Annual Report
& Accounts
2022
To help more consumers and
businesses fulfil their ambitions
About us
We are an award-winning UK specialist bank, providing savings
accounts and lending services to over a million customers.
In 2022 the Group celebrated 70 years of helping consumers
and businesses fulfil their ambitions.
Our approachable teams are based at our Solihull headquarters
and offices in Cardiff, London, Manchester and Reading. We are
making good progress towards our vision to be the most trusted
specialist lender in the UK.
Our vision
To be the most trusted specialist
lender in the UK
Our purpose
To help more consumers and
businesses fulfil their ambitions
Our strategy
Grow
Sustain
Care
Our strengths
Specialist
Expert
Diverse
Ambitious
Our values
Customer Focused
Risk Aware
Future Orientated
Teamwork
Ownership
Performance Driven
www.securetrustbank.com
Financial highlights
Continuing profit before tax
£39.0m
2021: £55.9 million
Loans and advances to customers
£2,919.5m
2021: £2,451.0 million
1
In this report
Strategic Report
Key performance indicators
2
Chairman’s statement
4
Chief Executive’s statement
5
Business model
8
Strategic priorities
10
Financial review
12
Business review
Consumer Finance
18
Business Finance
20
Savings
22
Market review
23
Principal risks and uncertainties
25
Viability and going concern
35
Managing our business responsibly
Environmental, social and governance strategy
37
Section 172 statement
40
Climate-related financial disclosures
50
Corporate Governance Report
Chairman’s introduction
60
Board leadership
61
Corporate Governance report
64
Nomination Committee report
67
Audit Committee report
70
Risk Committee report
75
Directors’ Remuneration Report
80
Proposed Directors’ Remuneration Policy
94
Directors’ report
105
Directors’ responsibility statement
109
Independent Auditor’s report
110
Financial Statements
Consolidated statement of comprehensive income
120
Consolidated statement of financial position
121
Company statement of financial position
122
Consolidated statement of changes in equity
123
Company statement of changes in equity
124
Consolidated statement of cash flows
125
Company statement of cash flows
126
Notes to the financial statements
127
Five-year summary (unaudited)
181
Appendix to the Annual Report (unaudited)
182
Glossary
185
Corporate contacts and advisers
187
Pages 2 to 59 form the Strategic Report. It includes our business model, market review, strategy, financial review and a business
review for each of the lines of business. Pages 105 to 108 form the Directors’ report. All key performance indicators are presented
on a continuing basis, unless otherwise stated.
1. Excludes discontinued loan portfolios. See Appendix to the Annual Report for further information.
Secure Trust Bank PLC
Annual Report & Accounts 2022
01
Key performance indicators
Grow
Why we
measure this
Shows the growth in the
Group’s lending balances,
which generate income
Loans and advances
to customers
(£m)
2,919.5
2,451.0
2,184.9
2022
2021
2020
Why we
measure this
Shows the rate of growth in
the Group’s lending balances
Compound annual
growth rate
(%)
15.6
12.2
N/A
2022
2021
2020
Why we
measure this
Shows the interest margin
earned on the Group’s lending
balances, net of funding costs
Net interest
margin
(%)
5.7
6.1
6.1
2022
2021
2020
Why we
measure this
Measures the Group’s ability to
generate profit from the equity
available to it
Total return on
average equity
(%)
10.7
15.9
5.9
2022
2021
2020
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 182 to 184.
Key performance indicators have been presented in the Financial
review on a continuing basis, unless otherwise stated.
Continuing businesses include the Retail Finance, Vehicle
Finance, Real Estate Finance and Commercial Finance businesses
only. Discontinued businesses include the Debt Management,
Consumer Mortgages and Asset Finance businesses. As a
result, certain ratios have been restated on a ‘continuing’ basis.
Further details on discontinued businesses can be found in
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 12
to 17, 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 37 to 49) and Climate-related financial disclosures
(pages 50 to 59) sections.
The Directors’ Remuneration Report, starting on page 80, sets
out how executive pay is linked to the assessment of key financial
and non-financial performance indicators.
(From 31 December 2020.)
Strategic Report
02
Secure Trust Bank PLC
Annual Report & Accounts 2022
Sustain
Why we
measure this
Measures how efficiently the
Group uses its cost base to
produce income
Cost to
income ratio
(%)
55.0
60.0
56.6
2022
2021
2020
Why we
measure this
The CET 1 ratio demonstrates
the Group's capital strength
Common Equity Tier 1
(‘CET 1’) ratio
(%)
14.0
14.5
14.0
2022
2021
2020
Why we
measure this
Measures how effectively the
Group manages the credit risk
of its lending portfolios
Cost of risk
(%)
1.4
0.2
2.0
2022
2021
2020
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
2022
2021
2020
Why we
measure this
Indicator of employee engagement
and satisfaction
Employee survey
trust index score
(%)
85.0
80.0
82.0
2022
2021
2020
Why we
measure this
Indicator of the Group’s impact
on the environment
Environmental
intensity indicator
(%)
2.8
3.0
3.1
2022
2021
2020
(The reduction in the cost to income
ratio reflects an improving trend.)
(The increase in the cost of risk
reflects a worsening trend.)
(Total Scope 1, 2 and certain Scope
3 emissions per £m Group operating
income. See page 56 for further details)
(mark out of 5 based onstar rating from
990 reviews,2021: 937, 2020: 1,466)
(based on all employee survey)
Strategic Report
Corporate Governance Report
Financial Statements
Secure Trust Bank PLC
Annual Report & Accounts 2022
03
Facing the future
with confidence.”
Lord Forsyth
Chairman
Excellent progress
against
key strategic objectives
New lending in our businesses reached record levels despite us tightening lending criteria and
improving the credit quality of new business. The simplification of the Group to focus on markets
where we have specialist skills was completed with the sale of the Debt Managers (Services)
Limited’s loan portfolio.
Of course, 2022 profits were always going to be impacted by the normalisation of impairment charges. However, strong loan
book growth, active management of net interest margin in a rising rate environment and excellent cost control have delivered
an impressive total profit before tax of £44.0 million (2021: £56.0 million) and continuing profit before tax of £39.0 million
(2021: £55.9 million). As a result, the Board are proposing a final dividend for 2022 of 29.1 pence. This brings the total dividend for
the year to 45.1 pence and meets our commitment to return 25% of earnings to shareholders.
A new environmental, social and governance (‘ESG’) policy has been approved by the Board to meet our climate change targets and
ESG has been integrated into our overall strategy.
I am particularly proud that we have been ranked 25 among 79 Large organisations named as the UK’s Best Workplaces™ for Wellbeing
in 2023. In December we were awarded the Silver Talent Inclusion and Diversity Evaluation Mark for the second year running by the
Employers Network for Equality and Inclusion.
I am pleased that we were successful in issuing £90.0 million of Tier 2 capital in February 2023. This new capital enables refinancing of
the 2018 Tier 2 capital, and supports our growth ambitions. Further information can be found in Note 47 to the Financial Statements.
These are challenging times and our success could not have been achieved without a first-class leadership team and the dedication
and creativity of our employees. On behalf of the Board I would like to express our thanks and appreciation to all of them.
Thanks are due to the Board too. An external effectiveness evaluation concluded they have the necessary skills and are carrying out
their duties well. Lucy Neville-Rolfe stepped down in September to join the Government and I am most grateful for her contribution
over the last four years.
We are all acutely aware of the headwinds facing the UK economy and the consequences for consumers and businesses. The energy
bills crisis, high rates of inflation, tightened monetary policy, rising interest rates, political turmoil and the heartbreaking conflict in
Ukraine have created significant uncertainty. However, our business model is robust and demonstrated throughout the COVID-19
pandemic that it is sufficiently agile to adapt to changing economic conditions. We are active in exploring merger and acquisition
opportunities which could complement our businesses and believe that the Group is well placed to meet its strategic objectives
and to face the future with confidence.
Lord Forsyth
Chairman
29 March 2023
Chairman’s statement
Strategic Report
04
Secure Trust Bank PLC
Annual Report & Accounts 2022
Chief Executive’s statement
Strong lending
growth
in target markets
We delivered a strong performance in 2022, with significant growth in continuing profit before tax
pre impairments, record new business and loan book growth, and disciplined cost control. We
continued to provide customers with excellent service and our capital position remains very healthy.
A key strategic objective has been to simplify our business model. We delivered another important part of this strategy in March 2022,
with the announcement of our exit from the debt purchase market. The sale of Debt Managers (Services) Limited’s (‘DMS’) loan portfolio
was completed in May 2022, with the migration of the portfolio completed in November 2022. The sale generated a profit of £6.1 million
1
,
which includes selling costs and some closure costs. We expect to incur further costs over the next couple of years as we fully wind down
the business. I would like to extend my appreciation and thanks to all colleagues who supported the transfer of the loan portfolio to the
purchaser. By exiting this loss-making business, we reset our medium-term market guidance for net interest margin to be >5.5% and cost
income ratio to be <50%. Given the change in Group structure following the disposal of non-core assets, all commentary in my report refers
to the continuing operations of the Group unless otherwise stated. Further information on discontinued operations can be found in Note 10
to the Financial Statements.
A second area of strategic focus has been on capturing a greater share of prime customers in our Consumer Finance businesses.
Within Retail Finance, our loan book has shifted more towards low-risk interest free credit propositions and at the year-end arrears were
at historically low levels. Within Vehicle Finance, we have had good success with the Personal Contract Purchase and Hire Purchase
products that were launched for prime customers during 2021, and which combined accounted for 24.2% (2021: 5.3%) of the Vehicle
Finance loan book at 31 December 2022. At year-end, Vehicle Finance arrears were in line with pre-pandemic levels.
Loan book growth was particularly strong in the first half of 2022
as we benefited from the recovery post pandemic and from
our strategic move in recent years to expand our addressable
market and our distribution. We took proactive steps in the
second half of the year, as the economic outlook deteriorated,
to manage effectively the risk for both our business and our
customers which had the desired effect of slowing the rate of
loan book growth.
We delivered record new business lending across our Consumer Finance and Business Finance businesses, achieving volumes of
£2,067.8 million (2021: £1,441.1 million). We achieved 11.4% (2021: 8.4%)
2
market share
in new business lending for Retail Finance and
1.1% (2021: 0.7%)
3
for Vehicle Finance. This contributed to net lending growth of 19.1% (2021: 12.2%) and drove a significant increase
in operating income.
1.
Includes selling costs of £1.2 million, and £2.8 million of associated costs to wind down the Debt Management business. See Note 10 to the Financial Statements for further details.
2.
Source: Finance & Leasing Association (‘FLA’): New business values within retail store and online credit: 2022: FLA total and Retail Finance new business of £9,844 million (2021: £9,146 million)
and £1,124.3 million (2021: £771.5 million) respectively.
3.
Source: FLA. Cars bought on finance by consumers through the point of sale: New business values: Used cars: 2022, FLA total and Vehicle Finance total of £23,472 million (2021: £19,838
million) and £262.9 million (2021: £134.3 million) respectively.
Our performance has demonstrated the
team’s ability to help more customers,
become more efficient and scale our
specialist lending businesses.”
David McCreadie
Chief Executive Officer
Medium-term targets
Total return on average equity
14-16%
Cost income ratio
<50%
Common equity tier 1 ratio
>12%
Net interest margin
>5.5%
Compound annual growth rate of the lending book
15%+
Strategic Report
Corporate Governance Report
Financial Statements
Secure Trust Bank PLC
Annual Report & Accounts 2022
05
Chief Executive’s statement
continued
The higher interest rate backdrop has contributed to higher funding costs for new and existing deposits as we re-priced managed
rate savings products several times in the year, offering attractive rates to customers whilst maintaining a sufficient level of funding.
The savings market remains competitive, and our product mix shifted towards fixed-term products, as customer behaviour evolved
as interest rates rose. Variable rate lending portfolios within our Business Finance businesses reflected changes in Base Rate
immediately. Whereas, for our fixed rate lending portfolios, funding cost increases were passed on through new business price
increases, which take a short time to crystallise into pricing and the income statement, as pipeline cases complete and introducer
arrangements are reset. Combined, this generated a net interest margin of 5.7% (2021: 6.1%).
I am pleased with our management of costs during a period of high inflation. We have worked hard to identify opportunities to remove
and avoid costs. The delivery of our strategic priority to simplify the Group has allowed us to improve our operational efficiency.
This enabled us to reduce our cost income ratio by 500 basis points to 55.0% (2021: 60.0%).
The combination of strong loan book growth, well managed net interest margin and excellent cost control delivered significant growth
in profit before tax pre impairments of £76.1 million, an increase of £16.7 million (2021: £59.4 million). We saw the cost of risk return to
pre-pandemic levels to 1.4% (2022: 0.2%) and this resulted in profit before tax of £39.0 million (2021: £55.9 million). Total profit before
tax was £44.0 million (2021: £56.0 million).
In February 2023 we issued £90.0 million of subordinated debt, which qualifies as Tier 2 regulatory capital. At the same time we
repurchased £25.0 million of our existing 2018 Tier 2 subordinated debt, and we repurchased the remaining £25.0 million in March
2023. We are pleased with the support we have received from new and existing investors for the new issuance. With an enlarged and
optimised capital base we are strongly positioned to continue to help consumers and businesses to fulfil their ambitions.
Vision and purpose
We shared our refreshed strategy at the end of 2021, where we announced a renewed focus on our core markets where we have depth
of expertise and specialist skills, through our three strategic pillars of grow, sustain and care. This is now fully embedded across our
organisation as we look to optimise for growth and make further progress towards our medium-term targets. As noted above we have
further simplified the Group with the sale of the DMS loan portfolio. We have made progress against our strategic objectives, and
medium-term targets, notably on lending book growth and cost income ratio. Further details are presented on page 11. This strongly
supports our vision to become the UK’s most trusted specialist lender.
As we look to the future, in May 2022 we completed the purchase of AppToPay Ltd, which will provide the proprietary technology
platform to enable the Retail Finance business to enter the digital ‘Buy Now Pay Later’ market with a fully regulated product in 2023.
As with all our lending decisions we will undertake affordability and credit assessments. We are excited about entering this new
market, but we will do this cautiously during these uncertain times. We will also continue to consider potential merger and acquisition
opportunities that can complement and leverage our businesses and take advantage of our existing well-established distribution
networks of retailers, dealerships and intermediary relationships.
Helping our customers
We understand these are challenging times for many of our customers, with the high level of inflation and the cost of living crisis.
Helping our customers achieve their ambitions requires us to support them through these uncertain times. We do this through
our digital channels and contact centres for the Consumer Finance businesses and relationship managers for the Business Finance
businesses. We have long established relationships with more than 1,500 retailers as part of the Retail Finance business, and now work
with over 560 dealers, brokers or internet introducers in the Vehicle Finance business. We continue to work to maintain our effective
working relationships, using our expertise to make sure our products continue to meet the needs of our customers.
We routinely review the customer experience across our businesses, particularly enhancing our digital offering and customer journey.
In a key achievement towards the end of 2022, we partnered with Mastercard to launch a new payment method within the Retail
Finance business. This uses open banking technology, offering seamless and fast account to account payments made via a customer’s
current account banking app, without the need for customers to provide their debit card details. The uptake has been positive, with
more customers than expected using this easy option to make one off and early repayments. We look forward to embracing this
development and technology across other businesses during 2023. We have also launched a project to introduce a mobile app for
our Savings products in 2023.
We were recognised for several awards for our customer service and products during the year. Most notably, we achieved the
Customer Service Excellence Standard for the tenth year running, as well as awards from Feefo and Moneyfacts. Feefo awarded us
the Platinum Trusted Service award for Vehicle Finance and Retail Finance. This is awarded to those companies who have achieved
the Gold service award for three consecutive years, and recognises our consistent support for customers during a challenging
period. Feefo scores continue to rate highly at 4.6 stars out of 5 (2021: 4.6 stars out of 5). In addition, Moneyfacts awarded us ‘Best
Notice Account Provider’. We also achieved ‘Highly Commended’ recognition in four categories at the Savings Champion Awards
in December 2022.
Strategic Report
06
Secure Trust Bank PLC
Annual Report & Accounts 2022
Operational efficiency
We launched a programme as part of the refreshed strategy in 2021, which sought to look at where we can operate more effectively
across the Group. Alongside the improvement in payment experience noted above, we have looked at internal technology, digitalisation,
operational processes and sourcing and supplier management to enable us to operate as efficiently as possible across all our operational
sites, and this programme has delivered tangible benefits. Alongside this, we have listened to our Savings customers and considered
the environmental impact of customer correspondence. This has enabled us to transition 89% of our customers to use internet banking
to access their statements, and all certificates of interest are now provided via this method.
Having adopted a hybrid working model, we then reviewed our property portfolio considering the new ways of working. As a
consequence, in the second half of 2022, we reduced from two sites to one at our Retail Finance site in Cardiff, and plan to do the
same at the head office site in Solihull during the first half of 2023.
As we have simplified the Group and reduced the number of businesses we are in, we have taken the opportunity to review leadership
structures, roles and spans of control, and delivered further cost savings.
Our people
Last year I announced several new senior appointments. I am pleased to say the team is working well together and focused on delivering
our strategic objectives. Having simplified the business further, and due to a number of retirements, five members of the senior
management team left the Group in 2022. I would like to thank those colleagues for their support and wish them well for the future.
Julian Hartley joined the Executive Committee in October 2022 as Managing Director, Vehicle Finance and Savings, further broadening
the experience of the leadership team. Geoff Ray, Managing Director, Real Estate Finance joined our Executive Committee in January
2023. Geoff has been with us for over six years.
We had some wonderful achievements during the year. In 2022, we were listed as an official UK’s Best Workplaces™ for the fourth year
running. We were ranked 29 out of 67 companies and we have now been awarded a trio of accolades from Great Place to Work®: UK’s
Best Workplaces™, UK’s Best Workplaces™ for Women and more recently for UK’s Best Workplaces™ for Wellbeing.
Our Your Voice employee survey showed us that 89% (2021: 80%) of those who took part in the survey are proud to work here, and
we also achieved a Trust Index of 85% (2021: 80%), the highest we have achieved in an annual survey since we started partnering with
Great Place to Work® and on par with the UK’s Best Workplaces™. I am also pleased to say we have signed up to HM Treasury’s
Women in Finance Charter which underlines our commitment to equality, diversity and inclusion.
We understand that as well as our customers, our colleagues may be facing financial challenges. We took the decision to award a
one-off payment in October 2022 to colleagues who earn £35,000 annually or less, which acknowledges the impact of the cost of living
crisis on our lower level earners. We also introduced a range of resources and information on financial wellbeing for all our colleagues
during the year.
We continue to support employee wellbeing and provide all employees with a ‘wellbeing hour’ each month, and in 2022 we
established a menopause policy along with awareness sessions and provided ‘everyday allyship’ training for all managers.
I would like to thank all our colleagues for their continued hard work and commitment to the Group.
Outlook
2022 has been a year of significant progress for the Group. We remain vigilant, adapting to the evolving economic environment.
Our size and expertise provide us the agility to do so, and our track record has demonstrated our resilience through previous periods
of uncertainty. We will do this while continuing to help consumers and businesses fulfil their ambitions. We have made good progress
against our medium-term objectives; I am confident that we will make further progress in the year ahead and that we are well placed
for the future.
David McCreadie
Chief Executive Officer
29 March 2023
Strategic Report
Corporate Governance Report
Financial Statements
Secure Trust Bank PLC
Annual Report & Accounts 2022
07
Business model
How Secure Trust Bank
does what it does
Consumer
Finance
Retail Finance
Vehicle Finance
Business
Finance
Real Estate Finance
Commercial Finance
Savings
Savings
Creating value for stakeholders
Strategic Report
08
Secure Trust Bank PLC
Annual Report & Accounts 2022
How we help more consumers
and businesses fulfil their ambitions
How do we do it?
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 which drive sales.
• We operate a market leading online service to retailers, providing
unsecured, lending products to the UK customers of its retail
partners to swiftly facilitate the purchase of a wide range of
consumer products.
• Our online processing system allows customers to digitally sign
their credit agreements, thereby speeding up the pay-out process,
and removing the need to handle sensitive personal documents.
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.
• We lend in the form of hire purchase or personal contract purchase
to prime and near prime customers.
• Lending is provided via UK motor dealers, brokers and internet
introducers with a technology platform that allows an automated
end-to-end customer journey.
We lend money against residential properties to professional
landlords and property developers:
• Providing mortgage-style borrowing to professional landlords to allow
them to improve and grow their portfolio.
• Providing development facilities to property developers and SME
house builders to help build new homes for sale or letting.
• We lend on portfolios of residential property where the rental
income will repay the underlying borrowing over a fixed term
period, as well as the development of new build property.
• Our products are sourced and supported both directly and via
introducers and brokers.
We support the growth of UK businesses by enabling
effective cash flow:
• Providing working capital finance to UK SMEs.
• Providing funds for strategic events.
• We lend predominantly against receivables, typically releasing
90% of qualifying invoices under invoice discounting and
factoring services.
• We also provided additional lending to existing customers through
Government guaranteed schemes.
• Our products are sourced and supported both directly and
via introducers.
Customers trust us to look after their 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 sets to enable
them to lend in the market we compete in.
• We offer a range of Savings accounts that are purposely simple in
design, with a choice of products from same day withdrawal to 180-
day notice, and six-month to seven-year fixed terms across both
bonds and ISAs.
• Our products are supported through a highly commended online
banking service.
Strategic Report
Corporate Governance Report
Financial Statements
Secure Trust Bank PLC
Annual Report & Accounts 2022
09
Strategy
Grow
• Generate growth and attractive returns in
specialist segments
• Exploit digital capabilities to build scale
and drive cost efficiency
Sustain
• Create sustainable value through
market expertise and deep
customer knowledge
• Utilise strong credit discipline,
capital allocation and risk
management capabilities
Care
• Help customers with simple, clear and
compelling products
• Deliver consistently excellent customer
care and swift outcomes
Always act with integrity and transparency, delivering value for all stakeholders
Strengths
Specialist
Focus on attractive returns in our
core markets
Expert
Strong market expertise,
relationships and digital capabilities
Diverse
Diverse portfolios in consumer and
business lending
Ambitious
Clear opportunities for growth and
strategy for long-term value creation
Values
Customer
Focused
Because they are at
the heart of everything
we do
Risk Aware
It keeps our customers
and us safe and secure
Future
Orientated
Embracing change
and implementing
good ideas give
us a competitive
advantage
Teamwork
We achieve
more when we
work well together
Ownership
Each of us need
to take personal
responsibility
Performance
Driven
We will only be the
most trusted specialist
lender in the UK
by each of us
taking personal
accountability for
our performance
Our vision
To be the most trusted specialist lender in the UK
Purpose
To help more consumers and businesses fulfil their ambitions
Strategic priorities
Strategic Report
10
Secure Trust Bank PLC
Annual Report & Accounts 2022
How will it be delivered
Progress we are making
Targets and future priorities
Grow
• Generate growth and
attractive returns in
specialist segments
• Exploit digital
capabilities to build scale
and drive cost efficiency
•
Consumer and Business Finance achieved a total
return on average equity of 10.7%, with a 19.1% annual
growth in the loan book during 2022, and compound
annual growth
1
of 15.6%,
reflecting growth across all
our divisions.
• Traction gained with new products in Vehicle Finance
through the new prime Hire Purchase and Personal
Contract Purchase products which are targeted at lower
credit risk customers. Prime lending now makes up 24.2%
(2021: 5.3%) of the Vehicle Finance loan book.
•
Delivered first phases of our cost and operational
efficiency programme which comprised sourcing
and supplier management, technology optimisation,
organisational design and people, and reducing the
Group’s property footprint, resulting in a cost income
ratio of 55.0% (2021: 60.0%).
• Non-core loan book of Debt Managers (Services)
Limited was sold during the year; and we completed
the acquisition of AppToPay Ltd, which will provide the
technology for Retail Finance to enter the digital Buy
Now Pay Later sector.
1. Compound annual growth measured from 31 December 2020
.
•
Maintain growth in the lending balance
sheet, targeting in the medium-term 15%+
compound annual growth in appropriate
market conditions, whilst maintaining return on
average equity of 14%-16% through scaling our
specialist businesses.
• Widen our distribution and addressable markets,
both through new products in Consumer Finance.
•
Continue the cost and operational efficiency
journey to achieve a <50% cost income ratio.
• Build-out our existing digital capabilities to win
share and drive scale, including transitioning
legacy products to new scalable platforms.
• Exploit merger and acquisition opportunities that
complement our existing businesses and leverage
costs, systems and market expertise.
Sustain
• Create sustainable
value through market
expertise and deep
customer knowledge
• Utilise strong credit
discipline, capital
allocation and
risk management
capabilities
•
Achieved a net interest margin of 5.7% (2021:6.1%), whilst
operating in a challenging rising rate environment.
•
Capital was deployed to support growth in loans and
advances to customers, resulting in a common equity tier
1 (‘CET 1’) ratio of 14.0% (2021: 14.5%).
• Manage credit scorecard cut-offs and affordability
thresholds to improve quality of credit in a challenging
market environment.
• Ongoing investment in regulatory compliance, finance
automation and financial crime prevention.
•
Continue to build on experienced specialist
teams, deep expertise and knowledge to deliver
sustainable value growth, ensuring a proactive
approach to product design and pricing in a
rising interest rate environment to maintain a net
interest margin in excess of 5.5%.
•
Manage the mix and risk profile of the business to
maintain the CET 1 ratio above 12%.
• Drive sustainable scale and growth whilst
maintaining credit discipline, risk management
and optimising our capital allocation.
• Provide products relevant to the external market
and customers.
Care
• Help customers with
simple, clear and
compelling products
• Deliver consistently
excellent customer care
and swift outcomes
• Continued investment in digital platforms, allowing
dealers and retailers to integrate seamlessly, as well as
continued growth of online engagement and self-service,
with enhancements across all our businesses.
• Strong customer satisfaction and advocacy across
all areas of the Group as evidenced by independent
customer review ratings, and recognition from third
parties such as Feefo, Moneyfacts and Customer
Service Excellence.
• Launched a Board approved environmental, social and
governance (‘ESG’) strategy (for further details see pages
37 to 39).
• Appointed a Board member as our Consumer Duty
Champion, and approved our plan for compliance with
the regulation.
• Increase customer self-service through digital
capabilities, including a Savings proposition
delivering native mobile apps, biometric
authentication for enhanced security and enabling
confirmation of payee to improve customer safety
and satisfaction.
• Develop new products, including Buy Now Pay
Later and Near Prime PCP, as well as seizing
opportunities presented by emerging green
markets, such as the Greener Homes Scheme,
and consumer and retailer demand for finance on
environmentally friendly products and services.
• Embedding the ESG strategy, which includes the
further progression of an Equality, Diversity and
Inclusion strategy.
• Implement our Consumer Duty plan.
Strategic Report
Corporate Governance Report
Financial Statements
Secure Trust Bank PLC
Annual Report & Accounts 2022
11
Financial review
Income statement
Continuing operations
2022
£million
2021
£million
Movement
%
Interest income and similar income
203.0
163.9
23.9
Interest expense and similar charges
(50.4)
(27.7)
81.9
Net interest income
152.6
136.2
12.0
Fee and commission income
17.4
13.3
30.8
Fee and commission expense
(0.4)
(0.6)
(33.3)
Net fee and commission income
17.0
12.7
33.9
Operating income
169.6
148.9
13.9
Net impairment charge on loans and advances to customers
(38.2)
(5.0)
664.0
Gains on modification of financial assets
1.1
1.5
(26.7)
Fair value losses on financial instruments
(0.3)
(0.1)
200.0
Operating expenses
(93.2)
(89.4)
4.3
Profit before income tax from continuing operations
39.0
55.9
(30.2)
Income tax expense
(9.4)
(10.4)
(9.6)
Profit for the year from continuing operations
29.6
45.5
(34.9)
Discontinued operations
Profit before income tax from discontinued operations
5.0
0.1
4,900.0
Income tax expense
(0.9)
–
–
Profit for the period from discontinued operations
4.1
0.1
4,000.0
Profit for the year
33.7
45.6
(26.1)
Basic earnings per share (pence) – Total
180.5
244.7
(26.2)
Basic earnings per share (pence) – Continuing
158.5
244.1
(35.1)
Selected key performance indicators and performance metrics
Total profit before tax
44.0
56.0
(21.4)
%
%
Percentage
point movement
Net interest margin
5.7
6.1
(0.4)
Cost of funds
1.9
1.2
0.7
Cost to income ratio
55.0
60.0
(5.0)
Cost of risk
1.4
0.2
1.2
Total return on average equity
10.7
15.9
(5.2)
Common Equity Tier 1 (‘CET 1’) ratio
14.0
14.5
(0.5)
Total capital ratio
16.2
16.8
(0.6)
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 182 to
184. In the narrative of this review, key performance indicators are identified by being in bold font.
Key performance indicators and performance metrics have been presented in this review on a continuing basis, unless
otherwise stated.
Continuing businesses include the Retail Finance, Vehicle Finance, Real Estate Finance and Commercial Finance businesses only.
It excludes the Debt Management, Consumer Mortgages and Asset Finance businesses. The associated loan portfolios for these
businesses were sold in 2022 or 2021. As a result, certain ratios for 2021 have been restated on a ‘continuing’ basis. Further details
of continuing businesses can be found in the Appendix to the Annual Report on page 182. The Directors’ Remuneration report,
starting on page 80, sets out how executive pay is linked to the assessment of key financial and non-financial performance metrics.
Strategic Report
12
Secure Trust Bank PLC
Annual Report & Accounts 2022
Sustained growth
in revenue and lending
Successfully navigated the uncertain
macroeconomic environment and
delivered healthy loan book growth.”
Rachel Lawrence
Chief Financial Officer
2022 was another strong year for the Group, with good progress against our medium-term
financial targets. The Group successfully navigated the uncertain macroeconomic environment and
delivered healthy loan book growth of 19.1% (2021: 12.2%) while at the same time shifting our
Consumer Finance business towards better quality prime business. Net interest margin was well
managed against this lower yielding book and profit before tax pre impairments was significantly
increased due to loan book growth and disciplined cost control. Our capital position remains
healthy, with a CET 1 ratio of 14.0% (2021: 14.5%) well ahead of our medium-term target and our
total return on average equity was 10.7% (2021: 15.9%).
The Group achieved a profit before tax of £39.0 million (2021: £55.9 million). Although this was a reduction of 30.2% on 2021 as a result
of normalisation of impairment charges,
profit before tax pre impairments
of £76.1 million was 28.1% higher (2021: £59.4 million)
reflecting record growth in net lending balances and disciplined cost management.
In addition, the Group benefited from the recognition of the profit on disposal of the Debt Managers (Services) Limited (‘DMS’) loan
portfolio of £6.1 million in the year and at a total level the profit before tax was £44.0 million (2021: £56.0 million).
Total earnings per share decreased from 244.7 pence per share to 180.5 pence per share, and on a continuing basis earnings per
share decreased from 244.1 pence per share to 158.5 pence per share. Total
return on average equity
decreased from 15.9% to
10.7%. Earnings per share and return on average equity performance were impacted by the normalisation of impairment charges.
Detailed disclosures of earnings per ordinary share 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 13.9% to £169.6 million (2021: £148.9 million).
Net interest income on the Group’s lending assets continues to be the largest component of operating income. This increased by
12.0% to £152.6 million (2021: £136.2 million), driven by growth in net lending assets, with average balances increasing by 20.5% to
£2,699.3 million (2021: £2,240.5 million).
The Group’s
net interest margin
decreased to 5.7% (2021: 6.1%), reflecting the increased interest rate environment and the continued
shift towards lower yielding but better quality prime interest free lending in Retail Finance as well as the reduction in higher yielding
development loans in Real Estate Finance.
The Group’s other income, which relates to net fee and commission income, increased by 33.9% to £17.0 million (2021: £12.7 million),
predominately driven by an increase in overall net lending assets.
Strategic Report
Corporate Governance Report
Financial Statements
Secure Trust Bank PLC
Annual Report & Accounts 2022
13
Financial review
continued
Impairment charges
Impairment charges increased to £38.2 million (2021: £5.0 million), reflecting a return to a normalised level of impairment charge
following releases of COVID-19 driven provisions in 2021, and delivering a
cost of risk
of 1.4% (2021: 0.2%), which is comparable to
pre-COVID level of 1.7% in 2019. Overall impairment provisions remain robust at £78.0 million (2021: £60.2 million) with the aggregate
coverage level at 2.6% (2021: 2.4%) for continuing loan books.
During the year the Group enhanced its IFRS 9 process by engaging external economic advisors to inform our macroeconomic
variables model assumption inputs. During the fourth quarter of the financial year, the Group refreshed these macroeconomic inputs
incorporating a weaker UK economic outlook. The forecast economic assumptions within each IFRS 9 scenario, and the weighting
applied, are set out in more detail in Note 17.1 to the Financial Statements.
The Group has applied Expert Credit Judgements (‘ECJ’s’) where management believes the IFRS 9 modelled output is not accurately
reflecting current risks in the loan portfolios. Further details of these ECJs are included in Note 17 to the Financial Statements.
Operating expenses
The Group’s cost base increased in the year by 4.3% to £93.2 million (2021: £89.4 million), with an improvement in the
cost to income
ratio
of 500 basis points to 55.0% (2021: 60.0%).
Included within costs were £1.2 million relating to non-recurring corporate projects (2021: £nil), which if excluded would have reduced
the cost income ratio to 54.2%, an underlying improvement of 580bps.
The improvement in the ratio reflects both the increase in operating income and the ongoing programme of initiatives which seek
to achieve more efficient and effective operational processes, including digitisation of processes, supplier and procurement reviews,
organisational design and property management.
Taxation
The effective statutory tax rate has increased to 24.1% (2021: 18.6%). The effective rate for 2022 has increased above the Corporation
Tax rate of 19% due to a reduction to deferred tax asset values which are linked to the expected levels of future tax relief based on
enacted rates, mainly arising from changes to the banking surcharge enacted in 2022. Further details can be found in Note 9 to the
Financial Statements.
Discontinued businesses
In May 2022, the Group disposed of the loan portfolio of DMS, realising an overall initial profit on disposal of £6.1 million. Further wind-
down costs are expected to be incurred over the next couple of years. DMS continued to operate as a servicer for the purchaser whilst
the loan book was migrated to its operating platform, which concluded in November 2022. During 2021 the Group disposed of the
Asset Finance and Consumer Mortgage portfolios. Further details of the impact of these businesses are provided in Notes 3 and 10 to
the Financial Statements.
Distributions to shareholders
The Board recommend the payment of a final dividend for 2022 of 29.1 pence per share which, together with the interim dividend of
16.0 pence per share, represents a total dividend for the year of 45.1 pence per share (2021: 61.1 pence per share). This is in line with
the Group’s policy to pay total annual dividends representing 25% of annual earnings.
Strategic Report
14
Secure Trust Bank PLC
Annual Report & Accounts 2022
Summarised balance sheet
2022
£million
2021
£million
Assets
Cash and Bank of England reserve account
370.1
235.7
Loans and advances to banks
50.5
50.3
Debt securities
–
25.0
Loans and advances to customers – continuing
2,919.5
2,451.0
Loans and advances to customers – discontinued
1
–
80.9
Fair value adjustment for portfolio hedged risk
(32.0)
(3.5)
Derivative financial instruments
34.9
3.8
Other assets
37.3
42.7
3,380.3
2,885.9
Liabilities
Due to banks
400.5
390.8
Deposits from customers
2,514.6
2,103.2
Fair value adjustment for portfolio hedged risk
(23.0)
(5.3)
Derivative financial instruments
26.7
6.2
Tier 2 subordinated liabilities
51.1
50.9
Other liabilities
83.5
37.7
3,053.4
2,583.5
1. 2021 includes a loan portfolio classified as Assets held for sale of £1.3 million.
New business
Loan originations in the year, being the total of new loans and advances to customers entered into during the period, increased by
43.5% to £2,067.8 million (2021: £1,441.1 million). Further detail on the divisional split of this new business can be found in the Business
reviews on pages 18 to 21.
Customer lending and deposits
Group lending assets increased by 19.1% to £2,919.5 million (2021: £2,451.0 million) primarily driven by strong growth in our Consumer
Finance business.
Consumer Finance balances grew by £399.5 million or 38.9%, driven by strong demand in the first half of 2022 (21.5% growth) and a
slightly slower growth rate in the second half of 2022 (17.4% growth), as the effects of us proactively tightening credit criteria due to the
macroeconomic environment made an impact.
Further analysis of loans and advances to customers, including a breakdown of the arrears profile of the Group’s loan books,
is provided in Notes 15, 16, 17 and 39 to the Financial Statements.
Customer deposits include Fixed term bonds, ISAs, Notice and Access accounts. Customer deposits increased by 19.6% to
£2,514.6 million (2021: £2,103.2 million).
Total funding ratio
of 112.5% increased marginally (2021: 112.4%). As set out on page 17,
the mix of the deposit book has continued to change as the Group has adapted to the recent Base Rate changes, with a focus on
retaining stable funds, which is reflected in the increase in fixed term bonds.
Real Estate Finance
£384.5m
Commercial Finance
£157.3m
Retail Finance
£1,124.3m
Vehicle Finance
£401.7m
New business volumes
£2,067.8m
2021: £1,441.1m
Real Estate Finance
£1,115.5m
Commercial Finance
£376.4
m
Retail Finance
£1,054.5
m
Vehicle Finance
£373.1
m
Loans and advances to customers
£2,919.5m
2021: £2,451.0m
Strategic Report
Corporate Governance Report
Financial Statements
Secure Trust Bank PLC
Annual Report & Accounts 2022
15
Financial review
continued
Investments and wholesale funding
As at the end of 2022 the Group held no debt securities (2021: £25.0 million). 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 represent two £25.0 million tranches of 6.75% Fixed Rate Callable Subordinated Notes (‘2018 Notes’),
including interest accrued. Further details of the note issuances are provided in Note 32. The Notes qualify as Tier 2 capital.
In February 2023 we issued £90.0 million of 10.5 year 13.0% Fixed Rate Callable Subordinated Notes, which qualify as Tier 2
regulatory capital. Our existing 2018 Notes were repurchased in February and March 2023. For further details see Note 47.1 to the
Financial Statements.
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 2021 from £350.6 million to £377.3 million. This includes the proposed 2022 final dividend of
£5.4 million. The increase was primarily due to CET 1 capital and was driven by retained earnings growth, offset by the impact of
changes to the IFRS 9 adjustment as set out below.
Capital
2022
£million
2021
£million
CET 1 capital
327.4
303.6
Eligible Tier 2 capital
49.9
47.0
Total capital
377.3
350.6
Total risk exposure
2,335.0
2,087.4
Capital ratios
2022
%
2021
%
CET 1 ratio
14.0%
14.5
Total capital ratio
16.2%
16.8
Leverage ratio
10.7%
10.3
The Group has elected to adopt the IFRS 9 transitional rules. For 2022, this allows for 25% (2021: 50%) of the initial IFRS 9 transition
adjustment, net of attributable deferred tax, to be added back to eligible capital. The same relief is allowed for increases in
provisions between 1 January 2018 to 31 December 2019, except where these provisions relate to defaulted accounts. The same
relief is also allowed for increases in provisions since 1 January 2020, this is applied at 75% in 2022 (2021: 100%). All transitional
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 adjustments 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 total Pillar 1 and Pillar
2A requirements.
The Group operates the standardised approach to credit risk, whereby risk weightings are applied to the Group’s on and off
balance sheet exposures. The weightings applied are those stipulated in the UK Capital Requirements Regulation.
Excluding the impact of the IFRS 9 transitional rules, the Group’s CET 1 ratio and total capital ratio would reduce to 13.6% and
15.7% respectively.
Strategic Report
16
Secure Trust Bank PLC
Annual Report & Accounts 2022
Capital requirements
The Total Capital Requirement, set by the PRA, includes both the calculated requirement derived using the standardised approach and
the additional capital derived in conjunction with the Internal Capital Adequacy Assessment Process (‘ICAAP’). In addition, capital is
held to cover generic buffers set at a macroeconomic level by the PRA.
2022
£million
2021
£million
Total Capital Requirement
210.2
196.7
Capital conservation buffer
58.4
51.9
Countercyclical buffer
23.4
–
Total
292.0
248.6
The increase in lending balances through the year resulted in an increase in risk weighted assets over 2022, bringing the total risk
exposure up from £2,087.4 million to £2,335.0 million.
The capital conservation buffer has been held at 2.5% of total risk exposure since 1 January 2019. The countercyclical capital buffer was
0% throughout 2021 as part of the PRA’s response to COVID-19. However this increased to 1% on 13 December 2022 alongside the
removal of firm specific temporary PRA buffers. The Financial Policy Committee have announced that the countercyclical capital buffer
will increase to 2% on 5 July 2023. For more information please see page 24.
Liquidity
Liquidity resources
We continued to hold significant surplus liquidity over the minimum requirements throughout 2022, managing liquidity by holding High
Quality Liquid Assets (‘HQLA’) and utilising predominantly retail funding balances from customer deposits over 2022. Liquidity remained
high at the end of the period primarily due to prefunding Real Estate Finance lending in January 2023. Total liquid assets increased to
£416.9 million as at 31 December 2022 (2021: £306.7 million).
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
2022
£million
2021
£million
Aaa – Aa3
370.1
259.0
A1 – A2
41.6
42.6
Unrated
5.2
5.1
416.9
306.7
We continue to attract customer deposits to support balance sheet growth. Although we have continued to focus on attracting ISA
account funding, we have increased acquisition levels of fixed term bonds which are a more stable form of funding. The composition
of customer deposits is shown in the table below.
Customer deposits
2022
%
2021
%
Fixed term bonds
56
46
Notice accounts
20
37
ISA
17
12
Access accounts
7
5
100
100
Management of liquidity
The Group uses various measures to manage liquidity. 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 HQLA.
• Total funding ratio, as defined in the Appendix to the Annual Report.
• High Quality Liquid Assets (‘HQLA’) are held in the Bank of England Reserve Account and UK Treasury Bills. For LCR purposes the HQLA
excludes UK Treasury Bills which are encumbered to provide collateral as part of the Group’s TFSME drawings with the Bank of England.
The Group met the LCR minimum threshold throughout the year and the Group’s average LCR was 270.1% (based on a rolling
12 month-end average).
Strategic Report
Corporate Governance Report
Financial Statements
Secure Trust Bank PLC
Annual Report & Accounts 2022
17
Business review
2022
£million
2021
£million
Movement
£million
Movement
%
New business
1,124.3
771.5
352.8
45.7
Lending balance
1,054.5
764.8
289.7
37.9
Total revenue
78.0
67.7
10.3
15.2
Impairment charge
14.8
5.0
9.8
196.0
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, music, furniture, outdoor/leisure, electronics,
dental, jewellery, home improvements and football season tickets. These markets 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 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.
• The business is supported by a highly experienced senior team and workforce.
2022 performance
• Strong lending growth during 2022 of 37.9% (2021: 16.2%), resulting from an increase in our market share of the retail store and
online credit market
1
.
• Extension of our footprint with key retail partners as well as the introduction of new retailer relationships as we leveraged our strong
track record of systems integration.
• Lending and revenue growth has come mainly from interest free lending into the furniture and jewellery sectors, which attracts a
prime customer at a lower credit risk but a lower net interest margin. At the end of the year, 85.1% (2021: 80.2%) of the lending book
related to interest free lending.
• We have consciously focused on primer sectors in response to the deteriorating economic environment. As a result, impairment
charges have benefited from the improved credit quality of the book, with cost of risk reducing to nearly half of the pre-
pandemic levels.
• We anticipate further lending growth from our existing retail partners and our operational plans are focused on digitalising all key
processes to improve the customer and retail partners experience.
• The acquisition of AppToPay will provide an additional regulated product in the new digital Buy Now Pay Later markets using mobile
application-based technology.
1. Source: Finance & Leasing Association (‘FLA’): New business values within retail store and online credit: 2022: 11.4% (2021: 8.4%): FLA total and Retail Finance new business of
£9,844 million (2021: £9,146 million) and £1,124.3 million (2021: £771.5 million) respectively.
Strategic Report
18
Secure Trust Bank PLC
Annual Report & Accounts 2022
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 which drive sales.
Arranged very quickly and kept up to date with
the whole process from start to finish. I would
use again and recommend.”
Customer feedback
Retail Finance customer
2022
£million
2021
£million
Movement
£million
Movement
%
New business
401.7
199.8
201.9
101.1
Lending balance
373.1
263.3
109.8
41.7
Total revenue
48.0
39.3
8.7
22.1
Impairment charge
21.3
0.1
21.2
21,200.0
What we do
• We provide lending products which 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 Vehicle Finance 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.
2022 performance
• Proactively tightened lending criteria several times during the year to manage the credit quality of new business written.
• Continued lending growth, with our market share increasing to 1.1%
1
(2021: 0.7%). During 2022, the market for used cars bought on
point-of-sale finance was 7.6% higher than in 2021
2
. The amount of finance advanced increased by significantly more over the same
period, up 18.3%, to £23.5 billion
1
, reflecting the increase in used vehicle values.
• New Prime Hire Purchase and PCP offering, launched in 2021, delivered £83.4 million and £10.6 million of new lending respectively
during 2022, which now represents 24.2% (2021: 5.3%) of the lending book.
• Lending book growth exceeded revenue growth due to the increased mix of higher credit quality, lower net interest margin, prime
business. New business growth exceeded lending growth due to the short-term duration of Stock Funding.
• 2021 impairment charges were driven by a release in provisions arising from more benign macroeconomic conditions, as anticipated,
this was not repeated in 2022 with a return to more normalised impairment provisions.
• As part of the continuing Motor Transformation Programme, in 2022 we successfully delivered the first phase of the new collections
platform for the near prime portfolio. Phase 2 of this programme will incorporate the prime portfolio and develop integrations with
our third-party suppliers in 2023.
1.
Source: FLA. Cars bought on finance by consumers through the point of sale: New business values: Used cars: 2022, FLA total and Vehicle Finance total of £23,472 million (2021: £19,838
million) and £262.9 million (2021: £134.3 million) respectively.
2.
Source: FLA. Cars bought on finance by consumers through the point of sale: New business number of used cars.
Secure Trust Bank PLC
Annual Report & Accounts 2022
19
Strategic Report
Corporate Governance Report
Financial Statements
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.
Everything was carried out so quick and
smooth. Excellent customer services. I’ve gone
from owning a fairly old car to getting a really
nice updated one in a matter of hours.”
Customer feedback
Vehicle Finance customer
Business review
continued
2022
£million
2021
£million
Movement
£million
Movement
%
New business
384.5
376.1
8.4
2.2
Lending balance
1,115.5
1,109.6
5.9
0.5
Total revenue
57.7
54.8
2.9
5.3
Impairment charge
1.3
0.1
1.2
1,200.0
What we do
• 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 have an experienced specialist team, with many years of property expertise, who are nimble and responsive within the market.
• We maintain a strong risk management framework for existing and prospective customers.
2022 performance
• Growth in total revenue and lending balances during a challenging trading year. Revenues were higher reflecting growth in average
lending balances, increases in interest rates and one-off fees offset by a lower mix of development lending.
• On the back of a strong first half of the year, new business lending hit a record level. The interest rate volatility in the second half of
the year restricted lending growth as both borrowers and lenders became more cautious. Whilst new business slowed in the second
half, early loan repayments also reduced, and we focused on continuing to support our customers.
• As at year end 85.0% of the loan book provided lending for residential investment financing, which included £144.6 million of our
Greener Homes Scheme loans, which support borrowers to meet the UK’s clean growth strategy by 2035.
• Collateralised loan book with an average loan-to-value of 57.7% (2021: 56.0%), reducing the level of inherent risk to credit losses.
• During the year electronic documentation execution was implemented to improve the customer experience as well as reduce costs.
Strategic Report
20
Secure Trust Bank PLC
Annual Report & Accounts 2022
Business Finance
Real Estate Finance
We lend money against residential
properties to professional landlords
and property developers:
•
Providing mortgage-style borrowing to professional
landlords to allow them to improve and grow their portfolio.
•
Providing development facilities to property developers
and SME house builders to help build new homes for sale
or letting.
The refinancing of Russell View is key to Tatiana
Limited’s growth plans and will ensure we
can continue to develop similar high-quality
residential assets around the country. The
support we had from Secure Trust Bank was
exceptional from start to finish and enabled
us to finalise the deal without delay.”
Raj Shah
Agent for Tatiana Limited
2022
£million
2021
£million
Movement
£million
Movement
%
New business
157.3
93.7
63.6
67.9
Lending balance
376.4
313.3
63.1
20.1
Total revenue
29.3
17.4
11.9
68.4
Impairment charge/(credit)
0.8
(0.2)
1.0
(500.0)
What we do
• Our lending remains predominantly against receivables, typically releasing funds against 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 both directly and via 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.
2022 performance
• Strong growth in revenue and lending balances in 2022 reflects the contribution of new clients onboarded and low client attrition
across both 2021 and 2022, as well as the increases in UK Base Rate throughout the year.
• The Group continues to administer UK Government CBIL, CLBILS and RLS and was accredited by the British Business Bank to offer
the RLS Phase 3 product. At 31 December 2022, the outstanding lending balances under these schemes totalled £28.9 million
(2021: £42.9 million) against the original total lending under the various schemes of c.£58 million. Commercial Finance took the
conscious decision not to participate in the UK Government’s Bounce Bank Loan Scheme, which closed in March 2021.
• The decline in economic activity, rising inflation and cost pressures are adding financial stress across our customers and this is
recognised by a modest increase in impairments this year.
• In 2022, the business implemented a new client relationship management system to improve customer service and drive
operational efficiency.
Secure Trust Bank PLC
Annual Report & Accounts 2022
21
Strategic Report
Corporate Governance Report
Financial Statements
Commercial Finance
We support the growth of UK businesses
by enabling effective cash flow:
•
Providing working capital finance to UK SMEs.
•
Providing funds for strategic events.
We are really pleased Secure Trust Bank
was able to provide the facility to support
our growth. The team has taken the time to
understand the business and stayed close
to us throughout the process. Its support
has been invaluable, and we look forward
to working together in the future.”
Caroline Farquhar
Financial Director at WHP Engineering
Business review
continued
2022
£million
2021
£million
Movement
£million
Movement
%
Fixed term bonds
1,414.0
974.6
439.4
45.1
Notice accounts
500.7
771.9
(271.2)
(35.1)
ISAs
421.8
255.0
166.8
65.4
Access accounts
178.1
101.7
76.4
75.1
2,514.6
2,103.2
411.4
19.6
What we do
• We offer a range of savings accounts that are purposely simple in design, with a choice of products from easy 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.
2022 performance
• 2022 saw increases in the Bank of England Base rate, which in turn impacted the rates offered within the savings market, increasing
the Group’s cost of funds.
• The 2022 savings market was considerably more dynamic in terms of product pricing than recent years, during which we raised over
£1.6 billion of new deposits.
• The increasing attractiveness of fixed rate markets during 2022 drove customer preference for shorter-dated fixed term deposits.
• Further diversification of our product range saw the introduction of our Access account to new and existing customers in April,
expanding our ability to raise deposits in this segment of the savings market. Access accounts were also a popular customer choice
in 2022 given the elevated rate environment. However, the Notice account product has become less attractive due to the strong
rates offered on fixed rate bonds and access accounts in the market.
• At the end of 2022, we widened our range of Fixed Term products to include six and nine month bonds, to address the demand
for very short term products. This supports smoothing of our maturity profile and monthly deposit raising over time. In addition,
we also saw a continued growth of ISA balances.
• Savings have continued to deliver improvements to the customer experience during the year. Enhancements to our online
application processes improved the customer journey at account opening, through utilising group capability to verify
customer details.
• Adoption of Confirmation of Payee services for validating customers’ nominated accounts was completed at the end of 2022,
reducing the need for customers to send supporting documentation as part of the application process. We plan to use this as the
base to introduce the service for inbound payments during H1 2023, requested by customers funding new accounts during the year.
• Suitable customers were advised our primary channel of communication would move to digital. Over 89% of customers have
adopted this approach, and statements and interest certificates moved to being available through our online banking platform
during 2022. Further opportunities to reduce paper throughout our account processes will be reviewed in 2023.
• 2023 will also see the enhancement of our digital proposition with the launch of a mobile app.
Strategic Report
22
Secure Trust Bank PLC
Annual Report & Accounts 2022
Savings
Savings
Customers trust us to look after their 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 sets to
enable them to lend in the market we compete in.
Opening my new account was extremely
straightforward and hassle free! Also great
interest rates.”
Customer feedback
Trust Pilot, Savings customer
Market review
The Group operates exclusively within the UK and its performance is influenced by the macroeconomic environment in the UK. As the
Group’s revenue is derived almost entirely from customers operating in the UK, the Group is 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 economy 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 activity, including the
training, authorisation and supervision of personnel, systems, processes and documentation.
Economic review
Economic growth as measured in UK Gross Domestic Product (‘GDP’) slowed in the second half of the year with zero growth in GDP
recorded in the three months to December 2022. Annual GDP of 4.0%
1
represents a fall from the post pandemic recovery in 2021
(GDP: 7.5%). Global energy and food supply shocks caused by the Russian invasion of Ukraine saw huge rises in European wholesale
gas and commodity prices. Rising energy, food and other goods prices drove inflation to a high of 11.1%
1
in October 2022. The Bank
of England has responded with rises in its Base Rate of interest throughout the year to a level of 3.5% at the end of December 2022,
which is the highest level since the 2008 financial crisis. Economists had predicted the UK would be in recession for the majority
of 2023, but are now more optimistic that zero GDP is more likely. The increases in the real cost of living will adversely impact on
consumers’ disposable incomes and challenge the affordability of household bills and consumers’ appetite for discretionary spending.
Employment levels are encouraging at 75.6%
1
. Unemployment remains at a low level of 3.7%
1
, and vacancies in the labour market
remain at high levels of circa 1.2 million
1
. Given the recessionary outlook and continued pressures on employers from borrowing and
energy costs, unemployment is expected to rise towards 4.5% in early 2024.
House prices continued to grow in 2022. However, growth slowed in the second half as falling incomes and higher interest rates take
effect on property transactions. The move in recent years of the mortgage market to fixed rates has provided a level of insulation to
borrowers with regard to the extent of forced sales. However, a house price correction is expected in 2023 and 2024.
The UK Government has provided over £100 billion
2
in support measures throughout the year including the May 2022 cost-of-living
package, the September energy package which provided energy cost support for households and businesses, tax cuts announced
in September that were largely reversed in October, and in the November Autumn statement further near-term support through cost-
of-living payments for those in receipt of benefits. It is estimated that Government intervention on energy costs reduced the peak of
inflation by 3.5%
2
but will weigh on growth as Government borrowing increased.
Outlook
Whilst inflation does appear to have peaked in Q4 2022, interest rates are expected to continue to rise in 2023 peaking at between 4%
and 4.5% in early 2023 with the Monetary Policy Committee target inflation rate of 2% not expected to be achieved until 2025. The UK
economy is expected to contract in 2023, house prices are expected to continue to fall after a long period of successive increases,
and unemployment is expected to rise from its current low levels. With ongoing geopolitical uncertainty the balance of risks to the UK
remains skewed to the downside.
Government and regulatory
This has been another eventful year for Government and regulatory announcements which potentially impact the Group. The key
announcements in 2022 are set out below.
Prudential regulation
The Group became subject to revised regulatory requirements from 1 January 2022, as set out in the policy statements PS21/21
‘The UK Leverage Ratio Framework’ and PS22/21 ‘Implementation of Basel Standards: Final Rules’. These changes had an impact
on the Group’s regulatory requirements, including capital, large exposures, net stable funding and leverage, and Pillar 3 reporting.
The PRA consulted on proposals for a strong and simple prudential framework for non-systemic banks and building societies. In April
2022 within the consultation paper CP5/22: ‘The Strong and Simple Framework: a definition of a Simpler-regime Firm’. This set out
the proposed eligibility requirements to qualify under this regime. The Group is likely to qualify for this regime.
During June 2022, the PRA issued CP6/22 ‘Model risk management principles for banks’ consulting on stronger governance
expectations for model governance to address observed shortcomings within the industry. The proposals reference making a board
member responsible for model risk management matters and references a proportionate approach, potentially with less onerous
requirements for firms considered as ‘Simpler Regime’ firms. The PRA propose to incorporate these revised expectations into a new
Supervisory Statement which is expected to be issued during 2023. A working group has been established to review the potential
implications for the Group.
1. Source: Office for National Statistics, data as at 31 December 2022 unless otherwise stated.
2. Source: Office of Budget Responsibility: Economic and Fiscal Outlook November 2022.
Strategic Report
Corporate Governance Report
Financial Statements
Secure Trust Bank PLC
Annual Report & Accounts 2022
23
Market review
continued
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 expected to become effective on 1 January 2025. The proposals set out
changes to the regulatory environment, including significant changes to the capital requirements for credit risk and operational risk.
The guidance also proposes allowing those firms which are eligible for the Simpler Regime to apply for a waiver not to adopt Basel 3.1
and instead remain on the current UK Capital Requirements Regulation regime until the capital rules applicable to the Simpler Regime
are launched. Further consultation papers for requirements under this regime are not expected until 2023 and 2024, and for which an
implementation date is still to be announced. The Group is reviewing CP16/22 to understand the potential impact under the proposed
full rules and decide whether it will adopt the full rules or defer and adopt the Simpler Regime.
As expected from 13 December 2022, the UK Countercyclical Capital Buffer (‘CCyB’) rate increased from 0% to 1%. In July 2022,
the Financial Policy Committee (‘FPC’) confirmed a further increase in the UK CCyB rate to 2% from 5 July 2023. The FPC have
subsequently stated that they will continue to monitor the CCyB rate due to the current uncertainty around the economic outlook.
In response to the normalisation of the CCyB towards its 2% target level, the PRA announced on 13 June 2022 that the temporary PRA
buffer increase to all firms that received a Pillar 2A capital reduction under the PS15/20 ‘Pillar 2A: Reconciling capital requirements and
macroprudential buffers’ would no longer apply from December 2022. The Group’s capital planning process incorporates changes and
future expected changes to its capital requirements.
Conduct regulation
The FCA has also published several reports and new rules. In July 2022, the FCA issued their policy statement on the new Consumer
Duty, which sets a higher and clearer level of outcomes-based consumer protection in retail financial markets. The duty comes into
force on 31 July 2023. The first key milestone for implementing the duty required firms’ boards to approve implementation plans by
end October 2022, which has been completed by the Group. A project is in place to manage implementation across Group.
The FCA continues to focus on supporting consumers who are struggling with the rising cost of living. In July 2022 they published a
Dear Chair letter requiring banks to improve the treatment of struggling business borrowers through their collections and recoveries
activities. In November 2022 the FCA published findings from their Borrowers in Financial Difficulty review, which highlighted, in the
FCA’s view, that firms need to do more to support customers in financial difficulty. The FCA will continue to monitor data to assess how
firms are delivering forbearance. The Group continues to review reports and guidance in this area to build on its existing processes and
procedures to support its customers through any financial difficulty.
In October 2022, the Payment Services Regulator confirmed the extension of the confirmation of payee rollout to an additional 400
firms. The service is designed to prevent accidentally misdirected payments and authorised push payment scams.
Government and monetary policy
In May 2022, the Government responded to the Department for Business, Energy and Industrial Strategy (‘BEIS’) ‘Restoring trust in
audit and corporate governance’ which provided more detail of the expected reforms. The timetable for implementation remains
unclear. The proposals include a stronger sanctions regime for directors who breach their legal duties in relation to corporate reporting
and audit, along with additional requirements of ‘large’ public interest entities. It is expected many of the proposals will not to be
applicable to the Group due to its size.
Following a consultation on the optimal structure for UK financial services post-Brexit, the Financial Services and Markets Bill (the
‘FSMB’) was introduced to Parliament on 20 July 2022 and aims to implement the outcomes of the Government’s future regulatory
framework review and to make changes to update the UK regulatory regime. The FSMB intends to move away from the on shored EU
legislation towards the historical approach taken under the FSMA, whereby primary responsibility for regulation is delegated to the
UK regulatory authorities, subject to the oversight of Parliament. The FSMB would implement the results of HM Treasury’s wholesale
markets review response published in March 2022, and provisions in respect of digital settlement assets, direct supervision of critical
third-party service providers, changes to the financial promotions regime and insurers in financial difficulties among other things.
In December 2022, the UK Government released a package of proposed reforms to financial services regulation referred to as the
‘Edinburgh Reforms’. The reforms are wide ranging, featuring thirty separate announcements and including (without limitation)
proposed amendments to the ring-fencing and non-performing exposure regimes. HM Treasury has also proposed to use post-Brexit
legislative flexibility to modernise UK financial services legislation by relaxing certain EU-derived provisions of prudential regulation.
Details of the reforms and timing of implementation are not yet fully known, therefore the impact on the Group remains uncertain.
The Bank of England MPC announced eight consecutive increases in the UK Base Rate over the course of 2022 taking rates up from
0.25% at the start of the year to 3.5% at the end of December 2022. Rising interest rates have had a significant impact on the Group’s
funding costs and appropriate action has been taken to manage new business pricing and overall net interest margin.
An increase to future Corporation Tax rates was announced and legislated in 2021. After some contrary announcements the increase
was confirmed by the 2022 Autumn Statement along with changes to banking surcharge that had been legislated for earlier in
2022. The Corporation Tax rate will increase from 19% to 25% with effect from 1 April 2023, having a negative impact on the Group’s
earnings. At the same time, the banking surcharge will reduce from 8% to 3% and the surcharge allowance available to banking groups
will increase from £25 million to £100 million. This change to the banking surcharge will have a positive impact on the Group but results
in a deferred tax charge in 2022 due to a reduction to deferred tax asset values calculated from expected future tax relief based on
enacted rates.
Strategic Report
24
Secure Trust Bank PLC
Annual Report & Accounts 2022
Principal risks and uncertainties
Risk management
The effective management of risk is a key part of the Group’s strategy and is underpinned by our Risk Aware value. This helps to
protect the Group’s customers and generate sustainable returns for shareholders. The Group is focused on ensuring that it maintains
sufficient levels of capital, liquidity and operational control, and acts in a reputable 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 embedding appropriate risk management frameworks,
processes and controls, and making sure that they are sufficiently robust, so that key risks are identified, assessed, monitored and
accepted or mitigated in line with the Group’s risk appetite. The Chief Risk Officer is responsible for reporting to the Board on the
Group’s principal risks and how these 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 produce a
comprehensive suite of risk appetite statements and metrics which underpin the strategy of the Group. The Board approves the
Group’s risk appetite statements, which 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,
and a clear tone from the top of the organisation.
The Group has an ongoing focus on developing its risk management practices and enhancing its risk culture. In 2022, the Group
revised its risk frameworks and policies, delivered training at all levels of the Group, and has driven increased accountability and
ownership of Risk within the first line of defence.
Risk governance
The Group’s approach to managing risk is defined within its Enterprise-Wide Risk Management Framework. This provides a clear
risk taxonomy for the Group and provides an overarching framework for risk management supported by individual risk discipline
frameworks and policies, which set the standards on risk identification and assessment, mitigation, monitoring and reporting.
The Group’s risk management frameworks, policies and procedures are regularly reviewed and updated to reflect the risks that the
Group faces in its business activities and are appropriate for the nature, scale and complexity of the Group’s operations. The Group’s
risk management frameworks 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 the 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, Prudential risk, Compliance and Financial crime. 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 these are managed
within appetite; and
• Third line: is the Internal Audit function which provides independent assurance on the effectiveness of risk management across
the Group.
Strategic Report
Corporate Governance Report
Financial Statements
Secure Trust Bank PLC
Annual Report & Accounts 2022
25
Principal risks and uncertainties
continued
Board Committees
• See Corporate Governance section on pages 60 to 119
Group Executive Committee
Chair: Chief Executive Officer
• Provides an executive oversight of the on-going 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 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 on
lending, inclusive of oversight of credit
scorecards and modelling.
Responsible for understanding,
challenging, and assessing risk,
weakness, 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 2022 financial year are set out below. In line with the
Group’s updated Enterprise-Wide Risk Management Framework, Model risk has been added as a principal risk and Regulatory risk has
been incorporated within Compliance and Conduct risk.
The Group also regularly reviews strategic and emerging risks and analysis has been included to detail output of these reviews for 2022.
Notes 39 to 42 to the Financial Statements provide further analysis of credit, liquidity, market and capital risks.
Further details of the Group’s risk management framework, including risk appetite, can be found on the Group’s website:
www.securetrustbank.com/our-corporate-information/risk-management
Strategic Report
26
Secure Trust Bank PLC
Annual Report & Accounts 2022
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 that is originated in line with Group
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 and short dated Commercial Finance lending 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 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 ability to make changes to policy, affordability assessments or scorecards on an active basis.
• Although the Group does not routinely offer forbearance, it may offer temporary arrangements where appropriate.
Further information can be found in Note 39.2 to the Financial Statements.
• 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.
• The Group routinely monitors the credit ratings of the counterparties in relation to the Group’s loans and advances to banks.
Change during the year
Heightened
During the second half of 2022, economic conditions deteriorated in the UK with price increases, particularly energy prices,
leading to high levels of inflation and cost of living pressures for consumers. In addition to energy prices, businesses experienced
supply chain and labour market pressures. Both consumers and businesses started to be impacted by rising interest rates at the
end of the period.
The Group’s lending portfolios performed well in 2022. Retail Finance arrears remained low by historical comparison as a result
of a move into lower risk sectors, and whilst an increase was seen in Vehicle Finance, this reflected the return back to the market
following the pandemic with overall provisions at an equivalent level to pre pandemic. Business Finance had low levels of
provisions in the period, representing robust client selection and the secured nature of lending in these areas.
Overall rating for the year is driven by the uncertainty of the operating environment.
Secure Trust Bank PLC
Annual Report & Accounts 2022
27
Strategic Report
Corporate Governance Report
Financial Statements
Principal risks and uncertainties
continued
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 which could result in higher funding costs.
Mitigation
Liquidity and Funding risk is managed in line with the Group’s Prudential Risk Management Framework and the Liquidity and
Funding Risk policy. The framework defines:
• The governance arrangements for managing and reporting these risks;
• Risk appetite statements and associated thresholds and metrics; and
• The escalation process in the event of a breach of risk appetite.
The Group has a defined set of liquidity and funding risk appetite measures which are monitored daily and monthly.
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 (‘ILAAP’).
In line with the Prudential Regulation Authority’s (‘PRA’) self-sufficiency rule, the Group always seeks to maintain liquid resources
which 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 and limits.
Contingency funding plans
The Group maintains a Recovery Plan which sets out how the Group would maintain sufficient liquidity to remain viable during
a severe liquidity stress event. The Group also retains access to the Bank of England liquidity schemes, including the Discount
Window Facility.
Change during the year
Stable
Stress tests performed as part of the ILAAP confirmed that the Group has sufficient funds to meet all regulatory requirements
and that there is no significant risk that liabilities cannot be met as they fall due. The rising interest rate environment has
increased competitive pressures in deposit pricing and impacted customer behaviour. Despite this, the Group has maintained
its liquidity ratios in excess of regulatory requirements throughout the year.
Strategic Report
28
Secure Trust Bank PLC
Annual Report & Accounts 2022
Capital risk
Description
Capital risk is the risk that the Group will have insufficient capital resources to meet minimum regulatory requirements and to
support 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 maximising 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 which 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
including the estimated impact of the re-introduction of the countercyclical capital buffer requirement. The PRA proposed
increase to this buffer is explained on page 24 has been reflected in capital planning.
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/investors/news-announcements/results-reports/pillar-3.
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 increasing regulatory requirements and continues to operate within agreed risk appetite. Details of the common
equity tier 1 ratio, total capital ratio and leverage ratio are included in the Financial review on page 16.
The 2022 ICAAP showed that the Group can continue to meet its minimum regulatory capital requirements, even under extreme
stress scenarios. The COVID-19 pandemic demonstrated the benefit of the relatively short duration of the Group’s lending
portfolios. This feature of our balance sheet allows us to flex lending growth rates in response to changing economic conditions.
Strategic Report
Corporate Governance Report
Financial Statements
Secure Trust Bank PLC
Annual Report & Accounts 2022
29
Principal risks and uncertainties
continued
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. The Group has no significant exposures to
foreign currencies and hedges any residual currency risks to Sterling.
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 which 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 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 which 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.
All such exposures are maintained within the risk appetite set by the Board and are monitored by ALCO.
Change during the year
Stable
Despite material increases in the Bank of England Base Rate in 2022 following a period of very low rates, the Group remained
within risk appetite in respect of interest rate risk and market risk throughout the year.
The Group has made further enhancements to market risk management in 2022, including the implementation of a new Asset
and Liability Management system.
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Secure Trust Bank PLC
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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, business continuity, third party risk, Change, 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 facilitate these activities:
• 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 these thematic areas of Operational Risk in 2022:
• Supplier management –The Group recognises that it is important to manage suppliers effectively and has embedded a suite
of standard controls for all its material suppliers to reduce the risk of operational impacts. The Group has implemented the
regulatory requirements for Third-Party Risk Management.
• Operational and IT resilience – The Operational Risk Framework supports the ongoing resilience of the Group’s operational
and IT services, including business continuity management, disaster recovery, incident management, process management,
and the cyber strategy. The Group has implemented the regulatory requirements for operational resilience.
• Information security and cyber risk – The Group has paid considerable attention to ensuring the effective management of
risks arising from a failure or breach of its information technology systems that could result in customer exposure, business
disruption, financial losses, or reputational damage.
• Hybrid working – The Group now permanently operates in a hybrid environment. To ensure alignment with the Financial
Conduct authority’s (‘FCA’) hybrid/ remote working expectations (published in October 2021), detailed risk and control
assessments were performed to check control functions remained effective.
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 this across the Group. The Group continues to invest in resource, expertise, and systems
to support the Operational Risk Framework. In 2022 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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31
Principal risks and uncertainties
continued
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 which 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 which governs its approach to model risk and sets out:
• Model risk appetite
• Model and model risk definitions
• 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
Heightened
The Group, supported by the output of an Internal Audit review has taken steps to improve its approach to model risk
management, including recruiting new roles and working with a specialist third party to support a refresh of its policy and
established enhanced monitoring and reporting. This work will continue in 2023. This aligns with the expectation of an updated
supervisory statement in H1 2023. Heightened status reflects increased internal focus and regulatory expectations.
Compliance and Conduct risk
Description
The risk that the Group’s products and services, and the way they are delivered, 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. This now incorporates regulatory risk which was presented as a separate
principal risk in the 2021 Annual Report and Accounts.
Mitigation
The Group manages this risk through its Compliance and Conduct Risk Management Framework. The Group takes a principles-
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 include horizon scanning of regulatory changes, oversight of regulatory incidents, and reporting
against risk appetite metrics.
The Group’s horizon scanning activities track industry and regulatory developments including the PRA’s work on a strong and
simple prudential framework for non-systemic banks and building societies, the implementation of the Basel 3.1 standard, the
Government’s national data strategy and the PRA and FCA’s transformation agendas related to data.
Key initiatives continuing into 2023 are the Consumer Duty (for which a Group project is in place to deliver the agreed
implementation plan); changes to the Appointed Representatives regime; and confirmation of payee requirements.
Change during the year
Stable
The Group has continued to operate within overall risk appetite, remaining focused on delivering good customer outcomes.
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Financial Crime risk
Description
The risk that the Group fails to prevent the facilitation of financial crime by not having effective systems and controls in line with
regulatory requirements.
Mitigation
We operate in a constantly evolving financial crime environment, with the economic climate impacting the level and type of threat
faced by the financial services industry by those attempting to take advantage of the period of uncertainty.
The Group has no appetite for failing to maintain effective, systems, resources and controls and robust oversight to mitigate the
risk of the Group’s products and services being used to facilitate financial crime.
The Group has a Financial Crime Framework designed to meet regulatory and legislative obligations which includes:
• Mandatory annual colleague training and awareness initiatives and regular reviews of our policies and standards.
• 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 forums and risk committees providing senior management oversight, challenge and
risk escalation.
• Participating in key industry forums (or associations) such as those hosted by UK Finance.
Change during the year
Stable
The Group appointed a new Head of Financial Crime and Money Laundering Reporting Officer in November 2022. The Group
continued to enhance its Financial Crime Framework in 2022, recognising the evolving nature of financial crime risk, with
measures including:
• Completion of annual Enterprise-Wide Risk Assessment and Money Laundering and Reporting Officer reports.
• Group-wide anti-bribery and corruption, facilitation of tax evasion and fraud standards have been implemented to enhance
further the economic crime framework, and work to help ensure that sanctions risk is minimised.
• Specialist economic crime training has been provided to the Board and Executive and the internal financial crime awareness
campaign under the banner of ‘Spot the signs, stop the crimes’ is regularly communicated across the Group.
Climate Change risk
Description
Climate change, and society’s response to it, present risks to the UK financial services sector. While some of these risks will
only fully crystallise over an extended period, there are some shorter-term risks reflective of the strategic responses from other
organisations, governments and regulators.
Mitigation
The Group has now 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. A Climate Change Working Group,
reporting to the Executive Risk Committee, is in place and meets regularly with senior representation from across the Group.
Stress testing work has been completed 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 50 to 59).
Change during the year
Stable
The Group’s direct exposure to the physical impacts of climate change is relatively limited, given its footprint and areas of
operation. However, it has established robust controls to manage the associated risks and will continue to develop our business
plans in the future as the risks evolve. Disclosures are made in this year’s 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 of our Climate-related financial disclosures on page 51.
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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 which could impact the performance of the Group.
The key strategic risk identified by the Executive and reported through to the 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.
2022 saw rapid increases in inflation, driven principally by increases in energy costs as a result of the conflict in Ukraine 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 into 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 customer and financial performance.
Principal risks and uncertainties
continued
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Secure Trust Bank PLC
Annual Report & Accounts 2022
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, 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 confirm that there is 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 2027. 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 the principal risks affecting the Group,
including these factors:
• The Group has delivered strong profit growth and capital management in 2022 and the 2023 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% of total deposits are fully covered by the Financial Services Compensation
Scheme (‘FSCS’).
• In H2 2022, in response to the economic downturn and uncertainty, multiple changes were made to scorecard cut-offs and
affordability checks in the Consumer Finance business to manage the credit quality of customer applications accepted. Similarly the
Group has not targeted higher risk lending in the Business Finance division and has focused on working with its existing customers.
• 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.
• In the area of climate change, the Board recognises the long-term risks and following a review will launch its full ESG strategy in
2023. The impact of climate change is reflected in the business planning process and 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 2023 to 2027 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 2022, provides assurance that the Group can maintain liquidity resources
which are adequate, both as to amount and quality, to ensure that there is no significant risk that its liabilities cannot be met as
they fall due. 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 2022 to 2026 period, was approved in September 2022. 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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35
• The latest Group Recovery Plan was approved in December 2022 and confirmed that the Group has sufficient recovery options
available to recover from the severe economic stress scenario modelled over the 2022 to 2026 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 25 to 34, 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 2022 ILAAP included idiosyncratic, market wide and combined stress scenarios.
The idiosyncratic liquidity stress test assumed poor levels of customer service leads to adverse media coverage on financial websites
and on television, making it materially more challenging to retain maturing term bonds and resulting in higher notice being served on
savings accounts.
The market wide stress is based upon the UK economy entering a severe recession with rising unemployment and inflation,
falling house and equity prices, and subdued wage growth and a contraction in GDP due to prolonged economic uncertainty.
Higher customer default rates (in line with ICAAP stress testing) and customer requests for payment holidays or short-term forbearance
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 market presence in all material business lines and so
continues lending but on a more selective basis, so avoiding potential reputational damage from full market withdrawal. The prevailing
economic conditions results in some increase in notice being served on savings accounts and lower bond retention as customers
migrate to more liquid easy access savings 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. The chosen scenario included the impact of an immediate repayment of amount drawn under
the TFSME due to the ineligibility of collateral to support this funding.
ICAAP
The Group’s ICAAP considered a PRA published macroeconomic stress and severe scenarios to assess the adequacy of capital
resources over the 2022 to 2026 period. The macroeconomic stress included an unemployment peak of 9.2% in Q2 2023, a 33%
property price decline by mid-2024, and an economic recovery beginning in 2024. 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 12.7% and a sharper decline
in house prices to 50% of the starting values.
The ICAAP also utilised 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 2022 to 2026 period.
The combined capital stress test included peak unemployment of 12.7%, a 50% 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.
Viability and going concern
continued
Strategic Report
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Secure Trust Bank PLC
Annual Report & Accounts 2022
Managing our business responsibly
Environmental, social and governance strategy
Our focus areas
Sustainable Development Goals
Climate
action/risk
Customer trust
Equality, diversity
and inclusion
(‘ED&I’)
Education
and skills
Communities
and charities
Acting
responsibly
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Sustain
Care
Delivering value
for all stakeholders
What is our environmental, social and governance (‘ESG’) strategy?
During 2022 the Group established its ESG strategy. Our ESG strategy is to:
• prioritise the ESG factors which we determine as material. These are issues of significant concern to our stakeholders which 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.
Our stakeholders are our customers, shareholders and capital providers, employees, wider society and the environment, regulators,
and suppliers.
How did we develop our ESG strategy and priorities?
The Group continues to work with Business in the Community (‘BiTC’), the Responsible Business Network. In 2021 we took part in BiTC’s
Responsible Business Tracker. Building on this, in 2022 we prioritised the ESG issues material to our stakeholders and our success, to
help develop our ESG strategy. There are several external standards that also helped us to develop our ESG strategy, including the UN
Sustainable Development Goals (‘UN SDGs’), the World Economic Forum, and the Sustainability Accounting Standards Board (‘SASB’).
None of these standards directly align to the Group, therefore, we made judgements about the material ESG issues for us and our
stakeholders and distilled them into our ESG focus issues.
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,
equality diversity and inclusion, and customer experience. It is also supported by our Charity Committee which coordinates our choices
of our preferred charities, communicates activities that support them and promotes £-for-£ match charity funding and volunteering.
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Annual Report & Accounts 2022
37
Managing our business responsibly
Environmental, social and governance strategy
continued
Stakeholders
Environmental
Climate action/risk
• Shareholders
• Environment
• Wider society
• Regulators
Sustain
Governance
Always acting with integrity and transparency to deliver value
for all our stakeholders
Social
Customer trust
• Customers
• Shareholders
• Employees
• Regulators
Sustain
Grow
Equality, Diversity & Inclusion (ED&I)
• Customer
• Shareholders
• Employees
• Environment
• Wider society
• Regulators
Sustain
Grow
Care
Education and skills
• Customer
• Shareholders
• Employees
• Environment
• Wider society
• Regulators
Sustain
Grow
Care
Communities and charities
• Customers
• Shareholders
• Employees
• Environment
• Wider society
• Regulators
• Suppliers
Sustain
Care
Grow
Sustain
Care
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Annual Report & Accounts 2022
Focus issue
Measures/Disclosures
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.
• Compliance with the Task Force for Climate-related
Financial Disclosures (‘TCFD’) requirements and related
PRA regulations/Listing Rules.
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.
Our vision is to be a successful inclusive business where all
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.
Help all 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.
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-£.
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Annual Report & Accounts 2022
39
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 the manner in which these have been discharged. The following pages
40 to 49 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 for 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. Preparing for the incoming Consumer Duty rules has given us the opportunity to 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 these 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.
We continue to adopt digital solutions to provide good outcomes for customers and improve the customer experience. For example,
in the Retail Finance business, we now offer customers more choice and convenience through open banking to repay their loan.
We have also launched the new streamlined personal loan eligibility check in partnership with Freedom Finance and the Savings team
has continued a project to improve the customer’s digital experience.
In 2022 we renewed our Cyber Essentials Plus certification as part of our overall information security protections.
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 the Group.
Feefo scoring and customer service awards are monitored by the Board. We are keen to continually improve our services and
complaints data is reviewed by the Executive and Board Committees. In 2022:
• our average Feefo rating, remained 4.6 out of 5 (2021: 4.6); and
• the average Trustpilot rating, improved to 4.7 out of 5 (2021: 4.6).
We also collected feedback from our SME customers and satisfaction scores, in 2022 these were:
• 92% for Real Estate Finance; and
• 97% 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 the problem.
Managing our business responsibly
Section 172 statement
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Secure Trust Bank PLC
Annual Report & Accounts 2022
Outcomes
Customer service awards
For the tenth successive year, the Group has been accredited with the Government-backed Customer Service Excellence (‘CSE’)
quality mark. This follows an in-depth external assessment against criteria that research has indicated are a priority for customers, with
particular focus on customer insight, culture, information, service delivery and quality of service. The standard puts an emphasis on
developing customer insight, understanding the user’s experience and robust measurement of service satisfaction. It is designed to offer
organisations a practical tool for driving customer focused change. The final written report was very positive, particularly in relation to
putting the customers first: and states ‘Secure Trust Bank is a progressive organisation that prides itself on innovation and its unwavering
ambition to provide excellent customer-centric services. Ongoing certification to the CSE Standard continues to be fully justified and
well-deserved.’ We have also been awarded Best Notice Account Provider by Moneyfacts in December 2022.
Feefo Trusted Awards
We also continue to be recognised through the Feefo Trusted Awards. In January 2023, it was announced that we’ve been awarded
Platinum Trusted Service by Feefo for our Moneyway and V12 Retail Finance businesses as well as Trusted Service Award for our Secure
Trust Bank (‘STB’) Savings business. This independent seal of excellence recognises that our businesses are delivering exceptional
experiences, rated by real customers. These accreditations 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:
• vulnerable client needs;
• customer trends in 2022;
• reviewing key business streams and lending products against customer feedback;
• customer affordability;
• receiving 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 owner of the digital Buy Now Pay Later (‘BNPL’) technology
platform following clear demand for this product from retail customers and retailers. During 2022, the technology owned by the
entity has been further enhanced to integrate into our existing systems in preparation for the launch of a regulated BNPL product.
The decision to acquire and integrate the AppToPay technology aligns our customer needs with our growth strategy, which is also
at the core of our shareholders’ interests.
One of our key values as a Group is to be customer focused. Part of our ESG strategy is enabling good outcomes for customers.
Together this value and strategy fit well with the forthcoming Consumer Duty rules, giving us an opportunity to review all our products
and processes and see if we can make them even better. In 2022, the Board considered how it would meet the requirements of 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.
Moneyfacts
®
Awards 2022
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41
Shareholders
Link to strategy
Care
Grow
Why we act responsibly for 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 sought and received feedback from our principal shareholders during 2022 via our Chairman and CEO. Our committee
chairmen, as well as the Senior Independent Director, were available to meet with shareholders on request. The Remuneration
Committee Chairman consulted with our top shareholders regarding the Proposed Directors’ Remuneration Policy (see page 81 for
more information on the consultation process).
We followed up the success of the 2021 Capital Markets day with several investor meetings with key shareholders and investors
during 2022.
The Board also receives updates from the Head of Investor Relations, appointed in 2022, and Company Secretary on correspondence
received from shareholders throughout the year.
Outcomes
The relaxation of the COVID-19 social distancing rules allowed us to hold our 2022 AGM in person for the first time since 2019.
Shareholders continued to be able to submit questions electronically ahead of the meeting with STB committing to publish responses
on our corporate website.
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;
• divestment and simplification of the Group;
• growth strategy; and
• 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, and declared an interim dividend of
16.0 pence per share in 2022 following the 2021 final dividend of 41.1 pence per share.
The migration of the Debt Managers (Services) Limited loan portfolio completed in November 2022 following the decision to divest
the Group of this business. Following a decision by the Board, the Group also completed the acquisition of AppToPay Ltd in May 2022
to support the planned entry, through its Retail Finance business, into the regulated digital Buy Now Pay Later market.
Managing our business responsibly
Section 172 statement
continued
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Employees
Link to strategy
Sustain
Why we act responsibly for our employees
We believe that providing our employees with an effective voice contributes to building 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
We operate Employee Councils in each of our businesses, consisting of department representatives elected by their colleagues.
The Councils meet on a regular basis and encourage a two-way process of communication between employees, senior managers and
the Board. In addition, we have a Group Employee Council that 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 provide a structured forum for teams to share their views, provide insight, feedback and suggestions to
make the Group continue to be a great place to work. Throughout 2022, our Employee Councils were pivotal in helping us shape our
future working practices and fully consider the views of all colleagues. Paul Myers provides an update to the Board following each
meeting so that the employee voice can be heard by the Board.
We complete 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. In November 2022, the Group participated in the survey for the fifth time.
We were thrilled to maintain a high Trust Index rating of 85% (2021: 80%) with 88% of respondents stating that ‘Secure Trust Bank
is a great place to work’ (2021: 81%)
1
. The Trust Index is the average of the core survey statements and is used as the Group’s key
performance indicator for employee satisfaction.
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 and are instrumental to driving and
reporting progress in key areas at both a Group and departmental level.
We were delighted to be recognised at the UK’s Best Workplaces™ awards in April 2022, being ranked in the top 40 in the UK’s Best
Workplaces™ Large category (2021: 23rd), the UK’s Best Workplaces™ for Women category and, newly for 2022, in the UK’s Best
Workplaces™ for Wellbeing.
We have also maintained our partnership with the Employer Network for Equality and Inclusion (‘ENEI’) and once again completed
the TIDE diversity benchmarking tool to identify areas of focus. In 2022, we were awarded the silver standard for our approach to and
progress on diversity and inclusion. The results of the evaluation have shown an increase in our score to 78% from 74% in the previous
year and 60% in 2020. This is the fourth 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.
The Board has adopted a hybrid working policy which enables the vast majority of employees to work remotely as well as in the office.
The decision to move to a hybrid working policy was based on feedback received that employees wanted the flexibility that remote
working provides.
During 2022, we invited all eligible employees to participate in the Group’s Sharesave plan. 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. Feedback was sought on the views from employees on the benefit of the plan and will be reflected on when
considering the 2023 invite.
1. Results exclude Debt Managers (Services) Limited.
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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 2022 to ensure that the focus on personal
development is maintained. We also launched several line manager masterclasses to build further confidence in leading teams,
including compulsory Everyday Allyship training for line managers. 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.
In 2020, the Chairman launched the Alan Karter scholarship fund to give four individuals per year the opportunity to attend
professional development programmes with Cranfield Business School. There are two programmes that provide individuals with 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 one. In 2022, the calibre of applications was so high that an additional place was funded by the Group.
Employee engagement and recognition
Research has consistently shown 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.
These schemes together with our annual incentive programme continue to help embed excellence within the culture. We provide
colleagues with a wide range of training for personal and professional development. The Group supports employees in achieving
recognised qualifications from the London Institute of Banking and Finance and other bodies.
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 have continued to focus on employee wellbeing during 2022, building
on the wellbeing progress previously made and resulting in STB being recognised as a Great Place to Work for wellbeing in 2022.
In 2022, we continued our successful wellbeing hour initiative. This gives colleagues an hour each month during their working day to
dedicate to supporting their wellbeing. We maintained the Wellbeing Cafe launched in the pandemic, allowing colleagues to connect
with others supported by one of our many Mental Health First Aiders. Additional employee communications about financial wellbeing
highlighted resources both available as part of existing remuneration packages and externally, including the launch of ‘My Rewards’
that is an improved voluntary benefits portal that also offer attractive discounts at a wide variety of retailers.
Equality, Diversity & Inclusion (‘ED&I’)
In 2022, we published our fifth Gender Pay Report and supporting commentary. We are committed to diversity in the workplace at all
levels and the actions outlined in the report demonstrate this and show our commitment to improving the position at senior manager
level. In 2022, women comprised 25% (2021: 21%) of our Executive Committee. Our ED&I agenda remains an area of focus for us and
we are conscious we still have more to do. We continue to work closely with Everywoman in progressing our Inclusion Agenda with two
members of the senior leadership team having been appointed as Everywoman Ambassadors. In June 2022, STB became signatories of
the Women in Finance Charter.
In addition, we introduced our ED&I workforce champions (‘Inclusioneers’). Our Inclusioneers champion our Group vision and provide
valuable feedback to our ED&I Steering Committee. They are supported by our Advisory Committee that consists of the relevant
subject matter experts. These groups are critical in helping us to take meaningful action in ensuring everyday inclusion is a reality.
We launched Everyday Allyship in 2022, a learning and development opportunity for our people managers which shows how to
promote inclusion and the wellbeing of others by taking action to support those in marginalised groups.
Managing our business responsibly
Section 172 statement
continued
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At the year-end, the split by gender of the Group’s employees was as follows:
Directors
Male
57
%
Female
43
%
All other
employees
Male
52
%
Female
48
%
Male
57
%
Female
43
%
Senior
managers and
their direct
reports
Total
employees
Male
52
%
Female
48
%
The Board
The Board acknowledges that the strength of our service is set by our people. It is clear that having a talented, healthy, diverse family
of individuals who are engaged in their roles is essential to bringing the Group’s vision to be the most trusted specialist lender in the
UK to life 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 make the Group work on a day-to-day basis.
Key topics discussed by the Board this year have included:
• communication of our refreshed strategy to our people;
• diversifying the workforce;
• ‘Your Voice’ results;
• 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 workforce colleagues as key stakeholders and takes the perceived or actual views of that
constituency into consideration when making key strategic decisions, such as the impact upon employees when selling the Debt
Managers (Services) Limited loan portfolio and hosting consultation sessions on a range of issues in addition to those required as part
of that process.
Cost of living impacts on employees have been a focus of multiple Board discussions and in the Summer in 2022 the Board approved
an exceptional one-off payment to be made to colleagues with an annual salary below £35,000. In addition, our annual pay review
prioritised our lower salary banded colleagues.
In 2022, we have also had a focus on menopause and employee wellbeing. The Board adopted a menopause policy setting out
how colleagues going through menopause will be supported within the Group. Awareness sessions were held during the year and
additional resources were made available to all of our colleagues on the employee intranet.
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Environment
Link to strategy
Sustain
Why we act responsibly towards our environment
We continue to recognise the importance of acting responsibly in relation to the environment and our ESG Strategy, which has been
developed following engagement 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 as well as Cardiff and Rotherham offices.
This programme of work continued in 2022 aided by a newly formed Environment Steering Committee. The Committee has used
the outputs from Business in the Community’s Responsible Business Tracker survey, to develop and guide our environment strategy,
embed our Environmental Policy and help the Group develop its approach to reducing CO
2
equivalent (‘CO
2
e’) emissions and
improving its environmental impact.
In 2022, the Board has developed and approved our ESG strategy, more information can be found on pages 37 to 39.
Outcomes
Our Environmental Policy sets out key areas of focus for the business and also commits the Group 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 can be found in the following section which sets out how we are disclosing information in line with the expectations of the
Task Force on Climate- related Financial Disclosures.
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.
We monitor emissions from our operations and recognise STB’s impact on the environment. We review the business model to assess
what the indirect impact of financing of certain industries, such as Vehicle Finance, can have on the environment.
The Board
The Board recognises the importance of our impact on the environment and that making decisions that help to improve our impact on
the environment support our long-term sustainability. It also enables us to agree STB’s priorities in line with the expectations of future
generations of customers.
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 CO
2
e reduction target for Scope 1 and 2 emissions;
• operating model; and
• roadmap to carbon neutrality.
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 2022, an ESG strategy to improve STB’s environmental impact has been
developed and adopted by the Board. In doing so, the Board has received specific training on climate change risk and ESG. It has also
progressed strategic initiatives such as finance for second-hand electric vehicles.
Managing our business responsibly
Section 172 statement
continued
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Annual Report & Accounts 2022
Wider society
Link to strategy
Care
Grow
Why we act responsibly for 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.
As we transitioned to a post COVID-19 environment in 2022, there were increased opportunities for fundraising and community
outreach. We chose to continue to match £-for-£ donations raised by Group employees. In 2022, we supported 17 charities and raised
over £54,000 for good causes.
The STB Volunteers Scheme, which entitles all colleagues to use one paid day a year to make a difference in their local area, was
impacted by the pandemic. In 2022, we saw a ten-fold increase in hours used by colleagues and we are proud to continue to support
this initiative.
We are proud of the work to date in this area and we fully anticipate that our ongoing partnership with Business in the Community and
the results from our Responsible Business Tracker will guide our ESG (Responsible Business) strategy and result in new initiatives which
address additional social issues that are of high importance to our stakeholders.
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 and regulations 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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Regulators
Link to strategy
Care
Grow
Why we act responsibly for our regulators
We have a duty to engage transparently and proactively with our regulators.
Two-way engagement
We interact with our regulators through meetings on a monthly basis with our Directors and senior management. Engagement is
also conducted through thematic reviews in which the Group participates. Informally we regularly consider correspondence and
publications from the regulatory sphere. Engagement is also periodically conducted through UK Finance, the relevant trade body.
We adhere to the FCA’s 11 Principles for business, which is the foundation for FCA regulated firms operating in a regulatory environment.
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. Amongst other things, this approach ensures the suitability of the advice we provide to our customers.
We review consultation papers as they provide insight on where key risks and opportunities may be within the industry and allow us to
learn from our peers on industry wide challenges. This enables us to evolve our business processes to become more resilient and to
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 and controls safeguard against the risk of missing or not responding to regulatory change impacting
the Group as set out on page 32.
The Board
By taking part in regulatory initiatives and having transparent communication with our regulators, we are able to understand 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:
• implementation plans for the new Consumer Duty;
• operational and cyber resilience; and
• thematic reviews.
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 growth strategy.
Managing our business responsibly
Section 172 statement
continued
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Annual Report & Accounts 2022
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 operated by management to manage material and other suppliers.
Outcomes
The Board is committed to acting ethically and with integrity in all of its business relationships. The Board has adopted a number of
policies which reinforce this commitment including the procurement policy, the supplier management policy and the anti-bribery and
corruption policy.
During 2022, STB Group assessed 573 suppliers within its supply chain to determine which, if any, potentially presented a higher risk of
modern slavery and human trafficking. The suppliers identified were required to provide additional assurance of the programmes they
had in place to address this risk. The Group’s supply chain management process involves the assessment and ongoing monitoring of
critical contractors and suppliers in line with STB’s policies. The Group invests in training for employees on modern slavery.
The Board and Risk Committee have considered the resilience of our outsourced IT services. STB Group have had a continued
focus on ensuring our most critical services and processes are resilient to disruption through a structured programme of supplier
management, testing and supplier assurance activities. This has included risk assessment of our supply chain, with reviews of business
continuity, disaster recovery plans and recovery test results of over 60 suppliers including those identified as a key dependency for
the delivery of STB Group’s important business services. We are content with the provision of services and diligence undertaken by
management in assessing the continuity of services.
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 modern slavery by our suppliers.
How has our suppliers voice helped the Board make decisions on strategy?
Availability and engagement of suppliers help to deliver some of our operating strategy and enhance our customers’ experience.
Non-financial information statement
The Group complies with the non-financial information reporting requirements contained in sections 414CA and 414CB of the
Companies Act 2006. This is intended to help stakeholders understand the Group’s position on key non-financial information.
Information regarding environmental matters, employees, social matters, respect for human rights and anti-corruption and anti-bribery
matters are included in this ‘Managing our business responsibly’ section.
The location of the other information required is set out in the table below:
Reporting Requirement
Section
Pages
Policy embedding, due diligence and outcomes
Principal risks and uncertainties
25 to 34
Description of principal risks and impact of business activity
Principal risks and uncertainties
25 to 34
Description of the business model
Our business model
8 and 9
Non-financial key performance indicators
Key performance indicators
2 and 3
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Climate-related financial disclosures
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, the industry needs to take action now to support and help mitigate the medium to long-term
implications of climate change.
The Group has assessed 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.
In order to express how the Group is responding to these risks, this report has been 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 below.
The Group has complied with the requirements of the Financial Conduct Authority’s Listing Rules 9.8.6R by including climate-related
financial disclosures consistent with the TCFD recommendations and recommended disclosures. There is one aspect of these
recommendations where, in line with others across the industry, the Group is still developing its approach to reporting. This is in
relation to Scope 3 emissions and the TCFD recommendation to ‘Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse
gas (‘GHG’) emissions, and the related risks’. The Group has already established reporting for Scope 1 and 2 emissions and during
2022 undertook work to assess its material Scope 3 emissions. A summary of the reporting of all categories of Scope 3 emissions is
included in the Metrics and targets section of this report. Financed emissions form the most significant part of the Group’s Scope 3
emissions, although a lack of consistent disclosure standards across the industry limits the Group’s ability to provide comprehensive
reporting in this regard. What is being reported is a summary of Financed emissions associated with our Vehicle Finance business, with
a plan to add reporting for our other lending areas in future periods when consistent standards are available. Assurance in relation to
disclosed Scope 3 emissions is planned for 2023.
In the Group’s 2021 Annual Report and Accounts two gaps were identified in our TCFD disclosures, scenario testing and risk appetite,
with both closed in these updated 2022 disclosures.
Governance
In accordance with the requirements of the SS3/19 – PRA’s Supervisory Statement ‘Enhancing banks’ and insurers’ approaches to
managing the financial risks from climate change’, the Group allocated responsibility for identifying and managing the risks from
climate change to the relevant Senior Management Function, namely the Chief Risk Officer (‘CRO’). The CRO chairs the Climate
Change Risk Working Group (‘CCRWG’), with representatives from across the first line risk owners and the second line Risk leads that
are managing the key risks identified across the Group. The CCRWG is responsible for identifying, assessing and defining mitigating
responses to these risks.
The CCRWG reports to the Executive Risk Committee (‘ERC’) chaired by the CRO. The ERC monitors progress and oversees all
aspects of climate change risk, including proposing associated risk appetite statements and metrics for approval at Board and Risk
Committee respectively.
The Board has delegated responsibility for oversight of climate change risk to the Risk Committee. The Risk Committee has
undertaken periodic reviews of the risk assessments in relation to climate change and is kept informed of management’s responses to
these risks. It reviews and approves all associated risk appetite metrics and thresholds and receive associated reporting against these
metrics. The Group’s risk governance structure can be found on pages 25 to 26.
Reporting during 2022:
• The CCRWG met on seven occasions to monitor progress, initiate action to meet existing and new insight/guidance and manage
the associated risks. Attendees received briefings and training on new developments associated with climate change within the
financial services sector.
• The ERC met on eleven occasions in 2022. A Climate Change Risk dashboard is reviewed at each meeting.
• The Risk Committee approved the Climate Change risk appetite statement and supporting metrics in 2022. The Climate Change
Risk dashboard is reviewed at each meeting and feedback provided to management where necessary.
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• In June the Board received a progress report covering all aspects of climate change risk management. Specifically, this included
the strategic responses to climate change as defined by our Real Estate Finance and Vehicle Finance businesses. These reviews
considered both the risks and opportunities that climate change present to our business. Furthermore, in November 2022 the Board
reviewed and agreed a proposal to reduce our Scope 1 and 2 CO
2
equivalent (CO
2
e) emissions (more detail under Metrics and
targets from page 55). The Board received a specific training briefing in 2022.
• The CRO and a senior member of the risk function are members of the UK Finance TCFD, Disclosure & Consultations Working
Group. They attend numerous industry meetings and have engaged with external expertise to enhance their skills in order to
develop the Group’s response to the risks associated with climate change. This knowledge and understanding is disseminated to
first-line business leads through the CCRWG.
Strategy
The Group, through the governance model described above, has identified several risks and opportunities associated with climate
change and these are described below with supporting commentary on the implications for our future strategy. The Group integrated
the consideration of climate change risks and opportunities within their annual business planning cycle.
The Group’s environmental policy has been incorporated into the Group’s new environmental, social and governance (‘ESG’) strategy.
A comprehensive environmental strategy has been approved at Board level and includes strategic objectives to support climate
change, the circular economy and nature stewardship. The strategy also includes the Group’s target to achieve a 50% reduction
in Scope 1 and 2 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 and the planned delivery of the Environmental Action Plan in the next
few years. In 2023, the Group plans to review its longer-term approach to all emissions, including Scope 3, in the context of the
Government’s 2050 Net Zero target.
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 the Risk Committee and monitoring for any new regulation through
established horizon scanning processes.
Physical risks and transitional risks are 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 the Executive and Board to understand and consider the scale
and breadth of the climate change risk profile.
The Group’s climate change risks are 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 risks identified are assessed against three time horizons, being
one year, five years and ten years plus. The potential impact of the risks are assessed against an established hierarchy contained within
our risk frameworks which cover the potential financial, regulatory/reputational, business disruption and customer impacts. Each risk
has an executive owner.
The risks are collectively reviewed and agreed at the ERC. Thereafter the risks are reported to the Risk Committee for oversight.
As described below the businesses have also undertaken scenario analysis. This analysis has improved the Group’s understanding of
the key drivers to their risks and therefore the mitigating actions required. We plan to continue to refine this analysis in 2023 to better
understand the risks and opportunities that climate change presents.
The Group considers remuneration policies to be an important incentive to achieving our organisation’s goals and objectives.
The management of all risks (including climate change risk) is embedded within the executive’s remuneration policy and processes.
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51
Summary of climate change risks
Climate change risk
Source
Area
Risk
Timeframe
Physical
risk
Acute/
Chronic
Operations
Impacts of climate change interrupt our internal
operations e.g. floods.
Short, medium
and long-term
Acute/
Chronic
Operations
Impacts of climate change interrupt our supply chain
e.g. floods.
Short, medium
and long-term
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
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
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
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
Reputation
Group
The Group’s reputation is negatively impacted due to
failure to meet:
• climate change regulation;
• stakeholder expectations; and
• responding strategically to changing market/
consumer demands/preferences.
Short, medium
and long-term
Operations
Disruption to the Group’s and third-party suppliers’ operational sites through climate change related impacts,
such as severe weather.
The Group has undertaken a review of the physical risks associated with the location of each of its operational sites. Similarly, we have
consulted with our material suppliers in relation to 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 influence any proposed changes to our
operational sites, and during the selection and on-boarding processes for any new suppliers.
In addition, scenario analysis has been undertaken in relation to the operational impact of a severe flood at one of our key sites.
Given the operational changes we have introduced during the pandemic (including our employees working from home), the
operational impacts of such a scenario are limited and we would be able to continue to operate within service levels and risk appetite.
Climate-related financial disclosures
continued
Strategic Report
52
Secure Trust Bank PLC
Annual Report & Accounts 2022
Vehicle Finance
Transitional impacts of climate change within the motor industry as consumers and the industry respond to the move towards
non/low-carbon fuelled vehicles.
The key area of risk for the Group is the implications 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 99% of transactions are for internal combustion engine vehicles (source: SMMT Used car
sales: Q3 2022), the current level of lending associated with EV and hybrid vehicles is small.
We are committed to supporting our customers where they wish to transition to EV and hybrid vehicles. To support 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 to better support demand for EV and
hybrid vehicles.
To support the strategy outlined above 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 better understand the potential implications of the transition to vehicles with lower emissions, the Group has undertaken a
review of 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 the 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 impacts 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 rates 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 2023 Internal Capital Adequacy
Assessment Process (‘ICAAP’).
The Group plans to further develop the scenario analysis undertaken and will continue to use the results to identify climate change
risks/opportunities and how these may influence our business plans.
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Annual Report & Accounts 2022
53
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 Group. 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 has also undertaken a review of assets it currently holds as security against an
external flood risk data (Hometrack). Recording of property details differs between this source and the land registry, however to date
we have matched two thirds of our investment portfolio and are working with the external provider to further enhance this matching
rate. The matched results show that 3.9% of the properties we hold as security are classed as having a ‘high’ or ‘very high’ level of risk
from flooding, compared to a national average of 4% (source: Hometrack). Development sites are not currently captured in third party
flood risk data.
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
of residential property. The UK Government has set a minimum Energy Performance Certificate
(‘EPC’) rating of E for tenanted properties. This is due to be raised from E to C from the 1 April 2025
for new tenancies, and from 1 April 2028 for existing tenancies. In order to understand the potential
risks, the Group has reviewed the EPC rating for properties we hold as security. The results are
presented on the right.
To mitigate this risk, new lending facilities are provided on the basis that all properties are compliant (unless exempt) with current EPC
requirements. In addition to this the Group also requires an assessment from the borrower regarding their strategy to comply with the
2025 EPC C rating requirement. 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, in order to better understand 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 are resilient across the scenarios assessed. The results will be factored into the Group’s
2023 ICAAP.
The Group plans to further develop the scenario analysis undertaken and will continue to use the results to identify climate change
risks/opportunities and how these may influence our business plans.
The Group has also considered how Real Estate Finance can support our clients to manage the transitional impacts of climate
change. In June 2021 Real Estate Finance identified an opportunity to support its clients through enhancing its existing loan products
to specifically support borrowers investing in higher energy performance rated properties or upgrading less efficient properties.
This product offered favourable interest rates and has been popular with our customers and to date we have committed facilities
totalling £120 million. These products were relaunched in 2022, although on a variable interest rate basis only. As a result of the current
interest rate environment, this product has not generated significant lending volumes.
In June 2022, the Board reaffirmed its desire to support our clients’ transition. Through planned training to our relationship managers,
we will continue to work with our clients and industry professionals to identify opportunities where we can support them with adapting
and reducing their impact on climate change.
Climate-related financial disclosures
continued
EPC Rating
% of investment loan
portfolio by value
C or above
66.9%
D and E
32.8%
Below E
0.3%
Strategic Report
54
Secure Trust Bank PLC
Annual Report & Accounts 2022
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 and associated transitional impacts on their clients.
The Group’s Commercial Finance clients cover a broad range of sectors and 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 formally assess the climate
change risks associated with each of its Commercial Finance clients. The assessments consider all of the following areas of risk (i) client
risk; (ii) geography; (iii) product risk; (iv) debtor risk; (v) supply risk; and (vi) collateral risk.
This bespoke 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 any mitigations necessary.
To support this approach, the Group has defined its risk appetite that it will not engage with clients whose residual risk rating from
the above assessment is considered to be ‘high’ risk in relation to the impacts and implications of climate change. Rather than sector
specific risk appetite, Commercial Finance operate 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.
Metrics and targets
The Board has approved an overarching risk appetite statement in relation to climate change of: ‘Secure Trust Bank 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 a set of metrics and thresholds, approved by the Risk Committee, that measure and monitor the level
of risk for each key risk identified.
The metrics and thresholds include:
•
Operations
– No appetite for any internal sites with medium or high flood rating or EPC rating below rating E.
•
Supply chain
– Metrics that monitor whether there are any material risks that could affect the service offering from our
material suppliers.
•
Vehicle Finance
– A series of metrics that measure and limit the concentration within the portfolio of funding for older (higher
emission) vehicles. Metrics that monitor customer preferences and the potential impacts on the residual values of carbon
fuelled vehicles.
•
Real Estate Finance
– Metrics that monitor the proportion of the lending portfolio that is secured on properties that are within high
risk of flood or require investment to improve their energy performance to acceptable levels.
•
Commercial Finance
– No appetite for funding customers that are assessed as having an overall ‘high’ residual risk (internally rated
assessment) to the impacts and implications of climate change.
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Annual Report & Accounts 2022
55
Scope 1, Scope 2, and Scope 3 GHG emissions.
This section of the report covers the Group’s GHG emissions, with work ongoing across the Group to evaluate our financed and supply
chain emissions. In line with accepted industry approaches, and once complete the Group will consider additional targets and metrics
to cover these emissions.
The following tables set out the Group’s energy consumption and CO
2
e emissions for 2022 in accordance with TCFD, and the
Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 and the Companies (Directors’ Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018.
We have calculated our emissions using the GHG Protocol Corporate Accounting and Reporting Standard (revised edition).
Energy consumption and GHG emissions are reported as single totals, by converting them to the equivalent amount of kWh and CO
2
e
respectively using emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2022. This approach
is consistent with previous years. All energy consumption and emissions relate to the UK and cover all Group entities and therefore is
aligned with the financial reporting of the Group.
Measure
2022
kWh
2021
kWh
Year on Year
Variance
%
Scope 1 – Building energy: gas consumption
210,605
194,723
8.2
Scope 1 – Emergency generator: gas oil consumption
4,733
4,733
–
Scope 1 – Business travel: Group leased vehicles
195,579
NC
1
N/A
Scope 2 – Building energy: electricity consumption
1,303,946
1,475,676
(11.6)
Scope 3 – Business travel: employee owned vehicles
126,748
NC
1
N/A
Total energy consumption
1,841,611
1,675,132
9.9
Measure (Location-based emissions
2
)
2022
CO
2
e
tonnes
2021
CO
2
e
tonnes
Year on Year
Variance
%
Scope 1 – Direct emissions from the combustion of fossil fuel
148.3
132.4
12.0
Scope 2 – Indirect emissions from purchased electricity
252.2
313.3
(19.5)
Scope 3 – Other indirect emissions
91.5
45.2
102.4
Total Scope 1 to 3 CO
2
e emissions
492.0
490.9
0.2
Measure
2022
2021
Year on Year
Variance (%)
Group operating income £ million (continuing and discontinued)
178.2
164.5
8.3
Environmental intensity indicator (Total emissions per £m Group operating income)
2.8
3.0
(6.7)
• Scope 1 emissions resulting from activities owned and controlled by the Group. These are direct emissions and includes the
combustion of natural gas for heating buildings and fuel for Group owned vehicles.
• Scope 2 emissions are indirect emissions generated from purchased electricity in relation to the Group’s activities, but occur at
sources which the Group does not own or control.
• Scope 3 emissions are indirect emissions generated by the Group’s activities, but occur at sources which 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) and (6) Business travel, noting business travel on public transport has been included for the first time in 2022. For further
information on Scope 3 categories and applicability to the Group, see Scope 3 CO
2
e emissions section below.
The Group is reporting a small increase in emissions in the year. Increases in emissions primarily caused by the addition of ‘Business
travel: public transport’ reporting (32.1 tonnes CO
2
e) and the increase in air conditioning leakage (67.1 tonnes CO
2
e) have been
offset by the implementation of environmental initiatives such as switching the Group’s fleet of leased vehicles to PHEVs and EVs.
The increase in air conditioning leakage mostly caused by the age of the equipment at our main site, is unlikely to recur as the Group
plans to exit this site in 2023. Delivery of the Group’s carbon saving initiatives in the year have reduced the Environmental intensity of its
operations year on year.
The majority of the Group’s offices have used renewable electricity during 2022. Under location based
2
emissions, electricity emissions
were 252.2 tonnes of CO
2
e (included in the table above in Scope 2). Market based
3
emissions exclude premises which use 100%
renewable electricity. This reduces electricity emissions to 95.3 tonnes of CO
2
e. The Group will continue to work with landlords to
switch to 100% renewable electricity at the remaining Group offices.
1. Not calculated in 2021 due to absence of Government issued conversion factors.
2. Location based emissions are calculated by multiplying electricity consumption for all sites by the Governments conversion factor for UK electricity.
3. Market based emissions are calculated by excluding the sites that use 100% renewable electricity from the location based calculation.
Climate-related financial disclosures
continued
Strategic Report
56
Secure Trust Bank PLC
Annual Report & Accounts 2022
CO
2
e emissions
2022
Building energy:
Electricity consumption
51.4%
Scope 2
Business travel:
Employee owned vehicles
7.4%
Fuel and energy related
activities (not included in
Scope 1 or Scope 2):
Electricity transmission
and distribution
4.7%
Business travel:
Public transport
6.5%
Scope 3
Air conditioning leakage
12.5%
Business travel:
Group leased vehicles
9.5%
Building energy:
Gas consumption
7.8%
Scope 1
Fuel: Gas oil
0.2%
Reported energy consumption has increased year on year for natural gas but has decreased for electricity. This is primarily due to
adopting a more accurate assessment of the energy consumption at our leased offices.
Mileage for all vehicles has increased significantly as pandemic travel restrictions were lifted in 2022. Mileage for Group leased vehicles
has returned to pre-pandemic levels as sales teams find face to face meetings more effective. However, mileage for employee owned
vehicles remains below pre-pandemic levels as office based employees now favour a mix of face to face and remote meetings.
CO
2
e emissions (tonnes) five-year trend
0
100
200
300
400
500
Gas consumption (Scope 1)
Electricity consumption (Scope 2)
Group leased vehicles (Scope 1)
Employee owned vehicles (Scope 3)
Building energy:
Business travel:
2022
2021
2018
2020
2019
*Graph is prepared on location based emissions.
CO
2
e emissions for natural gas, electricity and employee owned vehicles are following the trend set by the energy consumption data
for these categories. However, whilst Group leased vehicles mileage has increased, emissions have significantly decreased following
the switch to PHEVs and EVs.
Energy consumption five-year trend
(kWh)
1,303,946
1,649,045
1,426,736
2022
2021
2018
2019
2020
1,402,793
1,475,676
Gas consumption (Scope 1)
Building energy:
Electricity consumption (Scope 2)
210,605
146,616
133,707
186,693
194,723
Energy consumption five-year trend
(miles)
613,773
645,458
645,623
2022
2021
2018
2019
2020
302,043
335,448
Group leased vehicles (Scope 1)
Business travel:
Employee owned vehicles (Scope 3)
163,300
283,224
314,414
107,441
57,420
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Corporate Governance Report
Financial Statements
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Annual Report & Accounts 2022
57
Environmental initiatives
Achievements
A programme of environmental initiatives is being implemented across the Group. Recent achievements include:
Sector
Achievements
Climate Change
• Our offices in Cardiff, Solihull, London, Reading and Leeds have now switched to 100% renewable electricity.
Our offices in Manchester and Birmingham are currently using 50%+ renewable energy.
• Gas and electricity consumption has been reduced by the closure of one of our Cardiff offices.
• EV charging points have been installed at our Cardiff and Solihull offices.
• Almost all Group leased vehicles have been switched from petrol and diesel vehicles to PHEVs and EVs.
Circular Economy
• Many of our customer bulk mailings have been switched to a more efficient external print service provider and
some have been switched to digital channels.
• Waste recycling has been established at our main offices in Cardiff and Solihull.
• Items such as batteries, toner cartridges and IT equipment are recycled.
• Unwanted office furniture is re-used through donations to local schools, colleges and charities.
Planned activities
The Group’s programme of environmental initiatives will continue to be implemented throughout 2023. The table below illustrates
some of the key initiatives planned:
Sector
Planned activities
Climate Change
• Investigate transitioning our remaining sites to 100% renewable electricity.
• Present a business case for the installation of photovoltaic cells (solar panels) at our Cardiff and Solihull offices.
• Close two further offices, thereby reducing gas and electricity consumption.
• Review the fleet of Group leased vehicles with a view to switching from PHEVs to EVs.
• Undertake a review to consider how we can encourage employees who use their own vehicles for business
travel to switch to PHEV and EVs and how we can reduce business travel.
• Undertake a review of our premises to consider how we can reduce energy consumption and improve
energy efficiency.
Circular Economy
• Continue to switch customer bulk mailings to our external print service provider and from paper and post to
digital channels.
• Continue to monitor waste from our offices, considering ways to reduce overall waste and to increase the
proportion of recyclable waste.
• Review purchased products across the company to determine which other items can be switched to recycled or
sustainable products.
Climate-related financial disclosures
continued
Strategic Report
58
Secure Trust Bank PLC
Annual Report & Accounts 2022
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, to be completed in 2023
2
Capital goods
Supply chain analysis underway, to be completed in 2023
3
Fuel and energy related activities (not
included in Scope 1 or Scope 2)
Reported in 2022
4
Upstream transportation and distribution
Supply chain analysis underway, to be completed in 2023
5
Waste generated in operations
Unlikely to be material. Analysis to be completed in 2023.
6
Business travel
Reported in 2022.
7
Employee commuting
Analysis to be completed in 2023.
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
Material assets leased in 2022 have now been terminated.
Not applicable in 2023.
14
Franchises
Not applicable for the Group.
15
Investments (Financed emissions)
Analysis of financed emissions underway, to be completed in 2023.
See below for further details.
Financed emissions
In 2022, the Group commenced work to evaluate a 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
majority of the properties and vehicles we finance. This data will be used to determine a baseline position for future targets. Whilst we
are already utilising this data to understand the impacts of our business on climate change, we recognise the importance of the
accuracy of this data so will be undertaking formal assurance over these assessments and will report more detail in our 2023 Annual
Report and Accounts.
The Financed emissions analysis for all vehicles financed follows the formula prescribed in the PCAF standard.
As at
31 December
2022
Vehicle Finance loan book (£m)
(excluding Stock Funding)
351.8
Average CO
2
e tonnes per annum per vehicle
1,2
1.99
Total annual CO
2
e tonnes
1,2
101,000
Total annual Scope 3: Financed emissions CO
2
e tonnes
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 29 March 2023 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 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 and
plug-in hybrid 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 more reflect ‘real world’ CO
2
emissions.
Strategic Report
Corporate Governance Report
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Annual Report & Accounts 2022
59
Chairman’s introduction
On behalf of the Board, I am pleased to present our Corporate Governance Report and confirm our compliance with the UK Corporate
Governance Code published in July 2018, for the year ended 31 December 2022. We believe that both the Board collectively and
Directors individually have a responsibility to set and demonstrate high standards of corporate governance. The following pages outline
the structures, processes and procedures by which the Board ensures that this is achieved.
The Corporate Governance Report in its entirety, pages 60 to 109, 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 2022.
The Report includes a statement disclosing its compliance with the UK Corporate Governance Code 2018, which can be found on page
64, and a disclosure of how the Company engages with its stakeholders, which can be found on pages 40 to 49. The Non-Executive
Directors, all of whom the Company regards as independent, bring considerable experience to the Board across a number of specialisms.
They challenge management constructively, develop clear strategy and are actively involved in chairing and attending Committees.
The Executive Directors implement Board strategy to deliver growth and returns, actively managing the portfolio of businesses
through each of the business unit Managing Directors.
The Board was able to meet both physically and virtually on a regular basis during 2022, to collaborate and maintain control of its
governance processes and activities in what has been a successful year.
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. The Audit
Committee has again assisted the Board in its assessment of these matters, together with those of Going Concern and Viability
Statement disclosures. The full Audit Committee Report is set out on pages 70 to 74.
Lord Forsyth
Chairman
We believe that both the Board collectively
and Directors individually have a
responsibility to set and demonstrate high
standards of corporate governance.”
Lord Forsyth
Non-Executive Chairman
Corporate Governance Report
60
Secure Trust Bank PLC
Annual Report & Accounts 2022
The Rt Hon Lord Forsyth
of Drumlean PC Kt
Non-Executive Chairman
Appointed to the Board on 1 March 2014
as an Independent Non-Executive Director
and as Chairman of the Company on
19 October 2016. Chair 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 and Denholm Logistics Group
Limited. He stepped down from his role as
Chairman of the House of Lords Economic
Affairs Committee in January 2022
following his appointment as Chairman of
the Association of Conservative Peers on
15 September 2021.
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 (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
needed 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,
where she was part of the original team
that set up the bank, and Shawbrook
where she was part of the successful Initial
Public Offering (‘IPO’). Prior to joining
Secure Trust Bank plc, 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 proves invaluable in her role
as CFO. She has a deep understanding
of the Group’s businesses and strategy
and has a strong track record of creating
shareholder value.
Board leadership
Board of Directors
Strong
leadership
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Financial Statements
Ann Berresford ACA
Senior Independent Director
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 2020 Annual General Meeting.
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 an excellent addition to 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
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 and
Chairman of the Remuneration Committee at
Ashman Bank Limited, a new bank start-up.
Victoria Stewart
Independent Non-Executive Director
Appointed to the Board on 22 November
2016. Appointed Chairman of the
Remuneration Committee on 21 July
2017. Member of the Nomination and
Audit Committees.
Skills and experience
Victoria Stewart has over 25 years’ experience
in the financial services sector and was for
many years a fund manager and investor in
UK small companies. 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 (formerly
Cantrade Investment Management Limited
and now part of Sarasin & Partners).
Long-term contributions:
Victoria’s background has given her 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 which the Board benefits
from. Her experience in remuneration and
governance make her a suitable choice
for the Chairman of the Remuneration
Committee and member of the
Nomination Committee.
Other appointments include:
Victoria is a Non-Executive Director
of Artemis Alpha Trust plc, Aberforth
Smaller Companies Trust plc and JP
Morgan Claverhouse Investment Trust plc.
She is a member of the ICAEW Investment
Committee and a former member of the
ICAEW Corporate Governance Committee.
Board leadership
Board of Directors
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Secure Trust Bank PLC
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Baroness Lucy
Neville-Rolfe DBE CMG
Independent Non-Executive Director
Finlay Williamson CA
FCIBS
Independent Non-Executive Director
Appointed to the Board on 30 June 2021
and member of the Risk and Nomination
Committees. Appointed to the Audit
Committee and as Consumer Duty
Champion on 27 October 2022.
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 CFO 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 FCA and PRA
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.
Mark Stevens FCG
Company Secretary
Appointed as Company Secretary
in June 2019 and a member of the
Executive Committee.
Skills and experience
Mark Stevens is a Chartered Secretary and
qualified governance professional with
a wealth of experience in the financial
services sector. Mark previously was Group
Company Secretary of Amlin plc, a FTSE
250 international insurance company, where
he overhauled the governance practices
and teams, and implemented a new
governance framework in six jurisdictions
in consultation with local regulators.
Prior to his role in Amlin, Mark was Deputy
Secretary of the retailer Dixons, worked at
BT Global Services as Head of Governance,
MENA and trained with Ernst & Young.
Long-term contributions:
His long career has given Mark
experience in insurance, banking,
telecoms and retail, working within
multiple regulatory environments and
complex remuneration structures.
A qualified share schemes practitioner,
Mark brings his extensive experience and
knowledge of remuneration and corporate
governance to Board and Executive
Committee discussions.
Former Directors who served
during the year
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Financial Statements
UK Corporate Governance Code (the ‘Code’) – Statement of Compliance
Throughout the period under review, the Board confirms that the Group has complied with the provisions and applied the principles of
the Code. A copy of the Code can be found on the Financial Reporting Council’s website.
The Chairman, who was independent upon his appointment as Chairman in October 2016, is being recommended for reappointment
at the upcoming AGM and has served as a Director for more than nine years since his appointment in March 2014. The Board is
comfortable that the knowledge, tenacity and experience that the Chairman brings to the Board outweighs the need for mandated
time independence, particularly during this period of growth for the business and is content that the Chairman remains independent in
character and judgement. Further details can be found in the Nomination Committee report on pages 67 to 69 for more information.
The governance sections of this report describe the Group’s governance arrangements and how the Board has applied the principles
of the Code.
Board leadership and Company culture
The corporate purpose, values and strategy of Secure Trust Bank (‘STB’) are set out at the beginning of the Annual Report and are
embedded into employee objectives aligned to STB’s core values 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®, was a continued improvement for the third 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 43 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 74. 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 43.
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. For example, the
Chairman of the Remuneration Committee wrote to our top shareholders ahead of the publication of the proposed Directors’
Remuneration Policy (please see page 81 for more information). Further detail on stakeholder engagement can be found in the
Managing our business responsibly section starting on page 40. The Chairman meets with the Non-Executive Directors without the
Executive Directors, or other members of senior management, present at least annually and did so twice during 2022.
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.
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.
Board attendance and composition
Members
No. of scheduled meetings
eligible to attend
Attended
Lord Forsyth
11
11
Ann Berresford
11
11
Rachel Lawrence
11
11
David McCreadie
11
11
Paul Myers
11
11
Victoria Stewart
11
11
Finlay Williamson
11
11
Baroness Neville-Rolfe
8
8
Board
composition as at
31 December 2022
iNED
5
ED
2
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Annual Report & Accounts 2022
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 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 40 to 49. 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 2022 (please see the Board biographies on pages 61 to 63 for further information).
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 on
activities 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, 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 chairs. 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 67.
The length of service for each Non-Executive
Director in years as at 31 December 2022 is outlined to the
right. Baroness Neville-Rolfe stepped down from the Board
on 21 September 2022. 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 67 for more information.
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 109.
The approach taken by the Board to ensure that the Annual Report and Accounts are fair, balanced and understandable is set out on
page 72 and the information necessary for shareholders to assess the Company’s position and performance is set out in the Strategic
report starting on page 2. An explanation of the business model and the strategy for delivering the objectives of the Company is set
out on pages 8 to 11. A statement of the responsibility of the External Auditors for the Annual Report and Accounts is set out on page
116. The basis on which the Board reached its decision to adopt the going concern basis of accounting is described on pages 35 to 36.
0
2
4
6
8
10
Non-Executive Director Tenure
Victoria Stewart
6.11
Lord Forsyth
Finlay Williamson
Paul Myers
Ann Berresford
Baroness Neville-Rolfe
Former Directors
8.84
1.5
4.09
6.11
3.82
Years as at 31 December 2022
Non-Executive Directors
Secure Trust Bank PLC
Annual Report & Accounts 2022
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Strategic Report
Corporate Governance Report
Financial Statements
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
25 to 34.
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 page 25 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 25 to 34. 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 Committee, 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 70 and 75 respectively set out further details of how those
responsibilities are discharged.
Corporate Governance report
continued
Corporate Governance Report
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Annual Report & Accounts 2022
Nomination Committee report
Statement by the Chairman of the Nomination Committee
The Committee’s focus in 2022, has been on overseeing the planned changes to the senior management team following the retirement
of Executive Committee members Jon Bowers, Managing Director, Real Estate Finance and Asset Finance, and David Nield, Managing
Director, V12 Vehicle Finance, and commissioning and responding to the external evaluation of the effectiveness of the Board and
its Committees.
The sudden departure of Baroness Neville-Rolfe from the Board following her appointment to the Government in September
2022, required the reallocation of her role as the Non-Executive Director responsible for Workforce Engagement and Chairman
of the Employee Council to Paul Myers, who has stepped into the role following a short induction. The Board also appointed Finlay
Williamson to the Audit Committee and as Consumer Duty Champion and our approach to treating our customers fairly is set out
on pages 40 to 41.
Until Baroness Neville Rolfe stepped down, the Board was gender balanced. Diversity and inclusion plays an important part in our
workforce engagement and succession planning. As we look to recruit a further Non-Executive Director during the course of 2023
there will be an opportunity to broaden the diversity of the Board whilst ensuring that all our appointments continue to be made
on merit.
The external evaluation concluded that the Board remains effective and has the right level of challenge to and oversight of
Senior Management.
As we progress into 2023, I would like to express my thanks to the Committee members for their continued support.
Lord Forsyth
Chairman of the Nomination Committee
Diversity and inclusion plays an important
part in our workforce engagement and
succession planning.”
Lord Forsyth
Chairman of the Nomination Committee
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Financial Statements
Nomination Committee report
continued
Membership and meetings
As at 31 December 2022, the Nomination Committee comprised five members, as set out in the attendance table above, and was
compliant with the Code provision regarding its composition throughout 2022. Baroness Neville-Rolfe ceased to be a member of the
Committee in September 2022.
The Committee meets at least twice a year or as frequently as its Chairman may require, and met twice in 2022. 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 attended a meeting by invitation.
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 www.securetrustbank.com
Board effectiveness and Non-Executive Director evaluation
During H2 2022 an externally facilitated independent board evaluation, as set out by the Code, was conducted by Board Alchemy
Limited (‘Board Alchemy’) and reviewed by the Committee and the Board in Q1 2023. The appointment of Board Alchemy was
through a competitive tender process conducted in early 2022. Board Alchemy has previously conducted the External Quality
Assessment of the Internal Audit function in 2021 and conducted a review of corporate governance effectiveness in 2018, the latter
as a co-sourced provider of the Internal Audit team. Both prior instructions assisted the evaluation of the Board as they provided a
framework for how the Board has continued to develop its oversight of the business and internal controls. Board Alchemy has no other
connection to the Company, the Directors or Senior Management.
The external evaluation consisted of observing the Board and its Committee meetings, together with interviews with Directors and
Senior Management and the completion of a short questionnaire. The outcome of the evaluation was discussed with the Chairman
and input into the report was provided to clarify matters of factual accuracy or historical context. The evaluation concluded that ‘STB’s
Board (was) effective’.
The Committee reviewed the results and a report by the Chairman on the individual Directors’ performance evaluations and a report
from the Senior Independent Director on the review of the Chairman. The Committee agreed with the results of the evaluation and
concluded that the Board was performing well and exercising the right level of judgement with due regard to the duties placed on
Directors under company law, including section 172 of the Companies Act 2006. The Committee acknowledged that the Directors had
been mindful of the provisions of the Code and their responsibilities as Directors and, where applicable, as senior managers under the
Senior Managers Regime, when reaching their assessment of Board effectiveness and individual Director contributions.
The 2022 Board effectiveness review noted the evolving Board dynamic following changes to both the Board and the Executive
Committee and 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 2022 and 2023.
Nomination Committee attendance and composition
Members
No. of scheduled meetings
eligible to attend
Attended
Lord Forsyth
2
2
Ann Berresford
2
2
Paul Myers
2
2
Victoria Stewart
2
2
Finlay Williamson
2
2
Baroness Neville-Rolfe
1
1
Nomination
Committee
composition as at
31 December 2022
iNED
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Corporate Governance Report
The external evaluation raised discussion points for the Board to consider regarding the format of management information and
the interaction of the senior management team and the Board post pandemic and following changes to personnel. The Board had
already given consideration to the majority of the points raised and action to address those points was underway, validating the
Board’s judgement on these areas. The Board is considering the remaining discussion points and will report on the points in the 2023
Committee report.
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 2022 and concluded that it had the right balance of skills, knowledge and
experience. 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 planning and Director recruitment
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.
The Committee, having reviewed the succession plan and the mix of the Board’s skills and experience at the end of 2021 decided that
the recruitment of a further Non-Executive Director would not be required during the course of 2022 and that further consideration
would be given to non-executive recruitment during the course of 2023. The sudden resignation of Baroness Neville-Rolfe gave rise to
the Board and Committee considering recruitment earlier in 2023 to enhance the mix of skills and experience of the Board and to add
further diversity to the Board. The Board has identified the skills and capabilities that would assist the business in the medium to long-
term and a role profile, which will be reviewed for gender and other bias prior to being approved, is being developed.
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, which outlines the Group’s commitment to providing equal opportunities and the Board’s belief
that diversity includes gender, race, ethnicity, age, disability, religious belief, sexual orientation, marital status, gender identity, and
pregnancy (together ‘diversity’). 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 with due regard for the benefits of diversity
on the Board at the time of the appointment 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 equal representation of men and women
throughout the majority of 2022, and currently has a 3:4 split of women:men which is in excess of the 33% target set by the Hampton-
Alexander review. Diversity, including ethnic diversity, will continue to be a factor taken into consideration during future appointments
and as part of refreshing the Board.
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 2022 for 2022/23 and received training on strategic,
regulatory, ESG, Consumer Duty 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 2023/24 is being considered and will reflect business, regulatory and governance matters.
On appointment as Consumer Duty Champion, Finlay Williamson received a comprehensive induction programme and a tailored
programme upon his appointment to the Audit Committee. Paul Myers also received a tailored induction when he became the
Non-Executive Director for Workforce Engagement.
Secure Trust Bank PLC
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Financial Statements
Audit Committee report
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 2022 and this report sets out
some of the key matters on our agenda over that period.
One of our significant priorities during 2022 has been the impact of the rising cost of living and customer affordability in what have
been volatile economic circumstances. The Committee has spent significant time considering the macroeconomic scenarios and the
impact of those on key accounting judgements including those affecting provisions. The Committee has also considered accounting
and reporting matters arising from the sale of Debt Managers (Services) Limited’s loan portfolio.
The Committee has continued to receive valued support from a number of internal and external stakeholders including the Chief
Internal Auditor, Chief Financial Officer, senior members of the Finance team, and the External Auditors. The Committee received an
update at every meeting on internal audit activity and 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. Deloitte LLP are approaching the conclusion
of their fifth 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 2023 to
the Board at the 2023 Annual General Meeting (‘AGM’).
During the year, we welcomed Finlay Williamson to the Committee and have benefited from his insight and support since joining.
Lucy Neville-Rolfe stepped down from the Committee in September 2022 when she resigned from the Board. I would like to thank
Lucy for her contribution during her tenure.
Ann Berresford
Chairman of the Audit Committee
The Committee has been focused
on the impact of a volatile
macroeconomic environment.”
Ann Berresford
Chairman of the Audit Committee
70
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Corporate Governance Report
Committee governance
The Audit Committee met four 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 a private session 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 2022. 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 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 Board confirms the Annual Report, taken as
a whole, 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 those conclusions, including
reviewing significant financial reporting judgements, following appropriate executive governance, and assessing that 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 2022
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
4
4
Victoria Stewart
4
4
Finlay Williamson
1
1
Baroness Neville-Rolfe
2
2
iNED
3
ED
0
Audit
Committee
composition as at
31 December 2022
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Financial Statements
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:
Accounting policies, key judgements
and assumptions used in preparing
interim and annual financial statements
The Audit Committee reviewed the key accounting judgements proposed by the
Executive following rigorous review by the Assumptions Committee in preparing the
financial statements for the year ended 31 December 2022, the interim financial statements
for the six months ended 30 June 2022, the stock exchange announcements and
investor presentations that accompanies those statements. An economic advisory firm
was engaged in 2022 to support the Assumptions Committee in formulating the macro-
economic scenarios and weightings prior to recommendation to the Committee.
The Audit Committee has considered the financial reporting treatment of the
sale of Debt Managers (Services) Limited’s loan book, including its treatment as
discontinued operations.
In July 2022 the Audit Committee considered whether Secure Trust Bank (‘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 following the pandemic 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. In 2022, 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. The Committee has approved the inclusion of expert
credit judgements regarding cost of living/affordability, new business and to reflect inflated
values in the used car market and considered the impact of these on the financial statements.
The Audit Committee undertook horizon scanning of future accounting changes,
including as a consequence of audit reform, to understand changes or voluntary
measures STB may, or will be required to, implement.
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.
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 35 to 36.
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 2022 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.
Audit Committee report
continued
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External audit
Deloitte LLP has continued in their position as External Auditor since their appointment in May 2018 and 2022 will be Matthew Perkins’
last year as the lead External Audit Partner. The Committee has considered and duly agreed to recommend the reappointment of
Deloitte and that a new lead partner be appointed for 2023.
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 110.
During 2022, the Committee assessed the effectiveness of the external audit process for 2021. 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. 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 Audit Committee agreed a fee increase with the External Auditor in 2022. After significant discussion, the Committee was satisfied
that the level of audit fees payable in respect of the audit services provided, being £757,000 (2021: £689,000) 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 2022 and a similar resolution is proposed at
the AGM to be held in May 2023.
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.
As previously mentioned, 2022 will be Matthew Perkins’ last year as the lead External Audit Partner and the Committee has considered
and agreed with Deloitte that a new lead partner be appointed 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 will only be selected for such services when they are best suited to undertake the work and there is no
conflict of interest.
The total of audit and non-audit fees paid to Deloitte during the period is set out in Note 7 on page 137. The non-audit services fee of
£110,000 (2021: £110,000) was 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 14.5% of audit fees in 2022.
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Financial Statements
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 reviewed and approved the 2022 internal audit plan and oversaw internal audit activity throughout the year, including
adjustments to the plan to respond to external and internal events and priorities including the impact of internal change and external
volatility on the Group’s processes. 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 2022 included:
• the effectiveness of governance and second line of defence, including model governance and financial crime risk management;
• Transformation and Change;
• Operational Resilience including IT resilience and risk management;
• working arrangements and culture; 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 66.
During 2022, 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.
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 was one new case during the year (2021: two). Cases are assessed and, where required, subject to investigation in accordance
with the Group’s Whistleblowing Policy. An annual report on the whistleblowing incidents is received by the Board.
Audit Committee effectiveness
During the reporting period, Board Alchemy considered the Committee’s performance as part of the wider Board effectiveness review.
The result of the evaluation was that the Committee and other participants considered that the Committee was performing effectively.
Please see the Nomination Committee report starting on page 67 for more information.
Looking ahead
The Committee’s priorities for 2023 will include a continuing focus on financial reporting in the context of external market volatility
and responding to developments in relation to the UK Government’s consultation and proposals for the future of the UK external
audit market.
Audit Committee report
continued
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Annual Report & Accounts 2022
I am pleased to present the report of the Risk Committee for the financial year ended 31 December 2022. This year has seen further
significant change in the wider macroeconomic environment. The UK has seen heightened geo-political instability, energy cost increases,
high levels of inflation and a rapidly rising interest rate environment, all of which contributed to a growing cost of living challenge for UK
consumers. The risks to the Group posed by these challenges have featured prominently in discussions at the Committee as we continue
to review and challenge existing models to assess whether risk appetite is set appropriately to continue to support the Group’s medium-
term strategy.
The year was another busy one for the Committee. Additional meetings were held to discuss trending themes such as customer
affordability as well as the Group’s responses on regulatory matters. The Committee has continued to monitor the full range of risks
facing the Group and has overseen the setting of appropriate risk appetites to support the introduction of new products such as the
Group’s personal contract purchase offering.
The Group has continued to operate the hybrid working model successfully adopted during the COVID-19 pandemic, and the
Committee has assessed both the risk challenges and opportunities this presents for customers, employees and the Group’s
businesses. The Committee reviews 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.
Throughout 2022, the Committee maintained its focus on financial crime. The Committee has received regular reports on the Group’s
Financial Crime Transformation Programme (‘FCTP’), on progress made to date as well as how it dovetails with other operational
efficiency initiatives taking place. The Group continues to invest in the ongoing development of its financial crime risk management
framework, efficiencies and capabilities.
Climate risk has been another 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 impacts of climate risk.
The Committee heard directly from the different business Managing Directors, to discuss performance and risks/challenges relevant to
their business area. An overview of the risks associated with the integration of the acquisition of AppToPay technology into the Retail
Finance business was also discussed.
Understanding and managing
our risks are key to our business.”
Paul Myers
Chairman of the Risk Committee
Risk Committee report
Statement by the Chairman of the Risk Committee
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Financial Statements
The Risk and Compliance teams have continued to provide the Committee with effective oversight of the changing risk landscape of
the Group. Regulatory updates, including the outputs of the Compliance Monitoring Programme and horizon scanning of emerging
regulatory requirements and consequential impacts on the Group were also considered. Formal reporting from the Executive Risk
Committee (‘ERC’) and Assets & Liabilities Committee (‘ALCO’) has continued to mature during the year and the Committee received
updates at each meeting on relevant matters discussed at ERC and ALCO.
We have focused on updating our internal processes in line with regulatory guidance. Considerable time has been spent on hearing
how the Group is adopting processes to align with guidance on Operational Resilience, Model Risk and Consumer Duty.
As we look ahead to 2023 and beyond, economic headwinds remain a key focus as consumers adjust to elevated energy costs, general
higher levels of inflation and higher interest rates. The assessment of customer affordability is the cornerstone of our lending decisions
and the Group will continue to monitor closely its appetite, lending policies and processes in light of changing circumstances.
Adjustments will be made where necessary with the underlying aim to continue providing appropriate support to our customers.
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 section on pages 25 to 34.
Finally, I would 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
Risk Committee report
Statement by the Chairman of the Risk Committee
continued
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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 2022, 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 during 2022. The Risk Committee is required to meet
formally at least four times a year and otherwise as required. The Committee had six scheduled meetings and three ad-hoc meetings
held 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’), Chief Risk Officer (‘CRO’), Chief Financial Officer (‘CFO’), Chief Operating Officer, Group IT Director, Chief
Internal Auditor, Chief Compliance Officer, Group Head of Operational Risk, Chief Information Security Officer, Group Treasurer, Head
of Financial Crime 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.
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, ICAAP and ILAAP scenario selection, and principal
risks (see pages 25 to 34 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 and other consultants. 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 2022
iNED
100
ED
0
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Financial Statements
Matters discussed at Risk Committee meetings since 1 January 2022
The Risk Committee has a forward look agenda which details standing agenda items for discussion at each of the scheduled meetings.
The forward 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 Group 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 has due regard to 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. During the year, the Group acquired AppToPay Ltd as part of its strategic
objective for growth. The Managing Director for Retail Finance presented an overview
of how the AppToPay technology would integrate within the Retail Finance business.
The Committee has agreed the identified principal risks set out on pages 25 to 34.
When reviewing the strategic and operational risks the Committee also considered
emerging risks, including the likelihood and impact upon the Group. More information
on this process can be found on page 34 and in the Internal Control section on page 66.
Climate risk
The Committee has 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 50 to 59 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.
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.
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.
The Committee receives regular reporting from the Head of Information Security
on the Group’s cyber resilience profile. Please see page 49 in Managing our
business responsibly for further information on how this has factored into our
supplier relationships.
Risk Committee report
continued
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Subject area
Matters considered
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 Resolution and Recovery Plan.
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 2022 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 2023 and reviewed the Group’s Consumer Duty
implementation plan.
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 hybrid working model.
Financial crime
The Committee received regular reports from the Financial Crime Team on the progress
of the FCTP, the Annual Report from the Money Laundering Reporting Officer and
approved the Financial Crime Monitoring Plan for 2023.
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 at: www.securetrustbank.com.
During the reporting period, Board Alchemy considered the Committee’s performance
as part of the wider Board effectiveness review. The result of the evaluation was that
the Committee and other participants considered that the Committee was performing
effectively. Please see the Nomination Committee report starting on page 67 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 25 to 34.
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Financial Statements
Directors’ Remuneration Report
Statement by the Chairman of the Remuneration Committee
On behalf of the Remuneration Committee, I am pleased to present the Directors’ Remuneration Report for the financial period which
ended on 31 December 2022.
This has been a busy year for the Committee in which we have further developed our oversight of remuneration practices across the
Group in a number of areas, with a particular focus on monitoring the outcomes of our senior management scorecards as well as
making sure that all our employees receive appropriate remuneration.
2022 – a year of reflection
Considerable thought has been given to the cost of living impact on our employees. A one-off cost of living payment was made during
the year to all our employees earning less than £35,000 per year. This was viewed by the Committee as a positive step to address
the concerns of our employees and retaining their commitment to our business in this uncertain time. This was in addition to a salary
review in Q1 2022 that targeted higher than average increases to the lower salary bands (further detail can be found on page 83).
A similar approach to 2022 has been adopted in 2023. Whilst average pay increases will be 5.8%, these are again higher than average
for the lower paid roles (between 5% and 7%) and limited to 3% for senior management.
Executive remuneration – pay and performance
During the year, the Committee agreed the performance metrics for each of the Executive Directors as well as Senior Management
within the Group. In 2022, the Chief Executive Officer (‘CEO’) and Chief Financial Officer (‘CFO’) had shared financial objectives and
tailored non-financial objectives (see pages 86 and 87).
The Committee received a detailed ‘Quality of earnings’ report covering the financial out-turn for 2022 against the agreed metrics.
After two volatile years driven by lock-down impacts on the business, it is encouraging to note a steady and slightly ahead of target
overall performance for 2022 despite significant external events including the Ukraine war and inflation.
The Committee approved the out-turn of 31.59% (out of a possible 65%) for financial performance metrics. This was largely driven by
outperformance on costs offset by underperformance on return on average equity (‘ROAE’), driven in large part by changes to tax
rates, and common equity tier 1 ratio due to the mix of risk weighted assets. The out-turn for non-financial metrics was 22.5% (out of
a possible 35%), which resulted in an overall bonus of 54.09% (out of a possible 100% of base salary) for each of the Executive Directors.
More detail is shown on pages 86 and 87.
In accordance with the existing Directors’ Remuneration Policy (‘DRP’), 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.
2022 has focused on the cost of living
impact on our employees.”
Victoria Stewart
Chairman of the Remuneration Committee
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Use of discretion during 2022
During the year, the Committee did not exercise discretion in assessing performance for any incentive plans. For completeness, neither
Executive Director had Long Term Incentive Plan (‘LTIP’) awards which have vested during the period. The 2020 LTIP awards, which the
CFO is a participant of, are still within their performance period and will be reported on in the 2023 Annual Report and Accounts.
Forward look
No significant change to the structure of Executive Director reward is proposed under the 2023 DRP. 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. For the 2023
LTIP grant, we have returned to financial metrics and the 2023 LTIP metrics will include ROAE, and earnings per share (‘EPS’), as well as
relative total shareholder return (‘TSR’) and risk (please see page 93 for more information).
Discussions have also been held on our reward structures, including the Sharesave Scheme, and the dilutive impact of share awards
from new issue shares. After a comprehensive discussion, the Board approved the establishment of an Employee Benefit Trust (‘EBT’)
and the intention is to use the EBT to satisfy certain future awards by market purchase shares.
Proposed Directors’ Remuneration Policy 2023-2025 (‘2023 DRP’)
During the second half of 2022, the Committee agreed the 2023 DRP which will be put to shareholders for approval at the 2023 Annual
General Meeting (‘AGM’). This involved discussions with the Executive Directors as well as communication with our top shareholders.
In designing the 2023 DRP, we listened carefully to advice from FIT Remuneration Consultants LLP (‘FIT’) which incorporated Market
Practice trends as well as Proxy Voting Agency views, and considered the recommendations with regard to Executive Remuneration
in the latest Corporate Governance Code. Feedback was not sought from the Group Employee Council, but the remuneration of the
Executive Directors was discussed at that forum. The 2023 DRP can be found on pages 94 to 104 of this report.
There are no increases to quantum of opportunity proposed and the changes proposed are designed to further align the Executive
Director interests with shareholder interests. The changes proposed are as follows:
• Increase the Executive Director minimum shareholding requirement from 100% to 200% of salary.
• Implement a post-vesting holding period of two years for shares resulting from vested share awards.
Concluding thoughts
Baroness Neville-Rolfe stepped down from the Committee in September 2022, following her departure from the Board. I would like to
thank her for her contributions made to discussions whilst on the Committee and to further thank all the Committee members for their
contributions this year.
As Secure Trust Bank continues to execute its strategy, the Committee is satisfied that the 2023 DRP is appropriate and 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 on Remuneration please email me via Mark Stevens, Group 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
Secure Trust Bank PLC
Annual Report & Accounts 2022
81
Strategic Report
Corporate Governance Report
Financial Statements
Directors’ Remuneration Report
continued
Executive Directors: Remuneration at a glance
Executive Director
Pay as at 31 December 2022
David McCreadie
Appointed CEO 5 January 2021
• Base salary – £669,500 per annum
• Pension contribution – 5% base salary
• Annual bonus – 100% base salary maximum bonus
• LTIP – to participate in 2023 LTIP; annual award 100% base salary
Rachel Lawrence
Appointed CFO 7 September 2020
• Base salary – £420,240 per annum
• Pension contribution – 5% base salary
• Annual bonus –100% base salary maximum bonus
• LTIP – to participate in 2023 LTIP; annual award 100% base salary
As at 31 December 2022, the Remuneration Committee comprised three 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 may also be a member of
the Committee where, as is the case with Secure Trust Bank PLC, he was considered independent on appointment as Chairman.
The Remuneration Committee meets at least twice and ordinarily four times a year and when required to address non-routine matters.
The Committee had five scheduled and one ad hoc meeting during the course of 2022.
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, 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 at
www.securetrustbank.com
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
5
5
Lord Forsyth
5
5
Paul Myers
5
5
Baroness Neville-Rolfe
4
4
Remuneration
Committee
composition as at
31 December 2022
iNED
3
ED
0
Corporate Governance Report
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Secure Trust Bank PLC
Annual Report & Accounts 2022
Key matters considered by the Committee from 1 January 2022 to 31 December 2022 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 2021 performance year as well as their respective salary
increases for 2022, which were made broadly in line with the average employee salary increase.
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
senior 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. The Chairman received
an increase in line with the all-employee population and other Non-Executive Directors. 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
decided, after consideration, not to deviate from this process in the current year.
Wider workforce remuneration
In March 2022, the Committee reviewed the proposed Group bonus pool to be paid in April
2022 in respect of performance for the 2021 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 statements 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 management’s recommendation concerning the distribution
and quantum of the Group bonus pool. The Committee reviewed the dashboard information,
processes and guidelines for annual remuneration for the entire employee workforce including
the compliance and risk functions. Pay rises were focused towards junior employees and
increases to entry level salaries were approved. 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. The Committee spent considerable time discussing the
consequential impact of the rise in living costs for employees and over the Summer in 2022
approved an ad hoc payment to employees who earn less than £35,000 a year.
Discretionary share plans
The Committee reviewed the performance metrics for the 2019 LTIP grant, which matured in
April 2022 with a 40.63% vesting. The Committee elected not to utilise its discretion to modify
the formulaic outcome of the vesting of the awards. The Committee reviewed the metrics for
the 2022 LTIP grant which were agreed to remain the same as those for the 2020 and 2021 LTIP
grant, focusing on TSR and risk management. The Committee considered that the performance
metrics were appropriate, given the market conditions at the time of grant, as well as stretching
and in line with shareholders’ interests, please see page 88 for more detail. Malus and clawback
provisions were reviewed, and clauses were updated for inclusion in all LTIP and DBP standard
documentation. The 2023 LTIP grant performance conditions were also discussed during the
year. The Committee agreed to reintroduce an EPS performance criteria, which further aligns
the LTIP with shareholders and was previously used in LTIP grants prior to 2020, and also
agreed to introduce a ROAE metric which is reflective of the Group’s medium-term targets. The
relative TSR and risk management performance metrics have been retained. The Committee
discussed the dilution impact to shareholders as a result of settling awards via new issue shares.
Accordingly, a recommendation for an EBT was presented to the Committee. After rigorous
review, the EBT was approved by the Board and established in October 2022.
All-Employee Sharesave
plan and dilution
The Committee reviewed and approved the 2022 Sharesave plan invite to all
eligible employees.
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 when compiling the DRR and the
additional disclosures in the Annual Report and Accounts.
Secure Trust Bank PLC
Annual Report & Accounts 2022
83
Strategic Report
Corporate Governance Report
Financial Statements
Directors’ Remuneration Report
continued
Item
Comment
Directors’ Remuneration Policy (‘DRP’)
2023–2025
The Committee started the triennial review process of the existing DRP, taking into
account changes to the Code and current market practice, culminating in the drafting of
the new 2023 DRP.
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, Board Alchemy
considered the Committee’s performance as part of the wider Board effectiveness
review. The result of the evaluation was that the Committee and other participants
considered that the Committee was performing effectively. Please see the Nomination
Committee report (starting on page 67) 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
look agenda for 2023. Four meetings are scheduled to be held in 2023 to address
routine matters. A review of the effectiveness of FIT as remuneration advisers took place
in February 2023. It was concluded that they remained appropriate advisers for Secure
Trust Bank.
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 £104,221 (excluding VAT). 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 2022. The 2023 DRP for Executive and Non-Executive Directors, which is subject to shareholder approval at the 2023 Annual
General Meeting and an illustration of the application of that Remuneration Policy in 2023, is included after this Report.
A full copy of the existing Directors’ Remuneration Policy, which was approved by shareholders at the 2020 Annual General Meeting,
can be found on the Company’s website at
www.securetrustbank.com.
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 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 remuneration codes.
Notwithstanding this, in formulating and applying the Remuneration Policy the Committee has had regard to the remuneration codes
when considering existing and proposed remuneration. The Committee has been compliant with the existing DRP approved by
shareholders at the 2020 AGM and Principles P, Q and R of the Code. With the adoption of the new 2023 DRP at the 2023 AGM, the
Committee takes account of compliance with remuneration provisions 32–41.
Corporate Governance Report
84
Secure Trust Bank PLC
Annual Report & Accounts 2022
Single figure table (audited information)
The following table sets out total remuneration earned for each Director in respect of the year ended 31 December 2022 and the
prior year.
Salary and fees
1
Benefits
Annual bonus
2
Pension
Shares
3
Total
remuneration
Total fixed
remuneration
Total variable
remuneration
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Executive Directors
D McCreadie
4
665
650
1
1
362
485
32
32
–
2
1,060 1,170
698
683
362
487
R Lawrence
417
406
22
22
227
304
21
20
–
–
687
752
460
448
227
304
Non-Executive
Directors
5
M Forsyth
224
217
2
3
–
–
–
–
–
–
226
220
–
220
–
–
A Berresford
118
116
1
1
–
–
–
–
–
–
119
117
–
117
–
–
P Myers
6
98
92
–
–
–
–
–
–
–
–
98
92
–
92
–
–
V Stewart
98
96
1
1
–
–
–
–
–
–
99
97
–
97
–
–
F Williamson
7
79
38
1
1
–
–
–
–
–
–
80
39
–
39
–
–
Former Director
L Neville-Rolfe
8
62
80
–
–
–
–
–
–
–
–
62
80
–
80
–
–
Total
1,761
1,695
28
29
589
789
53
52
–
2
2,431
2,567
1,158
1,776
589
791
1. 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). The 2021 base salary figures are based on salaries on appointment for David McCreadie (£650,000 – appointed
5 January 2021) and Rachel Lawrence’s is based on 3 months of her salary on appointment (£400,000) and 9 months of (£408,000) approved in April 2021.
2. In respect of the 2022 financial year, David McCreadie received an annual bonus of £362,135 of which £181,068 will be deferred into share awards and Rachel Lawrence received an
annual bonus of £227,310 of which £113,655 will be deferred into share awards.
3. This includes the value of the Sharesave option granted to David McCreadie on 20 September 2021 (calculating the number of shares in the option (1,683 shares) multiplied by the
difference in the option price (1,069.4p) and the market value of the shares on 21 September 2021 (1,192.5p)). Details of awards made under the LTIP and DBP can be found on pages
88 and 89.
4. David McCreadie was appointed as CEO on 5 January 2021.
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. 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 93 for
more information).
7. Finlay Williamson was appointed to the Board on 30 June 2021 and 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 93 for more information).
8. Baroness Neville-Rolfe stepped down from the Board on 21 September 2022.
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 car
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 share options received in the year. These are the value of Sharesave options granted during the
year. Sharesave options are valued based on the difference between the market value of the shares at grant and
the exercise price.
Secure Trust Bank PLC
Annual Report & Accounts 2022
85
Strategic Report
Corporate Governance Report
Financial Statements
Directors’ Remuneration Report
continued
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 2021 and 31 December 2022 are as follows:
2022
base salary
£’000
2021
base salary
£’000
D McCreadie
670
650
R Lawrence
420
408
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 2022, 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.
Executive Directors
Metric
Threshold
(0% payable)
On-target
(50% payable)
Stretch
(100% payable)
Achieved
Metric weight
Bonus
payable
Grow
Underlying continuing profit before tax
1,2
£36.0m
£40.0m
£44.0m
£40.15m
25%
12.98%
Continuing return on average equity
3
9.00%
10.00%
11.00%
9.44%
10%
2.21%
Sustain
Underlying continuing costs
2
£100.4m
£95.6m
£90.8m
£91.98m
10%
8.79%
Cost of risk
3
1.50%
1.40%
1.30%
1.38%
10%
5.83%
Common Equity Tier 1 ratio
3
13.10%
13.80%
14.50%
13.36%
10%
1.79%
Total
65%
31.59%
1. Figures include continued operations only which have been adjusted for one off costs.
2. Underlying continuing profit before tax and underlying continuing costs for annual bonus calculations were adjusted to exclude corporate costs incurred in relation to exploring actions
in the year which were not anticipated at the time that the 2022 targets for these metrics were established. The Committee was satisfied that the steps taken which resulted in the costs
being incurred were fully in the shareholders’ best interests and accordingly excluding these unforeseen costs maintained the integrity of the 2022 bonus relative to the original full year
business plan.
3. Please refer to the key performance indicators on pages 2 and 3 for an explanation of why these are measured and how they are linked to our strategy. To see how we have progressed
against our strategic priorities during the year please see page 11.
Corporate Governance Report
86
Secure Trust Bank PLC
Annual Report & Accounts 2022
Non-financial metrics
Objective
Targets (summary)
Achievement
Weight
Bonus
payable
CEO
Bonus
payable
CFO
CEO
Improve operating
effectiveness of
the Group
• Develop a plan to deliver
operational effectiveness
across the Group.
• Develop and agree plans for
the delivery of cost savings.
• Develop a new property
strategy for the Group
following the implementation
of the Hybrid Working Policy.
• Successfully implemented a plan to deliver
operational effectiveness.
• Annualised cost savings of £3 million
delivered. Five year benefits of in excess of
£15 million expected.
• Property strategy developed to complement
hybrid working arrangements with cost
savings expected in 2023.
10%
5%
N/A
CFO
Develop the
Group’s medium to
long-term capital
plan in line with
Group strategy
• Reforecast the medium to
longer-term capital plan and
develop a plan for the raising
of any additional capital
in 2023.
• A plan was developed in 2022 to raise
additional capital in an unprecedented
economic and political environment. This was
successfully delivered in Q1 2023.
10%
N/A
5%
Shared
objectives
Streamline the
business in line with
Group strategy
• Progress sale and wind down
of discontinued business
streams in line with regulatory
expectations and with
clear communications to
all stakeholders.
• Debt Manager (Services) Limited loan
portfolio sale completed in Q4 2022 with
a pre-tax gain of £6.1 million recognised in
2022 (please see Note 10 to the Financial
Statements for more information).
Effective communication was issued to
all stakeholders including customers,
employees, regulators, and shareholders.
10%
7.5%
7.5%
Stakeholder
engagement
• Maintain effective and
constructive relationships
with the Group’s
various stakeholders.
• Develop a plan for
development of the Group’s
commitments to managing
Climate change risks.
• Deliver an improvement in
the employee survey trust
index score.
• Meetings held with shareholders and
prospective shareholders. Two new brokers
covering the Group during the year and a
new Head of Investor Relations appointed to
increase dialogue with investors.
• Maintained close relationship with Prudential
Regulation Authority.
• Plan developed and agreed by Board to
reduce Scope 1 and Scope 2 CO
2
e emissions
by 50% by December 2025. Further detail can
be found on pages 50 to 59.
• High customer service ratings maintained and
improved during the year. Please see pages
40 and 41 for more information.
• Employee survey trust index score in
‘Your Voice’ survey improved to 85%
from 80% in 2021. Please see page 43 for
more information.
10%
7.5%
7.5%
Diversity
and inclusion
• Develop 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.
• Recruitment process enhanced, implemented
and operating to increase diversity in
candidate pools. In 2022, a number of senior
roles were filled by female applicants.
• Women in Finance Charter signed, and
headline gender diversity targets set for
Group Executive Committee. All members
of the Executive Committee have a shared
diversity and inclusion shared objective.
• Awarded the Silver Award for the Talent
Inclusion and Diversity Evaluation (‘TIDE’)
Mark for second year by the Employers
Network for diversity and inclusion improving
the Group’s TIDE score to 78%.
• Listed as a UK’s Best Workplaces
TM
for
Women
for the 4th year in a row.
5%
2.5%
2.5%
Totals:
35%
22.5%
22.5%
Secure Trust Bank PLC
Annual Report & Accounts 2022
87
Strategic Report
Corporate Governance Report
Financial Statements
Directors’ Remuneration Report
continued
2020 LTIP awards maturing by reference to 2022 performance
LTIP awards were granted on 22 October 2020 which are 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. Nil value is shown in the single figure table for shares for Rachel Lawrence as these awards have
not yet reached the performance assessment date. Outcomes will be disclosed in the 2023 Annual Report and Accounts.
Awards exercised during the financial year (audited information)
Neither Executive Director exercised an award during 2022.
Awards granted during the financial year (audited information)
2017 Long Term Incentive Plan (‘LTIP’)
Nominal-cost share options were granted to Executive Directors on 5 April 2022 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 period
D McCreadie
05-Apr-22
100% of salary
53,065
670
1 January 2022 to 31 December 2024
R Lawrence
05-Apr-22
100% of salary
33,308
420
1 January 2022 to 31 December 2024
1. Based on a share price of £12.6166 being the average mid-market price determined between 31 March 2022 and 4 April 2022.
Vesting of the share options is subject to a blend of three TSR and risk management performance metrics, assessed over a three-year
performance period as summarised below.
Measurement basis
and % weighting
Relative TSR vs peer
group (25%)
Relative TSR vs FTSE SmallCap
(ex. investment trusts) (25%)
Absolute TSR (25%)
Risk management (25%)
Target range
Median to upper quartile
Peer group is: Arbuthnot
Banking Group, Close
Brothers, OSB Group,
Metro Bank, Paragon
Banking Group,
Vanquis Bank and S&U.
Median to upper quartile.
Measured against
constituents of FTSE
SmallCap (excluding
investment trusts).
10% to 30% 3-year CAGR
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 TSR elements also subject to an underpin as follows:
(a) the Board’s assessment of the Company’s general financial performance and shareholder experience over the
performance period;
(b) the Board’s assessment of the Company’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 all TSR elements, 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 2022).
Awards vest to the extent that the performance metrics are achieved and are subject to a further two-year holding period.
Corporate Governance Report
88
Secure Trust Bank PLC
Annual Report & Accounts 2022
2017 Deferred Bonus Plan (‘DBP’)
Nominal-cost share options were granted to Executive Directors on 5 April 2022 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
05-Apr-22
19,216
6,405
6,405
6,406
242
R Lawrence
05-Apr-22
12,062
4,020
4,020
4,022
152
1. Based on a share price of £12.6166 being the average mid-market price determined between 31 March 2022 and 4 April 2022.
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 100% 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 2022 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
2022
Shares
purchased
during the
year
Options
granted
during
the year
Options
(exercised)
during
the year
Options
(lapsed)
during
the year
Total as at
31 December
2022
Owned
outright
Vested but
unexercised
Unvested,
not
subject to
performance
conditions
Unvested,
subject to
performance
conditions
D McCreadie
1,2
Shares
5,000
5,847
3
–
–
–
10,847
10,847
–
–
–
2017 LTIP
55,319
–
53,065
4
–
–
108,384
–
–
–
108,384
2017 DBP
–
–
19,216
5
–
–
19,216
–
–
19,216
–
2017 SAYE
1,683
–
–
–
–
1,683
–
–
1,683
–
R Lawrence
1,2
Shares
–
3,648
6
–
–
–
3,648
3,648
–
–
–
2017 LTIP
44,927
–
33,308
4
–
–
78,235
–
–
–
78,235
2017 DBP
–
–
12,062
5
–
–
12,062
–
–
12,062
–
2017 SAYE
3,388
–
–
–
–
3,388
–
–
3,388
–
M Forsyth
Shares
6,500
–
–
–
–
6,500
6,500
–
–
–
A Berresford
Shares
–
–
–
–
–
–
–
–
–
–
P Myers
Shares
5,500
–
–
–
–
5,500
5,500
–
–
–
V Stewart
Shares
–
–
–
–
–
–
–
–
–
–
F Williamson
Shares
–
–
–
–
–
–
–
–
–
–
Former Director
L Neville-Rolfe
Shares
1,271
–
–
–
–
1,271
7
1,271
–
–
–
123,588
9,495 117,651
–
–
250,734
27,766
–
36,349
186,619
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 100% of base salary shareholding requirement based on shares owned outright. Both are calculated using
the number of shares owned outright, the Group’s Sharesave or 53% of unvested share awards that are not subject to performance conditions (2017 DBP). Shares held by David
McCreadie (23,344 shares), are worth £175,080 when using the 2022 year end share price of £7.50 (26.15% of 2022 annual base salary). Shares held by Rachel Lawrence (13,428 shares)
are worth £100,710 when using the 2022 year end share price of £7.50 (23.96% of base salary).
3. David McCreadie purchased 1,808 shares on 31 May 2022. On 2 September 2022 David, and a person closely associated to him, collectively purchased 4,039 shares.
4. Awards granted under LTIP rules on 05 April 2022 are set out on page 88.
5. Awards granted under DBP rules on 05 April 2022 are set out above.
6. On 5 August 2022, Rachel Lawrence, and a person closely associated to her, collectively purchased 3,648 shares.
7. The number of shares for Baroness Neville-Rolfe is based on disclosed shareholdings at the date of her resignation.
Secure Trust Bank PLC
Annual Report & Accounts 2022
89
Strategic Report
Corporate Governance Report
Financial Statements
Directors’ Remuneration Report
continued
Payments made to former Directors during the year (audited information)
No payments were made to former Directors during 2022 other than for Baroness Neville-Rolfe for the period that she was a Non-
Executive Director (2021: nil).
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.
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 2022. 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 2022, 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.
2013
31.12.
2021
31.12.
2022
31.12.
2020
31.12.
2019
31.12.
2018
31.12.
2017
31.12.
2014
31.12.
2016
31.12.
2015
31.12.
2012
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
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
2013
1,031
N/A
N/A
2012
870
N/A
N/A
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 2012, 2013, 2015, 2017, 2018, 2021 and 2022.
3. 2021 and 2022 reflects David McCreadie as CEO.
Corporate Governance Report
90
Secure Trust Bank PLC
Annual Report & Accounts 2022
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 2019, 2020,
2021 and 2022 financial years.
2022 Salary
or base fee
2022
Benefits
2022
Bonus
2021 Salary
or base fee
2021
Benefits
2021
Bonus
2020 Salary
or base fee
2020
Benefits
2020
Bonus
Employees
1
2.9%
2
0.0%
(3.3)%
2.9%
2
0%
6.9%
2.9%
2
2%
6.8%
Executive Directors:
3
D McCreadie
4
3.0%
0.0%
(25.4)%
N/A
N/A
N/A
2.9%
4
0.0%
N/A
R Lawrence
5
3.0%
0.0%
(25.3)%
2.0%
N/A
N/A
N/A
N/A
N/A
Non-Executive Directors:
3,6
M Forsyth
2.9%
0.0%
N/A
3.0%
0.0%
N/A
2.9%
0.0%
N/A
A Berresford
2.9%
0.0%
N/A
3.0%
0.0%
N/A
2.9%
0.0%
N/A
P Myers
2.9%
0.0%
N/A
3.0%
0.0%
N/A
2.9%
N/A
N/A
V Stewart
2.9%
0.0%
N/A
3.0%
0.0%
N/A
2.9%
0.0%
N/A
F Williamson
2.9%
0.0%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Former Director:
3,6
L Neville-Rolfe
2.9%
0.0%
N/A
3.0%
0.0%
N/A
2.9%
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.
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. In 2020 David McCreadie was a Non-
Executive Director.
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 2022 which was based on the employee salary increase for 2021.
2022 CEO pay ratio
Our finalised CEO pay ratio for 2022 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
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 2022:
25th percentile
Median
75th percentile
Salary
£25,000
£33,000
£58,000
Total pay and benefits
£26,000
£36,000
£62,000
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 2022, 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 2022 that is disclosed in the above table is consistent with the pay, reward and
progression policies for the Company’s UK employees taken as a whole.
Secure Trust Bank PLC
Annual Report & Accounts 2022
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Strategic Report
Corporate Governance Report
Financial Statements
Directors’ Remuneration Report
continued
Spend on pay
The following table sets out the percentage change (from the financial year ended 31 December 2021) in dividends and the overall
expenditure on pay (as a whole across the organisation). The increase in overall expenditure on pay is driven primarily by the increased
size of Group’s workforce, as set out in Note 8 to the Financial Statements.
2022
£million
2021
£million
Change
%
Dividends, excluding special dividends, and share buybacks
8.4
11.4
(26.3)
Dividends, including special dividends, and share buybacks
8.4
11.4
(26.3)
Overall expenditure on pay¹
55.7
55.2
0.9
1. Further information can be found in Note 7 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
Former Director
L Neville-Rolfe
28 November 2018
6 months
1. Each of the Non-Executive Directors’ letter of appointment was amended in 2023 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 82.
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 2023
Details on how Secure Trust Bank intends to implement the 2023 DRP for the financial year ending 31 December 2023 are set out
as follows.
Salary
As at the date of this report David McCreadie receives an annual base salary of £669,500. Rachel Lawrence receives an annual base
salary of £420,240.
The annual salary review date is 1 April 2023, and if any increases are made to the above base salary levels these will be in line with
firm-wide employee level salary increases.
Pensions
David McCreadie and Rachel Lawrence will each receive a c.5% of base salary pension contribution, being aligned to the rate of
pensions contribution for the majority of Group employees.
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92
Secure Trust Bank PLC
Annual Report & Accounts 2022
Implementation of Directors’ Remuneration Policy for the financial year ending
31 December 2023
continued
Fees
The following table sets out the Non-Executive Director fee structure effective from 1 January 2023.
Role
2023 fee
£’000
Chairman
1
230
Non-Executive Director (basic fee)
2
75
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 2023 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 profit before tax (25%), net interest margin (10%), costs (10%), capital ratios
(10%) and risk (10%). The shared non-financial metrics will include strategic development (20%) as well as diversity and inclusion (5%).
The CEO and CFO each have a 10% weighting for personal objectives.
The Committee is able to consider corporate performance on environmental social and governance (‘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 2023 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 2023 LTIP grant, the performance metrics are 25% relative TSR (measured against
constituents of the FTSE SmallCap (excluding investment trusts)), 25% return on average equity (target range of 14% – 16%), 25% EPS
growth (target range of 3-year CAGR 20% – 30%, measured from 2022 EPS for continuing businesses) and 25% risk management.
Statement of voting at AGM
The existing DRP was approved by shareholders at the AGM in 2020. The most recent Directors’ Remuneration Report was approved
at the AGM in 2022; 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 (2020 AGM)
13,595,855
98.57
197,730
1.43
2,323,180
To receive and approve the Directors’ Remuneration Report
(2022 AGM)
12,811,078
93.70
860,993
6.3
3,162,020
Approval
This Report was approved by the Board on 29 March 2023 and signed on its behalf by:
Victoria Stewart
Chairman of the Remuneration Committee
Secure Trust Bank PLC
Annual Report & Accounts 2022
93
Strategic Report
Corporate Governance Report
Financial Statements
Proposed Directors’ Remuneration Policy
This Directors’ Remuneration Policy will be submitted to the 2023 AGM for shareholder approval.
If approved by shareholders, it will formally take effect from the date of the AGM. The Directors’
Remuneration Policy has been prepared in accordance with the regulations set out in the
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008
(as amended).
The policy will apply for three years beginning with the date of its approval unless a new policy
is presented in the interim.
Policy table for Executive Directors
The Directors’ Remuneration Policy proposed for approval by shareholders at the 2023 AGM is substantially consistent with the prior
policy approved by our shareholders at the 2020 AGM. Where any material changes from the prior policy are proposed these are
shown as indicated.
Operation
Maximum opportunity
Performance metrics
Changes from prior Remuneration Policy
Base salary
Purpose: To enable the Group to recruit and retain the services of individuals of a suitable calibre.
Salaries are usually reviewed
annually taking into account:
• underlying
Group performance;
• role, experience and
individual performance;
• competitive salary levels
and market forces; and
• pay and conditions
elsewhere in the Group.
While there is no maximum salary,
increases will normally be in line
with the typical range of salary
increases awarded (as percentage
of salary) to other employees in
the Group.
Salary increases above this level
may be awarded to take account
of individual circumstances, such
as, but not limited to:
• where an Executive Director
has had an increase
in responsibility;
• where an Executive Director
has been promoted or has had
a change in scope;
• an individual’s development
or performance in role (e.g.
to align a newly appointed
Executive Director’s salary with
the market over time); and
• where an Executive Director’s
salary is no longer market
competitive (e.g. due to an
increase in size and complexity
of the business).
Increases may be implemented
over such time period as the
Committee deems appropriate.
N/A
No material changes.
Corporate Governance Report
94
Secure Trust Bank PLC
Annual Report & Accounts 2022
Operation
Maximum opportunity
Performance metrics
Changes from prior Remuneration Policy
Benefits
Purpose: To provide benefits that will be valued by the recipient.
Executive Directors receive
benefits in line with market
practice, and these include
a car allowance, medical
insurance, life assurance
and disability insurance.
Other benefits may
be provided based on
individual circumstances.
These may include, for
example, relocation and
travel allowances.
Any reasonable business-
related expenses (including
tax thereon if determined
to be a taxable benefit)
can be reimbursed.
Whilst the Committee has not
set an absolute maximum on
the level of benefits Executive
Directors may receive, the value
of benefits is set at a level which
the Committee considers to be
appropriately positioned taking
into account relevant market
levels based on the nature
and location of the role and
individual circumstances.
N/A
No material changes.
Pension
Purpose: To provide an appropriate level of retirement benefit (or cash allowance equivalent).
Executive Directors are
eligible to participate in the
Group defined contribution
pension plan. In appropriate
circumstances, such as
where contributions exceed
the annual or lifetime
allowance, Executive
Directors may be permitted
to take a cash supplement
in lieu of contributions to a
pension plan.
Employer pension contributions
are limited to 5% of base salary.
The maximum cash supplement
in lieu of pension is 5% of
base salary.
N/A
No material changes.
Secure Trust Bank PLC
Annual Report & Accounts 2022
95
Strategic Report
Corporate Governance Report
Financial Statements
Proposed Directors’ Remuneration Policy
continued
Operation
Maximum opportunity
Performance metrics
Changes from prior Remuneration Policy
Annual bonus
Purpose: Rewards performance against targets which support the strategic direction of the Group.
Awards are based on
performance (measured
over a year) against metrics
determined by the Committee.
Pay-out levels are determined
by the Committee after
the year-end based on
performance against
those targets.
The Committee has discretion
to amend the pay-out should
any formulaic output not
reflect the Committee’s
assessment of overall
business performance.
To further link the Executive
Directors’ pay to the interests
of shareholders, Executive
Directors are required to
defer 50% of any bonus
earned into shares under
the Deferred Bonus Plan
(’DBP’). Deferred share awards
vest in equal tranches after
one, two and three years
following deferral.
Deferred share awards will
typically take the form of a
nil-cost/nominal-cost share
option but may be structured
as an alternative form of
share award.
The Committee may decide
to pay the whole of the
bonus earned in cash where
the amount to be deferred
is less than £50,000 and
would therefore, in the
opinion of the Committee,
make operation of the DBP
administratively burdensome.
Clawback provisions will apply
to annual bonus awards and
malus and clawback provisions
will apply to deferred share
awards as detailed on page 99.
The maximum annual bonus
opportunity is 100% of
base salary.
Targets are set annually
reflecting the Group’s
strategy and aligned with
key financial, strategic and/or
individual targets.
The annual bonus will
be assessed against key
financial performance
metrics of the business
and non-financial strategic/
personal objectives, in such
proportions as the Committee
considers appropriate.
Financial metrics
No more than 50% of the
maximum potential will be
paid for on-target performance
and all of the maximum
potential will be paid for
outstanding performance.
Non-financial strategic or
individual metrics
Outcomes for the non-financial
strategic or individual metrics
will apply on a scale between
0% and 100% based on the
Committee’s assessment of
the extent to which a non-
financial performance metric
has been met.
Deferred share awards are
not subject to any additional
performance metrics.
The Committee applies
a holistic overview
of performance for
annual bonuses before
confirming outcomes.
The following points have
been clarified:
• 100% of base salary is
the maximum annual
bonus opportunity under
this policy. Within the
prior policy there was
scope to pay bonuses
above 100% of salary in
exceptional cases.
• Clarified that the
Committee applies
a holistic overview
of performance for
annual bonuses before
confirming outcomes.
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Secure Trust Bank PLC
Annual Report & Accounts 2022
Operation
Maximum opportunity
Performance metrics
Changes from prior Remuneration Policy
Long Term Incentive Scheme (‘LTIP’)
Purpose: To provide an effective long-term incentive award to motivate, incentivise and assist in the retention of
the services of key individuals.
Awards will be in the form
of nil-cost/nominal-cost
share options, conditional
shares or other such form
as has the same economic
effect. Awards will be granted
with vesting dependent
on the achievement of
performance conditions
set by the Committee,
normally over a three-year
performance period.
Awards will usually be subject
to a two-year holding period
following the end of the
performance period (with
the exception that sufficient
shares may be sold to meet
income tax and National
Insurance liabilities).
Awards may be settled in
cash (or granted as a right to
a cash amount) in exceptional
circumstances at the election
of the Committee.
Malus and clawback provisions
will apply to awards as detailed
on page 99.
The maximum award is
100% of salary in respect of
a financial year.
The Committee will take into
account Company and personal
performance during the
preceding financial year when
determining the maximum award
to be granted.
Performance metrics are
selected that reflect underlying
business performance.
Performance metrics and
their weighting where there
is more than one metric
are reviewed annually to
maintain appropriateness
and relevance.
Awards will vest between 25%
and 100% for performance
between ‘threshold’
performance (the minimum
level of performance that
results in any level of vesting)
and ‘maximum’ performance.
The Committee has the
discretion to override the
formulaic out-turn of the award
if appropriate to do so to
take into account the overall
financial and operational
performance of the Company.
No material changes.
All employee share schemes
Purpose: To create alignment with the Group and promote a sense of ownership.
Executive Directors are eligible
to participate in a HMRC
tax-qualifying all-employee
Sharesave Scheme under
the same terms as other
Group employees.
Participant limits are those set
by the UK tax authorities from
time-to-time.
N/A
No material changes.
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Strategic Report
Corporate Governance Report
Financial Statements
Proposed Directors’ Remuneration Policy
continued
Operation
Maximum opportunity
Performance metrics
Changes from prior Remuneration Policy
Minimum shareholding requirements and post-cessation requirements
Purpose: To provide a continued focus on long-term sustainable value creation and to further align Executives’
and shareholders’ interests.
Executive Directors are
required to build up a
shareholding in the Company
equal to 200% of salary.
Executive Directors are
expected to retain a
proportion of the shares
vesting under the Company’s
share plans until the guideline
is met. Any LTIP performance
vested shares subject to a
holding period and any shares
awarded in connection with
annual bonus deferral will be
credited for the purpose of
the guidelines (discounted
for anticipated tax liabilities).
In addition, a post-cessation
shareholding requirement will
apply to Executive Directors
who leave the Company.
Leavers will have a requirement
to hold the share ownership
requirement or, if lower, the
level of their pre- cessation
actual shareholding for 2 years
from ceasing to work (the
earlier of commencing garden
leave or termination of service).
N/A
N/A
The period for application of
post-cessation shareholding
requirements is extended to
2 years (from one year).
The level of share ownership
guidelines are increased to
200% of salary (from 100%
of salary).
Clarified that Executive
Directors are expected
to retain shares from
share plans to attain the
guideline requirements.
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Annual Report & Accounts 2022
Application of malus and clawback
Malus:
The ability to reduce, cancel or impose further conditions on unvested awards, in the circumstances set out below.
Clawback:
The ability to cancel an award that has vested but not yet been released (in relation to an award which is subject to a
holding period) or exercised (in relation to share options), or require the repayment of some or all of an award in the circumstances set
out below.
Malus and clawback may apply in the following circumstances:
• Discovery of a material misstatement resulting in an adjustment in the audited consolidated accounts of the Company.
• The assessment of any performance target or condition in respect of an award was based on material error or materially inaccurate
or misleading information.
• The discovery that any information used to determine the DBP and/or LTIP was based on material error, or materially inaccurate or
misleading information.
• Action or conduct of an Executive Director which, in the reasonable opinion of the Board, amounts to fraud or gross misconduct.
• The Executive Director is subject to regulatory censure in respect of a material failure in control.
• The Executive Director’s service agreement is terminated for gross misconduct or the Executive Director receives a formal written
warning for gross misconduct, as defined by the Company’s disciplinary policy.
• The Company suffers a material loss arising from the Executive Director operating outside of agreed risk policy parameters,
and as such the Committee considers a material failure in risk management has occurred.
• The level of the award is not considered sustainable when assessing the overall financial viability of the Company.
• The Company has suffered corporate failure such as, although not limited to, the appointment of an administrator or a liquidator
or the Company entering into an agreement with its creditors.
• A material failure of risk management and/or regulatory non-compliance resulting in damage to the Company’s business
or reputation.
• Any other circumstances that the Board considers to have a similar nature or effect.
Malus and clawback provisions will apply over the following time periods:
Element
Malus
Clawback
Annual bonus award
To such time as payment is made.
Up to three years following payment.
Deferred bonus award
To such time as the award vests.
Tranche of award deferred for one year:
Up to two years following vesting.
Tranche of award deferred for two years:
Up to one year following vesting.
Tranche of award deferred for three years:
No clawback provisions apply.
LTIP award
To such time as the award vests.
Up to two years following vesting.
Discretions retained by the Committee in operating the LTIP and other variable pay schemes
The Committee operates the Group’s various incentive plans according to their respective rules and (where applicable) in accordance
with relevant legislation and HMRC guidance. In order to ensure efficient administration of these plans, certain operational discretions
are reserved to the Committee.
These include but are not limited to:
• determining who may participate in the plans;
• determining the timing of grants of awards and/or payments under the plans;
• determining the quantum of any awards and/or payments (within the limits set out in the policy table above);
• in exceptional circumstances, determining that a share-based award shall be settled (in full or in part) in cash;
• determining the performance measures and targets applicable to an award (in accordance with the statements made in the
section below);
• discretion to override formulaic outcomes;
• where a participant ceases to be employed by the Company, determining whether ‘good leaver’ status shall apply;
• determining the extent of vesting or payment of an award based on assessment of the performance conditions and the overall
performance of the Company, including discretion as to the basis on which performance is to be measured if an award vests in
advance of normal timetable (on cessation of employment as a ‘good leaver’ or on the occurrence of corporate events);
Secure Trust Bank PLC
Annual Report & Accounts 2022
99
Strategic Report
Corporate Governance Report
Financial Statements
Proposed Directors’ Remuneration Policy
continued
• whether, and to what extent, pro-rating shall apply in the event of cessation of employment as a ‘good leaver’ or on the occurrence
of corporate events;
• discretion to vary shareholding and post-cessation holding requirements in exceptional circumstances;
• whether malus and/or clawback shall be applied to any award and, if so, the extent to which they shall apply; or
• making appropriate adjustments to awards on account of certain events, such as major changes in the Company’s capital structure.
Explanation of performance metrics chosen
Performance metrics are selected that are aligned with the performance of the Group and the interests of shareholders.
Stretching performance targets are set each year for the annual bonus and LTIP awards. When setting these performance targets, the
Committee will take into account a number of different reference points, which may include the Group’s business plans and strategy
and the economic environment. Full vesting will only occur for what the Committee considers to be stretching performance.
The annual bonus performance targets have been selected to provide an appropriate balance between incentivising Directors to meet
financial targets for the year and achieving strategic and/or personal objectives.
Long-term performance metrics provide a robust and transparent basis on which to measure the Group’s performance over the longer-
term and provide further alignment with the business strategy.
The Committee retains the ability to adjust or set different performance metrics or targets if events occur (such as a change in
strategy, a material acquisition and/or a divestment of a Group business or a change in prevailing market conditions) which cause
the Committee to determine that the metrics are no longer appropriate and that amendment is required so that they achieve their
original purpose.
Awards and options may be adjusted in accordance with the scheme rules in the event of a variation of share capital, demerger,
delisting, special dividend or other event which may affect the Company’s share price.
Policy for the remuneration of employees more generally
Remuneration arrangements are determined throughout the Group based on the same principle that reward should be achieved for
delivery of the business strategy and should be sufficient to attract and retain high calibre talent.
Non-Executive Directors
Element and purpose
Approach of the Company
Chairman and Non-Executive
Director fees
To enable the Group to recruit
and retain Non-Executive
Directors of a suitable calibre.
Fees are normally reviewed annually.
Fees paid to Non-Executive Directors for their services are approved by the Board. Fees may include
a basic fee and additional fees for further responsibilities (for example, chairmanship and membership
of Board committees or holding the office of Senior Independent Director). Fees are based on
the level of fees paid to Non-Executive Directors serving on the board of similar-sized UK listed
companies and those in the financial services sector, as well as the time commitment and contribution
expected for the role.
Non-Executive Directors cannot participate in any of the Company’s share schemes or annual bonus
and are not eligible to join the Company’s pension scheme.
Non-Executive Directors may be eligible to receive benefits such as private medical insurance, the use
of secretarial support, travel costs or other support that may be appropriate.
Any reasonable business-related expenses (including tax thereon if determined to be a taxable
benefit) can be reimbursed.
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Secure Trust Bank PLC
Annual Report & Accounts 2022
Illustrations of application of remuneration policy
The chart below sets out for the CEO and CFO an illustration of the application for 2023 of the remuneration policy set out above.
The charts show the split of remuneration between fixed pay, annual bonus (including amounts deferred under the DBP) and LTIP
on the basis of minimum remuneration, remuneration receivable for performance in line with the Company’s expectations, maximum
remuneration (not allowing for any share price appreciation) and maximum remuneration (allowing for 50% share price appreciation
on the LTIP award). Amounts shown are in £ thousands.
335
704
167
£2,378
Maximum
Maximum
plus
On target
704
704
670
670
670
670
335
£2,043
Minimum
704
£704
£500
£750
£250
£0
£1,000 £1,250 £1,500 £1,750 £2,000 £2,250 £2,500 £2,750
£1,206
Total Fixed
Share option
Share price growth
Bonus
CEO
£'000
210
463
105
£1,514
Maximum
Maximum
plus
On target
463
463
420
420
420
420 210
£1,304
Minimum
463
£463
£500
£750
£250
£0
£1,000 £1,250 £1,500 £1,750 £2,000 £2,250 £2,500 £2,750
£778
Total Fixed
Share option
Share price growth
Bonus
CFO
£'000
In illustrating the above potential reward, the following assumptions have been made:
Scenario
Description
Assumptions
Minimum performance
Minimum remuneration receivable.
Fixed elements of remuneration only – salary
as at 1 January 2023, benefits and pension.
No payments under incentive plans.
Target performance
Remuneration receivable for achieving
performance in line with expectations.
Fixed elements of remuneration (as above).
50% of maximum annual bonus earned.
25% of maximum LTIP award vesting.
Maximum performance
Remuneration receivable for achieving
performance in excess of the maximum
performance targets.
Fixed elements of remuneration (as above).
100% of maximum annual bonus earned.
100% of maximum LTIP award vesting.
Maximum performance including
share price growth
Remuneration receivable at maximum
performance, plus 50% share price growth
on the LTIP vesting value.
Fixed elements of remuneration (as above).
100% of maximum annual bonus earned.
100% of maximum LTIP award vesting plus
50% share price growth.
Recruitment remuneration
The policy aims to facilitate the appointment of individuals of a suitable calibre. When appointing a new Executive Director,
the Committee seeks to ensure that arrangements are in the best interests of the Group and not to pay more than is appropriate.
The Committee will take into consideration a number of relevant factors, which may include the calibre of the individual, the
candidate’s existing remuneration package, and the specific circumstances of the individual including the jurisdiction from which
the candidate was recruited.
When hiring a new Executive Director, the Committee will typically align the remuneration package with the above policy.
Secure Trust Bank PLC
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Corporate Governance Report
Financial Statements
Proposed Directors’ Remuneration Policy
continued
The Committee may include other elements of pay which it considers are appropriate, however, this discretion is capped and is subject
to the principles and the limits referred to below:
• Base salary will be set at a level appropriate to the role and the experience of the Executive Director being appointed. This may
include agreement on future increases up to a market rate, in line with increased experience and/or responsibilities, subject to good
performance, where it is considered appropriate.
• Pension and benefits will be provided in line with the above policy.
• The Committee will not offer non-performance related incentive payments (for example a ‘guaranteed sign-on bonus’).
• Other elements may be included in the following circumstances:
– an interim appointment being made to fill an Executive Director role on a short-term basis;
– if exceptional circumstances require that the Chairman or a Non-Executive Director takes on an executive function on a short-
term basis;
– if an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long-term incentive
award for that year as there would not be sufficient time to assess performance. Subject to the limit on variable remuneration set
out below, the quantum in respect of the months employed during the year may be transferred to the subsequent year so that
reward is provided on a fair and appropriate basis; and
– if the Executive Director will be required to relocate in order to take up the position, it is the Company’s policy to allow reasonable
relocation, travel and subsistence payments. Any such payments will be at the discretion of the Committee.
• The Committee may also alter the performance metrics, performance period and vesting period of the annual bonus, DBP or LTIP, if
the Committee determines that the circumstances of the recruitment merit such alteration. The rationale will be clearly explained in
the following Directors’ Remuneration Report.
• The maximum level of variable remuneration which may be granted (excluding ‘buy out’ awards as referred to below) will be within
the maximum limits set out in the policy table.
Any share awards referred to in this section will be granted as far as possible under the Company’s existing share plans.
If necessary, and subject to the limits referred to above, recruitment awards may be granted outside of these plans as permitted under
the Listing Rules which allow for the grant of awards to facilitate, in unusual circumstances, the recruitment of an Executive Director.
The Committee may make payments or awards in respect of hiring an employee to ‘buy out’ remuneration arrangements forfeited on
leaving a previous employer. In doing so the Committee will take account of relevant factors including any performance conditions
attached to the forfeited arrangements and the time over which they would have vested.
The Committee will generally seek to structure buyout awards or payments on a like-for-like basis to the remuneration arrangements
forfeited. Any such payments or awards are limited to the expected value of the forfeited awards. Where considered appropriate, such
special buy-out awards will be liable to forfeiture or ‘malus’ and/or ‘clawback’ on early departure.
Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to
continue according to the original terms.
Fees payable to a newly appointed Chairman or Non-Executive Director will be in line with the fee policy in place at the time
of appointment.
Service agreements and letters of appointment
Executive Directors’ service agreements are on a rolling basis and may be terminated on 12 months’ notice by the Company or the
Executive Director. Service agreements for new Executive Directors will generally be limited to 12 months’ notice by the Company.
All Non-Executive Directors’ letters of appointment are on a rolling basis and may be terminated on six months’ notice by the
Company or the Non-Executive Directors. All Non-Executive Directors are subject to re-election at intervals of not more than
three years.
Details of the Directors’ service agreements, letters of appointment and notice period are set out on page 92.
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Secure Trust Bank PLC
Annual Report & Accounts 2022
Payments for loss of office
The principles on which the determination of payments for loss of office will be approached are set out below:
Scenario
Description
Payment in lieu of notice
The Company has discretion to make a payment in lieu of notice to Executive Directors and Non-
Executive Directors. Such a payment would include base salary or fees for the unexpired period
of notice.
Annual bonus
This will be at the discretion of the Committee on an individual basis and the decision as to whether
or not to award an annual bonus award in full or in part will be dependent on a number of factors,
including the circumstances of the individual’s departure and their contribution to the business during
the annual bonus period in question. Any annual bonus award amounts paid will be paid only to
individuals considered to be a ‘good leaver’ and will be pro-rated for time in service during the annual
bonus period and will, subject to performance, normally be paid at the usual time (although the
Committee retains discretion to pay the annual bonus award earlier in appropriate circumstances).
Any annual bonus earned for the year of departure and, if relevant, for the prior year may be paid
wholly in cash at the discretion of the Committee.
Deferred Bonus Plan
The extent to which any unvested award will vest will be determined in accordance with the rules of
the DBP.
Unvested awards will normally lapse on cessation of employment. However, if a participant leaves
due to death, ill-health, injury, disability, the sale of his employer or any other reason at the discretion
of the Committee, the award will vest at the normal vesting date other than in the case of death
where vesting shall be accelerated or in the other cases only exceptionally at the discretion of the
Committee. In either case, the extent of vesting will be determined by the Committee, taking into
account, unless the Committee determines otherwise, the period of time elapsed from the date of
grant to the date of cessation relative to the deferral period.
Awards in the form of nil-cost or nominal-cost share options may then be exercised during such
period as the Committee determines.
Awards in the form of nil-cost or nominal-cost share options which have vested and been released
but remain unexercised at the date of cessation may be exercised if a participant leaves for any
reason (other than summary dismissal). Awards may then be exercised for such period as the
Committee determines.
LTIP
The extent to which any unvested award will vest will be determined in accordance with the rules of
the LTIP.
Unvested awards will normally lapse on cessation of employment. However, if a participant leaves
due to death, ill-health, injury, disability, the sale of his employer or any other reason at the discretion
of the Committee, the award will vest at the normal vesting date other than in the case of death
where vesting shall be accelerated or in the other cases only exceptionally at the discretion of the
Committee. In either case, the extent of vesting will be determined by the Committee taking into
account the extent to which the performance condition is satisfied and, unless the Committee
determines otherwise, the period of time elapsed from the date of grant to the date of cessation
relative to the performance period. Awards in the form of nil-cost or nominal- cost share options may
then be exercised during such period as the Committee determines.
If a participant leaves for any reason (other than summary dismissal) after an award has vested but
before it has been released (i.e. during a ‘holding period’), his award will ordinarily continue until the
normal release date when it will be released. The Committee retains the discretion to release awards
when the participant leaves. The Committee will normally align continuing holding periods after
termination with the two year period after termination for share ownership guidelines.
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Corporate Governance Report
Financial Statements
Proposed Directors’ Remuneration Policy
continued
Scenario
Description
Change of control
The extent to which unvested awards under the DBP and LTIP will vest will be determined in
accordance with the rules of the relevant plan.
Awards under the DBP may vest in full in the event of a takeover, merger or other relevant corporate
event unless the Board determines the award will be subject to roll-over.
Awards under the LTIP may vest early on a takeover, merger or other relevant corporate event unless
the Board determines the award will be subject to roll-over. The Committee will determine the level of
vesting taking into account the extent to which the performance condition is satisfied and, unless the
Committee determines otherwise, the period of time elapsed from the date of grant to the date of
the relevant corporate event relative to the performance period.
Mitigation
Termination payments may be reduced where the Executive Director commences alternative
employment during the notice period.
Other payments
Payments may be made either in the event of a loss of office or a change of control under the
Sharesave Scheme, which is governed by its rules and the legislation relating to such tax-qualifying
plans. There is no discretionary treatment for leavers or on a change of control under these plans.
In appropriate circumstances, payments may also be made in respect of accrued holiday,
outplacement and legal fees.
Where a buy-out award is made under the Listing Rules then the leaver provisions would be determined at the time of the award.
The Committee reserves the right to make additional exit payments where such payments are made in good faith in the discharge
of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any
claim arising in connection with the termination of a Director’s office or employment. Contributions may be made to legal fees or for
outplacement support.
Where the Committee retains discretion it will be used to provide flexibility in certain situations, taking into account the particular
circumstances of the Director’s departure and performance.
There is no entitlement to any compensation in the event of a Non-Executive Director’s fixed-term agreements not being renewed or
the agreement terminating earlier with the exception of a payment in lieu of notice as detailed in the table on page 103.
Consideration of employment conditions elsewhere in the Company
The Committee considers the general basic salary increase, remuneration arrangements and employment conditions for the broader
employee population when determining remuneration policy for the Executive Directors.
Shareholder views
The Committee is committed to an ongoing dialogue with shareholders and welcomes feedback on Executive and Non-Executive
Directors’ remuneration. Should any significant changes be proposed to the policy going forward, the Company will engage with its
shareholders to seek their views.
Existing remuneration arrangements
The Committee retains the discretion to make any remuneration payment or payment for loss of office outside the policy in this report:
• where the terms of the payment were agreed before the policy came into effect; and/or
• where the terms of the payment were agreed at a time when the relevant individual was not a Director of the Company, and in the
opinion of the Committee, the payment was not in consideration of the individual becoming a Director of the Company.
For these purposes, ‘payment’ includes the satisfaction of awards of variable remuneration, and in relation to an award involving shares
the terms of the payment are agreed at the time the award is granted.
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Secure Trust Bank PLC
Annual Report & Accounts 2022
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 2022.
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 2 to 59
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 5 to 24
Describes the principal activity as a bank (including deposit
taking and secured and unsecured lending).
Key performance indicators
Pages 2 to 3
Principal risks
Pages 25 to 34
Corporate Governance Report
Pages 60 to 109
Contains information about the Group’s corporate
governance arrangements.
Statement of compliance with UK
Corporate Governance Code in respect
of the year
Page 64
Results
Pages 12 to 17
The Group made a total profit before tax of £44.0 million
(2021: £56.0 million).
For the purposes of DTR 4.1.5R2 and DTR 4.1.8 this Directors’
report and the Strategic report on pages 2 to 59 comprise the
management report.
Share capital
Note 34, Page 166
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 34, Page 166
In accordance with LR 9.8.4R
Share plans
Note 36, Pages 166
to 170
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 80 to 104 and
Note 36, Pages 167
to 168
In accordance with LR 9.8.4R
Directors in office during the year
Pages 61 to 63
Baroness Neville-Rolfe stepped down from the Board on
21 September 2022. All Directors will be retiring and standing for
either election or re-election at the Annual General Meeting to be
held on 18 May 2023.
Directors’ interests in share capital
Pages 80 to 93
Including connected persons.
Related party transactions
Note 44, Pages 179
to 180
Going concern and viability
Pages 35 to 36
Future developments
Page 11
Financial risk management
objectives and policies
Page 25
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 50 to 59
Required under the Companies Act 2006 (Strategic Report and
Directors’ Report) Regulation 2013 and LR 9.8.6R.
Directors’ report
Secure Trust Bank PLC
Annual Report & Accounts 2022
105
Strategic Report
Corporate Governance Report
Financial Statements
Directors’ report
continued
Item
Page/Note reference
Further detail
Engagement with Stakeholders
Pages 40 to 49
Relevant information related to s.172 of the Companies Act
2006, Companies (Miscellaneous Reporting) Regulations 2018.
TCFD Disclosures
Pages 50 to 59
Explains how we have complied and details any non-compliance
under Taskforce on Climate-Related Financial Disclosures
(‘TCFD’).
Dividends
The Board recommends the payment of a final dividend of 29.1 pence per share which represents total dividends for the year of 45.1
pence per share (2021: 61.1pence per share). The final dividend, if approved by shareholders at the Annual General Meeting, will be
paid on 25 May 2023 to shareholders on the register at the close of business on 28 April 2023.
Dividend Policy
The Board has adopted a dividend policy which takes into account the Company’s capital requirements, earnings and cash flow in the
long-term balanced with an intention that the Company will distribute 25% of its annual earnings by way of dividend.
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
2022 the Company had 18,691,434 ordinary shares in issue. Each ordinary share entitles the holder to one vote.
An additional 43,629 ordinary shares of 40 pence each were issued during 2022 (2021: 14,143) subsequent to requests to exercise
under STB’s employee share schemes and as authorised by shareholders at the 2022 AGM. Since 1 January 2023 and until the date of
the report, a further 6,414 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.
The powers of the Directors, including in relation to the issue or buyback of the Company’s shares are set out in the Companies Act
2006 and the Company’s Articles of Association. Shareholders will be asked to grant authority to the Directors to issue and allot shares
at the 2022 Annual General Meeting.
Under section 551 of the Companies Act 2006, the Directors may allot equity securities only with the express authorisation of
shareholders which may be given in General Meeting, but which cannot last more than five years.
Under section 561 of the Companies Act 2006, the Board may also not allot shares for cash (otherwise than pursuant to an employee
share scheme) without first making an offer to existing shareholders to allot such shares to them on the same or more favourable terms
in proportion to their respective shareholdings, unless this requirement is waived by special resolution of the shareholders.
Resolutions permitting such actions will be proposed at the 2023 Annual General Meeting. Details of the resolutions for such authority
are included in the Notice of the 2023 Annual General Meeting and in the related explanatory notes.
The Notice of the 2023 Annual General Meeting also includes resolutions specifically relating to the issue of shares associated with an
issue of Additional Tier 1 Securities. These resolutions are in a similar form to the resolutions proposed and passed at the 2022 AGM.
Under section 701 of the Companies Act 2006 a company may make a market purchase of its own shares if the purchase has first been
authorised by a resolution of the company.
The Company did not repurchase any of the issued ordinary shares during the year or up to the date of this report, although it was
granted authority to do so by shareholders at the 2022 Annual General Meeting on 12 May 2022. That authority expires on 12 August
2023 or, if earlier, the conclusion of the 2023 Annual General Meeting.
At the 2023 Annual General Meeting a special resolution will be proposed authorising the Company to make market purchases of
ordinary shares within the limits set out in the resolution.
The resolution is in a similar form to that proposed at the 2022 Annual General Meeting. The Directors have no present intention of
exercising the authority granted by the resolution but regard it as a useful tool to have available.
On a show of hands, each member has the right to one vote at General Meetings of the Company. On a poll, each member is entitled
to one vote for every share held. The shares carry no rights to fixed income. No person has any special rights of control over the
Company’s share capital and all issued shares are fully paid. Voting at the 2023 AGM will be conducted on a poll.
There are no specific restrictions on the transfer of the shares in the Company which are governed by the general provisions of the
Articles of Association and prevailing legislation.
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Secure Trust Bank PLC
Annual Report & Accounts 2022
Substantial shareholders
In accordance with Disclosure and Transparency Rules DTR5, the Company as at 29 March 2023 (being the latest practicable date
before publication of this report), has been notified of disclosable interests in its issued ordinary shares as set out in the table below.
Substantial shareholders
No. of ordinary shares
%
Columbia Threadneedle Investments
2,889,838
15.46
Fidelity International
1,853,050
9.91
Wellington Management
1,779,515
9.52
Mr. Steven Cohen
1,510,412
8.08
Invesco
1,324,818
7.09
Unicorn Asset Management
1,091,156
5.84
Premier Miton Investors
1,039,988
5.56
Ennismore Fund Management
960,757
5.14
Powers of Directors
The Directors’ powers are conferred on them by UK legislation and by the Company’s Articles of Association.
Appointment and retirement of Directors
The appointment and retirement of the Directors is governed by the Company’s Articles of Association, the UK Corporate Governance
Code and the Companies Act 2006. Further details can be found in the explanatory notes included in the Notice of 2023 Annual
General Meeting.
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 2022.
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 which 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.
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.
Secure Trust Bank PLC
Annual Report & Accounts 2022
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Strategic Report
Corporate Governance Report
Financial Statements
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 43.
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 (2021: £nil).
Post balance sheet events
For details of non-adjusting post balance sheet events see Note 47 to the Financial Statements on page 180.
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 the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules.
Auditor
Deloitte LLP was reappointed as Auditor at the Annual General Meeting held in 2022. As detailed on page 73 in the Audit Committee
report, the Board is recommending the reappointment of Deloitte LLP as Auditor at the 2023 Annual General Meeting.
Annual General Meeting
The 2023 Annual General Meeting will be held at 3 pm on 18 May 2023 at the office of Simmons & Simmons LLP, CityPoint, 1
Ropemaker Street, London EC2Y 9SS. For more information, please see the Notice of Meeting.
By order of the Board.
M P D Stevens
Company Secretary
Directors’ report
continued
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Directors’ responsibility statement
The Directors are responsible for preparing the Annual Report and the Financial Statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors are required
to prepare the Group Financial statements in accordance with 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 61 to 63 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 29 March and is signed on its behalf by:
Lord Forsyth
David McCreadie
Chairman
Chief Executive Officer
29 March 2023
29 March 2023
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Independent Auditor’s report
to the members of Secure Trust Bank PLC
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 2022 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 47.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law, United
Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial reporting framework that has
been applied in the preparation of the Company financial statements is applicable law and United Kingdom adopted international
accounting standards and as applied in accordance with the provisions of the Companies Act 2006.
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 7 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 matter that we identified in the current year was:
• Impairment of loans and advances to customers.
Within this report, key audit matters are identified as follows:
Similar level of risk
Materiality
The materiality that we used for the Group Financial Statements and Company Financial Statements was £2.4 million
(2021: £2.3 million) and £2.3 million (2021: £2.2 million) respectively. This was determined using 0.75% of net assets.
Scoping
We have performed a full scope audit on the Company and V12 Retail Finance Limited with the remaining entities subject to
testing of specific account balances.
Significant changes
in our approach
The Debt Managers (Services) Limited (‘DMS’) debt collection portfolio was sold in May 2022.Therefore we no longer identify a
key audit matter relating to the valuation of purchased debt.
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:
• Evaluated the going concern assessment, to understand the key judgements;
• Obtained 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, and
evidence any changes to those requirements;
• 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;
• 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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Financial Statements
Independent Auditor’s report
continued
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 £78.0 million (2021: £67.5 million) against loans
and advances to customers of £2,997.5 million (2021: £2,598.1 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, loss given default (‘LGD’) including
collateral valuations, significant increases in credit risk (‘SICR’) and macroeconomic scenario modelling. These assumptions are
informed using historical behaviour and the Director’s experience.
The uncertain economic environment continues to increase the complexity in estimating ECLs, particularly with regards to
determining appropriate forward-looking macroeconomic scenarios and the requirement for post model expert credit judgements
(‘ECJs’). The ECL provision requires the Director’s to make significant judgements and estimates. We therefore consider this to be
a key audit matter due to the risk of fraud or error in respect of the Group’s allowance for impairment.
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 valuation of model adjustments and post model ECJs applied to the consumer lending portfolios;
• The accuracy of the macroeconomic scenarios applied to the consumer and Real Estate Finance (‘REF’) lending portfolios; and
• The accuracy of the vehicle recovery rate component of the LGD applied in the Vehicle Finance lending portfolio.
In the prior year, our key audit matter in respect of the impairment of loans and advances to customers also included the impact of
cure rates on the Vehicle Finance LGD. This is no longer considered a key audit matter given the reduced estimation uncertainty
associated with this assumption and its sensitivity to reasonably possible changes.
Impairment of loans and advances to customers, including associated accounting policies is included in Note 17 of the Financial
Statements. The corresponding area in the Audit Committee report is on page 72.
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How the scope
of our audit
responded to the
key audit matter
We obtained 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 consumer portfolio model adjustments and ECJs we:
• Assessed the rationale for the model adjustments and ECJs applied;
• With the involvement of credit risk specialists, we assessed and tested the methodology applied, including the mechanical
accuracy of model adjustments and ECJ calculations; and
• Tested the completeness and accuracy of the data used in deriving these adjustments and ECJs.
For the macroeconomic scenarios we:
• With engagement of our economic specialist, assessed the scenarios and weightings provided by the external economic
provider and adopted by the Directors;
• Compared the appropriateness of selected macroeconomic variables and weightings to those used by peer lenders; and
• Evaluated the competence, capabilities and objectivity of the external economic provider.
For the Vehicle Finance LGD we:
• Assessed both the historical and forecast data used to support the vehicle recovery rate, including completeness and accuracy;
and
• Considered how the forecast rate may be impacted by both internal and external factors.
As part of our wider assessment of impairment of loans and advances to customers we:
• Tested the source data and report logic used to extract source data from the underlying lending systems for input into the
impairment models;
• With engagement of our real estate valuation specialists, assessed a sample of collateral valuations used in the LGD calculation
for the REF 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 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 were determined and applied appropriately and the recognised provision was reasonable.
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Financial Statements
Independent Auditor’s report
continued
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
£2.4 million (2021: £2.3 million)
£2.3 million (2021: £2.2 million)
Basis for determining
materiality
0.75% of net assets (2021: 0.75% of net assets)
0.75% of net assets (2021: 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
£2.3 million
Audit Committee
reporting threshold
£0.1 million
Group materiality
£2.4 million
Net assets
£326.9 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% (2021: 70%) of Group materiality
70% (2021: 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 controls reliance obtained; our understanding of the
business; and the number of 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
(2021: £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 and V12 Retail Finance Limited. 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 and
executed at levels of materiality applicable to each individual entity. We have also performed testing over the consolidation process of
Group entities.
7.2. Our consideration of the control environment
We identified key 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, 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, except for the Vehicle
Finance prime lending book. The Vehicle Finance prime lending book is on a different system to the remainder of the Vehicle Finance
book, and due to its relative size, we concluded that the most appropriate audit approach was a non-controls reliance approach.
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 50 to 59 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.
This has been identified through assessing disclosures in the Annual Report, and challenging the consistency between the Financial
Statements and the remainder of the Annual Report.
As set out in Note 17, 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.
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Independent Auditor’s report
continued
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, 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/
auditors responsibilities. 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;
• 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, climate risk, 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 Financial Conduct Authority (‘FCA’) and by the 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.
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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.
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 46 to the Financial Statements for the financial year ended 31 December 2022 has
been properly prepared, in all material respects, in accordance with the Capital Requirements (Country-by Country Reporting)
Regulations 2013.
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Independent Auditor’s report
continued
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 35 and 36;
• 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 35 and 36;
• the Directors’ statement on fair, balanced and understandable set out on page 108;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages
25 to 34;
• the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set
out on page 66; and
• the section describing the work of the Audit Committee set out on pages 70 to 74.
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.
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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.
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 five years, covering the years ending 31 December 2018
to 31 December 2022.
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 Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these Financial Statements form part of the
European Single Electronic Format (ESEF) prepared Annual Report and Accounts filed on the National Storage Mechanism of the
UK FCA in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This Auditor’s report provides no assurance over
whether the Annual Report and Accounts has been prepared using the single electronic format specified in the ESEF RTS.
Matthew Perkins FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
29 March 2023
Secure Trust Bank PLC
Annual Report & Accounts 2022
119
Strategic Report
Corporate Governance Report
Financial Statements
Note
2022
£million
Restated
¹
2021
£million
Income statement
Continuing operations
Interest income and similar income
4.1
Interest expense and similar charges
4.1
(50.4 )
(27.7 )
Net interest income
4.1
Fee and commission income
4.2
Fee and commission expense
4.2
(0.4 )
(0.6 )
Net fee and commission income
4.2
Operating income
Net impairment charge on loans and advances to customers
17
(38.2 )
(5.0 )
Gains on modification of financial assets
5
Fair value losses on financial instruments
6
(0.3 )
(0.1 )
Operating expenses
7
(93.2 )
(89.4 )
Profit before income tax from continuing operations
Income tax expense
9
(9.4 )
(10.4 )
Profit for the year from continuing operations
Discontinued operations
Profit before income tax from discontinued operations
10
Income tax expense
10
(0.9 )
Profit for the year from discontinued operations
10
Profit for the year
Other comprehensive income
Items that will not be reclassified to the income statement
Revaluation reserve movements
Taxation
(0.1 )
Items that will be reclassified to the income statement
Cash flow hedge reserve movements
(0.8 )
(0.4 )
Reclassification to the income statement
Taxation
(0.5 )
(0.3 )
Other comprehensive income for the year, net of income tax
(0.2 )
Total comprehensive income for the year
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 the disclosure of discontinued operations. See Note 10 for further details.
Consolidated statement of comprehensive income
For the year ended 31 December
The Notes on pages 127 to 180 are an integral part of these consolidated financial statements.
Financial Statements
120
Secure Trust Bank PLC
Annual Report & Accounts 2022
Consolidated statement of financial position
As at 31 December
Note
2022
£million
2021
£million
ASSETS
Cash and Bank of England reserve account
Loans and advances to banks
13
Debt securities
14
Loans and advances to customers
15,16
Fair value adjustment for portfolio hedged risk
18
(32.0 )
(3.5 )
Derivative financial instruments
18
Assets held for sale
19
Investment property
20
Property, plant and equipment
21
Right-of-use assets
22
Intangible assets
23
Current tax assets
Deferred tax assets
25
Other assets
26
Total assets
LIABILITIES AND EQUITY
Liabilities
Due to banks
27
Deposits from customers
28
Fair value adjustment for portfolio hedged risk
18
(23.0 )
(5.3 )
Derivative financial instruments
18
Liabilities directly associated with assets held for sale
19
Current tax liabilities
Lease liabilities
29
Other liabilities
30
Provisions for liabilities and charges
31
Subordinated liabilities
32
Total liabilities
Equity attributable to owners of the parent
Share capital
34
Share premium
Other reserves
35
(0.3 )
Retained earnings
Total equity
Total liabilities and equity
behalf by:
Lord Forsyth
David McCreadie
Chairman
The Notes on pages 127 to 180 are an integral part of these consolidated financial statements.
Secure Trust Bank PLC
Annual Report & Accounts 2022
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Strategic Report
Corporate Governance Report
Financial Statements
Company statement of financial position
As at 31 December
Note
2022
£million
2021
£million
ASSETS
Cash and Bank of England reserve account
370.1
235.7
Loans and advances to banks
13
48.9
47.4
Debt securities
14
–
25.0
Loans and advances to customers
15,16
2,919.5
2,450.3
Fair value adjustment for portfolio hedged risk
18
(32.0)
(3.5)
Derivative financial instruments
18
34.9
3.8
Investment property
20
1.0
5.7
Property, plant and equipment
21
4.7
3.7
Right-of-use assets
22
1.3
1.5
Intangible assets
23
4.4
5.4
Investments in group undertakings
24
5.7
4.3
Current tax assets
–
1.5
Deferred tax assets
25
5.3
6.8
Other assets
26
15.1
99.8
Total assets
3,378.9
2,887.4
LIABILITIES AND EQUITY
Liabilities
Due to banks
27
400.5
390.8
Deposits from customers
28
2,514.6
2,103.2
Fair value adjustment for portfolio hedged risk
18
(23.0)
(5.3)
Derivative financial instruments
18
26.7
6.2
Current tax liabilities
0.6
–
Lease liabilities
29
1.9
2.3
Other liabilities
30
85.9
43.8
Provisions for liabilities and charges
31
2.0
1.3
Subordinated liabilities
32
51.1
50.9
Total liabilities
3,060.3
2,593.2
Equity attributable to owners of the parent
Share capital
34
7.5
7.5
Share premium
82.2
82.2
Other reserves
35
(1.1)
0.4
Retained earnings
230.0
204.1
Total equity
318.6
294.2
Total liabilities and equity
3,378.9
2,887.4
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent company income
statement. The profit for the parent company for the year of £33.8 million is presented in the Company statement of changes in equity.
The financial statements on pages 120 to 180 were approved by the Board of Directors on 29 March 2023 and were signed on its
behalf by:
Lord Forsyth
David McCreadie
Chairman
Chief Executive Officer
Registered number: 00541132
The Notes on pages 127 to 180 are an integral part of these consolidated financial statements.
Financial Statements
122
Secure Trust Bank PLC
Annual Report & Accounts 2022
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 2021
Total comprehensive income for the year
Profit for 2021
Other comprehensive income, net of income tax
Cash flow hedge reserve movements
(0.4 )
(0.4 )
Tax on cash flow hedge reserve movements
Revaluation during the year
Tax on revaluation reserve movements
(0.1 )
(0.1 )
Total other comprehensive income
(0.3 )
Total comprehensive income for the year
(0.3 )
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends
(11.9 )
(11.9 )
Share-based payments
Total contributions by and distributions to owners
(10.9 )
(10.9 )
Balance at 31 December 2021
(0.3 )
Total comprehensive income for the year
Profit for 2022
Other comprehensive income, net of income tax
Cash flow hedge reserve movements
(0.7 )
(0.7 )
Tax on cash flow hedge reserve movements
Revaluation during the year
Revaluation transfer
(0.8 )
Tax on revaluation reserve movements
Total other comprehensive income
(0.5 )
(0.5 )
(0.2 )
Total comprehensive income for the year
(0.5 )
(0.5 )
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Purchase of own shares
(0.3 )
(0.3 )
Dividends
(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 )
The Notes on pages 127 to 180 are an integral part of these consolidated financial statements.
Secure Trust Bank PLC
Annual Report & Accounts 2022
123
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Corporate Governance Report
Financial Statements
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 2021
7.5
82.2
–
0.7
169.2
259.6
Total comprehensive income for the year
Profit for 2021
–
–
–
–
–
45.8
45.8
Other comprehensive income, net of income tax
Cash flow hedge reserve movements
–
–
(0.4)
–
–
–
(0.4)
Tax on cash flow hedges reserve movements
–
–
0.1
–
–
–
0.1
Total other comprehensive income
–
–
(0.3)
–
–
–
(0.3)
Total comprehensive income for the year
–
–
(0.3)
–
–
45.8
45.5
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends
–
–
–
–
–
(11.9)
(11.9)
Share-based payments
–
–
–
–
–
1.0
1.0
Total contributions by and distributions to owners
–
–
–
–
–
(10.9)
(10.9)
Balance at 31 December 2021
7.5
82.2
(0.3)
0.7
–
204.1
294.2
Total comprehensive income for the year
Profit for 2022
–
–
–
–
–
33.8
33.8
Other comprehensive income, net of income tax
Cash flow hedge reserve movements
–
–
(0.7)
–
–
–
(0.7)
Tax on cash flow hedge reserve movements
–
–
0.2
–
–
–
0.2
Revaluation transfer
–
–
–
(0.8)
–
0.8
–
Tax on revaluation reserve movements
–
–
–
0.1
–
–
0.1
Total other comprehensive income
–
–
(0.5)
(0.7)
–
0.8
(0.4)
Total comprehensive income for the year
–
–
(0.5)
(0.7)
–
34.6
33.4
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Own shares
–
–
–
–
(0.3)
–
(0.3)
Dividends
–
–
–
–
–
(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)
230.0
318.6
The Notes on pages 127 to 180 are an integral part of these consolidated financial statements.
Financial Statements
124
Secure Trust Bank PLC
Annual Report & Accounts 2022
Consolidated statement of cash flows
For the year ended 31 December
Note
2022
£million
Restated
¹
2021
£million
Cash flows from operating activities
Profit for the year
Adjustments for:
Income tax expense
9
Depreciation of property, plant and equipment
21
Depreciation of right-of-use assets
22
Amortisation of intangible assets
23
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
36
Revaluation gain
20,21,22
(0.4 )
(Gain)/loss on disposal of loan books
10
(8.9 )
Other non-cash items included in profit before tax
(1.1 )
Cash flows from operating profits before changes in operating assets and liabilities
Changes in operating assets and liabilities:
– loans and advances to customers
(497.1 )
(238.4 )
– loans and advances to banks
(1.9 )
– other assets
(1.5 )
– deposits from customers
– provisions for liabilities and charges
(1.1 )
(0.7 )
– other liabilities
(24.4 )
Income tax paid
(7.0 )
(12.6 )
Net cash inflow/(outflow) from operating activities
(96.4 )
Cash flows from investing activities
Consideration on sale of loan books
10
Sale of investment property
20
Maturity and sales of debt securities
Purchase of debt securities
(80.0 )
(90.0 )
Purchase of property, plant and equipment and intangible assets
21, 23
(2.7 )
(1.3 )
Net cash inflow from investing activities
Cash flows from financing activities
Drawdown of amounts due to banks
Purchase of own shares
35
(0.3 )
Dividends paid
12
(10.7 )
(11.9 )
Repayment of lease liabilities
29
(1.0 )
(0.9 )
Net cash (outflow)/inflow from financing activities
(5.0 )
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
37
1. Cash and cash equivalents in the prior year have been restated from £303.0 million to £306.7 million. See Note 1.3 for further details.
The Notes on pages 127 to 180 are an integral part of these consolidated financial statements.
Secure Trust Bank PLC
Annual Report & Accounts 2022
125
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Corporate Governance Report
Financial Statements
Company statement of cash flows
For the year ended 31 December
Note
2022
£million
Restated¹
2021
£million
Cash flows from operating activities
Profit for the year
33.8
45.8
Adjustments for:
Income tax expense
6.9
9.5
Depreciation of property, plant and equipment
21
0.7
0.8
Depreciation of right-of-use assets
22
0.4
0.5
Amortisation of intangible assets
23
1.1
1.2
Impairment charge on loans and advances to customers
37.8
2.7
Share-based compensation
36
1.6
0.8
Revaluation gain
20,21,22
–
(0.4)
Dividends received from subsidiaries
(14.0)
(4.8)
Loss on disposal of loan books
10
–
1.4
Other non-cash items included in profit before tax
1.1
(1.0)
Cash flows from operating profits before changes in operating assets and liabilities
69.4
56.5
Changes in operating assets and liabilities:
– loans and advances to customers
(505.7)
(244.1)
– loans and advances to banks
0.6
(1.9)
– other assets
26
98.7
11.7
– deposits from customers
411.4
110.7
– provisions for liabilities and charges
(1.1)
(0.8)
– other liabilities
44.0
(19.4)
Income tax paid
(3.0)
(11.1)
Net cash inflow/(outflow) from operating activities
114.3
(98.4)
Cash flows from investing activities
Consideration on sale of loan books
10
–
60.4
Sale of investment property
20
3.3
–
Purchase of subsidiary undertaking
(1.0)
–
Maturity and sales of debt securities
80.0
90.0
Purchase of debt securities
(80.0)
(90.0)
Purchase of property, plant and equipment and intangible assets
21, 23
(0.4)
(0.8)
Net cash inflow from investing activities
1.9
59.6
Cash flows from financing activities
Drawdown of amounts due to banks
7.0
114.4
Purchase of own shares
35
(0.3)
–
Dividends paid
12
(10.7)
(11.9)
Repayment of lease liabilities
29
(0.7)
(0.7)
Net cash (outflow)/inflow from financing activities
(4.7)
101.8
Net increase in cash and cash equivalents
111.5
63.0
Cash and cash equivalents at 1 January
303.8
240.8
Cash and cash equivalents at 31 December
37
415.3
303.8
1. Cash and cash equivalents in the prior year have been restated from £300.1 million to £303.8 million. See Note 1.3 for further details.
The Notes on pages 127 to 180 are an integral part of these consolidated financial statements.
Financial Statements
126
Secure Trust Bank PLC
Annual Report & Accounts 2022
1. Accounting policies
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 financial statements. These policies have been consistently applied to all 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 One Arleston Way, Shirley, Solihull, West Midlands B90 4LH. The consolidated financial
statements of the Company as at and for the year ended 31 December 2022 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
1.2. Basis of presentation
The Group’s consolidated financial statements and the Company’s financial statements have been prepared in accordance with
UK adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006 and UK adopted
(‘IFRSs’) as issued by the IASB. They have been prepared under the historical cost convention, as modified by the valuation of
derivative financial instruments, investment properties and land and buildings held at fair value. The consolidated financial statements
There are no IFRSs that are issued but not yet effective that will have a material impact on the Group.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher
degree of judgement or complexity or areas where assumptions and estimates are significant to the consolidated financial statements
are disclosed in Note 17.
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
During the year, the International Financial Reporting Interpretations Committee (‘IFRIC’) issued a clarification of IAS 7 Statement of
cash flows. IFRIC clarified that restrictions on use of a demand deposit arising from a contract with a third party, does not result in the
deposit no longer being treated as cash, unless those restrictions change the nature of the deposit in a way that it would no longer
meet the definition of cash in IAS 7.
In the prior year, £3.7 million (2020: £10.3 million) of Loans and advances to banks was excluded from Group and Company cash and
cash equivalents. This comprised amounts over which the Group and Company had a contractual obligation with a third party to use
the cash only for specified purposes. If the Group and Company were to use these amounts for purposes other than those agreed with
the third party, the Group and Company would have been in breach of its contractual obligation. However, the terms and conditions
did not prevent the Group and Company from accessing the amounts held. As the Group and Company could still access the amounts
held, these amounts met the definition of cash. Accordingly, as a result of the IFRIC clarification above, cash and cash equivalents in
the Cash flow statement have been restated as follows:
2021
2020
As originally
stated
£million
Prior year
adjustment
£million
As restated
£million
As originally
stated
£million
Prior year
adjustment
£million
As restated
£million
Group
Cash and cash equivalents
303.0
3.7
306.7
232.1
10.3
242.4
Company
Cash and cash equivalents
300.1
3.7
303.8
230.5
10.3
240.8
The specific lines adjusted in the cash flow statement are Changes in operating assets: loans and advances to banks and Net cash flow
from operating activities.
Subsidiaries
Subsidiaries are all investees controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is
measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange
plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling
interest. The excess of the cost of acquisition, excluding directly attributable costs, over the fair value of the Group’s share of the
identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognised directly in the income statement.
The parent company’s investments in subsidiaries are recorded at cost less, where appropriate, provision for impairment. The fair value
of the underlying business of the Company’s only material investment was significantly higher than carrying value, and therefore no
impairment was required.
Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated.
Subsidiaries are de-consolidated from the date that control ceases. Discontinued operations are a component of an entity that has
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has
transferred substantially all of the risks and rewards of ownership or in the event of a substantial modification. There have not been
any instances where assets have only been partially derecognised. The Group derecognises a financial liability when its contractual
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 effective interest rate (‘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.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value of assets and liabilities traded in active markets are based on current bid and
offer prices respectively. If the market for a financial instrument is not active the Group establishes a fair value by using an appropriate
valuation technique. These include the use of recent arm’s length transactions, reference to other instruments that are substantially
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 represent payments of solely principal and
interest on the outstanding principal amount.
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 solely payments of principal and
interest on the outstanding principal amount. All 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 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 payments of solely principal and
interest on the outstanding principal amount.
The Group currently has no financial instruments classified as FVOCI.
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
The Group classifies its financial liabilities as measured at amortised cost. Such financial liabilities are recognised when cash is received
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 balance sheet date. Exchange differences arising on the settlement of monetary items, and on the retranslation of
2. Critical accounting judgements and key sources of estimation uncertainty
2.1. Judgements
A critical judgement for 2022 is disclosed in Note 17.2. No critical judgements were identified in 2021.
2.2. Key sources of estimation uncertainty
Estimations which 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 allowances for impairment of loans and advances and are therefore set out in Note 17.1.
3. Operating segments
The Group was organised into seven operating segments, which consisted of the different products available, as disclosed below.
During the current year, the Group disposed of the Debt Management loan book and the Asset Finance and Consumer Mortgages
loan books were sold during 2021. Although these were disclosed in continuing operations in the prior year, the Directors have
reassessed this judgement and concluded that on the basis they have been previously presented as separate business segments,
and discussed as part of the Strategic Report, it has been deemed appropriate to include these as discontinued operations, and as
such comparatives have been re-presented on this basis.
Accordingly, the results of all of the above businesses are now included in discontinued operations. As a result, going forward, the
Group is now organised into four operating segments: Real Estate Finance, Commercial Finance, Vehicle Finance and Retail Finance.
Continuing operations
Consumer Finance
• 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.
• 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, music, furniture, outdoor/leisure,
electronics, dental, jewellery, home improvements and football season tickets.
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 on derivatives and property rental income.
Discontinued operations
• Debt Management: a credit management services business which primarily invests in purchased debt portfolios from third parties,
as well as fellow group undertakings. The Debt Management loan book was sold during 2022.
• Consumer Mortgages: mortgages for the self-employed, contract workers, those with complex income and those with a recently
restored credit history, sold via select mortgage intermediaries, which was sold during 2021.
• Asset Finance: lending to small and medium sized enterprises to acquire commercial assets, which was sold during 2021.
• Other: includes products, which are individually below the quantitative threshold for separate disclosure and fulfil the requirement
of IFRS 8.28 by reconciling operating segments to the amounts in the financial statements. Other includes principally OneBill
(the Group’s consumer bill management service), which was closed during 2021 and RentSmart (the funding and operation of
finance leases through a disclosed agency agreement with RentSmart Limited), which was sold during 2022. Assets and liabilities
in respect of the RentSmart business were included in Assets and liabilities held for sale as at 31 December 2021 (see Note 19 for
further details).
Asset Finance, Debt Management and Consumer Mortgages segments all fell below the quantitative threshold for separate
disclosure, but the Directors considered that they represented sufficiently distinct types of business to merit separate disclosure.
Management review these segments by looking at the income, size and growth rate of the loan books, impairments and
customer numbers.
Interest income
and similar
income
£million
Fee and
commission
income
£million
Revenue
from external
customers
£million
Net impairment
charge on loans
and advances to
customers
£million
Loans and
advances to
customers
£million
31 December 2022
Retail Finance
74.4
3.6
78.0
14.8
1,054.5
Vehicle Finance
46.6
1.4
48.0
21.3
373.1
Debt Management
5.3
4.1
9.4
0.8
–
Consumer Finance
126.3
9.1
135.4
36.9
1,427.6
Real Estate Finance
57.4
0.3
57.7
1.3
1,115.5
Commercial Finance
17.5
11.8
29.3
0.8
376.4
Business Finance
74.9
12.1
87.0
2.1
1,491.9
Other
7.1
0.3
7.4
–
–
208.3
21.5
229.8
39.0
2,919.5
Of which:
Continuing
203.0
17.4
220.4
38.2
2,919.5
Discontinued (Note 10)
5.3
4.1
9.4
0.8
–
Interest income
and similar
income
£million
Fee and
commission
income
£million
Revenue
from external
customers
£million
Net impairment
charge/(credit)
on loans and
advances to
customers
£million
Loans and
advances to
customers
1
£million
31 December 2021
Retail Finance
65.0
2.7
67.7
5.0
764.8
Vehicle Finance
38.0
1.3
39.3
0.1
263.3
Debt Management
14.3
0.3
14.6
(0.6)
79.6
Consumer Mortgages
1.3
–
1.3
–
–
Consumer Finance
118.6
4.3
122.9
4.5
1,107.7
Real Estate Finance
54.5
0.3
54.8
0.1
1,109.6
Asset Finance
0.3
–
0.3
0.1
–
Commercial Finance
8.8
8.6
17.4
(0.2)
313.3
Business Finance
63.6
8.9
72.5
–
1,422.9
Other
(2.2)
1.1
(1.1)
–
1.3
180.0
14.3
194.3
4.5
2,531.9
Of which:
Continuing
163.9
13.3
177.2
5.0
2,451.0
Discontinued (Note 10)
16.1
1.0
17.1
(0.5)
80.9
1. Includes Assets held for Sale of £1.3 million within Other and Discontinued.
Interest expense and similar charges, fee and commission expense and operating expenses are not aligned to operating segments for
day-to-day management of the business, so they cannot be allocated on a reliable basis. Accordingly, profit by operating segment has
not been disclosed. Furthermore, no balance sheet items are allocated to segments other than loans and advances to customers.
All of the Group’s operations are conducted wholly within the United Kingdom and geographical information is therefore
not presented.
4. Operating income
All items below arise from financial instruments measured at amortised cost unless otherwise stated.
4.1 Net interest income
2022
£million
2021
£million
Loans and advances to customers
201.1
182.0
Cash and Bank of England reserve account
4.6
0.2
Debt securities
0.1
–
205.8
182.2
Income/(expense) on financial instruments hedging assets
2.5
(2.2)
Interest income and similar income
208.3
180.0
Of which:
Continuing
203.0
163.9
Discontinued (Note 10)
5.3
16.1
Deposits from customers
(38.4)
(27.3)
Due to banks
(5.7)
(0.3)
Subordinated liabilities
(3.4)
(3.4)
Other
(0.1)
–
(47.6)
(31.0)
(Expense)/income on financial instruments hedging liabilities
(3.6)
1.8
Interest expense and similar charges
(51.2)
(29.2)
Of which:
Continuing
(50.4)
(27.7)
Discontinued (Note 10)
(0.8)
(1.5)
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. For financial assets that
were impaired on initial recognition (also referred to as purchased or originated credit-impaired assets – ‘POCI’), a credit adjusted
EIR is calculated using estimated future cash flows, including expected credit losses.
The calculation of the EIR includes all fees received and paid that are an integral part of the EIR, transaction costs and all other
premiums or discounts. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a
financial instrument.
For financial assets that are not considered to be credit-impaired (‘stage 1’ and ‘stage 2’ assets), interest income is recognised by
applying the EIR to the gross carrying amount of the financial asset. For financial assets that become credit-impaired subsequent
to initial recognition (‘stage 3’ assets), from the next reporting period onwards interest income is recognised by applying the EIR
to the amortised cost of the financial asset. The credit risk of financial assets that become credit-impaired are not expected to
improve such that they are no longer considered credit-impaired, however, if this were to occur the calculation of interest income
would revert back to the gross basis. The Group’s definition of stage 1, stage 2 and stage 3 assets is set out in Note 17.
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.
4.2 Net fee and commission income
2022
£million
2021
£million
Fee and disbursement income
19.8
12.5
Commission income
1.4
1.2
Other income
0.3
0.6
Fee and commission income
21.5
14.3
Of which:
Continuing
17.4
13.3
Discontinued (Note 10)
4.1
1.0
Other expenses
(0.4)
(0.6)
Fee and commission expense (Continuing)
(0.4)
(0.6)
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 Stocking 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.
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.
5. Gains on modification of financial assets
Although not included as an option within customer contracts, following regulatory guidance the Group offered payment holidays to
its Consumer Finance customers, which were not considered to be substantial. This is considered under IFRS 9 as a modification to
contractual cash flows, which requires the carrying value of these loans to be adjusted to the net present value of future cash flows.
A small number of payment holidays were granted during 2021, resulting in no further loan modification losses being recognised.
The movement during the year in the net present value of the loans remaining to be unwound as a result of the modification was
as follows:
2022
Vehicle Finance
£million
2022
Retail Finance
£million
2022
Total
£million
2021
Vehicle Finance
£million
2021
Retail Finance
£million
2021
Total
£million
Reduction in net present value
At 1 January
1.4
0.2
1.6
2.5
0.6
3.1
Credit to the income statement
(0.9)
(0.2)
(1.1)
(1.1)
(0.4)
(1.5)
Balance remaining to be unwound
at 31 December
0.5
–
0.5
1.4
0.2
1.6
Of the loan modification loss remaining, £0.3 million (2021: £0.9 million) relates to financial assets with a loss allowance based on
lifetime Expected Credit Losses (‘ECL’).
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 fair 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
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 30 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.
Hedge ineffectiveness recognised in losses from derivatives and hedge accounting in the income statement is set out below:
2022
£million
2021
£million
Fair value hedges
Fair value movement during the year – Interest rate derivatives
(10.6)
0.9
Fair value movement during the year – Hedged items
10.9
(0.8)
Ineffective portion of hedges
0.3
0.1
The loss recognised in other comprehensive income during the year is as follows:
2022
£million
2021
£million
Cash flow hedges
Fair value movement in year – Interest rate derivatives
0.8
0.4
Interest reclassified to the income statement during the year
(0.1)
–
Fair value loss recognised in other comprehensive income
0.7
0.4
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 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 18.
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 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
Following transition to IFRS 9, the Group has 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 non-
£million
2021
£million
Employee costs, including those of Directors:
Wages and salaries
47.9
47.4
Social security costs
5.7
5.8
Pension costs
2.1
2.0
Share-based payment transactions
1.8
0.9
Depreciation of property, plant and equipment (Note 21)
1.2
1.3
Depreciation of lease right-of-use assets (Note 22)
0.7
0.7
Amortisation of intangible assets (Note 23)
1.4
1.5
Operating lease rentals
0.7
0.6
Other administrative expenses
40.6
43.8
Total operating expenses
102.1
104.0
Of which:
Continuing
93.2
89.4
Discontinued (Note 10)
8.9
As described in Note 3, operating expenses are not aligned to operating segments for 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
2022
£’000
2021
£’000
Fees payable to the Company’s Auditor for the audit of the Company’s annual accounts
730
639
Fees payable to the Company’s Auditor for other services:
The audit of the Company’s subsidiaries, pursuant to legislation
27
50
Other assurance services
110
110
867
799
Other assurance services related to the Term Funding Scheme with additional incentives for SMEs audit, Interim independent review
2022
Number
Restated
2021
Number
Directors
8
8
Other senior management
28
29
Other employees
904
936
940
973
The definition of management at 31 December 2022 has changed to include only senior management, whereas in the prior year
management included senior management and all employees who had people management responsibilities. Accordingly the analysis
2022
£million
2021
£million
Current taxation
Corporation tax charge – current year
8.4
11.2
Corporation tax charge – adjustments in respect of prior years
0.1
(0.5)
8.5
10.7
Deferred taxation
Deferred tax charge – current year
1.9
(0.7)
Deferred tax charge – adjustments in respect of prior years
(0.1)
0.4
1.8
(0.3)
Income tax expense
10.3
10.4
Of which:
Continuing
9.4
10.4
Discontinued (Note 10)
0.9
–
Tax reconciliation
Profit before tax
44.0
56.0
Tax at 19.00% (2021: 19.00%)
8.4
10.6
Banking surcharge
0.1
1.4
Rate change on deferred tax assets
1.2
(1.5)
Prior year adjustments
–
(0.1)
Deferred tax assets not recognised
0.2
–
Other
0.4
–
Income tax expense for the year
10.3
10.4
There is a deferred tax charge in 2022 arising from a reassessment of the tax rates at which the deferred tax asset would reverse out in
future periods, mainly arising from changes to the banking surcharge. 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 ten years commencing in 2018. The Finance Act 2022,
enacted on 24 February 2022, included legislation, confirmed in the Autumn Statement, to reduce the banking surcharge to 3% on
bank tax profits in excess of £100 million with effect from 1 April 2023.
The future tax rates used in 2021 had reflected the increase in Corporation Tax from 19% to 25% with effect from 1 April 2023 legislated
in June 2021. Those rates had continued to assume banking surcharge of 8% on any taxable profits of Secure Trust Bank PLC in excess
of £25 million in an accounting period.
Current income tax which is payable on taxable profits is recognised as an expense in the period in which the profits arise.
Deferred tax is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements. Deferred tax is determined using tax rates and laws that have been enacted or
substantially enacted by the statement of financial position date and are expected to apply when the related deferred tax asset is
Discontinued businesses include Debt Management, Consumer Mortgages and Asset Finance. The Asset Finance and Consumer
Mortgages loan books were sold during 2021. Although Asset Finance and Consumer Mortgages were disclosed in continuing
operations in the prior year, the Directors have reassessed this judgement and concluded that on the basis they have been previously
presented as separate business segments, and discussed as part of the Strategic Report, it has been deemed appropriate to include
these as discontinued operations, and as such comparatives have been re-presented on this basis.
On 11 March 2022 the Group announced that it had agreed to sell Debt Managers (Services) Limited’s (‘DMS’) portfolio of loans to
Intrum UK Finance Limited. The sale completed on 30 May 2022. As the Group has exited this market, the results have presented this
as a discontinued business. As per the terms of the contract, the Group received £81.9 million, for the carrying value of the loan book
at the date of sale of £71.8 million. Direct and indirect costs incurred in relation to the sale amounted to £4.0 million.
Income statement
2022
£million
2021
£million
Interest income and similar income
5.3
16.1
Interest expense and similar charges
(0.8)
(1.5)
Net interest income
4.5
14.6
Fee and commission income
4.1
1.0
Net fee and commission income
4.1
1.0
Operating income
8.6
15.6
Net impairment (charge)/credit on loans and advances to customers
(0.8)
0.5
Overall profit/(loss) on disposal of loan portfolios (see below)
6.1
(1.4)
Operating expenses
(8.9)
(14.6)
Profit before income tax from discontinued operations
5.0
0.1
Income tax expense
(0.9)
–
Profit for the year from discontinued operations
4.1
0.1
Basic earnings per ordinary share – discontinued operations
22.0
0.5
Diluted earnings per ordinary share – discontinued operations
21.3
0.5
DMS
2022
£million
Consumer
Mortgages
2021
£million
Asset Finance
2021
£million
Total
2021
£million
Consideration received
81.9
54.6
5.8
60.4
Carrying value of loan books disposed
(71.8)
(54.5)
(5.8)
(60.3)
Selling costs
(1.2)
(0.6)
(0.1)
(0.7)
Profit/(loss) on disposal of loan book (including selling costs)
8.9
(0.5)
(0.1)
(0.6)
Other closure costs
(2.8)
(0.8)
–
(0.8)
Overall profit/(loss) on disposal of loan portfolio(s)
6.1
(1.3)
(0.1)
(1.4)
Net cash flows
2022
£million
2021
£million
Operating
(82.6)
(58.2)
Investing
81.9
60.4
Financing
(0.1)
(0.1)
Net cash (outflow)/inflow
(0.8)
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:
2022
2021
Profit attributable to equity holders of the parent (£million)
33.7
45.6
Weighted average number of ordinary shares (number)
18,672,650
18,637,444
Earnings per share (pence)
180.5
244.7
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:
2022
2021
Weighted average number of ordinary shares
18,672,650
18,637,444
Number of dilutive shares in issue at the year-end
617,340
407,729
Fully diluted weighted average number of ordinary shares
19,289,990
19,045,173
Dilutive shares being based on:
Number of options outstanding at the year-end
1,206,639
949,193
Weighted average exercise price (pence)
304
370
Average share price during the year (pence)
1,040
1,103
Diluted earnings per share (pence)
174.7
2022
£million
2021
£million
2022 interim dividend – 16.0 pence per share (paid September 2022)
3.0
–
2021 final dividend – 41.1 pence per share (paid May 2022)
7.7
–
2021 interim dividend – 20.0 pence per share (paid September 2021)
–
3.7
2020 final dividend – 44.0 pence per share (paid May 2021)
–
8.2
The Directors recommend the payment of a final dividend of 29.1 pence per share (2021: 44.1 pence per share). The final dividend, if
approved by members at the Annual General Meeting, will be paid on 25 May 2023 with an associated record date of 28 April 2023.
Final dividends on ordinary shares are recognised in equity in the period in which they are approved by shareholders.
Moody’s long-term ratings are as follows:
Group
2022
£million
Group
2021
£million
Company
2022
£million
Company
2021
£million
Aaa
3.7
–
3.7
–
A1 – A2
41.6
45.2
40.0
42.3
Arbuthnot Latham & Co. Limited – Unrated
5.2
5.1
5.2
5.1
50.5
50.3
48.9
47.4
None of the loans and advances to banks are either past due or impaired. Loans and advances to banks includes £3.7 million
(2021: £2.6 million) which the Group and Company does not have access to and are therefore excluded from cash and cash
Group and Company
Debt securities consisted solely of sterling UK Government Treasury Bills (‘T-Bills’). The Group holds T-Bills from time to time for
liquidity risk management purposes. The Group’s intention is to hold the asset to collect its contractual cash flows of principal and
interest and, therefore, they are stated in the statement of financial position at amortised cost. The number of T-Bills held fell to £nil
over the year, from £25 million.
All of the debt securities had a rating agency designation, based on Moody’s long-term ratings of Aa3 at 31 December 2021. None of
the debt securities were either past due or impaired.
Group
2022
£million
Group
2021
£million
Company
2022
£million
Company
2021
£million
Gross loans and advances
2,997.5
2,598.1
2,997.5
2,511.2
Less: allowances for impairment of loans and advances (Note 17)
(78.0)
(67.5)
(78.0)
(60.9)
2,919.5
2,530.6
2,919.5
2,450.3
The fair value of loans and advances to customers is shown in Note 43. Loans and advances to customers includes finance lease
receivables of £371.2 million (2021: £284.6 million). See Note 16 for further details.
Group and Company
Retail Finance assets of £810.6 million (2021: £579.9 million) were pre-positioned under the Bank of England’s liquidity support
operations and Term Funding Scheme with additional incentives for SMEs and are available for use as collateral within the schemes.
58% at 31 December 2022 (2021: 56%).
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.
Loans and advances to customers include finance lease receivables as follows:
Group
2022
£million
Group
2021
£million
Company
2022
£million
Company
2021
£million
Gross investment in finance lease receivables:
– Not more than one year
157.6
137.1
157.6
135.9
– Later than one year and no later than five years
365.6
253.2
365.6
252.9
523.2
390.3
523.2
388.8
Unearned future finance income on finance leases
(152.0)
(105.7)
(152.0)
(105.5)
Net investment in finance leases
371.2
284.6
371.2
283.3
The net investment in finance leases may be analysed as follows:
– Not more than one year
93.7
87.5
93.7
86.5
– Later than one year and no later than five years
277.5
197.1
277.5
196.8
371.2
284.6
371.2
283.3
Finance lease receivables include Vehicle Finance loans to consumers, and in the prior year Asset Finance and the RentSmart
loan books.
The present value of the lease payments on assets leased to customers under agreements which transfer substantially all the risks
and rewards of ownership, with or without ultimate legal title, are recognised as a receivable. The difference between the gross
receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the
Group and Company
Not credit-impaired
Credit-impaired
Stage 1:
Subject to
12-month ECL
£million
Stage 2:
Subject to
lifetime ECL
£million
Stage 3:
Subject to
lifetime ECL
£million
Total provision
£million
Gross loans and
advances to
customers
£million
Provision
coverage
%
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%
Group
Not credit-impaired
Credit-impaired
Stage 1:
Subject to
12-month ECL
£million
Stage 2:
Subject to
lifetime ECL
£million
Stage 3:
Subject to
lifetime ECL
£million
Total provision
£million
Gross loans and
advances to
customers
£million
Provision
coverage
%
31 December 2021
Consumer Finance:
Retail Finance
10.0
7.6
4.1
21.7
786.5
2.8%
Vehicle Finance:
Voluntary termination provision
4.2
–
–
4.2
Other impairment
3.7
11.9
14.4
30.0
7.9
11.9
14.4
34.2
297.5
11.5%
Debt Management
–
–
7.3
7.3
86.9
8.4%
Business Finance:
Real Estate Finance
0.1
0.4
2.7
3.2
1,112.8
0.3%
Commercial Finance
0.5
0.1
0.5
1.1
314.4
0.3%
18.5
20.0
29.0
67.5
2,598.1
2.6%
The impairment charge disclosed in the income statement can be analysed as follows:
2022
£million
2021
£million
Expected credit losses: impairment charge
38.9
4.9
Charge in respect of off balance sheet loan commitments
0.2
(0.2)
Recoveries of loans written off
(0.1)
(0.2)
39.0
4.5
Of which:
Continuing
38.2
5.0
Discontinued (Note 10)
0.8
(0.5)
Total provisions above include expert credit judgements as follows:
2022
£million
2021
£million
Specific overlays held against credit-impaired secured assets held within the Business Finance portfolio
0.7
(0.4)
Management judgement in respect of:
Consumer Finance affordability
2.5
4.6
Vehicle Finance used car valuations
1.3
1.5
Uncertainty over the future impact of the COVID-19 pandemic
–
0.4
POCI adjustment (see below)
–
7.3
Other
(1.6)
(0.1)
Expert credit judgements over the IFRS 9 model results
2.9
13.3
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 17.1.5 and 17.2.1 respectively.
POCI adjustment
During 2022, the Group sold the Debt Management loan book (See Note 10). Prior to this the Group’s debt management business
purchased credit-impaired loans from the Company and other unrelated third parties. Under IFRS 9, these were classified as Purchased
and Originated Credit-Impaired (‘POCI’) loans. As a practical expedient, income on POCI loans was initially recognised by applying
the original credit-adjusted EIR to the expected future cash flows arising from the POCI assets. The Group’s accounting policy was to
recognise POCI income by applying the original credit-adjusted EIR to the amortised cost of the assets. Expected changes in cash
flows since the date of purchase were recognised as an impairment gain or loss in the income statement. At 31 December 2021,
reductions in credit quality resulted in a £7.3 million impairment provision.
Reconciliations of the opening to closing allowance for impairment of loans and advances are presented below:
Not credit-impaired
Credit-impaired
Stage 1:
Subject to
12-month ECL
£million
Stage 2:
Subject to
lifetime ECL
£million
Stage 3:
Subject to
lifetime ECL
£million
Total
£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 year £8.1 million was utilised in respect of the DMS book sale.
Not credit-impaired
Credit-impaired
Stage 1:
Subject to
12-month ECL
£million
Stage 2:
Subject to
lifetime ECL
£million
Stage 3:
Subject to
lifetime ECL
£million
Total
£million
At 1 January 2021
27.1
27.3
28.3
82.7
(Decrease)/increase due to change in credit risk
– Transfer to stage 2
(5.3)
27.1
(0.2)
21.6
– Transfer to stage 3
(0.1)
(15.7)
20.6
4.8
– Transfer to stage 1
2.9
(5.3)
–
(2.4)
Passage of time
(10.9)
(6.7)
(3.0)
(20.6)
New loans originated
18.2
–
–
18.2
Matured and derecognised loans
(4.1)
(4.1)
–
(8.2)
Changes to model methodology
(0.1)
(0.2)
0.9
0.6
Changes to credit risk parameters
(8.0)
(2.3)
0.7
(9.6)
Other adjustments
0.5
–
–
0.5
Charge to income statement
(6.9)
(7.2)
19.0
4.9
Allowance utilised in respect of write-offs
(1.7)
(0.1)
(18.3)
(20.1)
31 December 2021
18.5
20.0
29.0
67.5
During the prior year £1.6 million was utilised in respect of the Asset Finance and Consumer Mortgage book sales.
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 model methodology represent movements that have occurred due to enhancements made to the models during the year.
Changes to credit risk parameters represent movements that have occurred due to the Group updating model inputs. This would
include the impact of, for example, updating the macroeconomic scenarios applied to the models.
Other adjustments represents the movement in the Vehicle Finance voluntary termination provision.
Stage 1 write-offs arise on Vehicle Finance accounts where borrowers have exercised their right to voluntarily terminate
their agreements.
A breakdown of the gross receivable by internal credit risk rating is shown below:
2022
2021
Stage 1
£million
Stage 2
£million
Stage 3
£million
Total
£million
Stage 1
£million
Stage 2
£million
Stage 3
£million
Total
£million
Business Finance:
Strong
127.5
–
–
127.5
107.6
–
–
107.6
Good
962.4
28.5
–
990.9
915.8
26.6
–
942.4
Satisfactory
195.7
125.7
1.8
323.2
179.7
138.2
5.2
323.1
Weak
–
40.2
15.5
55.7
–
14.1
40.0
54.1
1,285.6
194.4
17.3
1,497.3
1,203.1
178.9
45.2
1,427.2
Consumer Finance:
Good
601.5
77.6
6.0
685.1
360.3
95.7
5.3
461.3
Satisfactory
495.3
60.5
9.3
565.1
338.5
63.3
7.1
408.9
Weak
197.4
38.2
14.4
250.0
167.6
34.8
11.4
213.8
Debt Management
–
–
–
–
–
–
86.9
86.9
1,294.2
176.3
29.7
1,500.2
866.4
193.8
110.7
1,170.9
Internal credit risk rating is based on the most recent credit risk score of a customer.
Company
The Company ECL by stage, gross balances and provision coverage as at 31 December 2022 is now the same as Group. For the
Company disclosure, see the Group table on page 142.
Not credit-impaired
Credit-impaired
Stage 1:
Subject to
12-month ECL
£million
Stage 2:
Subject to
lifetime ECL
£million
Stage 3:
Subject to
lifetime ECL
£million
Total provision
£million
Gross loans and
advances to
customers
£million
Provision
coverage
%
31 December 2021
Consumer Finance:
Retail Finance
10.1
7.7
4.1
21.9
786.5
2.8%
Vehicle Finance:
Voluntary termination provision
4.2
–
–
4.2
Other impairment
3.7
12.1
14.7
30.5
7.9
12.1
14.7
34.7
297.5
11.7%
Business Finance:
Real Estate Finance
0.1
0.4
2.7
3.2
1,112.8
0.3%
Commercial Finance
0.5
0.1
0.5
1.1
314.4
0.3%
18.6
20.3
22.0
60.9
2,511.2
2.4%
Reconciliations of the opening to closing allowance for impairment of loans and advances are presented below:
Not credit-impaired
Credit-impaired
Stage 1:
Subject to
12-month ECL
£million
Stage 2:
Subject to
lifetime ECL
£million
Stage 3:
Subject to
lifetime ECL
£million
Total
£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
Not credit-impaired
Credit-impaired
Stage 1:
Subject to
12-month ECL
£million
Stage 2:
Subject to
lifetime ECL
£million
Stage 3:
Subject to
lifetime ECL
£million
Total
£million
At 1 January 2021
28.2
29.0
22.7
79.9
(Decrease)/increase due to change in credit risk
– Transfer to stage 2
(5.6)
28.6
(0.2)
22.8
– Transfer to stage 3
(0.1)
(16.5)
21.5
4.9
– Transfer to stage 1
3.1
(5.6)
–
(2.5)
Passage of time
(12.5)
(8.2)
(4.7)
(25.4)
New loans originated
19.1
–
–
19.1
Matured and derecognised loans
(4.3)
(4.4)
–
(8.7)
Changes to model methodology
(0.1)
(0.2)
0.9
0.6
Changes to credit risk parameters
(8.0)
(2.3)
0.4
(9.9)
Other adjustments
0.5
–
(0.1)
0.4
Charge to income statement
(7.9)
(8.6)
17.8
1.3
Allowance utilised in respect of write-offs
(1.7)
(0.1)
(18.5)
(20.3)
31 December 2021
18.6
20.3
22.0
60.9
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 model methodology represent movements that have occurred due to enhancements made to the models during the year.
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.
The Group recognises loss allowances for Expected Credit Losses (‘ECL’) on all financial assets carried at amortised cost,
including lease receivables and loan commitments.
Stage 1 assets
Credit loss allowances are measured as an amount equal to lifetime ECL, except for the following assets, for which they are
measured as 12-month ECL:
• Financial assets determined to have low credit risk at the reporting date.
• Financial assets which have not experienced a significant increase in credit risk since their initial recognition.
• Financial assets which 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 which 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, for
which ECL is measured as lifetime ECL.
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.
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.
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 which 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 or, for portfolios purchased outside of the Group by Debt Managers (Services) Limited, the credit
adjusted 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 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 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.
Exogenous, Maturity, Vintage (‘EMV’) modelling is used in the production of forward-looking lifetime PDs. This method entails
modelling the effects of external (exogenous) factors against cohorts of lending and their time on the books creating a clean
relationship to best demonstrate the movement in default rates as macroeconomic variables are changed. These models are
extrapolated to provide PD estimates for the future, based on forecasted economic scenarios.
Exposure at default (‘EAD’)
EAD represents the expected exposure in the event of a default. EAD is derived from the current exposure and potential changes
to the current amount allowed under the terms of the contract, including amortisation overpayments and early terminations.
The EAD of a financial asset is its gross carrying amount. For loan commitments the EAD includes the amount drawn as well as
potential future amounts that may be drawn under the terms of the contract, estimated based on historical observations and
forward-looking forecasts.
For Commercial Finance facilities that have no specific term, an assumption is made that accounts close 36 months after the
reporting date for the purposes of measuring lifetime ECL. This assumption is based on industry experience of average client life.
These facilities do not have a fixed term or repayment structure but are revolving and increase or decrease to reflect the value of
the collateral i.e. receivables or inventory. The Group can cancel the facilities with immediate effect, although this contractual right
is not enforced in the normal day-to-day management of the facility. Typically, demand would only be made on the failure of a
client business or in the event of a material event of default, such as a fraud. In the normal course of events, the Group’s exposure
is recovered through receipt of remittances from the client’s debtors rather than from the client itself.
The ECL for such facilities is estimated taking into account the credit risk management actions that the Group expects to take to
mitigate against losses. These include a reduction in advance rate and facility limits or application of reserves against a facility to
improve the likelihood of full recovery of exposure from the debtors.
Alternative recovery routes mitigating ECL would include refinancing by another funding provider, taking security over other asset
classes or secured personal guarantees from the client’s principals.
Loss given default (‘LGD’)
LGD is the magnitude of the likely loss in the event of default. This takes into account recoveries either through curing or, where
applicable, through auction sale of repossessed collateral and debt sale of the residual shortfall amount. For loans secured by real
estate property, loan-to-value ratios are key parameters in determining LGD. LGDs are calculated on a discounted cash flow basis
using the financial instrument’s origination effective interest rate as the discount factor.
Incorporation of forward-looking data
The Group incorporates forward-looking information into both its assessment of whether the credit risk of a financial asset has
increased significantly since initial recognition and its measurement of ECL. This is achieved by developing a number of potential
economic scenarios and modelling ECLs for each scenario. To ensure material non-linear relationships between economic factors
and credit losses are reflected in the calculation of ECL, a severe stress scenario is used as one of these scenarios. The outputs
from each scenario are combined using the estimated likelihood of each scenario occurring to derive a probability weighted
expected credit loss. The four scenarios adopted and probability weighting applied are set out below.
The Group considers that the key drivers of credit risk and credit losses included in the macroeconomic scenarios are annual
unemployment rate growth 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 below.
Expert credit judgements
The impairment charge comprises of 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 onto 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, IVAs, 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, calculated by applying probability of default
17.1. Key sources of estimation uncertainty
Estimations which 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 which may occur in the next 12 months. The determination of both the PD and
LGD require estimation which is discussed further below.
17.1.1. 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 above.
The macroeconomic scenarios used were provided by external economic advisors, having previously being internally developed
with regard to externally published scenarios. The scenarios and weightings applied are summarised below:
December 2022
UK Unemployment Rate – Annual Average
UK HPI – movement from December 2022
Scenario
Weightings
2023
%
2024
%
2025
%
5 Yr Average
%
2023
%
2024
%
2025
%
5 Yr Average
%
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)
December 2021
UK Unemployment Rate – Annual Average
UK HPI – movement from December 2021
Scenario
Weightings
2022
%
2023
%
2024
%
5 Yr Average
%
2022
%
2023
%
2024
%
5 Yr Average
%
Upside
20%
4.1
4.0
4.0
4.0
0.8
3.9
8.1
8.3
Base
50%
4.9
4.4
4.2
4.3
1.0
1.9
3.9
4.9
Downside
25%
5.7
5.6
4.8
4.9
(3.0)
(1.9)
2.1
2.7
Severe
5%
6.8
8.3
6.8
6.3
(10.7)
(11.2)
(7.2)
(6.2)
The sensitivity of the ECL allowance to reasonably possible changes in scenario weighting is presented below:
Increase in downside case
weighting by 10% and reduction in
upside case
Increase in severe stress case
weighting by 5% and reduction in
base case
2022
£million
2021
£million
2022
£million
2021
£million
Vehicle Finance
0.6
0.2
0.4
0.2
Retail Finance
0.7
0.3
0.5
0.2
The sensitivity is immaterial for other lending products.
The Group recognised a total impairment charge of £39.0 million (2021: £4.5 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:
2022
2021
Scenario
Vehicle Finance
£million
Retail Finance
£million
Business Finance
£million
Total Group
£million
Vehicle Finance
£million
Retail Finance
£million
Business Finance
£million
Total Group
£million
Upside
(1.9)
(0.3)
(0.7)
(2.9)
(1.2)
(2.0)
(2.5)
(5.7)
Base
(1.5)
0.4
(0.4)
(1.5)
(0.4)
(0.4)
(1.9)
(2.7)
Downside
0.9
3.0
0.9
4.8
1.0
1.5
0.5
3.0
Severe
1.6
3.8
1.7
7.1
3.3
4.6
8.4
16.3
17.1.2. 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 £3.1 million (2021: a 15% change
impacted the ECL allowance by £2.3 million).
A 15% change in the PD for Retail Finance would immediately impact the ECL allowance by £2.5 million (2021: a 30% change
impacted the ECL allowance by £4.6 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.
17.1.3. 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 which could crystallise depending on whether the Group is able to recover the vehicle as security. For the Vehicle
Finance portfolio, a 20% (2021: 20%) change in the LGD is considered reasonably possible due to delays in the vehicle collection
process. A 20% (2021: 20%) reduction in the vehicle recovery rate assumption element of the LGD for Vehicle Finance would
increase the ECL by £1.9 million (2021: £2.0 million). There has been no change in the vehicle recovery rate assumption in the ECL
model in either the current or prior year.
17.1.5. ECJ: Vehicle Finance used car values
Since March 2021, we have observed an increase in used car prices of 17% (2021: 32%). This increase in used car prices has been
incorporated into the modelled LGD reducing the ECL provision by £2.0 million (2021: £3.0 million). However, the Directors believe
that used car prices will drop by 9% (2021: drop by 19%) and have applied an overlay for lower recoveries with an increased
provision of £1.0 million for the year ended 31 December 2022 (2021: £1.5 million).
17.1.6. Sensitivities no longer presented
At December 2022 actual observed Vehicle Finance cure rates were used in the ECL model. As a result, at December 2022 this
sensitivity was no longer applicable. Additionally the sensitivity of any reasonable change in the weighting of the scenarios used
for the LGD on Real Estate Finance loans in stage 3 is no longer material.
17.1.7. Climate-risk impact
The Group has considered the impact of climate-related risks on the financial statements, in particular the impact on impairment
within the Vehicle Finance business. 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 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.
17.2. Critical judgments
17.2.1. ECJ: Consumer Finance customer affordability
An additional PD estimate was applied at 31 December 2021 to reflect the heightened risk of lower customer affordability in the
Consumer businesses due to the increased cost of living. A 15% uplift was applied to the ECL on loans identified as most likely to
be impacted by increases in cost of living, which increased the ECL by £4.6 million. If the uplift factor was increased to 20%, the
ECL would have been impacted by a further £0.9 million. At 31 December 2022, the methodology was changed to a new EMV
model which used inflation as a driver of defaults with the difference between this model and our base models informing the
expert credit judgement.
The expert credit judgement relating to Consumer Finance affordability reduced to £2.5 million at December 2022 from
£4.6 million at December 2021. The Directors have deemed this a critical judgement given the uncertainty of the current economic
environment and the effect that this could have on customer affordability. The Group is satisfied that it is reasonably estimating the
level of provisioning required to capture expected defaults and the impacts of costs of living.
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
6. Notional amount is the amount on which payment flows are derived and does not represent amounts at risk.
Notional
2022
£million
Assets
2022
£million
Liabilities
2022
£million
Notional
2021
£million
Assets
2021
£million
Liabilities
2021
£million
Interest rate derivatives designated in fair value
hedges
In less than one year
689.8
3.9
(6.0)
382.1
0.3
(0.7)
More than one year but less than three years
718.5
15.4
(16.1)
564.6
2.9
(3.0)
More than three years but less than five years
274.9
15.5
(3.3)
194.3
0.4
(2.2)
More than five years
7.5
–
–
–
–
–
1,690.7
34.8
(25.4)
1,141.0
3.6
(5.9)
Interest rate derivatives designated in cash flow
hedges
More than one year but less than three years
14.1
–
(1.1)
4.7
–
(0.1)
More than three years but less than five years
2.4
0.1
–
9.4
–
(0.2)
16.5
0.1
(1.1)
14.1
–
(0.3)
Foreign exchange derivatives
In less than one year
16.7
–
(0.2)
15.3
0.2
–
1,723.9
34.9
(26.7)
1,170.4
3.8
(6.2)
In order to manage interest rate risk arising from fixed rate financial instruments, the Group reviews interest rate derivative
requirements on a monthly basis. 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 on a monthly basis. The Group establishes the hedging ratio by matching the notional of the derivatives with
the principal of the portfolio being hedged.
The following table sets out details of the hedged exposures covered by the Group’s hedging strategies:
Carry amount of
hedged item
Asset/(liability)
2022
£million
Accumulated amount
of fair value adjustments
in the hedged items
Asset/(liability)
2022
£million
Carry amount of
hedged item
Asset/(liability)
2021
£million
Accumulated amount
of fair value adjustments
in the hedged items
Asset/(liability)
2021
£million
ASSETS
Interest rate fair value hedges
Loans and advances to customers
Fixed rate Real Estate Finance loans
430.7
(22.3)
354.9
(2.1)
Fixed rate Vehicle Finance loans
110.5
(4.0)
86.3
(0.4)
Fixed rate Retail Finance loans
249.2
(5.7)
160.4
(1.0)
790.4
(32.0)
601.6
(3.5)
Interest rate cash flow hedges
Cash and Bank of England reserve account
Bank of England reserve
16.5
N/A
14.1
N/A
806.9
(32.0)
615.7
(3.5)
LIABILITIES
Interest rate fair value hedges
Deposits from customers
Fixed rate customer deposits
(900.3)
23.0
(539.5)
5.3
(900.3)
23.0
(539.5)
5.3
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 £0.2 million (2021: £nil).
The following table shows the impact of financial assets and financial liabilities relating to transactions where:
• there is an enforceable master netting agreement in place but the offset criteria are not otherwise satisfied, and
• financial collateral is paid and received.
Gross amount
reported on
balance sheet
£million
Master
netting
arrangements
£million
Financial
collateral
£million
Net amounts
after
offsetting
£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)
Gross amount
reported on
balance sheet
£million
Master
netting
arrangements
£million
Financial
collateral
£million
Net amounts
after offsetting
£million
31 December 2021
Derivative financial assets
Interest rate derivatives
3.6
(3.6)
–
–
Foreign exchange derivatives
0.2
–
–
0.2
3.8
(3.6)
–
0.2
Derivative financial liabilities
Interest rate derivatives
(6.2)
3.6
2.7
0.1
Master netting arrangements do not meet the criteria for offsetting in the statement of financial position. This is because the
arrangement creates an agreement for a right of set-off of recognised amounts which is enforceable only following an event of default,
insolvency or bankruptcy of the Group or counterparties. Furthermore, the Group and its counterparties do not intend to settle on a
net basis or realise the assets and settle the liabilities simultaneously.
As at 31 December 2021, assets of £1.3 million relating to a loan book and a liability of £2.0 million relating to collateral held, both in
STB Leasing Limited, were in the process of being sold to its partner, RentSmart Limited. Under IFRS 5, Non-current Assets Held for
Sale and Discontinued Operations, these were required to be reclassified as ‘Held for sale’ on the face of the statement of financial
position as they were expected to be sold within 12 months of the balance sheet date. The assets and liabilities were sold for their
carrying amount on 31 January 2022. There was no provision held against the RentSmart loans, as the credit risk associated with those
loans was retained by RentSmart Limited.
The business is not significant enough to be classified as discontinued operations, or to be disclosed as a separate operating segment
Group
£million
Company
£million
1 January 2021
4.3
5.3
Revaluation
0.4
0.4
At 31 December 2021
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
As at 31 December 2021 year end the Group’s investment properties, which were let to third party occupiers, comprised:
• Secure Trust House, Boston Drive, Bourne End, SL8 5YS; and
• 50% of Yorke House, Arleston Way, Shirley, Solihull, B90 4LH, excluding land.
Secure Trust House was sold during the year. Additionally, the Yorke House tenant vacated during the year, and as the Group and
Company intends to occupy the property for its own use, the 50% of Yorke House that was included in investment properties was
transferred to property, plant and equipment.
The Company’s investment properties included the two properties above and 25 and 26 Neptune Court, Vanguard Way,
Cardiff CF24 5PJ, which is occupied by one of the Company’s subsidiaries.
The Company’s investment property is stated at fair value as at 31 December 2022. 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 no change in values since 31 December 2021. 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 income statement in
Group
Freehold land
and buildings
£million
Leasehold
property
£million
Computer
and other
equipment
£million
Total
£million
Cost or valuation
At 1 January 2021
6.6
0.1
9.1
15.8
Additions
–
–
0.2
0.2
Revaluation
0.3
–
–
0.3
At 31 December 2021
6.9
0.1
9.3
16.3
Additions
–
–
1.0
1.0
Disposals
–
(0.1)
(3.4)
(3.5)
Transfer from investment properties
1.4
–
–
1.4
At 31 December 2022
8.3
–
6.9
15.2
Accumulated depreciation
At 1 January 2021
–
–
(5.9)
(5.9)
Depreciation charge
(0.2)
–
(1.1)
(1.3)
Revaluation
0.2
–
–
0.2
At 31 December 2021
–
–
(7.0)
(7.0)
Depreciation charge
(0.1)
–
(1.1)
(1.2)
Disposals
–
–
3.2
3.2
Revaluation
0.1
–
–
0.1
At 31 December 2022
–
–
(4.9)
(4.9)
Net book amount
At 31 December 2021
6.9
0.1
2.3
9.3
At 31 December 2022
8.3
–
2.0
10.3
The Group’s freehold properties, which are occupied by the Group, comprise:
• the Registered Office of the Company;
• Yorke House, Arleston Way, Shirley B90 4LH; and
• 25 and 26 Neptune Court, Vanguard Way, Cardiff CF24 5PJ.
Company
Freehold
property
£million
Computer
and other
equipment
£million
Total
£million
Cost or valuation
At 1 January 2021 and 1 January 2022
2.1
6.4
8.5
Additions
–
0.3
0.3
Disposals
–
(0.5)
(0.5)
Transfer from investment properties
1.4
–
1.4
At 31 December 2022
3.5
6.2
9.7
Accumulated depreciation
At 1 January 2021
–
(4.0)
(4.0)
Depreciation charge
–
(0.8)
(0.8)
At 31 December 2021
–
(4.8)
(4.8)
Depreciation charge
–
(0.7)
(0.7)
Disposals
–
0.5
0.5
At 31 December 2022
–
(5.0)
(5.0)
Net book amount
At 31 December 2021
2.1
1.6
3.7
At 31 December 2022
3.5
1.2
4.7
The Company’s freehold properties are the same as Group, but exclude 25 and 26 Neptune Court, Vanguard Way, Cardiff CF24 5PJ,
which is not occupied by the Company.
Freehold properties are stated at fair value as at 31 December 2022. The Directors have assessed the value of the freehold
property at the year-end through comparison to current rental yields on similar properties in the same area. This has resulted in no
change in values since 31 December 2021. An increase in the fair value of freehold property of £0.5 million was recognised in other
comprehensive income at 31 December 2021 and its carrying value was adjusted accordingly. Movements in the fair value of freehold
property are recognised in other comprehensive income, to the extent that any reductions do not exceed the initial increase.
The carrying value of freehold land which is included in the total carrying value of freehold land and buildings and which is not
depreciated is £1.5 million (2021: £1.5 million) for the Group and £0.8 million (2021: £0.8 million) for the Company.
The historical cost of freehold property included at fair value is as follows:
Group
2022
£million
Group
2021
£million
Company
2022
£million
Company
2021
£million
Cost
8.6
7.1
3.0
1.6
Depreciation
(2.3)
(2.2)
(0.1)
(0.1)
Net book value
6.3
4.9
2.9
1.5
Property is held at its revalued amount, being its fair value at the date of valuation less any subsequent accumulated depreciation.
Revaluations are carried out annually at the reporting date, and movements are recognised in Other Comprehensive Income, net
of any applicable deferred tax. External valuations are performed on a triennial basis.
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
Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the
income statement.
Group
Company
Leasehold
property
£million
Leased motor
vehicles
£million
Total
£million
Leasehold
property
£million
Leased motor
vehicles
£million
Total
£million
Cost
At 1 January 2021
4.4
0.4
4.8
3.1
0.2
3.3
Disposals
–
(0.1)
(0.1)
–
–
–
At 31 December 2021
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
Accumulated depreciation
At 1 January 2021
(1.6)
(0.3)
(1.9)
(1.1)
(0.2)
(1.3)
Depreciation charge
(0.6)
(0.1)
(0.7)
(0.5)
–
(0.5)
Disposals
–
0.1
0.1
–
–
–
At 31 December 2021
(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)
Net book amount
At 31 December 2021
2.2
–
2.2
1.5
–
1.5
At 31 December 2022
1.1
0.4
1.5
1.1
0.2
1.3
The Group assesses whether a contract is or contains a lease at inception of the contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group
recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another
systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the future lease payments, discounted by using the rate implicit in
the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. It is subsequently measured by
increasing the carrying amount to reflect interest on the lease liability (using the effective interest rate method) and by reducing
the carrying amount to reflect the lease payments made, and is presented as a separate line in the consolidated statement of
financial position.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before
the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost
less accumulated depreciation and impairment charges and are depreciated over the shorter of the lease term and useful life of
the underlying asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are presented as a
separate line in the consolidated statement of financial position. The Group applies IAS 36 to determine whether a right-of-use
asset is impaired and accounts for any identified impairment loss as described in the ‘Property, plant and equipment’ policy.
Rentals made under operating leases for less than 12 months in duration, and operating leases on low value items, are recognised
Goodwill
£million
Computer
software
£million
Other
intangible
assets
£million
Total
£million
Cost or valuation
At 1 January 2021
1.0
16.6
2.2
19.8
Additions
–
1.1
–
1.1
Transfers to cloud software development prepayments
–
(0.4)
–
(0.4)
At 31 December 2021
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
Accumulated amortisation
At 1 January 2021
–
(10.3)
(1.8)
(12.1)
Amortisation charge
–
(1.3)
(0.2)
(1.5)
At 31 December 2021
–
(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)
Net book amount
At 31 December 2021
1.0
5.7
0.2
6.9
At 31 December 2022
1.0
5.6
–
6.6
Goodwill above relates to the following cash generating units, which are part of the Retail Finance operating segment:
2022
£million
2021
£million
Music business
0.3
0.3
V12
0.7
0.7
Total
1.0
1.0
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% (2021: 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.
Other intangible assets were recognised as part of the V12 Finance Group acquisition. These were recorded at fair value, and are
being amortised on a straight-line basis as follows:
Years
Distribution channel
10
Company
Goodwill
£million
Computer
software
£million
Total
£million
Cost or valuation
At 1 January 2021
0.3
12.0
12.3
Additions
–
0.8
0.8
Transfer to cloud software development prepayments
–
(0.4)
(0.4)
At 31 December 2021
0.3
12.4
12.7
Additions
–
0.1
0.1
At 31 December 2022
0.3
12.5
12.8
Accumulated amortisation
At 1 January 2021
–
(6.1)
(6.1)
Amortisation charge
–
(1.2)
(1.2)
At 31 December 2021
–
(7.3)
(7.3)
Amortisation charge
–
(1.1)
(1.1)
At 31 December 2022
–
(8.4)
(8.4)
Net book amount
At 31 December 2021
0.3
5.1
5.4
At 31 December 2022
0.3
4.1
4.4
Goodwill above relates to the music business cash generating unit, which is part of the Retail Finance operating segment.
The recoverable amount is determined on the same basis as for the Group.
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 ten 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 which are separately identifiable and which are not included on the
acquiree’s balance sheet, which are amortised over their expected useful lives, as set out above.
Company
Cost and net book value
2022
£million
2021
£million
At 1 January
4.3
4.1
Addition – Investment in AppToPay Ltd
1.0
–
Equity contributions to subsidiaries in respect of share options
0.4
0.2
At 31 December
5.7
4.3
During the year the Group completed the acquisition of 100% of the issued share capital of AppToPay Ltd for £1.0 million.
AppToPay Ltd is the owner of a proprietary technology platform, and the acquisition is complementary to the Group’s existing Retail
Finance proposition, which supports our planned entry into the Digital Buy Now Pay Later market. In addition to this, an earn-out of a
maximum of £0.2 million is payable in 2023, subject to certain performance conditions.
The Group has 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 is a software
development intangible asset. The resulting impact on the Group is an increase in intangible assets of £1.1 million. 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. 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.
Principal activity
Owned directly
AppToPay Ltd
Non-trading
Debt Managers (Services) Limited
Debt management
Secure Homes Services Limited
Property rental
STB Leasing Limited
Leasing
V12 Finance Group Limited
Holding company
Owned indirectly via an intermediate holding company
V12 Personal Finance Limited
Dormant
V12 Retail Finance Limited
The registered office of the Company, and all subsidiary undertakings, is One Arleston Way, Shirley, Solihull, West Midlands 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 following
financial periods:
AppToPay Ltd
9 months ended 31 December 2022
Debt Managers (Services) Limited
Year ended 31 December 2022
Secure Homes Services Limited
Year ended 31 December 2022
STB Leasing Limited
18 months ended 30 June 2022 and 6 months ended 31 December 2022
V12 Finance Group Limited
Year ended 31 December 2022
V12 Personal Finance Limited
Group
2022
£million
Group
2021
£million
Company
2022
£million
Company
2021
£million
Deferred tax assets:
Other short-term timing differences
5.5
6.9
5.3
6.8
At 31 December
5.5
6.9
5.3
6.8
Deferred tax assets:
At 1 January
6.9
6.6
6.8
7.1
Income statement
(1.8)
0.3
(1.8)
(0.4)
Other comprehensive income
0.4
–
0.3
0.1
At 31 December
5.5
6.9
5.3
6.8
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
Group
2022
£million
Group
2021
£million
Company
2022
£million
Company
2021
£million
Other receivables
1.7
0.4
1.5
0.3
Amounts due from related companies
–
–
3.1
89.3
Cloud software development prepayment
4.7
4.8
4.7
4.8
Other prepayments and accrued income
7.0
6.7
5.8
5.4
13.4
11.9
15.1
99.8
Cloud software development costs, principally relating to the Group’s Motor Transformation Programme, do not meet the intangible
asset recognition criteria and are therefore classified as a prepayment, which is expensed to the income statement over the useful
economic life of the software. As a consequence of the sale of the DMS loan book, £81.9 million of the amounts due from related
Group
2022
£million
Group
2021
£million
Company
2022
£million
Company
2021
£million
Amounts due under the Bank of England’s liquidity support operations (Term
Funding Scheme with additional incentives for SMEs)
390.0
390.0
390.0
390.0
Amounts due to other credit institutions
7.7
0.7
7.7
0.7
Accrued interest
2.8
0.1
2.8
0.1
400.5
390.8
400.5
390.8
Group and Company
2022
£million
2021
£million
Access accounts
178.1
101.7
Fixed term bonds
1,414.0
974.6
Notice accounts
500.7
771.9
ISAs
421.8
255.0
2,514.6
2,103.2
The accounting policy for deposits from customers is included in Note 1.5 Financial assets and financial liabilities
Group
2022
£million
Group
2021
£million
Company
2022
£million
Company
2021
£million
At 1 January
3.1
3.9
2.3
2.9
New leases
0.5
–
0.2
–
Lease termination
(0.6)
–
–
–
Payments
(1.0)
(0.9)
(0.7)
(0.7)
Interest expense
0.1
0.1
0.1
0.1
At 31 December
2.1
3.1
1.9
2.3
Lease liabilities – Gross
– No later than one year
0.7
0.9
0.7
0.7
– Later than one year and no later than five years
1.5
2.3
1.3
1.7
– More than five years
–
0.1
–
–
2.2
3.3
2.0
2.4
Less: Future finance expense
(0.1)
(0.2)
(0.1)
(0.1)
Lease liabilities – Net
2.1
3.1
1.9
2.3
Lease liabilities – Gross
– No later than one year
0.7
0.8
0.7
0.7
– Later than one year and no later than five years
1.4
2.2
1.2
1.6
– More than five years
–
0.1
–
–
2.1
3.1
1.9
2.3
Group
2022
£million
Group
2021
£million
Company
2022
£million
Company
2021
£million
Other payables
68.1
18.3
65.0
14.9
Amounts due to related companies
–
–
12.4
17.9
Accruals and deferred income
10.0
13.0
8.5
11.0
78.1
31.3
85.9
Group
Company
ECL allowance on
loan commitments
£million
Other
£million
Total
£million
ECL allowance on
loan commitments
£million
Other
£million
Total
£million
Balance at 1 January 2021
1.1
0.8
1.9
1.1
0.8
1.9
(Release)/charge to income statement
(0.2)
0.3
0.1
(0.2)
0.3
0.1
Utilised
–
(0.7)
(0.7)
–
(0.7)
(0.7)
Balance at 31 December 2021
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
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 2022 and
31 December 2021 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;
• restructuring provision; and
• s75 Consumer Credit Act 1974 provision.
The Directors expect all provisions to be fully utilised within the next 1 to 2 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
Group and Company
2022
£million
2021
£million
Notes at par value
50.0
50.0
Unamortised issue costs
(0.1)
(0.3)
Accrued interest
1.2
1.2
51.1
50.9
Subordinated liabilities comprises two tranches of 6.75% Fixed Rate Reset Callable Subordinated Notes due 2028 (‘the Notes’) issued
in 2018. The Notes mature in 2028 but the issuer may at its discretion redeem the Notes in 2023. The Notes are listed on the Global
Exchange Market of the Irish Stock Exchange plc trading as Euronext Dublin.
• The Notes are redeemable for cash at their principal amount on fixed dates.
• The Company has a call option to redeem the securities 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.
For details of post-balance sheet events relating to subordinated liabilities, see Note 47.
As a financial services business, the Group must comply with numerous laws and regulations, which 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,
At 31 December 2022, the Group and Company had capital commitments of £1.5 million (2021: £nil).
33.3 Credit commitments
Group and Company
Commitments to extend credit to customers were as follows:
2022
£million
2021
£million
Consumer Finance
Retail Finance
97.2
83.6
Vehicle Finance
1.2
0.5
Business Finance
Real Estate Finance
53.1
68.9
Commercial Finance
146.5
120.9
298.0
Number
£million
At 1 January 2021
18,633,662
7.5
Issued during 2021
14,143
–
At 31 December 2021
18,647,805
7.5
Issued during 2022
43,629
–
At 31 December 2022
18,691,434
7.5
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
2022
£million
Group
2021
£million
Company
2022
£million
Company
2021
£million
Cash flow hedge reserve
(0.8)
(0.3)
(0.8)
(0.3)
Revaluation reserve
0.8
1.3
–
0.7
Own shares
(0.3)
–
(0.3)
–
(0.3)
1.0
(1.1)
0.4
35.1 Own Shares
An Employee Benefit Trust (‘EBT’) was established during the year. At 31 December 2022 the EBT held 37,501 shares (2021: nil) with
a nominal value of £15,000 (2021: £nil) and a market value of £0.3 million (2021: £nil). 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 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 2022 and 31 December 2021, the Group had four share-based payment schemes in operation:
• 2017 long term incentive plan,
• 2017 Sharesave plan,
• 2017 deferred bonus plan, and
• ‘Phantom’ share option scheme.
A summary of the movements in share options during the year is set out below:
Outstanding at
1 January 2022
Number
Granted
during the
year
Number
Forfeited
lapsed and
cancelled
during the
year
Number
Exercised
during the
year
Number
Outstanding at
31 December
2022
Number
Vested and
exercisable at
31 December
2022
Number
Vesting
dates
Weighted
average
exercise price
of options
outstanding at
31 December
2022
£
Weighted
average
exercise price
of options
outstanding at
31 December
2021
£
Equity settled
2017 long term incentive
plan
401,800
230,789
6,242
(27,479)
611,353
11,103 2023-2025
0.40
0.40
2017 Sharesave plan
542,446
111,833
(100,873)
(7,927)
545,479
11,492 2023-2025
6.24
6.17
2017 deferred bonus plan
19,686
38,344
–
(8,223)
49,807
– 2023-2025
0.40
0.40
963,932
380,966
(94,630)
(43,629) 1,206,639
22,595
3.04
3.65
Weighted average
exercise price
3.65
2.66
8.57
1.34
3.04
Cash settled
‘Phantom’
share option scheme
94,167
–
(16,000)
–
78,167
78,167
2019
25.00
25.00
Group
2022
£million
Group
2021
£million
Company
2022
£million
Company
2021
£million
Expense incurred in relation to share-based payments
1.8
0.9
1.4
0.9
36.1. 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.
36.1.1 LTIP Restricted share award
54,427 (2021: 56,023) options were awarded during the year which 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
2022
Awarded during
2021
Share price at grant date
12.40
11.73
Exercise price
£0.40
£0.40
Expected dividend yield
4.39%
5.49%
Expected stock price volatility
47.27%
46.27%
Risk free interest rate
1.47%
0.00%
Average expected life (years)
3.00
3.00
Original grant date valuation
£10.49
£9.94
36.1.2 LTIP
176,362 (2021: 187,527) options were awarded during the year which 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;
• rank of the TSR over the performance period against the TSR of the FTSE Small Cap Index;
• growth of the TSR in absolute terms; 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 and will be released to the participants on the vesting date. The awards will vest
on the date on which the Board determines that these conditions have been met.
All of the share options exercised during the year were exercised for shares. Of the share options exercised during the prior year,
13,317 were exercised for shares, and 530 were exercised for a cash alternative at a deemed market price of £11.90.
The original grant date valuation was determined using a Black-Scholes model for the EPS and risk management tranches, and a
Monte Carlo model for the TSR tranche. Measurement inputs and assumptions used for the grant date valuation were as follows:
Awarded during
2022
Awarded during
2021
Share price at grant date
£12.40
£11.73
Exercise price
£0.40
£0.40
Expected dividend yield
4.39%
5.49%
Expected stock price volatility
46.87%
45.56%
Risk free interest rate
1.50%
0.11%
Average expected life (years)
3.00
3.00
Original grant date valuation
£7.43
£6.99
36.2. 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 £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
2022
Awarded during
2021
Share price at grant date
£9.62
£12.45
Exercise price
£8.10
£10.69
Expected stock price volatility
48.47%
53.84%
Expected dividend yield
4.39%
5.49%
Risk free interest rate
3.24%
0.74%
Average expected life (years)
3.00
3.00
Original grant date valuation
£3.14
£4.12
36.3. Deferred bonus plan
The deferred bonus plan was established on 3 May 2017.
In 2022 and 2021, 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
Vesting after
one year
Number
Awards granted
Vesting after
two years
Number
Awards granted
Vesting after
three years
Number
Awards
granted
Total
At 1 January 2021
11,679
18,068
21,572
51,319
Granted
4,057
4,340
4,626
13,023
Exercised
(826)
–
–
(826)
Cancelled
(9,183)
(
(15,572)
(19,075)
(43,830)
At 31 December 2021
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
Vested and exercisable
–
–
–
–
38,344 awards were made under this plan in April 2022, (1,702 in April 2021 and 11,321 in September 2021). The original grant date
valuation was determined using a Black-Scholes model. Measurement inputs and assumptions used were as follows:
Granted in 2022
Awards vesting
after one year
Granted in 2022
Awards vesting
after two years
Granted in 2022
Awards vesting
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
Granted in
April 2021
Awards vesting
after one year
Granted in
April 2021
Awards vesting
after two years
Granted in
April 2021
Awards vesting
after three years
Granted in
September 2021
Awards vesting
after one years
Granted in
September 2021
Awards vesting
after two years
Granted in
September 2021
Awards vesting
after three years
Share price at grant date
£11.73
£11.73
£11.73
£12.45
£12.45
£12.45
Exercise price
£0.40
£0.40
£0.40
£0.40
£0.40
£0.40
Expected dividend yield
5.49%
5.49%
5.49%
5.49%
5.49%
5.49%
Expected stock price volatility
46.54%
53.22%
46.27%
42.06%
60.86%
53.84%
Risk free interest rate
0.00%
0.00%
0.00%
0.74%
0.74%
0.74%
Average expected life (years)
1.00
2.00
3.00
0.58
1.58
2.58
Original grant date valuation
£10.85
£10.39
£9.94
£11.54
£11.06
£10.59
36.4 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 November 2014.
The options vested during 2019 and are exercisable for a period of 10 years after grant date.
As at 31 December 2022, the estimated fair value has been prepared using the Black-Scholes model. Measurement inputs and
assumptions used were as follows:
2022
2021
Share price at reporting date
£7.50
£12.35
Expected stock price volatility
38.68%
45.30%
Expected dividend yield
4.39%
5.49%
Risk free interest rate
3.39%
0.55%
Average expected life (years)
2.21
3.34
Fair value
£0.04
£1.06
This resulted in the following being recognised in the financial statements:
2022
£million
2021
£million
Liability
–
0.1
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
37.1. 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
2022
£million
Restated
Group
2021
£million
Company
2022
£million
Restated
Company
2021
£million
Cash and Bank of England reserve account
370.1
235.7
370.1
235.7
Loans and advances to banks (Note 13)
50.5
50.3
48.9
47.4
Debt securities
–
25.0
–
25.0
Less:
Cash ratio deposit
(3.7)
(1.7)
(3.7)
(1.7)
Collateral margin account
–
(2.6)
–
(2.6)
(3.7)
(4.3)
(3.7)
(4.3)
Cash and cash equivalents
416.9
306.7
415.3
303.8
Cash and cash equivalents in the prior year has been restated from £303.0 million in the Group and £300.1 million in the Company.
See Note 1.3 for further details.
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.
37.2. 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 (2021: £0.1 million) of
lease liabilities interest expense, as shown in Note 29, and £0.2 million (2021: £0.1 million) amortisation of issue costs on subordinated
liabilities, as shown in Note 32.
equivalents, being highly liquid investments which are convertible into cash with an insignificant risk of changes in value with a
maturity of three months or less at the date of acquisition, including certain loans and advances to banks and short-term highly
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 which sets out the Board’s attitude to risk and internal controls.
Key risks identified by the Directors are formally reviewed and assessed at least once a year by the Board. In addition 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 25.
Included within the principal financial risks inherent in the Group’s business are credit risk (Note 39), market risk (Note 40), 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 (‘SME’) 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 15.
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 27 for further details on the mitigation and change during the year of credit risk.
Group and Company
With the exception of loans and advances to customers, the carrying amount of financial assets represents the maximum exposure
to credit risk. The maximum exposure to credit risk for loans and advances to customers by portfolio and IFRS 9 stage without taking
account of any collateral held or other credit enhancements attached was as follows:
Stage 1
Stage 2
Stage 3
Total gross
loans and
advances to
customers
£million
£million
<= 30 days
past due
£million
> 30 days
past due
£million
Total
£million
Excl. purchased
credit-impaired
£million
Purchased
credit-impaired
£million
Total
£million
31 December 2022
Consumer Finance
Retail Finance
987.4
85.4
3.8
89.2
6.1
–
6.1
1,082.7
Vehicle Finance
306.8
83.3
3.8
87.1
23.6
–
23.6
417.5
Business Finance
Real Estate Finance
957.9
122.9
21.3
144.2
16.8
–
16.8
1,118.9
Commercial Finance
327.7
50.2
–
50.2
0.5
–
0.5
378.4
Total drawn exposure
2,579.8
341.8
28.9
370.7
47.0
–
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
–
47.0
3,295.5
Less:
Impairment allowance
(24.3)
(23.9)
(4.7)
(28.6)
(25.1)
–
(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
–
21.9
3,216.4
£16.1 million (2021: £50.3 million) of collateral in the form of property has been pledged as security for Real Estate Finance Stage 3
balances of £14.8 million (2021: £37.3 million). £11.2 million (2021: £8.9 million) of collateral in the form of vehicles has been pledged as
security for Vehicle Finance Stage 3 balances of £6.6 million (2021: £5.0 million).
Group
Stage 1
Stage 2
Stage 3
Total gross
loans and
advances to
customers
£million
£million
<= 30 days
past due
£million
> 30 days
past due
£million
Total
£million
Excl. purchased
credit-impaired
£million
Purchased
credit-impaired
£million
Total
£million
31 December 2021
Consumer Finance
Retail Finance
659.4
120.1
2.6
122.7
4.4
–
4.4
786.5
Vehicle Finance
207.0
68.9
2.2
71.1
19.4
–
19.4
297.5
Debt Management
–
–
–
–
10.8
76.1
86.9
86.9
Business Finance
Real Estate Finance
911.4
161.4
–
161.4
40.0
–
40.0
1,112.8
Commercial Finance
291.7
17.5
–
17.5
5.2
–
5.2
314.4
Total drawn exposure
2,069.5
367.9
4.8
372.7
79.8
76.1
155.9
2,598.1
Off balance sheet
Loan commitments
271.0
2.9
–
2.9
–
–
–
273.9
Total gross exposure
2,340.5
370.8
4.8
375.6
79.8
76.1
155.9
2,872.0
Less:
Impairment allowance
(18.5)
(16.6)
(3.4)
(20.0)
(23.1)
(5.9)
(29.0)
(67.5)
Provision for loan
commitments
(0.9)
–
–
–
–
–
–
(0.9)
Total net exposure
2,321.1
354.2
1.4
355.6
56.7
70.2
126.9
2,803.6
A reconciliation of opening to closing allowance for impairment of loans and advances to customers is presented in Note 17.
Company
Stage 1
Stage 2
Stage 3
Total gross
loans and
advances to
customers
£million
£million
<= 30 days
past due
£million
> 30 days
past due
£million
Total
£million
Excl. purchased
credit-impaired
£million
Purchased
credit-impaired
£million
Total
£million
31 December 2021
Consumer Finance
Retail Finance
659.4
120.1
2.6
122.7
4.4
–
4.4
786.5
Vehicle Finance
207.0
68.9
2.2
71.1
19.4
–
19.4
297.5
Business Finance
Real Estate Finance
911.4
161.4
–
161.4
40.0
–
40.0
1,112.8
Commercial Finance
291.7
17.5
–
17.5
5.2
–
5.2
314.4
Total drawn exposure
2,069.5
367.9
4.8
372.7
69.0
–
69.0
2,511.2
Off balance sheet
Loan commitments
271.0
2.9
–
2.9
–
–
–
273.9
Total gross exposure
2,340.5
370.8
4.8
375.6
69.0
–
69.0
2,785.1
Less:
Impairment allowance
(18.6)
(16.7)
(3.6)
(20.3)
(22.0)
–
(22.0)
(60.9)
Provision for loan
commitments
(0.9)
–
–
–
–
–
–
(0.9)
Total net exposure
2,321.0
354.1
1.2
355.3
47.0
–
47.0
2,723.3
39.1. 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 33 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
2022
£million
2021
Central England
101.9
90.1
Greater London
689.7
619.7
Northern England
68.7
66.2
South East England (excl. Greater London)
189.5
258.7
South West England
20.4
30.7
Scotland, Wales and Northern Ireland
48.7
47.4
Gross loans and receivables
1,118.9
1,112.8
Allowance for impairment
(3.4)
(3.2)
Total
1,115.5
1,109.6
39.2. Forbearance
Consumer Finance
Throughout the year 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, 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. 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 and/or potentially placing the customer into a detrimental position at the end of the forbearance period.
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% (2021: 0.12%); and
• Vehicle Finance: 0.16% (2021: 0.12%).
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 being granted one or both of extensions to loan
maturity dates and partial or full short-term payment holidays. A small number of clients who experienced difficulties in meeting
their financial commitments were offered concessions (facility restructures) which Real Estate Finance would not have provided under
normal circumstances. As at 31 December 2022, 1.3% of accounts were classed as forborne (2021: 1.4%). 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
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 30 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:
2022
£million
2021
£million
Market value sensitivity
+200bp parallel shift in yield curve
1.8
2.7
-200bp parallel shift in yield curve
(1.9)
(2.7)
Earnings at risk sensitivity
+100bp parallel shift in yield curve
1.2
1.4
-100bp parallel shift in yield curve
(1.2)
(0.4)
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 28 for further details on the mitigation and change during the year of liquidity and funding risk.
The tables below analyse the contractual undiscounted cash flows for financial liabilities into relevant maturity groupings:
Carrying amount
£million
Gross nominal
outflow
£million
Not more
than three
months
£million
More than three
months but less
than one year
£million
More than
one year but less
than five years
£million
More than
five years
£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
Carrying amount
£million
Gross nominal
outflow
£million
Not more
than three
months
£million
More than three
months but less
than one year
£million
More than
one year but less
than five years
£million
More than
five years
£million
At 31 December 2021
Due to banks
390.8
394.1
0.1
1.0
393.0
–
Deposits from customers
2,103.2
2,131.9
752.6
807.4
566.1
5.8
Subordinated liabilities
50.9
56.8
0.8
2.5
53.5
–
Liabilities associated with assets held for sale
2.0
2.0
2.0
–
–
–
Lease liabilities
3.1
3.3
0.9
2.3
0.1
–
Other financial liabilities
18.3
18.3
18.3
–
–
–
2,568.3
2,606.4
774.7
813.2
1,012.7
5.8
Derivative financial liabilities
6.2
5.5
0.1
1.5
3.9
–
2,574.5
2,611.9
774.8
814.7
1,016.6
5.8
Company
The contractual undiscounted cash flows for financial liabilities of the Company are the same as above except for the following:
Carrying amount
£million
Gross nominal
outflow
£million
Not more
than three
months
£million
More than three
months but less
than one year
£million
More than
one year but less
than five years
£million
More than
five years
£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
Carrying amount
£million
Gross nominal
outflow
£million
Not more
than three
months
£million
More than three
months but less
than one year
£million
More than
one year but less
than five years
£million
More than
five years
£million
At 31 December 2021
Lease liabilities
2.3
2.4
0.7
1.7
–
–
Other financial liabilities
32.8
32.8
32.8
–
–
–
Non-derivative financial liabilities
2,580.0
2,618.0
787.0
812.6
1,012.6
5.8
Total
2,586.2
2,623.5
787.1
814.1
1,016.5
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.
Further information on capital is included within our Pillar 3 disclosures, which can be found on the Group’s website.
See page 29 for further details on the mitigation and change during the year of capital risk.
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. The Group has adopted the IFRS 9 transitional rules. For further detail see page 16 of the Financial review.
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.
2022
£million
(unaudited)
2021
£million
(unaudited)
CET 1
Share capital
7.5
7.5
Share premium
82.2
82.2
Retained earnings
237.5
211.7
Revaluation reserve
0.8
1.3
Own shares
(0.3)
–
IFRS 9 transition adjustments
11.7
13.9
Goodwill
(1.0)
(1.0)
Intangible assets net of attributable deferred tax
(5.6)
(4.3)
CET1 capital before foreseeable dividend
332.8
311.3
Foreseeable dividend
(5.4)
(7.7)
CET1 and Tier 1 capital
327.4
303.6
Tier 2
Subordinated liabilities
49.9
50.9
Less ineligible portion
–
(3.9)
Total Tier 2 capital
49.9
47.0
Own funds
377.3
350.6
Reconciliation to total equity:
IFRS 9 transition adjustments
(11.7)
(13.9)
Eligible subordinated liabilities
(49.9)
(47.0)
Cash flow hedge reserve
(0.8)
(0.3)
Goodwill and other intangible assets net of attributable deferred tax
6.6
5.3
Foreseeable dividend
5.4
7.7
Total equity
326.9
302.4
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
amount
£million
2022
Fair value
£million
2022
Fair value
hierarchy level
2022
Total carrying
amount
£million
2021
Fair value
£million
2021
Fair value
hierarchy level
2021
Cash and Bank of England reserve account
370.1
370.1
Level 1
234.0
234.0
Level 1
Loans and advances to banks
50.5
50.5
Level 2
52.0
52.0
Level 2
Debt securities
–
–
25.0
25.0
Level 1
Loans and advances to customers
2,919.5
2,895.6
Level 3
2,530.6
2,568.6
Level 3
Derivative financial instruments
34.9
34.9
Level 2
3.8
3.8
Level 2
Assets held for sale
–
–
1.3
1.3
Level 3
Other financial assets
1.7
1.7
Level 3
0.4
0.4
Level 3
3,376.7
3,352.8
2,847.1
2,885.1
Due to banks
400.5
400.5
Level 2
390.8
390.8
Level 2
Deposits from customers
2,514.6
2,494.0
Level 3
2,103.2
2,106.9
Level 3
Derivative financial instruments
26.7
26.7
Level 2
6.2
6.2
Level 2
Liabilities held for sale
–
–
2.0
2.0
Level 3
Lease liabilities
2.1
2.1
Level 3
3.1
3.1
Level 3
Other financial liabilities
68.1
68.1
Level 3
18.3
18.3
Level 3
Subordinated liabilities
51.1
43.5
Level 2
50.9
50.7
Level 2
3,063.1
3,034.9
2,574.5
2,578.0
All financial assets and liabilities at 31 December 2022 and 31 December 2021 were carried at amortised cost, except for derivative
financial instruments which are at fair value through profit and loss. Therefore, for these assets and liabilities, the fair value hierarchy
noted above relates to the disclosure in this note only.
Company
Total carrying
amount
£million
2022
Fair value
£million
2022
Fair value
hierarchy level
2022
Total carrying
amount
£million
2021
Fair value
£million
2021
Fair value
hierarchy level
2021
At 31 December 2022
Cash and Bank of England reserve account
370.1
370.1
Level 1
234.0
234.0
Level 1
Loans and advances to banks
48.9
48.9
Level 2
49.1
49.1
Level 2
Debt securities
–
–
25.0
25.0
Level 1
Loans and advances to customers
2,919.5
2,895.6
Level 3
2,450.3
2,487.1
Level 3
Derivative financial instruments
34.9
34.9
Level 2
3.8
3.8
Level 2
Other financial assets
4.6
4.6
Level 3
89.6
89.6
Level 3
3,378.0
3,354.1
2,851.8
2,888.6
Due to banks
400.5
400.5
Level 2
390.8
390.8
Level 2
Deposits from customers
2,514.6
2,494.0
Level 3
2,103.2
2,106.9
Level 3
Derivative financial instruments
26.7
26.7
Level 2
6.2
6.2
Level 2
Liabilities associated with assets held for sale
–
–
2.0
2.0
Level 3
Lease liabilities
1.9
1.9
Level 3
2.3
2.3
Level 3
Other financial liabilities
77.4
77.4
Level 3
32.8
32.8
Level 3
Subordinated liabilities
51.1
43.5
Level 2
50.9
50.7
Level 2
3,072.2
3,044.0
2,588.2
2,591.7
All financial assets and liabilities at 31 December 2022 and 31 December 2021 were carried at amortised cost except for derivative
financial instruments which 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 subordinated liabilities are calculated based on quoted market prices where available, or where an active market quote
is not available, a proxy is used from similar issuances.
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 which are controlled, jointly controlled or significantly influenced, or for which significant voting
power is held, by Key Management Personnel or their close family members.
No transactions 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:
2022
£million
2021
£million
Interest income and similar income
(26.2)
(21.0)
Gain on sale of defaulted debt
0.2
0.1
Operating expenses
(0.4)
(0.7)
Waiver of intercompany balance
(0.2)
–
Investment income
14.0
4.8
(12.6)
(16.8)
Equity contribution to subsidiaries re. share-based payments
0.4
0.2
The loans and advances with, and amounts receivable and payable to, related companies are noted below:
Company
2022
£million
Company
2021
£million
Amounts receivable from subsidiary undertakings
3.1
89.3
Amounts due to subsidiary undertakings
(12.4)
(17.9)
(9.3)
71.4
All amounts above are repayable on demand and the Company charged interest at a variable rate on amounts outstanding.
Directors’ remuneration
The Directors’ emoluments (including pension contributions and benefits in kind) for the year are disclosed in the Directors’
Remuneration Report beginning on page 80.
At the year-end the ordinary shares held by the Directors are disclosed in the Directors’ Remuneration Report beginning on page 80.
Details of the Directors’ holdings of share options, as well as details of those share options exercised during the year, are also disclosed
The Capital Requirements (Country-by-Country Reporting) Regulations 2013 introduced reporting obligations for institutions within the
scope of CRD V. The requirements aim to give increased transparency regarding the activities of institutions. The Country-by-Country
Information is set out below:
Name
Nature
of activity
Location
Turnover
£million
Average
number of FTE
employees
Profit before tax
£million
Tax paid
on profit
£million
31 December 2022
Secure Trust Bank PLC
Banking
services
UK
208.3
940
44.0
7.0
31 December 2021
Secure Trust Bank PLC
Banking
services
UK
194.3
973
56.0
47.1 Subordinated liabilities
On 28 February 2023, the Group and Company issued £90.0 million 13.0% Fixed Rate Reset Callable Subordinated Notes due August
2033 (the ‘New Notes’). The New Notes are treated as Tier 2 regulatory capital and 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 Group and Company redeemed all of its existing 6.75%. Fixed Rate Reset Callable Subordinated Notes due in 2028 in two
tranches: £25.0 million on 28 February 2023; and £25.0 million on 20 March 2023.
47.2 Loans and advances to customers
Post year end, a dispute has arisen between a Business Finance client of the Group and its customer. As a result of this post balance
sheet event, the client is now in default and the Group is evaluating its options to recover amounts due to it through its legal security
and other such rights. Until this evaluation has been completed, the Group cannot reasonably quantify any cash shortfalls which could
Notes to the financial statements
continued
Financial Statements
180
Secure Trust Bank PLC
Annual Report & Accounts 2022
Five-year summary (unaudited)
2022
£million
Restated
2021
£million
Restated
2020
£million
Total
2019
£million
Total
2018
£million
Profit for the year
Continuing operations
Interest and similar income
203.0
163.9
173.1
191.4
169.2
Interest expense and similar charges
(50.4)
(27.7)
(39.4)
(46.0)
(35.5)
Net interest income
152.6
136.2
133.7
145.4
133.7
Net fee and commission income
17.0
12.7
10.8
20.1
17.9
Operating income
169.6
148.9
144.5
165.5
151.6
Net impairment charge on loans and advances to customers
(38.2)
(5.0)
(41.4)
(32.6)
(32.4)
Gains/(losses) on modification of financial assets
1.1
1.5
(3.1)
–
–
Fair value losses on financial instruments
(0.3)
(0.1)
–
–
–
Operating expenses
(93.2)
(89.4)
(81.8)
(96.8)
(84.5)
Profit before income tax
39.0
55.9
18.2
36.1
34.7
Discontinued operations
Profit before income tax
5.0
0.1
0.9
–
–
Total profit before income tax
44.0
56.0
19.1
36.1
34.7
Continuing
2022
£million
Continuing
2021
£million
Continuing
2020
£million
2019
£million
2018
£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
158.5
244.1
82.7
168.3
153.2
2022
£million
2021
£million
2020
£million
2019
£million
2018
£million
Financial position
Cash and Bank of England reserve account
370.1
234.0
181.5
105.8
169.7
Loans and advances to banks
50.5
52.0
63.3
48.4
44.8
Debt securities
–
25.0
–
25.0
149.7
Loans and advances to customers
2,919.5
2,530.6
2,358.9
2,450.1
2,028.9
Fair value adjustment for portfolio hedged risk
(32.0)
(3.5)
5.7
(0.9)
–
Derivative financial instruments
34.9
3.8
4.8
0.9
–
Other assets
37.3
44.0
47.0
51.4
51.2
Total assets
3,380.3
2,885.9
2,661.2
2,680.7
2,444.3
Due to banks
400.5
390.8
276.4
308.5
263.5
Deposits from customers
2,514.6
2,103.2
1,992.5
2,020.3
1,847.7
Fair value adjustment for portfolio hedged risk
(23.0)
(5.3)
4.7
(0.7)
–
Derivative financial instruments
26.7
6.2
6.1
0.6
–
Subordinated liabilities
51.1
50.9
50.8
50.6
50.4
Other liabilities
83.5
37.7
63.1
49.4
45.6
Total shareholders’ equity
326.9
302.4
267.6
252.0
237.1
Total liabilities and shareholders’ equity
3,380.3
2,885.9
2,661.2
2,680.7
2,444.3
The 2021 and 2020 profits for the year have been restated to reflect the disclosure of discontinued operations.
Secure Trust Bank PLC
Annual Report & Accounts 2022
181
Strategic Report
Corporate Governance Report
Financial Statements
Key performance indicators and other alternative performance measures
All key performance indicators are based on continuing operations and continuing loans and advances to customers, unless
otherwise stated.
(i) Continuing loans and advances to customers
A reconciliation of total loans and advances to customers to continuing operations loans and advances to customers is set out below:
2022
£million
2021
£million
2020
£million
Loans and advances to customers
2,919.5
2,530.6
2,358.9
Assets held for sale – loan portfolios
–
1.3
–
Total loans and advances to customers
2,919.5
2,531.9
2,358.9
Less discontinued loans and advances to customers:
Asset Finance (sold during 2021)
–
–
(10.4)
DMS (sold during 2022)
–
(79.6)
(81.8)
Consumer Mortgages (sold during 2021)
–
–
(77.7)
Other
–
(1.3)
(4.1)
Total discontinued operations loans and advances to customers
–
(80.9)
(174.0)
Continuing loans and advances to customers
2,919.5
2,451.0
2,184.9
(ii) Net interest margin ratio
Net interest margin is calculated as interest income and similar income less interest expense and similar charges 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:
2022
£million
2021
£million
Interest income and similar
203.0
163.9
Interest expense and similar charges
(50.4)
(27.7)
Net interest income
152.6
136.2
Opening loan book
2,451.0
2,184.9
Closing loan book
2,919.5
2,451.0
Average loan book
2,699.3
2,240.5
Net interest margin
5.7%
6.1%
The net interest margin ratio measures the yield net of funding costs of the loan book
Appendix to the Annual Report (unaudited)
Financial Statements
182
Secure Trust Bank PLC
Annual Report & Accounts 2022
Key performance indicators and other alternative performance measures
continued
(iii) Loans and advances to customers annual growth rate
Annual growth rate is calculated as the annualised growth in loans and advances to customers based on the number of days in the
period since 31 December 2020:
2022
£million
2021
£million
Loans and advances to customers as at 31 December
2,919.5
2,451.0
Loans and advances to customers as at 31 December 2020
2,184.9
2,184.9
Compound annual growth rate
15.6%
12.2%
The annual growth rate measures how quickly the loan book is growing, measured against a 2020 benchmark.
(iv) Total return on average equity
Annualised return on average equity is calculated as the total 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.
2022
£million
2021
£million
Total profit after tax
33.7
45.6
Opening equity
302.4
267.6
Closing equity
326.9
302.4
Average equity
313.7
287.0
Return on average equity
10.7%
15.9%
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
Cost to income ratio is calculated as operating expenses for the financial year as a percentage of operating income for the
financial year:
2022
£million
2021
£million
Operating expenses
93.2
89.4
Operating income
169.6
148.9
Cost to income ratio
55.0%
60.0%
The cost to income ratio measures how efficiently the Group is utilising its cost base in producing 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
2022
£million
2021
£million
Net impairment charge on loans and advances to customers
38.2
5.0
Gains on modification of financial assets
(1.1)
(1.5)
Total
37.1
3.5
Average loan book
2,699.3
2,240.5
Cost of risk
1.4%
0.2%
The cost of risk measures how effective the Group has been in managing the credit risk of its lending portfolios
Secure Trust Bank PLC
Annual Report & Accounts 2022
183
Strategic Report
Corporate Governance Report
Financial Statements
(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
2022
£million
2021
£million
Interest expense and similar charges
50.4
27.7
Average loan book
2,699.3
2,240.5
Cost of funds
1.9%
1.2%
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, being the sum of deposits from customers, borrowings under the
Bank of England’s liquidity support operations, Term Funding Scheme with additional incentives for SMEs, Tier 2 capital and equity,
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:
2022
£million
2021
£million
Deposits from customers
2,514.6
2,103.2
Borrowings under the Bank of England’s liquidity support operations –
Term Funding Scheme with additional incentives for SMEs (including accrued interest)
392.8
390.1
Tier 2 capital (including accrued interest)
51.1
50.9
Equity
326.9
302.4
3,285.4
2,846.6
Total loans and advances to customers
2,919.5
2,531.9
Funding ratio
112.5%
112.4%
Loan to deposit ratio
116.1%
120.4%
The funding ratio and loan to deposit ratio measure the Group’s excess of funding which 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.
2022
£million
2021
£million
Profit before income tax
39.0
55.9
Excluding:
Net impairment charge on loans and advances to customers
38.2
5.0
Gains on modification of financial assets
(1.1)
(1.5)
Profit before tax pre impairments
76.1
59.4
Profit before tax pre impairments measures the operational performance of the business.
Appendix to the Annual Report (unaudited)
continued
Financial Statements
184
Secure Trust Bank PLC
Annual Report & Accounts 2022
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/our-corporate-information/risk-management
.
Compound Annual
Growth Rate (‘CAGR’)
CAGR is the annual growth rate calculated as the annualised compound growth in continuing loans
and advances to customers since 31 December 2020.
CET 1 capital
Common Equity Tier 1 capital comprises share capital, share premium, retained earnings, revaluation
reserve 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 of 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. These 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.
Secure Trust Bank PLC
Annual Report & Accounts 2022
185
Strategic Report
Corporate Governance Report
Financial Statements
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.
Both schemes 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.
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 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
continued
Financial Statements
186
Secure Trust Bank PLC
Annual Report & Accounts 2022
Secretary and Registered Office
M P D Stevens FCG
One Arleston Way
Shirley
Solihull
West Midlands
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
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
Stifel Nicolaus Europe Limited
150 Cheapside
London
EC2V 6ET
Registrar
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
Corporate contacts and advisers
Secure Trust Bank PLC
Annual Report & Accounts 2022
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Strategic Report
Corporate Governance Report
Financial Statements
Financial Statements
188
Secure Trust Bank PLC
Annual Report & Accounts 2022
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