appetite statement that sets out the Board’s attitude to risk and internal controls.
Key risks identified by the Directors are formally reviewed and assessed at least once a year by the Board. In addition key business
risks are identified, evaluated and managed by operating management on an ongoing basis by means of procedures, such as physical
controls, credit and other authorisation limits and segregation of duties. The Board also receives regular reports on any risk matters
that need to be brought to its attention. Significant risks identified in connection with the development of new activities are subject
to consideration by the Board. There are budgeting procedures in place and reports are presented regularly to the Board detailing
the results of each principal business unit, variances against budget and prior year, and other performance data.
A more detailed description of the risk governance structure is contained in the Principal risks and uncertainties section beginning
on page 28.
Included within the principal financial risks inherent in the Group’s business are credit risk (Note 37), market risk (Note 38), liquidity risk
The Company and Group take on exposure to credit risk, which is the risk that a counterparty will be unable to satisfy their debt
servicing commitments when due. Counterparties include the consumers to whom the Group lends on a secured and unsecured
basis and Small and Medium size Enterprises (‘SMEs’) to whom the Group primarily lends on a secured basis, as well as the market
counterparties with whom the Group deals.
Impairment provisions are provided for expected credit losses at the statement of financial position date. Significant changes
in the economy could result in losses that are different from those provided for at the statement of financial position date.
Management therefore carefully manages the Group’s exposures to credit risk as it considers this to be the most significant risk
to the business. Disclosures relating to collateral on loans and advances to customers are disclosed in Note 14.
The Board monitors the ratings of the counterparties in relation to the Group’s loans and advances to banks. Disclosures of these
at the year-end are contained in Note 13. There is no direct exposure to the Eurozone and peripheral Eurozone countries.
See page 30 for further details on the mitigation and change during the year of credit risk.
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Group and Company
With the exception of loans and advances to customers, the carrying amount of financial assets represents the maximum exposure
to credit risk. The maximum exposure to credit risk for loans and advances to customers by portfolio and IFRS 9 stage without taking
account of any collateral held or other credit enhancements attached was as follows:
Stage 1 | Stage 2 | Stage 3 | Total gross | |||
loans and | ||||||
<= 30 days | > 30 days | advances to | ||||
past due | past due | Total | customers | |||
£million | £million | £million | £million | £million | £million | |
31 December 2023 | ||||||
Consumer Finance | ||||||
Retail Finance | 1,149.2 | 92.9 | 4.4 | 97.3 | 8.8 | 1,255.3 |
Vehicle Finance | 420.1 | 34.3 | 20.4 | 54.7 | 38.3 | 513.1 |
Business Finance | ||||||
Real Estate Finance | 1,024.9 | 134.4 | 1.5 | 135.9 | 91.0 | 1,251.8 |
Commercial Finance | 357.3 | 9.9 | – | 9.9 | 16.0 | 383.2 |
Total drawn exposure | 2,951.5 | 271.5 | 26.3 | 297.8 | 154.1 | 3,403.4 |
Off balance sheet | ||||||
Loan commitments | 299.1 | 2.2 | – | 2.2 | – | 301.3 |
Total gross exposure | 3,250.6 | 273.7 | 26.3 | 300.0 | 154.1 | 3,704.7 |
Less: | ||||||
Impairment allowance | (29.5) | (10.5) | (7.7) | (18.2) | (40.4) | (88.1) |
Provision for loan commitments | (0.8) | – | – | – | – | (0.8) |
Total net exposure | 3,220.3 | 263.2 | 18.6 | 281.8 | 113.7 | 3,615.8 |
£117.8 million (2022: £16.1 million) of collateral in the form of property has been pledged as security for Real Estate Finance Stage 3
balances of £84.0 million (2022: £14.8 million). £21.0 million (2022: £11.2 million) of collateral in the form of vehicles has been pledged
as security for Vehicle Finance Stage 3 balances of £14.7 million (2022: £6.1 million).
Stage 1 | Stage 2 | Stage 3 | Total gross | |||
loans and | ||||||
<= 30 days | > 30 days | advances to | ||||
past due | past due | Total | Total | customers | ||
£million | £million | £million | £million | £million | £million | |
31 December 2022 | ||||||
Consumer Finance | ||||||
Retail Finance | 987.4 | 85.4 | 3.8 | 89.2 | 6.1 | 1,082.7 |
Vehicle Finance | 306.8 | 83.3 | 3.8 | 87.1 | 23.6 | 417.5 |
Business Finance | ||||||
Real Estate Finance | 957.9 | 122.9 | 21.3 | 144.2 | 16.8 | 1,118.9 |
Commercial Finance | 327.7 | 50.2 | – | 50.2 | 0.5 | 378.4 |
Total drawn exposure | 2,579.8 | 341.8 | 28.9 | 370.7 | 47.0 | 2,997.5 |
Off balance sheet | ||||||
Loan commitments | 298.0 | – | – | – | – | 298.0 |
Total gross exposure | 2,877.8 | 341.8 | 28.9 | 370.7 | 47.0 | 3,295.5 |
Less: | ||||||
Impairment allowance | (24.3) | (23.9) | (4.7) | (28.6) | (25.1) | (78.0) |
Provision for loan commitments | (1.1) | – | – | – | – | (1.1) |
Total net exposure | 2,852.4 | 317.9 | 24.2 | 342.1 | 21.9 | 3,216.4 |
A reconciliation of opening to closing allowance for impairment of loans and advances to customers is presented in Note 16.
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Company
In addition to the above, counterparties to the Company include subsidiary undertakings. For the ECL on amounts due from related
companies, see Note 24.
37.1. Concentration risk
Management assesses the potential concentration risk from geographic, product and individual loan concentration. Due to the nature
of the Group’s lending operations, the Directors consider the lending operations of the Group as a whole to be well diversified.
Details of the Group’s loans and advances to customers and loan commitments by product is provided in Notes 3 and 31, respectively.
Geographical concentration
The Group’s Real Estate Finance loan book is secured against UK property only. The geographical concentration of these business
loans and advances to customers, by location of the security, is as follows:
Group and Company
£million | £million | |
2023 | 2022 | |
Central England | 99.5 | 101.9 |
Greater London | 709.5 | 689.7 |
Northern England | 89.2 | 68.7 |
South East England (excl. Greater London) | 233.3 | 189.5 |
South West England | 40.7 | 20.4 |
Scotland, Wales and Northern Ireland | 79.6 | 48.7 |
Gross loans and receivables | 1,251.8 | 1,118.9 |
Allowance for impairment | (8.0) | (3.4) |
Total | 1,243.8 | 1,115.5 |
37.2. Forbearance
Consumer Finance
Throughout the year, the Group did not routinely reschedule contractual arrangements where customers default on their repayments.
In cases where it offered the customer the option to reduce or defer payments for a short period, in line with our responsibilities
from a conduct perspective, the loans retained the normal contractual payment due dates and were treated the same as any other
defaulting cases for impairment purposes. Arrears tracking would continue on the account, with any impairment charge being based
on the original contractual due dates for all products.
All forbearance arrangements are formally discussed and agreed with the customer in accordance with regulatory guidance on the
support of customers. By offering customers in financial difficulty the option of forbearance, the Group potentially exposes itself to
an increased level of risk through prolonging the period of non-contractual payment. All forbearance arrangements are reviewed and
monitored regularly to assess the ongoing potential risk, suitability and sustainability to the Group. As at the year end, the Consumer
Finance business approximately had the following cases (by volume) in forbearance:
• Retail Finance 0.15% (2022: 0.15%); and
• Vehicle Finance: 0.11% (2022: 0.16%).
In respect of Vehicle Finance, where forbearance measures are not possible or are considered not to be in the customer’s best
interests, or where such measures have been tried and the customer has not adhered to the forbearance terms that have been
agreed, the Group will consider realising its security and taking possession of the vehicle in order to sell it and clear the outstanding
debt. Where the sale of the vehicle does not cover all of the remaining loan, normal credit collection procedures may be carried out in
order to recover the outstanding debt, or the debt may be sold to a third party debt recovery agent, or in certain circumstances, the
debt may be written off.
Real Estate Finance
Where clients provided evidence of payment difficulties, they were supported by the provision of extensions to loan maturity dates.
A small number of clients, who experienced difficulties in meeting their financial commitments, were offered concessions (facility
restructures or amendments) that Real Estate Finance would not have provided under normal circumstances. As at 31 December 2023,
9.6% of accounts were classed as forborne (2022: 4.3%). Where forbearance measures are not possible or are considered not to be in
the client’s best interests, or where such measures have been tried and the customer has not adhered to the forbearance terms that
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The Group’s market risk is primarily linked to interest rate risk. Interest rate risk refers to the exposure of the Group’s financial position
to adverse movements in interest rates.
When interest rates change, the present value and timing of future cash flows change. This, in turn, changes the underlying value of
the Group’s assets, liabilities and off-balance sheet instruments, and hence, its economic value. Changes in interest rates also affect
the Group’s earnings by altering interest-sensitive income and expenses, affecting its net interest income.
The principal currency in which the Group operates is Sterling, although a small number of transactions are completed in US dollars,
Euros and other currencies in the Commercial Finance business. The Group has no significant exposures to foreign currencies and
hedges any residual currency risks to Sterling. The Group does not operate a trading book.
See page 33 for further details on the mitigation and change during the year of market risk.
Interest rate risk
Group and Company
The Group seeks to ‘match’ interest rate risk on either side of the statement of financial position and hedges residual mismatch in
accordance with risk appetites. However, this is not a perfect match and interest rate risk is present on the mismatch between fixed
rate loans and savings products and variable rate assets and liabilities.
The Group monitors the interest rate mismatch on at least a monthly basis, using market value sensitivity and earnings at risk, which
were as follows at 31 December:
2023 | 2022 | |
£million | £million | |
Market value sensitivity | ||
+200bp parallel shift in yield curve | 2.5 | 1.8 |
-200bp parallel shift in yield curve | (2.7) | (1.9) |
Earnings at risk sensitivity | ||
+100bp parallel shift in yield curve | 1.2 | 1.2 |
-100bp parallel shift in yield curve | (1.2) | (1.2) |
The Directors consider that 200bps in the case of market value sensitivity and 100bps in the case of earnings at risk are a reasonable
Liquidity and funding risk is the risk that the Group is unable to meet its obligations as they fall due or can only do so at excessive cost.
The Group maintains adequate liquidity resources and a prudent, stable funding profile at all times to cover liabilities as they fall due
in normal and stressed conditions.
The Group manages its liquidity in line with internal and regulatory requirements, and at least annually assesses the robustness of the
liquidity requirements as part of the Group’s Internal Liquidity Adequacy Assessment Process (‘ILAAP’).
See page 31 for further details on the mitigation and change during the year of liquidity and funding risk.
The tables below analyse the contractual undiscounted cash flows for financial liabilities into relevant maturity groupings:
Not more | More than three | More than | ||||
Gross nominal | than three | months but less | one year but less | More than | ||
Carrying amount | outflow | months | than one year | than five years | five years | |
£million | £million | £million | £million | £million | £million | |
At 31 December 2023 | ||||||
Due to banks | 402.0 | 435.9 | 12.1 | 15.4 | 408.4 | – |
Deposits from customers | 2,871.8 | 2,949.5 | 1,532.0 | 806.7 | 608.9 | 1.9 |
Subordinated liabilities | 93.1 | 148.5 | 5.9 | 5.9 | 136.7 | – |
Lease liabilities | 2.3 | 2.4 | 0.2 | 0.7 | 1.5 | – |
Other financial liabilities | 25.9 | 25.9 | 25.9 | – | – | – |
3,395.1 | 3,562.2 | 1,576.1 | 828.7 | 1,155.5 | 1.9 | |
Derivative financial liabilities | 22.0 | 23.4 | 2.8 | 5.6 | 15.0 | – |
3,417.1 | 3,585.6 | 1,578.9 | 834.3 | 1,170.5 | 1.9 |
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Not more | More than three | More than | ||||
Gross nominal | than three | months but less | one year but less | More than | ||
Carrying amount | outflow | months | than one year | than five years | five years | |
£million | £million | £million | £million | £million | £million | |
At 31 December 2022 | ||||||
Due to banks | 400.5 | 438.7 | 10.6 | 10.2 | 417.9 | – |
Deposits from customers | 2,514.6 | 2,565.0 | 956.7 | 1,030.0 | 577.2 | 1.1 |
Subordinated liabilities | 51.1 | 53.4 | 0.8 | 52.6 | – | – |
Lease liabilities | 2.1 | 2.2 | 0.2 | 0.5 | 1.5 | – |
Other financial liabilities | 68.1 | 68.1 | 68.1 | – | – | – |
3,036.4 | 3,127.4 | 1,036.4 | 1,093.3 | 996.6 | 1.1 | |
Derivative financial liabilities | 26.7 | 27.5 | 4.4 | 12.2 | 10.9 | – |
3,063.1 | 3,154.9 | 1,040.8 | 1,105.5 | 1,007.5 | 1.1 |
Company
The contractual undiscounted cash flows for financial liabilities of the Company are the same as above except for the following:
Not more | More than three | More than | ||||
Gross nominal | than three | months but less | one year but less | More than | ||
Carrying amount | outflow | months | than one year | than five years | five years | |
£million | £million | £million | £million | £million | £million | |
At 31 December 2023 | ||||||
Lease liabilities | 2.1 | 2.1 | 0.2 | 0.7 | 1.2 | – |
Other financial liabilities | 34.2 | 34.2 | 34.2 | – | – | – |
Non-derivative financial liabilities | 3,403.2 | 3,570.2 | 1,584.4 | 828.7 | 1,155.2 | 1.9 |
Total | 3,425.2 | 3,593.6 | 1,587.2 | 834.3 | 1,170.2 | 1.9 |
Not more | More than three | More than | ||||
Gross nominal | than three | months but less | one year but less | More than | ||
Carrying amount | outflow | months | than one year | than five years | five years | |
£million | £million | £million | £million | £million | £million | |
At 31 December 2022 | ||||||
Lease liabilities | 1.9 | 2.0 | 0.2 | 0.5 | 1.3 | – |
Other financial liabilities | 77.4 | 77.4 | 77.4 | – | – | – |
Non-derivative financial liabilities | 3,045.5 | 3,136.5 | 1,045.7 | 1,093.3 | 996.4 | 1.1 |
Total | 3,072.2 | 3,164.0 | 1,050.1 | 1,105.5 | 1,007.3 | 1.1 |
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Capital risk is the risk that the Group will have insufficient capital resources to meet minimum regulatory requirements and to support
the business. The Group adopts a conservative approach to managing its capital and at least annually assesses the robustness of the
capital requirements as part of the Group’s Internal Capital Adequacy Assessment Process (‘ICAAP’). The Group has Tier 1 and Tier 2
capital resources, noting the regulatory adjustments required in the table below.
The following table, which is unaudited and therefore not in scope of the Independent Auditor’s Report, shows the regulatory capital
resources for the Group.
Restated¹ | ||
2023 | 2022 | |
£million | £million | |
(unaudited) | (unaudited) | |
CET 1 | ||
Share capital | 7.6 | 7.5 |
Share premium | 83.8 | 82.2 |
Retained earnings | 254.8 | 237.8 |
Own shares | (1.4) | (0.3) |
IFRS 9 transition adjustments (See below for further details) | 2.1 | 11.7 |
Goodwill | (1.0) | (1.0) |
Intangible assets net of attributable deferred tax | (4.9) | (5.6) |
CET 1 capital before foreseeable dividend | 341.0 | 332.3 |
Foreseeable dividend | (3.1) | (5.4) |
CET 1 and Tier 1 capital | 337.9 | 326.9 |
Tier 2 | ||
Subordinated liabilities | 89.1 | 49.9 |
Less ineligible portion | (29.4) | – |
Total Tier 2 capital 2 | 59.7 | 49.9 |
Own funds | 397.6 | 376.8 |
Reconciliation to total equity: | ||
IFRS 9 transition adjustments | (2.1) | (11.7) |
Eligible subordinated liabilities | (59.7) | (49.9) |
Cash flow hedge reserve | (0.3) | (0.8) |
Goodwill and other intangible assets net of attributable deferred tax | 5.9 | 6.6 |
Foreseeable dividend | 3.1 | 5.4 |
Total equity | 344.5 | 326.4 |
1. Restated to reflect a change in accounting policy relating to land and buildings, which are now presented at historical cost. See Note 1.3 for further details.
2. Tier 2 capital comprises solely subordinated debt, excluding accrued interest, capped at 25% of the Pillar 1 and 2A requirements as set by the PRA.
The Group has elected to adopt the IFRS 9 transitional rules. In 2022, this allowed for 25% of the initial IFRS 9 transitional adjustment,
net of attributable deferred tax, and for increases in provisions between 1 January 2018 to 31 December 2019, except where these
provisions relate to defaulted accounts, to be added back to eligible capital. This part of the relief has now ended. The relief for
increases in provisions since 1 January 2020. however continues to apply at 50% in 2023 (2022: 75%). This relief will taper off by
31 December 2024
The Group’s regulatory capital is divided into:
• CET 1 capital, which comprises shareholders’ funds, after adding back the IFRS 9 transition adjustment and deducting qualifying
intangible assets, both of which are net of attributable deferred tax.
• Tier 2 capital, which is solely subordinated debt net of unamortised issue costs, capped at 25% of the capital requirement
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The Group operates the standardised approach to credit risk, whereby risk weightings are applied to the Group’s on and off balance
sheet exposures. The weightings applied are those stipulated in the Capital Requirements Regulation.
Further information on capital is included within our Pillar 3 disclosures, which can be found on the Group’s website. See page 32 for
further details on the mitigation and change during the year of capital risk.
The Group is subject to capital requirements imposed by the PRA on all financial services firms. During the year, the Group complied
Group
Total carrying | Total carrying | |||||
amount | Fair value | Fair value | amount | Fair value | Fair value | |
£million | £million | hierarchy level | £million | £million | hierarchy level | |
2023 | 2023 | 2023 | 2022 | 2022 | 2022 | |
Cash and Bank of England reserve account | 351.6 | 351.6 | Level 1 | 370.1 | 370.1 | Level 1 |
Loans and advances to banks | 53.7 | 53.7 | Level 2 | 50.5 | 50.5 | Level 2 |
Loans and advances to customers | 3,315.3 | 3,279.7 | Level 3 | 2,919.5 | 2,895.6 | Level 3 |
Derivative financial instruments | 25.5 | 25.5 | Level 2 | 34.9 | 34.9 | Level 2 |
Other financial assets | 2.4 | 2.4 | Level 3 | 1.7 | 1.7 | Level 3 |
3,748.5 | 3,712.9 | 3,376.7 | 3,352.8 | |||
Due to banks | 402.0 | 402.0 | Level 2 | 400.5 | 400.5 | Level 2 |
Deposits from customers | 2,871.8 | 2,850.1 | Level 3 | 2,514.6 | 2,494.0 | Level 3 |
Derivative financial instruments | 22.0 | 22.0 | Level 2 | 26.7 | 26.7 | Level 2 |
Lease liabilities | 2.3 | 2.3 | Level 3 | 2.1 | 2.1 | Level 3 |
Other financial liabilities | 25.9 | 25.9 | Level 3 | 68.1 | 68.1 | Level 3 |
Subordinated liabilities | 93.1 | 94.8 | Level 3 | 51.1 | 43.5 | Level 2 |
3,417.1 | 3,397.1 | 3,063.1 | 3,034.9 |
All financial assets and liabilities at 31 December 2023 and 31 December 2022 were carried at amortised cost, except for derivative
financial instruments that are at fair value through profit and loss. Therefore, for these assets and liabilities, the fair value hierarchy
noted above relates to the disclosure in this note only.
Company
Total carrying | Total carrying | |||||
amount | Fair value | Fair value | amount | Fair value | Fair value | |
£million | £million | hierarchy level | £million | £million | hierarchy level | |
2023 | 2023 | 2023 | 2022 | 2022 | 2022 | |
At 31 December 2023 | ||||||
Cash and Bank of England reserve account | 351.6 | 351.6 | Level 1 | 370.1 | 370.1 | Level 1 |
Loans and advances to banks | 53.0 | 53.0 | Level 2 | 48.9 | 48.9 | Level 2 |
Loans and advances to customers | 3,315.3 | 3,279.7 | Level 3 | 2,919.5 | 2,895.6 | Level 3 |
Derivative financial instruments | 25.5 | 25.5 | Level 2 | 34.9 | 34.9 | Level 2 |
Other financial assets | 5.0 | 5.0 | Level 3 | 4.6 | 4.6 | Level 3 |
3,750.4 | 3,714.8 | 3,378.0 | 3,354.1 | |||
Due to banks | 402.0 | 402.0 | Level 2 | 400.5 | 400.5 | Level 2 |
Deposits from customers | 2,871.8 | 2,850.1 | Level 3 | 2,514.6 | 2,494.0 | Level 3 |
Derivative financial instruments | 22.0 | 22.0 | Level 2 | 26.7 | 26.7 | Level 2 |
Lease liabilities | 2.1 | 2.1 | Level 3 | 1.9 | 1.9 | Level 3 |
Other financial liabilities | 34.2 | 34.2 | Level 3 | 77.4 | 77.4 | Level 3 |
Subordinated liabilities | 93.1 | 94.8 | Level 3 | 51.1 | 43.5 | Level 2 |
3,425.2 | 3,405.2 | 3,072.2 | 3,044.0 |
Strategic Report
Corporate Governance Report
Financial Statements
Notes to the consolidated financial statements
Secure Trust Bank PLC
172
Annual Report & Accounts 2023
All financial assets and liabilities at 31 December 2023 and 31 December 2022 were carried at amortised cost except for derivative
financial instruments that are valued at fair value through profit and loss. Therefore, for these assets, the fair value hierarchy noted
above relates to the disclosure in this note only.
Fair value classification
The tables above include the fair values and fair value hierarchies of the Group and Company’s financial assets and liabilities.
The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in
making measurements:
• Level 1: Quoted prices in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
• Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Loans and advances to customers and Deposits from customers
The fair value of the financial assets and liabilities is calculated based upon the present value of the expected future principal and
interest cash flows. The rate used to discount the cash flows was a market rate of interest at the balance sheet date. For loans and
advances to customers, the same assumptions regarding the risk of default were applied as those used to derive the carrying value.
Debt securities
The fair value of debt securities is based on the quoted price where available.
Derivative financial instruments
The fair value of derivative financial instruments is calculated based on the present value of the expected future cash flows of the
instruments. The rate used to discount the cash flows was the SONIA forward curve at the balance sheet date.
Subordinated liabilities
The fair value of subordinated liabilities is calculated based on quoted market prices where available, or where an active market quote
is not available, it is calculated based on the present value of the expected future cash flows of the instruments. The rate used to
discount the cash flows was the UK Government five year bond plus the initial spread on the instruments.
For all remaining financial assets and liabilities, the fair value of financial assets and liabilities is calculated to be equivalent to their
Related parties of the Company and Group include subsidiaries, key management personnel, close family members of key
management personnel and entities that are controlled, jointly controlled or significantly influenced, or for which significant voting
power is held, by key management personnel or their close family members.
No transactions greater than £0.1 million were entered into with key management personnel or their close family members during the
current or prior year.
The Company undertook the following transactions with other companies in the Secure Trust Bank Group:
2023 | 2022 | |
£million | £million | |
Interest income and similar income | (28.8) | (26.2) |
Gain on sale of defaulted debt | – | 0.2 |
Operating expenses | (0.4) | (0.4) |
Waiver of intercompany balance | – | (0.2) |
Allowances for impairment of amounts due from related companies | (2.1) | – |
Investment income | 10.2 | 14.0 |
(21.1) | (12.6) | |
Equity contribution to subsidiaries re. share-based payments | 0.2 | 0.4 |
Strategic Report
Corporate Governance Report
Financial Statements
Notes to the consolidated financial statements
Secure Trust Bank PLC
173
Annual Report & Accounts 2023
The loans and advances with, and amounts receivable and payable to, related companies are noted below:
Company | Company | |
2023 | 2022 | |
£million | £million | |
Amounts receivable from subsidiary undertakings | 2.7 | 3.1 |
Amounts due to subsidiary undertakings | (10.5) | (12.4) |
(7.8) | (9.3) |
All amounts above are repayable on demand and the Company charged interest at a variable rate on amounts outstanding.
The Directors’ emoluments (including pension contributions and benefits in kind) for the year are disclosed in the Directors’
Remuneration Report beginning on page 85.
At the year-end the ordinary shares held by the Directors are disclosed in the Directors’ Remuneration Report beginning on page
85. Details of the Directors’ holdings of share options, as well as details of those share options exercised during the year, are also
The Capital Requirements (Country-by-Country Reporting) Regulations 2013 introduced reporting obligations for institutions within
the scope of CRD V. The requirements aim to give increased transparency regarding the activities of institutions. The Country-by-
Country information is set out below:
Average | Tax paid | ||||||
Nature | Turnover | number of FTE | Profit before tax | on profit | |||
Name | of activity | Location | £million | employees | £million | £million | |
Banking | |||||||
31 December 2023 | Secure Trust Bank PLC | services | UK | 321.3 | 879 | 33.4 | 8.6 |
Banking | |||||||
31 December 2022 | Secure Trust Bank PLC | services | UK | 208.3 | 940 | 44.0 | 7.0 |
There have been no significant events between 31 December 2023 and the date of approval of these financial statements which
2023
£million
2022
£million
2021
£million
2020
£million
2019
£million
Profit for the year
Continuing operations
Interest and similar income
304.0
203.0
163.9
173.1
191.4
Interest expense and similar charges
(136.5)
(50.4)
(27.7)
(39.4)
(46.0)
Net interest income
167.5
152.6
136.2
133.7
145.4
Net fee and commission income
17.2
17.0
12.7
10.8
20.1
Operating income
184.7
169.6
148.9
144.5
165.5
Net impairment charge on loans and advances to customers
(43.2)
(38.2)
(5.0)
(41.4)
(32.6)
Gains/(losses) on modification of financial assets
0.3
1.1
1.5
(3.1)
–
Fair value gains/(losses) on financial instruments
0.5
(0.3)
(0.1)
–
–
Operating expenses
(99.7)
(93.2)
(89.4)
(81.8)
(96.8)
Profit before income tax before exceptional items
42.6
39.0
55.9
18.2
36.1
Exceptional items
(6.5)
–
–
–
–
Profit before income tax
36.1
39.0
55.9
18.2
36.1
Discontinued operations
(Loss)/profit before income tax
(2.7)
5.0
0.1
0.9
–
Total profit before income tax
33.4
44.0
56.0
19.1
36.1
Continuing
2023
£million
Continuing
2022
£million
Continuing
2021
£million
Continuing
2020
£million
2019
£million
Earnings per share for profit attributable to the equity holders
of the Company during the year (pence per share)
Basic earnings per ordinary share
140.8
158.5
244.1
82.7
168.3
2023
£million
Restated
2022
£million
Restated
2021
£million
2020
£million
2019
£million
Financial position
Cash and Bank of England reserve account
351.6
370.1
234.0
181.5
105.8
Loans and advances to banks
53.7
50.5
52.0
63.3
48.4
Debt securities
–
–
25.0
–
25.0
Loans and advances to customers
3,315.3
2,919.5
2,530.6
2,358.9
2,450.1
Fair value adjustment for portfolio hedged risk
(3.9)
(32.0)
(3.5)
5.7
(0.9)
Derivative financial instruments
25.5
34.9
3.8
4.8
0.9
Other assets
35.8
36.6
44.0
47.0
51.4
Total assets
3,778.0
3,379.6
2,885.9
2,661.2
2,680.7
Due to banks
402.0
400.5
390.8
276.4
308.5
Deposits from customers
2,871.8
2,514.6
2,103.2
1,992.5
2,020.3
Fair value adjustment for portfolio hedged risk
(1.4)
(23.0)
(5.3)
4.7
(0.7)
Derivative financial instruments
22.0
26.7
6.2
6.1
0.6
Subordinated liabilities
93.1
51.1
50.9
50.8
50.6
Other liabilities
46.0
83.5
37.7
63.1
49.4
Total shareholders’ equity
344.5
326.2
302.4
267.6
252.0
Total liabilities and shareholders’ equity
3,778.0
3,379.6
2,885.9
2,661.2
2,680.7
The 2021 and 2020 profits for the year have been restated to reflect the disclosure of discontinued operations.
Five-year summary (unaudited)
174
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Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Appendix to the Annual Report (unaudited)
Key performance indicators and other alternative performance measures
All key performance indicators are based on continuing operations and continuing loans and advances to customers, unless
otherwise stated.
Restated prior year ratios reflect a change in accounting policy relating to land and buildings, which are now presented at historical
cost. See Note 1.3 for further details.
(i) Continuing loans and advances to customers
A reconciliation of total loans and advances to customers to continuing operations loans and advances to customers is set out below:
2023
£million
2022
£million
2021
£million
2020
£million
2019
£million
2018
£million
Loans and advances to customers
3,315.3
2,919.5
2,530.6
2,358.9
2,450.1
2,028.9
Assets held for sale – loan portfolios
–
–
1.3
–
–
–
Total loans and advances to customers
3,315.3
2,919.5
2,531.9
2,358.9
2,450.1
2,028.9
Less discontinued loans and advances to customers:
Asset Finance (sold during 2021)
–
–
–
(10.4)
(27.7)
(62.8)
DMS (sold during 2022)
–
–
(79.6)
(81.8)
(82.4)
(32.3)
Consumer Mortgages (sold during 2021)
–
–
–
(77.7)
(105.9)
(84.7)
Other
–
–
(1.3)
(4.1)
(7.6)
(11.2)
Total discontinued operations loans and advances
to customers
–
–
(80.9)
(174.0)
(223.6)
(191.0)
Continuing loans and advances to customers
3,315.3
2,919.5
2,451.0
2,184.9
2,226.5
1,837.9
(ii) Net interest margin, net revenue margin and risk adjusted margin ratios
Net interest margin is calculated as net interest income for the financial year as a percentage of the average loan book. Risk adjusted
margin is calculated as risk adjusted income for the financial year as a percentage of the average loan book. Net revenue margin is
calculated as operating income for the financial year as a percentage of the average loan book. The calculation of the average loan
book is the average of the monthly balance of loans and advances to customers, net of provisions, over 13 months:
Group
2023
£million
2022
£million
2021
£million
2020
£million
2019
£million
Net interest income
167.5
152.6
136.2
133.7
133.5
Opening loan book
2,919.5
2,451.0
2,184.9
2,226.5
1,837.9
Closing loan book
3,315.3
2,919.5
2,451.0
2,184.9
2,226.5
Average loan book
3,099.4
2,699.3
2,240.5
2,197.8
2,041.3
Net interest margin
5.4%
5.7%
6.1%
6.1%
6.5%
Retail Finance
2023
£million
2022
£million
2021
£million
2020
£million
2019
£million
Net interest income
73.1
61.2
56.1
57.7
58.1
Average loan book
1,143.4
898.8
692.9
663.4
651.9
Net interest margin
6.4%
6.8%
8.1%
8.7%
8.9%
Net interest income
73.1
61.2
56.1
57.7
58.1
Net fee and commission income
3.2
3.6
2.6
2.1
3.6
Net impairment charge on loans and advances to customers
(15.9)
(14.8)
(5.0)
(14.5)
(19.8)
Gains/(losses) on modification of financial assets
–
0.2
0.4
(0.6)
–
Risk adjusted income
60.4
50.2
54.1
44.7
41.9
Risk adjusted margin
5.3%
5.6%
7.8%
6.7%
6.4%
175
Secure Trust Bank PLC
Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Key performance indicators and other alternative performance measures
continued
(ii) Net interest margin, net revenue margin and risk adjusted margin ratios
continued
Vehicle Finance
2023
£million
2022
£million
2021
£million
2020
£million
2019
£million
Net interest income
44.1
38.9
32.2
37.5
40.6
Average loan book
429.6
325.1
245.8
292.1
300.1
Net interest margin
10.3%
12.0%
13.1%
12.8%
13.5%
Net interest income
44.1
38.9
32.2
37.5
40.6
Net fee and commission income
1.8
1.4
1.1
0.6
0.6
Net impairment charge on loans and advances to customers
(14.8)
(21.3)
(0.1)
(20.7)
(13.8)
Gains/(losses) on modification of financial assets
0.3
0.9
1.1
(2.5)
–
Risk adjusted income
31.4
19.9
34.3
14.9
27.4
Risk adjusted margin
7.3%
6.1%
14.0%
5.1%
9.1%
Real Estate Finance
2023
£million
2022
£million
2021
£million
2020
£million
2019
£million
Net interest income
29.7
29.7
31.5
30.4
27.0
Net fee and commission income
0.9
0.2
0.3
–
1.0
Operating income
30.6
29.9
31.8
30.4
28.0
Net impairment charge on loans and advances to customers
(4.5)
(1.3)
(0.1)
(5.2)
(0.1)
Risk adjusted income
26.1
28.6
31.7
25.2
27.9
Average loan book
1,177.7
1,114.9
1,045.3
1,020.4
867.5
Net revenue margin
2.6%
2.7%
3.0%
3.0%
3.2%
Risk adjusted margin
2.2%
2.6%
3.0%
2.5%
3.2%
Commercial Finance
2023
£million
2022
£million
2021
£million
2020
£million
2019
£million
Net interest income
13.2
11.4
6.5
4.4
4.0
Net fee and commission income
11.3
11.6
8.4
7.7
9.2
Operating income
24.5
23.0
14.9
12.1
13.2
Net impairment (charge)/credit on loans and advances to
customers
(8.0)
(0.8)
0.2
(1.1)
(0.1)
Risk adjusted income
16.5
22.2
15.1
11.0
13.1
Average loan book
348.8
360.7
259.6
221.9
221.8
Net revenue margin
7.0%
6.4%
5.7%
5.5%
6.0%
Risk adjusted margin
4.7%
6.2%
5.8%
5.0%
5.9%
These ratios show the net return on our lending assets, with and without adjusting for cost of risk.
(iii) Yield
Yield is calculated as interest income and similar income for the financial year as a percentage of the average loan book.
The calculation of the average loan book is the average of the monthly balance of loans and advances to customers, net of provisions,
over 13 months:
2023
£million
2022
£million
Interest income and similar income
304.0
203.0
Average loan book
3,099.4
2,699.3
9.8%
7.5%
The yield measures the gross return on the loan book.
Appendix to the Annual Report (unaudited)
176
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Strategic Report
Corporate Governance Report
Financial Statements
Key performance indicators and other alternative performance measures
continued
(iv) Return on average equity
Total return on average equity is calculated as the total profit after tax for the previous 12 months as a percentage of average equity.
Adjusted return on average equity is calculated as the adjusted profit after tax for the previous 12 months as a percentage of average
equity. Average equity is calculated as the average of the monthly equity balances.
2023
£million
Restated
2022
£million
2021
£million
2020
£million
2019
£million
Total profit after tax
24.3
33.7
45.6
15.4
31.1
Less:
Loss/(profit) for the year from discontinued operations
2.1
(4.1)
N/A
N/A
N/A
Exceptional items after tax
5.9
–
–
–
–
Adjusted profit after tax
32.3
29.6
N/A
N/A
N/A
Opening equity
326.4
302.2
267.6
252.0
237.0
Closing equity
344.5
326.4
302.2
267.6
252.0
Average equity
334.9
313.4
287.0
261.1
242.9
Total return on average equity
7.3%
10.8%
15.9%
5.9%
12.8%
Adjusted return on average equity
9.6%
9.4%
N/A
N/A
N/A
Return on average equity is a measure of the Group’s ability to generate profit from the equity available to it.
(v) Cost to income ratio
Statutory cost to income is calculated as total operating expenses for the financial year as a percentage of operating income for
the financial year. Adjusted cost to income is calculated as adjusted operating expenses for the financial year as a percentage of
operating income for the financial year.
2023
£million
2022
£million
2021
£million
2020
£million
2019
£million
Total operating expenses
106.2
93.2
89.4
81.8
83.5
Less: Exceptional items
(6.5)
–
–
–
–
Adjusted operating expenses
99.7
93.2
89.4
81.8
83.5
Operating income
184.7
169.6
148.9
144.5
148.4
Statutory cost to income ratio
57.5%
55.0%
60.0%
56.6%
56.3%
Adjusted cost to income ratio
54.0%
55.0%
60.0%
56.6%
56.3%
The cost to income ratio measures how efficiently the Group is utilising its cost base to produce income.
(vi) Cost of risk
Cost of risk is calculated as the total of the net impairment charge on loans and advances to customers and gains and losses on
modification of financial assets for the financial year as a percentage of the average loan book
2023
£million
2022
£million
2021
£million
2020
£million
2019
£million
Net impairment charge on loans and advances to customers
43.2
38.2
5.0
41.5
33.8
(Gains)/losses on modification of financial assets
(0.3)
(1.1)
(1.5)
3.1
–
Total
42.9
37.1
3.5
44.5
33.8
Average loan book
3,099.4
2,699.3
2,240.5
2,197.8
2,041.3
Cost of risk
1.4%
1.4%
0.2%
2.0%
1.7%
The cost of risk measures how effective the Group has been in managing the credit risk of its lending portfolios
Appendix to the Annual Report (unaudited)
177
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Annual Report & Accounts 2023
Strategic Report
Corporate Governance Report
Financial Statements
Key performance indicators and other alternative performance measures
continued
(vii) Cost of funds
Cost of funds is calculated as the interest expense for the financial year expressed as a percentage of average loan book
2023
£million
2022
£million
Interest expense and similar charges
136.5
50.4
Average loan book
3,099.4
2,699.3
Cost of funds
4.4%
1.9%
The cost of funds measures the cost of money being lent to customers.
(viii) Funding ratio and loan to deposit ratio
The funding ratio is calculated as the total funding at the year-end divided by total loans and advances to customers at the year-end.
The loans to deposit ratio is calculated as total loans and advances to customers at the year-end divided by deposits from customers
at the year end:
2023
£million
Restated
2022
£million
Deposits from customers
2,871.8
2,514.6
Borrowings under the Bank of England’s liquidity support operations (including accrued interest)
395.1
392.8
Tier 2 capital (including accrued interest)
93.1
51.1
Equity
344.5
326.4
Total funding
3,704.5
3,284.9
Total loans and advances to customers
3,315.3
2,919.5
Funding ratio
111.7%
112.5%
Loan to deposit ratio
115.4%
116.1%
The funding ratio and loan to deposit ratio measure the Group’s excess of funding that provides liquidity.
(ix) Profit before tax pre impairments
Profit before tax pre impairments is profit before tax, excluding impairment charges and gains on modification of financial assets.
2023
£million
2022
£million
Profit before income tax
36.1
39.0
Excluding: net impairment charge on loans and advances to customers
43.2
38.2
Excluding: gains on modification of financial assets
(0.3)
(1.1)
Profit before tax pre impairments
79.0
76.1
Exception items
6.5
–
Adjusted profit before tax pre impairments
85.5
76.1
Profit before tax pre impairments measures the operational performance of the business.
(x) Tangible book value per share
Tangible book value per share is calculated as the total equity less intangible assets divided by the number of shares in issue at the
end of the year.
2023
£million
2022
£million
Total equity
344.5
326.4
Less: Intangible assets
(5.9)
(6.6)
Tangible book value
338.6
319.8
Number of shares in issue at the end of the year
19,017,795
18,691,434
Tangible book value per share
£17.80
£17.11
Tangible book value per share is a measure of the Group’s value per share.
Appendix to the Annual Report (unaudited)
178
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Strategic Report
Corporate Governance Report
Financial Statements
Glossary
Term
Explanation
ALCO
The Assets and Liabilities Committee. The remit of the Committee can be found on the Group’s
website:
www.securetrustbank.com/riskmanagement
.
CET 1 capital
Common Equity Tier 1 capital comprises share capital, share premium, retained earnings, own shares
and regulatory adjustments.
CET 1 capital ratio
The Common Equity Tier 1 capital ratio is the ratio of the bank’s CET 1 capital to its Total Risk
Exposure. This signifies a bank’s financial strength. The CET 1 capital ratio is monitored by regulators
and investors because it shows how well a bank can withstand financial stress and remain solvent.
Capital requirement
regulation and CRD V
The revised Capital Requirements Directive and Regulation, commonly referred to
as CRD V and CRR 2, refine and continue to implement Basel III by the UK, making important
amendments in a number of areas, including large exposures, leverage ratio, liquidity, market risk,
counterparty credit risk, as well as reporting and disclosure requirements.
Feefo
Feefo collects independent reviews from the customers of businesses across many sectors,
including financial services.
Financial Conduct
Authority
The Financial Conduct Authority is the conduct regulator for financial services firms and
financial markets in the UK. Its aims are to protect consumers, enhance market integrity and
promote competition.
High Quality
Liquid Assets
High Quality Liquid Assets are assets with a high potential to be converted easily and quickly into
cash. This comprises cash, the Bank of England reserve account and Treasury Bills.
ICAAP
Internal Capital Adequacy Assessment Process. A firm must carry out an ICAAP in accordance with
the PRA’s rules. They include requirements on the firm to undertake a regular assessment of the
amounts, types and distribution of capital that it considers adequate to cover the level and nature of
the risks to which it is or might be exposed.
ILAAP
The Internal Liquidity Adequacy Assessment Process allows firms to assess the level of liquidity
and funding that adequately supports all relevant current and future liquidity risks in their business.
In undertaking this process, a firm should be able to ensure that it has appropriate processes in place
to ensure compliance with the CRD. This requires firms to develop and use appropriate risk and
liquidity management techniques.
LCR
The Liquidity Coverage Ratio regime requires management of net 30-day cash outflows as a
proportion of High Quality Liquid Assets. The Group has set a more prudent internal limit than that
set by the regulator.
OLAR
The Overall Liquidity Adequacy Rule is the Board’s own view of the Group’s liquidity needs, as set out
in the Board-approved ILAAP.
Pillar 1, Pillar 2
and Pillar 3
Basel III uses a ‘three pillars’ concept – (1) Pillar 1 – minimum capital requirements (addressing risk)
using a standardised approach for credit, market and operational risk, (2) Pillar 2 – supervisory review
process and (3) Pillar 3 – market discipline and enhanced disclosures.
PRA
The Prudential Regulation Authority is a part of the Bank of England and responsible for the
prudential regulation and supervision of banks, building societies, credit unions, insurers and major
investment firms. It sets standards and supervises financial institutions at the level of the individual
firm. The PRA’s objectives are set out in the Financial Services and Markets Act 2000, but the main
objective is to promote the safety and soundness of the firms it regulates.
SME
Small to Medium-sized Enterprises.
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Term
Explanation
Term Funding Scheme
with additional incentives
for SMEs (‘TFSME’)
The TFSME was launched in March 2020 as part of measures to respond to the economic shock from
COVID-19. The scheme is designed to incentivise eligible participants to provide credit to businesses
and households to bridge through the current period of economic disruption, with additional
incentives to provide credit to SMEs.
This scheme allowed access to four-year funding at rates very close to Bank of England Base Rate,
allowing eligible participants to borrow central bank reserves in exchange for eligible collateral and is
due for repayment in 2025.
Tier 2 capital
Tier 2 capital is the secondary component of bank capital, in addition to Tier 1 capital, and is
composed of subordinated liabilities, net of issue costs.
Total Capital
Requirement
Guidance given to a firm about the amount and quality of capital resources that the PRA considers
that the firm should hold at all times under the overall financial adequacy rule as it applies on a solo
level or a consolidated level.
Total Risk Exposure
Total Risk Exposure is the total of the Group’s risk-weighted assets.
Glossary
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Secretary and Registered Office
Lisa Daniels ACIS
Yorke House
Arleston Way
Solihull
B90 4LH
T 0121 693 9100
F 0121 693 9124
Independent Auditor
Deloitte LLP
Four Brindleyplace
Birmingham
B1 2HZ
Bankers
Barclays Bank PLC
NatWest Bank PLC
Stockbrokers
Investec
30 Gresham Street
London
EC2V 7QN
Shore Capital Stockbrokers
57 St James’s Street
London
SW1A 1LD
Registrar
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
Corporate contacts and advisers
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Notes
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Financial Statements
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Secure Trust Bank PLC
Yorke House
Arleston Way
Solihull
B90 4LH
T 0121 693 9100
Registration No. 00541132
www.securetrustbank.com