TIDMCCFS
RNS Number : 3554Y
Charter Court Financial Svs Grp PLC
21 August 2018
Press release
21 August 2018
This announcement contains information in the table on page 1
and the penultimate paragraphs on pages 2 and 6 that, prior to its
publication, is inside information.
Interim results for the six months ended 30 June 2018
A strong half for originations and profitability
Financial highlights([1])
H1 2018 H1 2017 FY 2017
Net interest income GBP84.4m GBP65.3m GBP144.1m
---------- ---------- ----------
Net interest margin 3.08% 3.17% 3.19%
---------- ---------- ----------
Profit before tax[2] GBP93.1m GBP59.3m GBP111.7m
---------- ---------- ----------
Profit after tax GBP71.1m GBP43.6m GBP81.3m
---------- ---------- ----------
Loan book GBP5,694m GBP4,415m GBP5,364m
---------- ---------- ----------
Mortgage originations GBP1,357m GBP1,305m GBP2,737m
---------- ---------- ----------
Retail deposits balance GBP4,263m GBP3,977m GBP4,420m
---------- ---------- ----------
Cost income ratio2 24.8% 31.0% 34.1%
---------- ---------- ----------
Cost of risk 0.025% 0.004% 0.011%
---------- ---------- ----------
Return on equity2 38.4% 34.1% 28.6%
---------- ---------- ----------
Earnings per share
---------- ---------- ----------
* basic 29.7p 18.9p 35.0p
---------- ---------- ----------
* diluted 29.5p 18.9p 34.9p
---------- ---------- ----------
Dividend per share 2.8p - -
---------- ---------- ----------
Continued balance sheet growth
-- H1 loan book of GBP5,694 million up 29.0% year on year (H1
2017: 58.4%, FY 2017: 40.9%) or 41.7% (H1 2017: 69.2%, FY
2017: 48.7%) excluding the impact of structured asset sales
(see below), driven by strong origination volumes
Rigorous risk management maintained
-- Disciplined underwriting reflected in strong credit performance across lending portfolio with
sector leading cost of risk of 0.025%
-- Only 0.4% of loan book one month or greater in arrears (30 June 2017: 0.3%, 31 December 2017:
0.3%) and 0.1% three months or greater in arrears (30 June 2017: 0.1%, 31 December 2017: 0.1%)
Continued success of dynamic funding strategy
-- Successful execution of three securitisation transactions ("the H1 securitisation transactions")
totalling GBP906.1 million (FY 2017: two securitisations totalling GBP597.3 million) and sale
of economic interest in two securitisations ("the structured asset sales") resulting in an
aggregate gain of GBP36.4 million (H1 and FY 2017: one structured asset sale resulting in
a gain of GBP17.7 million)
-- Retail savings deposit base increased by 7.2% year-on-year to GBP4,263 million (30 June 2017:
GBP3,977 million, 31 December 2017: GBP4,420 million)
-- Term Funding Scheme ("TFS") drawings increased by GBP150.0 million to GBP1,147.8 million
Strong profitability driving improved returns
-- Robust net interest margin of 3.08% in line with 2018 guidance (H1 2017: 3.17%, FY 2017: 3.19%)
-- Cost income ratio further reduced to 24.8% (H1 2017: 31.0%, FY 2017: 34.1%) reflecting disciplined
cost control combined with higher income
-- Return on equity increased to 38.4% (H1 2017: 34.1%, FY 2017: 28.6%) driven by the structured
asset sales
Interim dividend
-- Announcing inaugural dividend of 2.8p per share reflecting a payout ratio of 25%
-- Positive first half performance, a confident outlook for 2018 and the medium term, and a strong
capital position underpins Board's decision to lift dividend payout ratio to 25% of earnings,
whilst maintaining a progressive dividend policy thereafter
Ian Lonergan, CEO of Charter Court, said:
"We continued to make progress in the first half of 2018,
delivering against or exceeding all of our targets.
"Steady growth in our balance sheet was maintained, with
originations driven primarily by the strong uptake of our
specialist buy to let products designed for the growing
sophistication of our chosen market segments.
"This positive result was achieved whilst controlling risk
efficiently and effectively, maintaining the high quality of our
mortgage book.
"Our asset growth remains supported by the strength of our
capital markets execution capabilities demonstrated by the
attractively priced securitisations and structured asset sales
delivered during the first half, positioning us extremely well in a
post TFS funding environment.
"Our cost income ratio, whilst being below our medium term
target due to the impact of structured asset sales in the period,
continues to benefit from our high operating leverage and our
scalable platforms.
"We are also delighted to announce our inaugural dividend for H1
2018 of 2.8p per share.
"We remain well capitalised for future growth and remain on
track to deliver against our medium term targets."
Enquiries:
Analysts and investors
Charter Court 019 0262 5929
Sebastien Maloney, Chief Financial Officer
Citigate Dewe Rogerson 020 7638 9571
Sandra Novakov
Michael Russell
Media
Citigate Dewe Rogerson 020 7638 9571
Andrew Hey
Caroline Merrell
Analyst and investor presentation
A presentation for analysts and investors will be held at 10am
on 21 August 2018 at the South Place Hotel, 3 South Place, London
EC2M 2AF.
Participants will be able to take part via a conference call
facility by dialling +44 (0) 20 3003 2666 or 0808 109 0700
(Password: Charter Court Financial Services). A live audio webcast
of the presentation will be broadcast on our IR website at
http://www.chartercourtfs.co.uk/InvestorCentre.
Cautionary statement
This Interim Management Report ("IMR") has been prepared solely
to provide additional information to shareholders to assess the
Group's strategies and the potential for those strategies to
succeed. The IMR should not be relied on by any other party or for
any other purpose. The IMR contains certain forward--looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the time of
their approval of this report but such statements should be treated
with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such
forward--looking information.
Forward-Looking Statements
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". Forward-looking statements are
statements that are not historical facts and may be identified by
words such as "intend", "aim", "project", "anticipate", "estimate",
"plan", "believes", "expects", "may", "envisage", "should", "will",
"target", "continues", "set to", or similar expressions. These
forward-looking statements involve substantial known and unknown
risks, uncertainties, assumptions, estimates and other factors
which may be beyond the control of Charter Court Financial Services
Group plc ("Charter Court") and its subsidiaries (together, "the
Group"). Actual results and developments may differ materially from
those expressed or implied by these statements and depend on a
variety of factors. These statements are made in respect of Charter
Court's intentions or future beliefs and current expectations at
the time made concerning, among other things, Charter Court's
results of operations, financial condition, liquidity, prospects,
growth and strategies. In light of these risks, uncertainties and
assumptions, actual results could be materially different from
projected future results expressed or implied by these
forward-looking statements which speak only as to the date of this
announcement. The Group cannot guarantee that its forward-looking
statements will not differ materially from actual results. Charter
Court disclaims any obligation to update any forward-looking
statements in this announcement that may occur due to any change in
its expectations or to reflect events or circumstances after the
date of this announcement. Undue reliance should not be placed on
any forward-looking statement.
About Charter Court Financial Services Group plc ("Charter
Court")
Charter Court is one of the UK's leading specialist challenger
banks by originations, founded in 2008 by its senior management
team and purpose built to focus on specialist buy to let,
residential, bridging and second charge mortgage lending. We
operate through our three brands - Precise Mortgages, Exact
Mortgage Experts and Charter Savings Bank - providing buy to let
and specialist residential mortgages; mortgage servicing,
administration and credit consultancy; and retail savings
products.
We have continued to grow in our chosen markets and to translate
that growth into strong financial and operational performance. At
30 June 2018, our total mortgage balances stood at GBP5.7 billion
generated through our relationships with more than 21,000
registered introducers nationwide, whilst Charter Savings Bank held
GBP4.3 billion in retail deposits at the same date from around
125,000 retail savings accounts.
Underpinning our success, our risk management expertise and
technology and systems ensure efficient processing, strong credit
and collateral risk control and speed of product development and
innovation. These factors have enabled our strong balance sheet
growth whilst maintaining the high credit quality of our mortgage
assets.
Charter Court was admitted to the main market of the London
Stock Exchange in October 2017 (CCFS.L). Charter Court Financial
Services Limited, a subsidiary of the Group, is authorised by the
Prudential Regulation Authority ("PRA") and regulated by the
Financial Conduct Authority ("FCA") and the PRA. Charter Mortgages
Limited, also a subsidiary of the Group, is authorised and
regulated by the FCA.
Chief Executive Officer's review
During the first half of 2018 we benefited from the momentum
developed during 2017, delivering continued growth and increased
profitability at Charter Court.
Market dynamics remain supportive
The buy to let market remained resilient in H1 2018 following
two years of significant regulatory change. The purchase market
softened to GBP4.5 billion in the first six months of 2018 (first
six months 2017: GBP5.2 billion)[3], with a shift towards
specialist buy to let solutions such as limited company lending.[4]
Remortgage volumes increased to GBP13.4 billion in the same period
(first six months 2017: GBP11.7 billion) as borrowers took
advantage of low interest rates, with GBP5.5 billion of the total
fixed for five years.
The residential mortgage market remained stable in H1 2018 as
historically low bank base rates were offset by the economic
uncertainty driven by the ongoing Brexit negotiations. Residential
mortgage volumes totalled GBP64.5 billion in the first six months
of 2018 (first six months 2017: GBP63.5 billion), with GBP28.5
billion generated by first time buyers and GBP36.0 billion
generated by home movers.[5]
The funding market was also supportive during H1 2018, with UK
residential mortgage backed security ("RMBS") spreads reaching a
post crisis low in Q1 2018.[6]
Maintaining our strong balance sheet growth
Charter Court's loan book continued to grow in H1 2018
increasing 29.0% year on year (H1 2017: 58.4%, FY 2017: 40.9%), and
41.7% on an underlying[7] basis (H1 2017: 69.2%, FY 2017: 48.7%).
Of the GBP1.4 billion of new originations during the period, growth
was primarily delivered through the continued uptake of our buy to
let and specialist residential mortgage propositions, as we
captured increased demand for professional buy to let products and
non-standard residential mortgages. We continued to enhance our
lending proposition by refining our product range and further
improving our distribution and service standards.
Implementing our flexible approach to funding
During the first half of the year, we were proactive in the
implementation of our dynamic funding strategy and took advantage
of favourable conditions in wholesale markets to minimise our
funding costs.
As a result, our retail deposit book remained broadly flat
during the first half as we shifted our focus to customer retention
rather than acquisition.
The H1 securitisation transactions had a combined value of over
GBP900 million, surpassing our total issuance for the whole of
2017. Additionally, strong demand for equity tranches in our
securitisations allowed us to complete two structured asset sales
at attractive prices, recognising a gain on sale of GBP36.4
million, maximising shareholder value and in-line with our
strategy.
Delivering robust financial performance
The Group continued to perform well during the first half of the
year and the strong performance achieved across the business
resulted in a 57.0% increase in profit before tax to GBP93.1
million from GBP59.3 million in H1 2017.
This growth was primarily attributable to the significant
increase in our net interest income for the six months ended 30
June 2018 where we have managed to maintain a robust net interest
margin, as well as the gains on the structured asset sales. Profit
after tax for the six months ended 30 June 2018 rose to GBP71.1
million, from GBP43.6 million a year earlier.
Summary and Outlook
We continue to see robust demand for our specialist lending
proposition which we expect to translate into further growth and
returns in the second half through the efficiency of our unique
business model that combines deep credit know-how and proprietary
analytics, our extensive intermediary network and our scalable,
bespoke operating platform that maintains the high quality of our
underwriting.
On the liability side, we intend to continue to price our retail
savings products tactically in the second half, to optimise our
cost of funds and deliver a balanced funding mix. We will also
continue to explore diversification opportunities to enhance
further our competitive position in the savings market. We
continually monitor capital markets conditions and, as demonstrated
in the first half of the year, will continue to execute
transactions when market conditions are favourable. While we do not
expect to complete any structured asset sales in H2 2018, we
anticipate realising a c. GBP15 million gain on sale from a
structured asset sale in H1 2019.
Based on our robust first half performance and outlook for the
remainder of 2018 we are increasing our guidance on organic
originations to c. GBP2.7 billion for the full year from c. GBP2.5
billion previously. We continue to target a net interest margin of
greater than 300 basis points for the year. Reflecting the impact
of the structured asset sales, the strong increase in net interest
income and our high operating leverage, we expect both our cost
income ratio and return on equity to be better than our medium term
guidance.
Considering Charter Court's strong capital position and
reflecting confidence in its strategy and positive medium term
outlook, the Board has adopted a progressive dividend policy with a
payout ratio of 25% of earnings for 2018 and maintains its
progressive dividend policy objective thereafter.
Going forward, the interim dividend will be based on one third
of the prior year's total dividend. In line with this the Board has
declared an interim dividend to ordinary shareholders based on one
third of 25% of the profit after tax for the year ended 31 December
2017. The dividend of 2.8 pence per share is payable 4 October
2018.
The Group remains well capitalised with an anticipated CET1
ratio in excess of 15% for the full year.
Charter Court remains on track to deliver against its medium
term financial targets as set out below.
KPI Medium term target
Loan book growth >20%[8]
-----------------------------------------
Cost income ratio Low 30s (%)
-----------------------------------------
Cost of risk Sector leading
-----------------------------------------
Return on equity Mid 20s (%)
-----------------------------------------
CET1 Minimum 13%
-----------------------------------------
Dividend payout Minimum 25% payout ratio and progressive
-----------------------------------------
Ian Lonergan
Chief Executive Officer
Financial review
Group highlights
Loan book growth of 29.0%
Charter Court's loan book growth to GBP5.7 billion at 30 June
2018 (30 June 2017: GBP4.4 billion, 31 December 2017: GBP5.4
billion) reflects strong mortgage origination volumes taking into
account the derecognition of assets on structured asset sales,
which reduces the loan book.
Balance sheet - key items (GBPm) As at As at Change As at
30 June 30 June 31 December
2018 2017 2017
Customer loans and receivables 5,693.8 4,415.5 29.0% 5,364.2
--------- --------- ------- -------------
Cash and cash equivalents 920.3 878.5 4.8% 966.8
--------- --------- ------- -------------
Total assets 6,695.5 5,465.4 22.5% 6,424.4
--------- --------- ------- -------------
Deposits from banks 1,157.5 880.2 31.5% 1,003.5
--------- --------- ------- -------------
Deposits from customers 4,262.6 3,976.7 7.2% 4,420.0
--------- --------- ------- -------------
Debt securities in issue 825.7 297.5 177.5% 627.4
--------- --------- ------- -------------
Total liabilities 6,289.0 5,187.8 21.2% 6,089.4
--------- --------- ------- -------------
Equity attributable to equity holders of the parent and total equity 406.5 277.6 46.4% 335.0
--------- --------- ------- -------------
Low cost of risk maintained
As a result of our continued focus on credit quality,
disciplined risk management and extensive experience in specialist
mortgage risk assessment, only 0.1% of the Group's loan book was
three months or greater in arrears at 30 June 2018 (30 June 2017:
0.1%, 31 December 2017: 0.1%). This is reflected in our low cost of
risk on an IFRS 9 basis of 0.025% for the six months ended 30 June
2018 (30 June 2017: 0.004%, 31 December 2017: 0.011%, both on an
IAS 39 basis). We maintain our guidance that we will continue to
demonstrate a market leading cost of risk over the medium term.
Funding mix optimised through further securitisation
issuance
Charter Court's retail deposit customer base remained stable
during the period, at GBP4.3 billion at 30 June 2018 (30 June 2017:
GBP4.0 billion, 31 December 2017: GBP4.4 billion).
We continued to benefit from access to wholesale funding through
securitisations and warehouse facilities. Securitisation
transactions amounted to total issuance of GBP906.1 million during
H1 2018 (FY 2017: two securitisations totalling GBP597.3 million).
The two structured asset sales the Group executed in H1 2018
resulted in the derecognition of GBP562.5 million of underlying
mortgage assets and associated risk weighted assets ("RWAs") (2017:
one structured asset sale amounting to GBP300.0 million of
underlying mortgage assets and associated RWAs), while generating
an aggregate gain on sale of GBP36.4 million (H1 2017: GBP17.7
million).
Combined with an additional GBP150.0 million of Bank of England
TFS drawdowns, (six months to 30 June 2017: GBP857.8 million, year
to 31 December 2017: GBP977.8 million), this allowed us to further
optimise the balance of our funding mix and extend the weighted
average life of our liabilities. As a result, at 30 June 2018 the
Group's loan to deposit ratio has increased to 133.6% (30 June
2017: 111.1%, 31 December 2017: 121.4%).
Our ability to identify market opportunities, execute tactical
transactions and operate swiftly positions us well in a world post
TFS.
Income statement - key items Six months Six months Change Year ended
(GBPm) ended ended 31 December
30 June 30 June 2017
2018 2017
Net interest income 84.4 65.3 29.2% 144.1
----------- ----------- ------- --------------
Total income 124.7 86.0 45.0% 170.2
----------- ----------- ------- --------------
Administrative expenses (30.9) (26.7) 15.7% (58.0)
----------- ----------- ------- --------------
Profit before tax 93.1 59.3 57.0% 111.7
----------- ----------- ------- --------------
Tax (22.0) (15.7) 40.1% (30.4)
----------- ----------- ------- --------------
Profit after tax 71.1 43.6 63.1% 81.3
----------- ----------- ------- --------------
Profit after tax up 63.1%
Our profit before tax increased to GBP93.1 million in H1 2018
(H1 2017: GBP59.3 million), reflecting a significant increase in
net interest income and gains on the structured asset sales (see
below).
The effective tax rate for the period was 23.6% (H1 2017: 26.4%,
FY 2017: 27.2%) reflecting reductions in the rate of UK corporation
tax.
Profit after tax for H1 2018 was up 63.1% to GBP71.1 million (H1
2017: GBP43.6 million).
Total income up 45.0%
Driven by continued growth of the mortgage loan book, our
interest income and similar income increased by 31.1%, to GBP127.4
million (H1 2017: GBP97.2 million), mainly due to the continued
expansion of the mortgage origination business, funded principally
through securitisations and TFS drawdowns.
Interest expense and similar charges increased by 34.8% percent
to GBP43.0 million in H1 2018, (H1 2017: GBP31.9 million).
The Group's net interest income increased by 29.2% to GBP84.4
million (H1 2017: GBP65.3 million). Net interest margin in H1 2018
was 3.08% (H1 2017: 3.17%).
The structured asset sales resulted in the full derecognition of
the underlying mortgage assets and delivered net gains on sale
totalling GBP36.4 million (H1 2017: GBP17.7 million).
Our total income for the period increased by 45.0% to GBP124.7
million (H1 2017: GBP86.0 million).
Cost income ratio improved further
Administrative expenses increased by 15.7% to GBP30.9 million in
H1 2018 (H1 2017: GBP26.7 million), principally as a result of
increased staff costs and associated support expenses, reflecting
the growth of the business. The average number of staff increased
in the period to 557 (30 June 2017: 430; 31 December 2017: 462). In
H1 2017 expenses included GBP2.3 million of costs associated with
the IPO and private sale costs; no such costs were incurred in H1
2018.
The cost income ratio decreased from 31.0% in H1 2017 to 24.8%
in H1 2018 reflecting strong growth in income, the scalability of
our operations and the benefits of our high operating leverage as
our balance sheet continues to grow.
Following the adoption of IFRS 9 on 1 January 2018, the charge
for provision for loan impairments on a expected loss basis in the
six months to 30 June 2018 was GBP0.7 million (H1 2017: on an IAS
39 incurred loss basis, GBPnil). For further explanation of the
change in accounting policy see note 3 in the condensed financial
statements.
Effective liquidity management
The Group predominantly offers term deposits and notice accounts
to retail depositors. These deposits have a more predictable
liquidity profile than easy access accounts and as at 30 June 2018
they represented 89% of all retail savings accounts.
At 30 June 2018, the Group held GBP751.2 million (31 December
2017: GBP848.0 million) of its liquid assets in Bank of England
reserve account balances and GBP97.1 million (31 December 2017:
GBP34.5 million) of liquid assets in balances held with tier 1 UK
banking institutions, comfortably exceeding regulatory
requirements.
Robust capitalisation supports growth strategy
With a strong CET1 ratio of 16.6%[9] at 30 June 2018 (31
December 2017: 15.6%) and a leverage ratio of 5.67% comfortably
above the Bank of England requirement of 3.25%, Charter Court
remains well capitalised.
In June 2018, the Group received from the Prudential Regulatory
Authority notification of its total capital requirement ("TCR")
which is as follows:
Consolidated - a minimum amount of capital of 10.58% of RWAs
with no fixed add-on.
Individual - a minimum amount of capital of 10.65% of RWAs with
no fixed add-on.
The Group's preparations for adoption of the internal ratings
based approach ("IRB") are progressing apace and have considerable
traction. The resultant improvements in the credit risk management
framework are expected to pave the way for lower risk weights under
the IRB approach than the current standardised approach, thus
reducing regulatory credit risk capital requirements, bringing
important benefits.
Business review by segment
Lending
Highlights
-- New originations increased by 3.9% year on year GBP1,356.7 million (FY 2017: GBP2,737.3 million
and H1 2017: GBP1,305.4 million)
-- Loan book was up by 29.0% year on year, to GBP5,693.8 million (30 June 2017: GBP4,415.5 million)
Underlying loan book[10] was up 41.7% excluding the impact of the structured asset sales
-- Net interest income of GBP84.5 million (H1 2017: GBP63.7 million and FY 2017: GBP141.3 million)
-- Profit contribution up 32.1% to GBP86.1 million (H1 2017: GBP65.2 million and FY 2017: GBP144.5
million)
Profit by lending segment
Buy to let Residential Short term lending Second charge lending Total
Six months ended 30 June 2018 GBPm GBPm GBPm GBPm GBPm
Net interest income 47.6 26.2 7.6 3.1 84.5
Fees and commissions income 0.9 1.2 0.1 0.1 2.3
Provisions for loan impairments (0.4) (0.3) - - (0.7)
----------- ------------ ------------------- ---------------------- ------
Profit contribution 48.1 27.1 7.7 3.2 86.1
=========== ============ =================== ====================== ======
Six months ended 30 June 2017
Net interest income 30.8 22.1 8.0 2.8 63.7
Fees and commissions income 0.5 0.9 0.1 - 1.5
Provisions for loan impairments - - - - -
----------- ------------ ------------------- ---------------------- ------
Profit contribution 31.3 23.0 8.1 2.8 65.2
=========== ============ =================== ====================== ======
Profit contribution is equal to segment profit, excluding other, as per note 4 of the condensed
financial statements
Continued focus on distribution and service standards
During H1 2018, Charter Court successfully maintained its
distribution leadership across more than 21,000 registered
introducers nationwide and affirmed its position as one of the
largest single specialist bank providers through the country's
leading mortgage clubs and networks.
The Group's 'Broker Journey' project continued to deliver non
system based service improvements aimed at providing increased
volumetric activity, increasing conversion rates and reducing time
to offer. A recent survey commissioned through independent market
research group BDRC[11] showed Precise Mortgages ranking first
versus its peer group in the following measures: efficient online
application, efficient case communications, efficient offer
processing and clear and consistent underwriting.
In H1 2018, the Group commenced a review of its sales
proposition with a view to delivering national sales coverage
through both a technology and telephony-based channel whilst
optimising the use of field based sales force.
Buy to let
Highlights
-- New originations GBP835.3 million (FY 2017: GBP1,592.1 million and H1 2017: GBP756.1 million)
-- Loan book up by 20.7% from year end to GBP3,902.4 million (31 December 2017: GBP3,232.2 million
and 30 June 2017: GBP2,526.2 million)
-- Net interest income of GBP47.6 million (H1 2017: GBP30.8 million and FY 2017: GBP69.8 million)
-- Profit contribution up 53.7% to GBP48.1 million (H1 2017: GBP31.3 million and FY 2017: GBP70.7
million)
During the first half of 2018, Charter Court saw a sustained
shift in demand towards specialist buy to let products of the type
the Group offers.
Charter Court further developed its proposition for landlords
with limited company structures and remained active in the houses
in multiple occupation ("HMO") market. With a range of five-year
fixed term products and the launch of its income supported buy to
let proposition, Charter Court continued to offer a variety of
options for landlords who do not fit the profile required by high
street lenders.
Such proactive new product development and effective management
of mortgage applications allowed the Group to maintain its strong
competitive position in this market. The BDRC report showed Charter
Court as the No.1 lender mentioned by intermediaries for limited
company buy to let lending.
As a result, originations for the first half of 2018 increased
by 10.5% to GBP835.3 million (H1 2017: GBP756.1 million). Net
interest income increased from GBP30.8 million in H1 2017 to
GBP47.6 million in the same period of 2018.
Buy to let mortgages represent 69% of Charter Court's total loan
book.
Residential
Highlights
-- New originations GBP362.9 million (FY 2017: GBP770.6 million and H1 2017: GBP356.2 million)
-- Loan book down by 18.9% from year end to GBP1,412.4 million (FY 2017: GBP1,742.3 million and
H1 2017: GBP1,509.0 million) due to the structured asset sales
-- Underlying loan book up 13.4% excluding the impact of the structured asset sales
-- Net interest income of GBP26.2 million (H1 2017: GBP22.1 million and FY 2017: GBP49.2 million)
-- Profit contribution up 17.8% to GBP27.1 million (H1 2017: GBP23.0 million and FY 2017: GBP51.2
million)
The specialist residential market also remained robust during H1
2018 supported by strong demand for help to buy and new build
products.
In addition to distribution improvements, during H1 2018 the
Group added an interest only proposition to its product range. As a
result, Charter Court maintained its No.1 ranking in the BDRC
report for intermediaries looking to place residential lending with
adverse credit, with 68% of intermediaries surveyed recommending
Precise Mortgages for this type of lending.
Originations for the first half of 2018 were slightly ahead at
GBP362.9 million compared with GBP356.2 million for the six months
to 30 June 2017. Net interest income from specialist residential
mortgages increased from GBP22.1 million in the first half of 2017
to GBP26.2 million.
Charter Court remains focused on delivering further improvements
to its specialist residential proposition through the Group's new
product development programme. The Group sees potential growth
opportunities in the retirement market, where favourable regulatory
changes have recently been introduced.
Specialist residential mortgages represent 25% of Charter
Court's total loan book.
Short term lending (Bridging)
Highlights
-- New originations GBP131.4 million (FY 2017: GBP314.2 million and H1 2017: GBP162.0 million)
-- Loan book down by 7.0% to GBP203.5 million from year end (31 December 2017: GBP218.9 million
and 30 June 2017: GBP218.2 million)
-- Net interest income of GBP7.6 million (H1 2017: GBP8.0 million and FY 2017: GBP16.4 million)
-- Profit contribution down 4.9% to GBP7.7 million (H1 2017: GBP8.1 million and FY 2017: GBP16.6
million)
In the first two months of 2018 Charter Court chose not to react
to competitive movements in its core bridging market. Activity
remained acceptable and throughout this period the Group maintained
its focus on high quality, low risk bridging finance.
In late Q1 2018 Charter Court took the opportunity to
restructure its product range and introduced product enhancements
to successfully drive renewed growth. Q2 2018 delivered notably
increased applications levels relative to Q1 2018 and the same
period last year. This trend was supported by a restructured sales
team and improved distribution which has enabled the Group to
access a larger potential market.
Bridging loans represent 3% of Charter Court's total loan
book.
Second charge loans
Highlights
-- New originations GBP27.1 million (FY 2017: GBP60.4 million and H1 2017: GBP31.0 million)
-- Loan book up by 2.8% to GBP175.5 million from year end (31 December 2017: GBP170.8 million
and 30 June 2017: GBP162.1 million)
-- Net interest income of GBP3.1 million (H1 2017: GBP2.8 million and FY 2017: GBP5.9 million)
-- Profit contribution up 14.3% to GBP3.2 million (H1 2017: GBP2.8 million and FY 2017: GBP6.0
million)
During the first half of 2018, Charter Court maintained its
focus on high quality lending at appropriate margins, prioritising
quality over volume of loans. Although originations fell compared
with the first half of 2017, the loan book increased from GBP170.8
million to GBP175.5 million and net interest income increased from
GBP2.8 million in H1 2017 to GBP3.1 million in H1 2018.
Second charge loans represent 3% of Charter Court's total loan
book.
Funding
Charter Court continued to implement its dynamic funding
strategy in H1 2018, taking advantage of changing market conditions
to balance funding sources and deliver an optimal cost of
funds.
Retail deposits
Highlights
-- Customer balances up 7.2% year on year to GBP4,262.6 million
-- Strong retention performance
-- Continued growth of ISA product range to over GBP700 million
Charter Court's retail deposits remained broadly stable versus
the year end 2017 at GBP4,262.6 million (31 December 2017:
GBP4,420.0 million and 30 June 2017: GBP3,976.7 million), as the
Group continued to price tactically and reprice quickly so that its
retail savings products appeared at the top of "best buy" tables
when most efficient and effective.
Whilst this has led to a low level of balance attrition in H1
2018, this was planned for and controlled within the overall
funding mix as wholesale funding opportunities were more
economical.
As at 30 June 2018, the Group had 102,145 savings customers (31
December 2017: 102,394 and 30 June 2017: 90,156), operating 125,468
savings accounts (31 December 2017: 122,825 and 30 June 2017:
104,477), with an average balance per account of GBP33,700 (31
December 2017: GBP36,000 and 30 June 2017: GBP36,000). The
significant weighting of savings deposited with the Group towards
longer term and notice-based products continued to provide relative
stability of funds.
Charter Court continued to benefit from high levels of customer
satisfaction and growing recognition from media coverage and
awards. This was evident in the strong performance that was
delivered as the Group's focus shifted from acquisition to
retention.
In addition, the Group's ISA offering provided access to another
retail deposit market with fewer competitors and lower customer
rates than their equivalent non-ISA products. Despite choosing not
to compete during the ISA's traditionally busiest period at the end
of the tax year, ISA balances exceeded GBP700 million since the
product was launched twelve months ago.
Wholesale funding
Highlights
-- H1 securitisation transactions concluded with a combined value of GBP906.1 million (FY 2017:
GBP597.3 million and H1 2017: GBP300.0 million)
-- Structured asset sales completed for an aggregate gain on sale of GBP36.4 million (H1 and
FY 2017: GBP17.7 million)
-- Extension of committed warehouse facility secured, with GBP350 million of senior funding available
-- Drew down an additional GBP150.0 million of TFS funding (31 December 2017: GBP977.8 million
and 30 June 2017: GBP857.8 million)
Securitisation remains a key strategic funding source for the
Group, with more than GBP3 billion of issuance since December 2013.
As well as providing cost efficient funding, further diversifying
the funding mix, and increasing the weighted average life of the
Group's liabilities, securitisations can be used strategically to
accelerate organic capital generation through the sale of residual
positions.
H1 2018 has been exceptionally productive in this regard, with
the Group taking full advantage of strong markets to complete
issuances totalling more than GBP900 million. These transactions
priced at spreads narrower than those previously achieved by the
Group, with new benchmarks set for both the buy to let ("PMF") and
residential ("CMF") RMBS programmes. On a combined basis, the
overall day-1 cost of funds across the c. GBP900 million of
mortgage collateralised notes placed was 3-month LIBOR plus
69bps.
During the period the Group also took advantage of a strong
residuals market, selling the residual certificates in its CMF
2017-1 and CMF 2018-1 transactions to third party investors in
January and June respectively. The sales enabled the derecognition
of the underlying mortgage assets and generated a combined gain on
sale of GBP36.4 million.
Of particular highlight was the CMF 2018-1 transaction, which
closed in June 2018. The GBP285.5 million prime residential
transaction followed on from the Group's inaugural CMF deal of July
2017. It achieved a senior note margin of LIBOR plus 47bps, and a
weighted average day 1 cost of funds across the mortgage
collateralised notes placed of 3-month LIBOR plus 55bps.
Simultaneously, the Group went on to agree the sale of the residual
positions in this transaction, resulting in a gain on sale of
GBP21.3 million and representing a premium of 7.5% over the current
balance of the sold mortgage assets.
The Group was equally successful in its buy to let
securitisation activities, where it closed two PMF deals, and in
the process achieved a record tight senior margin for a publically
placed sterling buy to let transaction of 3-month LIBOR plus 65bps
for its GBP246.1 million PMF 2018-1B deal, which closed in January
2018. It followed that up in March with the larger and longer
duration PMF 2018-2B transaction, which securitised GBP374.5
million of buy to let mortgage assets with a senior spread of
3-month LIBOR plus 68bps. Day 1 cost of funds, across the mortgage
collateralised notes was 3-month LIBOR plus 74bps for the PMF
2018-1B deal and 77bps for the PMF 2018-2B deal.
Both transactions have detachable residual positions, providing
the opportunity for these to be sold at a future point in time
should the business require. Such a sale would result in the
derecognition of the underlying assets, release associated RWAs and
generate a profit on sale.
During the period, the Group was also able to extend the
maturity of its non-bank warehouse line. The line provides
committed senior finance of up to GBP350 million against both prime
residential and buy to let mortgage assets.
The Group also utilised its large TFS quota to draw down further
amounts under the scheme prior to its closing in February (taking
total outstanding drawings to GBP1,147.8 million), as well as also
to repay and redraw the majority of its existing 2017 drawings.
Each drawing has maturity of 4 years to the date upon which it was
drawn, and therefore by repaying and redrawing existing drawdowns
in this way, the Group was effectively able to reset the maturity
date of the majority of its TFS liabilities out to February 2022,
maximising the optionality and economic benefit of the scheme to
the Group.
Risk Management
Maintaining our robust approach to risk management
A robust, clearly defined and effective risk management
framework
Charter Court has a well-structured and mature risk management
framework which was developed further in the first half of the
year.
Further financial and people investment in the risk function,
stress testing capability and ongoing adherence to the three lines
of defence model is reflected in a strong performance in the first
half of 2018 and will support ongoing business and organisational
growth.
Strong credit risk management and standards
Our high credit standards and controls were maintained across
the lending book with continued focus on disciplined underwriting
systems and standards contributing to a low cost of risk.
Data Protection Law Changes
General Data Protection Regulation (EU) 2016/79 ("GDPR") and the
Data Protection Act 2018 replaced the Data Protection Act 1998 with
effect from 25 May 2018. The GDPR has brought about significant
changes to data protection law including new requirements for
record keeping, accountability, data subject rights, breach
reporting and new obligations on processors.
A project to implement the necessary GDPR requirements was
incepted in 2017 and the first phase - which included the
preparation of Privacy Notices and implementation of procedures for
providing them to existing and future customers, colleagues and
brokers was completed in good time for the 25 May deadline.
Priorities for the remainder of 2018
The main goal for 2018 remains taking a forward-looking view and
maintaining the high standards of insight, risk management and
reporting that enable Charter Court to realise its business plan
within prudent risk management parameters.
We remain alert to a potentially volatile economic and political
outlook and will continue to monitor closely and assess the
external environment as well as understanding potential adverse
effects resulting from emerging and fast developing risks such as
IT and cybercrime; the changing and likely future regulatory
landscape is also a priority, particularly that which might affect
capital requirements and credit standards, competitive trends in
mortgage lending and retail savings markets and possible changes
emanating from macro-economic conditions.
The introduction of a new operational risk management system is
planned for implementation in the second half of 2018. This will
augment centralised monitoring, control and reporting of
operational risk.
The second phase of our GDPR project includes the enhancement of
the data inventory, review and update of all contracts with data
processors; implementation of procedures for the anonymisation of
data at the end of agreed retention dates; and enhancements to the
data management and control framework, for example identification
of areas where data privacy risk can be reduced.
The Group's preparations for the internal ratings based approach
("IRB") are progressing apace and have considerable traction. There
are a number of primary benefits from the approach. These include
enhancements to our robust credit risk management framework,
afforded by the build and application of enhanced application
scoring to support underwriting decisions; the build and
implementation of behavioural models which enable better and more
dynamic mortgage portfolio monitoring and control and increased
assessment and differentiation of relative counterparty risk
enabling more proactive management and opportunities for better
price differentiation. Improvements in credit risk management,
measurement and control would be expected to pave the way for lower
risk weights under the IRB approach than the standardised approach,
thus reducing credit risk capital requirements.
Principal risks
In addition to credit risk, for which updated data are provided
below along with updated Treasury risk exposures, the principal
risks are as set out in detail on pages 26-33 of the 2017 annual
report and accounts.
Each risk has an appetite limit set and owned by the Board. The
Group operated within its Board approved risk appetite statements
for the six months to 30 June 2018.
Credit risk
Risk exposure
The majority of the Group's buy to let, specialist residential
and bridging finance is secured by first charge on residential
property and relates primarily to prime, complex prime and
near-prime credit which, to a limited extent, gives exposures to
borrowers with a degree of impaired credit.
The Group's second charge lending is secured by second charges
on residential property where the existing first charge typically
secures a mortgage at a low loan to value ("LTV").
Counterparty risk
There is a minimum counterparty risk rating for wholesale
funding and limits on maximum allowable exposures are imposed.
The assets of the Group subject to credit risk are set out
below:
As at As at As at
30 June 30 June 31 December
2018 2017 2017
Class (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Cash and cash equivalents 920.3 878.5 966.8
Investment in debt securities 68.7 159.6 78.4
Customer loans and receivables 5,693.8 4,415.5 5,364.2
Derivative financial instruments 19.3 10.1 11.9
Other assets held at fair value 0.1 0.2 0.2
Trade and other receivables 3.1 3.9 4.6
------------- ------------- -------------
Potential exposure to credit risk 6,705.3 5,467.8 6,426.1
============= ============= =============
The Group's investments, derivatives and cash counterparties are
primarily large financial institutions and there is no significant
history of credit losses and no significant impairment provisions
have been made.
Analysis of loans by Loan to Value (LTV)
As at As at As at
30 June 30 June 31 December
2017
Current LTV 2018 (Unaudited) 2017 (Unaudited) (Audited)
GBPm GBPm GBPm
Buy to let
< 50% 105.9 73.8 89.9
50 - 59.99% 217.2 159.3 193.8
60 - 69.99% 583.9 417.2 512.6
70 - 79.99% 2,529.3 1,626.4 2,098.7
80 - 89.99% 488.6 264.9 356.9
>= 90% - - -
---------------- ---------------- ------------
3,924.9 2,541.6 3,251.9
---------------- ---------------- ------------
Residential
< 50% 140.6 156.6 176.5
50 - 59.99% 136.0 136.4 159.2
60 - 69.99% 228.7 259.3 295.1
70 - 79.99% 605.7 566.0 706.3
80 - 89.99% 297.9 385.4 400.4
>= 90% 7.4 8.1 7.5
---------------- ---------------- ------------
1,416.3 1,511.8 1,745.0
---------------- ---------------- ------------
Short term lending
< 50% 99.5 108.4 101.7
50 - 59.99% 32.5 44.4 43.5
60 - 69.99% 60.7 54.9 62.4
70 - 79.99% 9.6 6.2 8.4
80 - 89.99% 0.7 1.4 2.9
>= 90% 0.5 2.8 -
---------------- ---------------- ------------
203.5 218.1 218.9
---------------- ---------------- ------------
Second charge lending
< 50% 29.7 28.9 29.6
50 - 59.99% 32.5 31.1 32.8
60 - 69.99% 56.8 53.8 54.7
70 - 79.99% 42.7 39.4 42.8
80 - 89.99% 12.7 7.5 9.5
>= 90% - - -
---------------- ---------------- ------------
174.4 160.7 169.4
---------------- ---------------- ------------
Total
< 50% 375.7 367.7 397.7
50 - 59.99% 418.2 371.2 429.3
60 - 69.99% 930.1 785.2 924.8
70 - 79.99% 3,187.3 2,238.0 2,856.2
80 - 89.99% 799.9 659.2 769.7
>= 90% 7.9 10.9 7.5
---------------- ---------------- ------------
5,719.1 4,432.2 5,385.2
================ ================ ============
The analysis by LTV is based on the principal amount of the
loans, which does not agree to the Condensed consolidated statement
of financial position as it excludes accounting adjustments, such
as EIR adjustments, mortgage fair value hedge adjustments and
provision for loan impairments.
At 30 June 2018, the average loan to value percentage of
underlying mortgage assets to which the loans relate was 71% (30
June 2017: 70% and 31 December 2017: 70%) and GBP0.6 million (30
June 2017: GBP0.4 million and 31 December 2017: GBP0.4 million) of
the total balance represented arrears (amounts quoted being the
actual amount in arrears).
At 30 June 2018, the estimated value of property collateral held
against residential mortgages was GBP10,272.6 million (30 June
2017: GBP8,495.7 million and 31 December 2017: GBP9,887.9 million).
Collateral values are determined using an indexed valuation based
on value at origination, unless there is an expectation that the
security will be realised, in which case an independent appraised
value is used. Collateral values are not capped at the value of the
underlying loan. The collateral cannot usually be sold unless it is
in possession.
At 30 June 2018, there were two properties in possession (30
June 2017: one and 31 December 2017: three) with a value of GBP 0.2
million (30 June 2017: GBP0.1 million and 31 December 2017: GBP0.3
million).
Forbearance
The Group offers borrowers in financial difficulties a range of
forbearance options, including capitalisation of arrears, temporary
interest only concessions, payment holidays and term extensions.
Term extensions are available on all loans but typically are
applicable to short term loans and generally for no more than three
months; the period of time is dependent upon the individual
circumstances. These are granted on a discretionary basis.
Forbearance is considered to be an indicator that a loan may be
impaired and such loans are allocated a higher probability of
default in the Group's loan impairment provisioning.
The table below shows loans subject to active forbearance
strategies:
Transfers to
interest only Payment holiday Term extensions Arrangements Total
GBPm GBPm GBPm GBPm GBPm % of loan book
At 30 June 2018
(Unaudited)
Current 2.2 5.2 17.3 14.8 39.5 0.69
Past due up to 3
months 0.4 - 0.6 7.4 8.4 0.15
Past due from 3
months up to 6
months 0.4 - 0.7 2.1 3.2 0.06
Past due from 6
months up to 12
months - - - 0.5 0.5 0.01
Past due over 12
months - - - 0.2 0.2 0.00
-------------------- ---------------- ---------------- ------------- ----- ---------------
3.0 5.2 18.6 25.0 51.8 0.91
==================== ================ ================ ============= ===== ===============
At 30 June 2017
(Unaudited)
Current 1.6 0.8 12.4 7.8 22.6 0.51
Past due up to 3
months 0.1 0.3 0.3 4.4 5.1 0.12
Past due from 3
months up to 6
months - - - 0.1 0.1 0.00
-------------------- ---------------- ---------------- ------------- ----- ---------------
1.7 1.1 12.7 12.3 27.8 0.63
==================== ================ ================ ============= ===== ===============
At 31 December 2017
(Audited)
Current 2.1 4.1 19.1 14.8 40.1 0.75
Past due up to 3
months 0.2 0.2 1.2 5.8 7.4 0.14
Past due from 3
months up to 6
months - - 0.6 0.7 1.3 0.02
Past due from 6
months up to 12
months - - - 0.2 0.2 0.00
Past due over 12
months - - - 0.5 0.5 0.01
-------------------- ---------------- ---------------- ------------- ----- ---------------
2.3 4.3 20.9 22.0 49.5 0.92
==================== ================ ================ ============= ===== ===============
Treasury risk
Risk exposure
The contractual maturity analysis of the Group's liabilities is
summarised below:
More than 3 months More than one year
Contractual maturity Not more than 3 but not more than but not more than 5 Carrying value per
analysis months one year years balance sheet
GBPm GBPm GBPm GBPm
As at 30 June 2018
(Unaudited)
Trade and other
payables 13.2 - - 13.2
Corporation tax
payable - 21.9 - 21.9
Deposits from banks 9.7 - 1,147.8 1,157.5
Deposits from
customers 1,241.9 2,049.5 971.2 4,262.6
Derivative financial
instruments 9.5 - - 9.5
Debt securities in
issue 0.7 82.9 742.1 825.7
As at 30 June 2017
(Unaudited)
Trade and other
payables 11.5 - - 11.5
Corporation tax
payable - 15.6 - 15.6
Deposits from banks 2.4 - 877.8 880.2
Deposits from
customers 934.1 2,314.7 727.9 3,976.7
Derivative financial
instruments 4.9 - - 4.9
Debt securities in
issue 0.3 - 297.2 297.5
As at 31 December 2017
(Audited)
Trade and other
payables 15.2 - - 15.2
Corporation tax
payable - 17.0 - 17.0
Deposits from banks 1.0 4.7 997.8 1,003.5
Deposits from
customers 1,294.3 2,393.3 732.4 4,420.0
Derivative financial
instruments 6.5 - - 6.5
Debt securities in
issue 0.5 41.5 585.4 627.4
The above table includes all debt securities in issue being
redeemed on their contractual call option dates.
Treasury risk (continued)
Risk exposure (continued)
The future contractual undiscounted cash ows including interest
of the above liabilities are shown below.
Future contractual More than 3
undiscounted cash months but not More than one
ows including Not more than 3 more than one year but not more
interest months year than 5 years More than 5 years Total cash flows
GBPm GBPm GBPm GBPm GBPm
As at 30 June 2018
(Unaudited)
Trade and other
payables 13.2 - - - 13.2
Corporation tax
payable - 21.9 - - 21.9
Deposits from
banks 9.7 4.3 1,164.3 - 1,178.3
Deposits from
customers 1,246.2 2,073.2 998.0 - 4,317.4
Derivative
financial
instruments 1.6 4.1 14.6 0.3 20.6
Debt securities in
issue 4.1 92.7 774.8 - 871.6
As at 30 June 2017
(Unaudited)
Trade and other
payables 11.5 - - - 11.5
Corporation tax
payable - 15.6 - - 15.6
Deposits from
banks 2.4 1.6 884.2 - 888.2
Deposits from
customers 984.4 2,278.8 754.8 - 4,018.0
Derivative
financial
instruments 1.0 2.1 5.8 0.5 9.4
Debt securities in
issue 1.2 3.7 303.9 - 308.8
As at 31 December
2017 (Audited)
Trade and other
payables 15.2 - - - 15.2
Corporation tax
payable - 17.0 - - 17.0
Deposits from
banks 1.2 8.4 1,010.4 - 1,020.0
Deposits from
customers 1,303.5 2,415.2 750.2 - 4,468.9
Derivative
financial
instruments 1.8 4.7 17.2 0.8 24.5
Debt securities in
issue 2.3 48.6 598.7 - 649.6
Interest rate risk
The Group does not seek to take a significant interest rate
position and is exposed to interest rate risk only as a consequence
of the provision of its financial services products. Interest rate
risk is managed to ensure that the level of risk from shifts in the
yield curve does not exceed a maximum percentage of capital
resources or that earnings at risk do not exceed a specified
percentage of projected earnings and CET1 capital in the following
twelve months. The use of derivatives is designed to reduce this
risk.
Other risk factors
The risk factors described below represent those other risks
that the Group currently considers to be material and remain
unchanged from those described on page 34 of the 2017 full year
report.
Risk Factor - Global economy
The Group's business and financial performance have been and
will continue to be affected by general economic conditions in the
UK and adverse developments in the UK or global financial markets
could have a detrimental impact on its earnings and
profitability.
Risk Factor - UK macro-economy and housing market
The Group's business and financial performance have been and
will continue to be affected by the economic condition of its
customers and of the UK housing market. Pressures on household
incomes may lead to an increase in arrears in the Group's
residential mortgage portfolios, and an associated increase in
provision for loan impairments. High levels of consumer debt could
also impact affordability assessments and other factors in
underwriting decisions and may contribute to reduced willingness by
lenders to lend to individuals.
Risk Factor - Competition
Competition in the UK mortgage and retail savings markets may
adversely affect the Group's operations.
Risk Factor - Cybercrime, Fraud
The Group may be subject to privacy or data protection failures,
cybercrime and fraudulent activity. The Group has implemented, and
manages, on an ongoing basis a number of robust policies and
procedures relating to data protection and the prevention of
cyber-theft, however a residual risk still remains.
Risk Factor - IT failure
The Group is dependent on its IT systems, including those of its
outsourced providers which may fail or be subject to
disruption.
Risk Factor - Key employee dependency
The Group is reliant on a small number of key employees, within
its senior management team and the wider business, who are central
to the Group's approach to lending in its specialist markets.
Intense competition in the financial services industry for skilled
and/or qualified personnel further accentuates this risk.
Risk Factor - Outsourcing
The Group relies on third parties for a number of its key
processes and functions, with a particular reliance on a single
third-party provider for a number of key services in relation to
the Group's online retail savings account business.
Risk Factor - Regulatory risks
The Group's business is subject to risks relating to changes in
Government policy and applicable regulations affecting the UK
housing market and related matters.
Risk Factor - 'Brexit'
Regulatory and other changes resulting from the UK's exit from
the EU could impact the Group's results. This is in part due to
uncertainty in relation to the eventual outcome of the negotiations
and in part due to a large proportion of the regulatory regime
applicable to the Group being derived from EU directives and
regulations - the UK exiting the EU could materially change the
regulatory framework applicable to the Group's operations.
Directors' responsibilities statement
We confirm that to the best of our knowledge:
a) the condensed set of financial statements has been prepared in accordance with IAS 34, Interim
Financial Reporting, as adopted by the EU;
b) the interim management report includes a fair review of the information required by DTR 4.2.7R
of the Disclosure Guidance and Transparency Rules (an indication of important events during
the first six months of the current financial year and their impact on the condensed set of
financial statements, and a description of the principal risks and uncertainties for the remaining
six months of the financial year); and
c) the interim management report includes a fair review of the information required by DTR 4.2.8R
of the Disclosure Guidance and Transparency Rules (a disclosure of related parties transactions
that have taken place in the first six months of the current financial year and that have
materially affected the financial position or performance during the period, and any changes
in the related parties transactions described in the annual report and accounts for the year
ended 31 December 2017 that could have a material effect on the financial position or performance
in the first six months of the current financial year).
The Board of Directors, as listed below, represents those
individuals responsible for this interim management report:
Sir Malcolm Williamson, Chairman
Philip Jenks, Deputy Chairman
Noël Harwerth, Senior Independent Director
Ian Ward, Chair of the Remuneration Committee and Chair of the
Nomination Committee
Tim Brooke, Chair of the Board Risk Committee
Rajan Kapoor, Chair of the Audit Committee
Ian Lonergan, Chief Executive Officer
Sebastien Maloney, Chief Financial Officer
Peter Elcock, Chief Risk Officer
Approved by the Board of Directors and signed on its behalf
by:
Ian Martin Lonergan Sebastien Maloney
Chief Executive Officer Chief Financial Officer
20 August 2018 20 August 2018
Independent Review Report to Charter Court Financial Services
Group plc
We have been engaged by the Company to review the condensed set
of financial statements in the interim financial report for the six
months ended 30 June 2018 which comprises the Condensed
consolidated statement of comprehensive income, the Condensed
consolidated statement of financial position, the Condensed
consolidated statement of changes in equity, the Condensed
consolidated statement of cash flows and related notes 1 to 23. We
have read the other information contained in the interim financial
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board. Our work has
been undertaken so that we might state to the Company those matters
we are required to state to it in an independent review 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, for our review work, for this report, or for the
conclusions we have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim financial report in accordance with the
Disclosure and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this interim financial report has been prepared in accordance
with International Accounting Standard 34 "Interim Financial
Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial report for the six months ended 30 June
2018 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
20 August 2018
CONDENSED FINANCIAL STATEMENTS
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2018
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Note (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Interest income and similar
income 5 127.4 97.2 211.1
Interest expense and similar
charges 6 (43.0) (31.9) (67.0)
------------ ------------ ------------
Net interest income 84.4 65.3 144.1
Non-interest income 7 3.9 3.0 8.5
Gain on sale of loans 36.4 17.7 17.7
Net loss from derivative financial
instruments 8 - - (0.1)
------------ ------------ ------------
Total income (net) 124.7 86.0 170.2
Administrative expenses (30.9) (26.7) (58.0)
Provision for loan impairments
- net charge (0.7) - (0.5)
------------ ------------ ------------
Profit before tax 93.1 59.3 111.7
Tax charge 10 (22.0) (15.7) (30.4)
------------ ------------ ------------
Profit for the period / year 71.1 43.6 81.3
Other comprehensive income for
the period / year - - -
------------ ------------ ------------
Profit and total comprehensive
income for the period / year
attributable to equity holders
of the Parent Company 71.1 43.6 81.3
============ ============ ============
Earnings per share (pence per
share)
Basic 11 29.7 18.9 35.0
Diluted 11 29.5 18.9 34.9
============ ============ ============
All items dealt with in arriving at the profit before tax, the
profit for the financial period, and the preceding financial
period, relate to continuing operations.
Condensed consolidated statement of financial position
As at 30 June 2018
As at As at As at
30 June 30 June 31 December
2018 2017 2017
Note (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Assets
Cash and cash equivalents 920.3 878.5 966.8
Investment in debt securities 12 68.7 159.6 78.4
Customer loans and receivables 13 5,693.8 4,415.5 5,364.2
Fair value adjustment for hedged
risk 13 (14.9) (4.2) (6.2)
Derivative financial instruments 14 19.3 10.1 11.9
Other assets held at fair value 0.1 0.2 0.2
Trade and other receivables 3.1 3.9 4.6
Deferred tax asset 2.3 0.3 2.2
Property, fixtures and equipment 1.1 0.8 0.9
Intangible assets 1.7 0.7 1.4
------------
Total assets 6,695.5 5,465.4 6,424.4
------------ ------------ ------------
Liabilities
Deposits from banks 16 1,157.5 880.2 1,003.5
Deposits from customers 17 4,262.6 3,976.7 4,420.0
Fair value adjustment for hedged
risk 17 (1.4) 1.4 (0.2)
Debt securities in issue 18 825.7 297.5 627.4
Derivative financial instruments 14 9.5 4.9 6.5
Trade and other payables 13.2 11.5 15.2
Corporation tax payable 21.9 15.6 17.0
------------
Total liabilities 6,289.0 5,187.8 6,089.4
Net assets 406.5 277.6 335.0
============ ============ ============
Equity
Share capital 2.4 - 2.4
Share premium 19.0 - 19.0
Retained earnings 385.1 277.0 313.6
Equity-settled employee benefits
reserve - 0.6 -
------------
Equity attributable to equity
holders
of the Parent Company and total
equity 406.5 277.6 335.0
============ ============ ============
Approved by the Board of Directors on 20 August 2018 and signed
on its behalf by:
Ian Martin Lonergan Sebastien Maloney
Chief Executive Officer Chief Financial Officer
Company number: 06712054
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2018
Equity-
settled
employee
Share Share Retained benefits
capital premium earnings reserve Total
GBPm GBPm GBPm GBPm GBPm
Six months ended 30 June 2018 (Unaudited)
Balance at 31 December 2017
as originally presented 2.4 19.0 313.6 - 335.0
IFRS 9 adjustment to opening
provision for loan impairments
(note 3) - - (0.7) - (0.7)
--------- --------- ---------- ---------- -------
Restated total equity at
1 January 2018 2.4 19.0 312.9 - 334.3
Profit and total comprehensive
income for the six months
ended 30 June 2018 - - 71.1 - 71.1
Recognition of share-based
payments - - 0.9 - 0.9
Deferred tax - - 0.2 - 0.2
At 30 June 2018 2.4 19.0 385.1 - 406.5
========= ========= ========== ========== =======
Six months ended 30 June 2017 (Unaudited)
At 1 January 2017 - 195.1 38.3 0.1 233.5
Cancellation of share premium - (195.1) 195.1 - -
Profit and total comprehensive
income for the six months
ended 30 June 2017 - - 43.6 - 43.6
Recognition of share-based
payments - - - 0.5 0.5
At 30 June 2017 - - 277.0 0.6 277.6
========= ========= ========== ========== =======
Year ended 31 December 2017 (Audited)
At 1 January 2017 - 195.1 38.3 0.1 233.5
Cancellation of share premium - (195.1) 195.1 - -
Bonus issue 3.0 - (3.0) - -
Cancellation of deferred
shares (0.7) - 0.7 - -
Share issue 0.1 19.9 - - 20.0
Share issue costs - (0.9) - - (0.9)
Profit and total comprehensive
income for the year ended
31 December 2017 - - 81.3 - 81.3
Recognition of share based
payments - - 0.4 0.7 1.1
Transfer of equity-settled
employee benefits reserve - - 0.8 (0.8) -
--------- --------- ---------- ---------- -------
At 31 December 2017 2.4 19.0 313.6 - 335.0
========= ========= ========== ========== =======
Condensed consolidated statement of cash flows
For the six months ended 30 June 2018
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Note (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Net cash (utilised) / generated
by operating activities 19 (816.2) 532.8 189.6
------------ ------------ ------------
Purchases of property, fixtures
and equipment 15 (0.4) (0.1) (0.4)
Expenditure on product system
development and software 15 (0.5) (0.1) (1.0)
Proceeds from sale of loans 285.5 300.0 300.0
Purchases of debt securities - (44.7) (44.7)
Disposals and redemptions of
debt securities 9.8 5.2 88.9
------------ ------------ ------------
Net cash generated by investing
activities 294.4 260.3 342.8
------------ ------------ ------------
Proceeds on issue of debt securities 1,161.3 - 394.4
Costs associated with issue
of debt securities (1.5) - (1.5)
Repayment of debt securities (684.5) (128.6) (191.6)
Proceeds from the issue of
shares - - 20.0
Share issue costs - - (0.9)
------------ ------------ ------------
Net cash generated by / (utilised
by) financing activities 475.3 (128.6) 220.4
------------ ------------ ------------
Net (decrease) / increase in
cash and cash equivalents (46.5) 664.5 752.8
Cash and cash equivalents at
beginning of the period / year 966.8 214.0 214.0
------------ ------------ ------------
Cash and cash equivalents at
end of the period / year 920.3 878.5 966.8
============ ============ ============
At 30 June 2018 cash and cash equivalents includes GBP64.2
million (30 June 2017: GBP94.4 million and 31 December 2017:
GBP79.9 million) of restricted cash.
Notes to the condensed financial statements
For the six months ended 30 June 2018
1. General information
Charter Court Financial Services Group plc (the "Company") is a
company incorporated in the United Kingdom and registered in
England and Wales under the Companies Act 2006 with company number
06712054. The address of the registered office is 2 Charter Court,
Broadlands, Wolverhampton, West Midlands, WV10 6TD.
The information for the year ended 31 December 2017 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. The statutory accounts for the year ended 31
December 2017 have been delivered to the Registrar of Companies in
England and Wales in accordance with section 447 of the Companies
Act 2006. The Auditor has reported on those accounts. Its report
was unqualified, did not include a reference to any matters to
which the Auditor drew attention by way of emphasis without
qualifying their report, and did not contain a statement under
section 498(2) or (3) of the Companies Act 2006.
The condensed set of financial statements for the six months
ended 30 June 2018 is unaudited, but has been reviewed by the
auditor and their report to the Company is included in this
statement. These interim financial statements were authorised for
issue by the Company's Board of Directors on 20 August 2018.
The critical accounting judgements and key sources of estimation
uncertainty are unchanged from those disclosed on pages 112 and 113
of the 2017 full year report.
2. Basis of preparation and accounting policies
The annual financial statements of Charter Court Financial Group
plc are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this interim financial report has been prepared in accordance
with International Accounting Standard 34 "Interim Financial
Reporting", as adopted by the European Union.
The accounting policies, presentation and methods of computation
are consistent with those applied by the Group in its latest
audited financial statements, which were prepared in accordance
with International Financial Reporting Standards ("IFRS") as
adopted by the EU and interpretations issued by the International
Financial Reporting Interpretations Committee, except for those
changes in accounting policies that have been applied with effect
from 1 January 2018 (see note 3 below).
Going concern
After considering the Group's current financial condition,
assessing future forecasts and the principal risks and
uncertainties, the Directors have a reasonable expectation that the
Group will have adequate resources to continue in operational
existence for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the
consolidated financial statements.
3. Changes in accounting policy
In the current financial period, the Group has adopted IFRS 9
Financial instruments, changing the classification and measurement
of financial assets and introducing a new impairment model for
financial instruments which requires entities to recognise expected
credit losses based on unbiased forward-looking information. The
new impairment model replaces the incurred loss model which only
recognises impairment if there is objective evidence that a loss is
already incurred and measures the loss at the most probable outcome
under IAS 39 'Financial Instruments: recognition and
measurement'.
Other changes to accounting standards in the current period,
including the adoption of IFRS 15 Revenue, had no material
impact.
IFRS 16 Leases is effective for the Group's consolidated
financial statements for the year ending 31 December 2019. IFRS 16
removes the distinction between operating and finance leases and
requires recognition of a right-of-use asset and a lease liability
for all leases, except for short-term leases and leases of low
value assets. The Group is currently reviewing the impact of the
new standard but does not expect its impact to be material.
Impact of IFRS 9 on the financial statements
The impacts of the adoption of IFRS 9 are unchanged from those
disclosed in note the 3 of the financial statements for the year
ended 31 December 2017.
Under IFRS 9, the Group is required to classify and measure
financial assets according to the business model within which they
are managed and their contractual cash flow characteristics.
Financial assets are measured at amortised cost if they are held
within a business model whose objective is to hold financial assets
in order to collect contractual cash flows, and their contractual
cash flows represent solely payments of principal and interest.
Financial assets are measured at fair value through other
comprehensive income ("FVOCI") if they are held within a business
model whose objective is achieved by both collecting contractual
cash flows and selling financial assets, and their contractual cash
flows represent solely payments of principal and interest. Other
financial assets are measured at fair value through profit and loss
("FVTPL").
The Group has reviewed the business model within which each
financial asset is managed and concluded that, except as set out
below, the measurement of all non-derivative financial assets
remains unchanged in the Group consolidated financial statements
and they continue to be carried at amortised cost. The measurement
of derivative financial assets also remains unchanged and they
continue to be carried at FVTPL.
The Group has a purchased portfolio of mortgage assets that may
generate cash flows other than payments of principal and interest.
Under IAS 39 the portfolio was carried at amortised cost, with a
net carrying amount of GBP24.1 million at 31 December 2017. Under
IFRS 9, the same portfolio is now carried at FVTPL. On transition
to IFRS 9 the fair value of the portfolio was calculated as GBP24.1
million.
The opening impairment allowance as at 1 January 2018 measured
in accordance with the IFRS 9 expected loss model is GBP1.7
million, an increase of GBP0.7 million, 70%, compared with GBP1.0
million closing impairment allowance as at 31 December 2017
measured in accordance with the IAS 39 incurred loss model. The
GBP0.7 million relates to loans and receivables and there is an
immaterial amount relating to loan commitments and guarantees.
The Group has elected not to restate comparatives on initial
application of IFRS 9 on 1 January 2018, and adjustments arising
from changes have been recognised in opening equity.
The calculation of expected credit losses under IFRS 9 requires
significant management judgements, estimates and assumptions. Key
concepts and management judgements include:
-- determining whether a significant increase in credit risk since initial recognition of an
asset has occurred;
-- defining default and at what point a financial asset becomes credit impaired;
-- identifying the key economic variables impacting credit risk; and
-- identifying and developing the appropriate modelling techniques.
These key concepts and management judgements are set out in more
detail in note 3 to financial statements for the year ended 31
December 2017.
IFRS 9 Financial instruments - Accounting policies applied from
1 January 2018
The accounting policy for financial instruments has been revised
following the first time application of IFRS 9 Financial
instruments in 2018, see Appendix: Implementation of IFRS 9.
4. Segment information
The Group's activities are all UK based therefore no
geographical segmentation is reported. The Group's reportable
segments are operating units engaged in providing different
products or services and whose operating results and overall
performance are regularly reviewed by the entity's Chief Operating
Decision Maker, the Board of Directors.
The Group's business is organised into the following principal
reportable segments:
-- Buy to let ("BTL") lending: Long term first charge loans to landlords;
-- Residential lending ("Residential"): Long term first charge loans to owner-occupiers;
-- Short term lending ("STL"): Short term bridging finance to owner-occupiers, landlords and
property developers;
-- Second charge lending ("SCL"): Long term second charge loans; and
-- Other: The central functions of the Group, including treasury and third party mortgage servicing.
Other also includes the results of the Bridestone portfolio acquired in 2017 and income from
the sale of the PMF 2017-1B securitisation in 2017 and from the sale of the CMF 2017-1 securitisation
in 2018.
Interest expense is allocated in proportion to the average
balances of the interest-earning segment assets during the period /
year.
The Group does not allocate administrative expenses by segment
as the Group's operations are primarily split by function
(origination, servicing and central) rather than by segment.
Segment profit or loss is total net income less provision for
loan impairment charges. It is reconciled to the Condensed
consolidated statement of comprehensive income in the tables
below.
Assets allocated to the originated lending related segments are
customer loans and receivables balances only. Bridestone loans and
receivables (GBP24.1 million) acquired in 2017, cash and cash
equivalents, investments in debt securities and are allocated to
the "Other" segment. Remaining asset balances (which includes
intangible assets, tangible fixed assets, deferred tax assets,
trade and other receivables, other assets and derivatives) and all
liability balances are not allocated to any reporting segment.
There has been no change in the basis of segmentation or in the
basis of measurement of segment profit or loss in the period.
BTL Resid- ential STL SCL Other Total
Six months ended 30 June 2018
(Unaudited) GBPm GBPm GBPm GBPm GBPm GBPm
Interest receivable and similar income 73.9 36.9 9.0 4.3 3.3 127.4
Interest payable and similar charges (26.3) (10.7) (1.4) (1.2) (3.4) (43.0)
-------- -------------- ------- ------- -------- --------
Net interest income 47.6 26.2 7.6 3.1 (0.1) 84.4
Fees and commissions income 0.9 1.2 0.1 0.1 1.6 3.9
Gain on sale of loans - - - - 36.4 36.4
Provision for loan impairments - net charge (0.4) (0.3) - - - (0.7)
-------- -------------- ------- ------- -------- --------
Segment profit 48.1 27.1 7.7 3.2 37.9 124.0
======== ============== ======= ======= ========
Administrative expenses (30.9)
--------
Profit before tax 93.1
Tax charge (22.0)
--------
Profit after tax 71.1
========
Segment assets
As at 30 June 2018
Segment assets 3,902.4 1,389.7 203.5 175.5 1,011.7 6,682.8
======== ============== ======= ======= ========
Unallocated assets 12.7
--------
6,695.5
========
BTL Resid- ential STL SCL Other Total
Six months ended 30 June 2017
(Unaudited) GBPm GBPm GBPm GBPm GBPm GBPm
Interest receivable and similar income 48.4 32.3 9.6 3.9 3.0 97.2
Interest payable and similar charges (17.6) (10.2) (1.6) (1.1) (1.4) (31.9)
-------- -------------- ------- ------- -------- --------
Net interest income 30.8 22.1 8.0 2.8 1.6 65.3
Fees and commissions income 0.5 0.9 0.1 - 1.5 3.0
Gain on sale of loans - - - - 17.7 17.7
Provision for loan impairments - net charge - - - - - -
-------- -------------- ------- ------- -------- --------
Segment profit 31.3 23.0 8.1 2.8 20.8 86.0
======== ============== ======= ======= ========
Administrative expenses (26.7)
--------
Profit before tax 59.3
Tax charge (15.7)
--------
Profit after tax 43.6
========
Segment assets
As at 30 June 2017
Segment assets 2,526.2 1,483.9 218.2 162.1 1,063.2 5,453.6
======== ============== ======= ======= ========
Unallocated assets 11.8
--------
5,465.4
========
BTL Residential STL SCL Other Total
Year ended 31 December 2017
(Audited) GBPm GBPm GBPm GBPm GBPm GBPm
Interest receivable and similar income 106.3 69.9 19.4 8.1 7.4 211.1
Interest payable and similar charges (36.5) (20.7) (3.0) (2.2) (4.6) (67.0)
-------- ------------ ------ ------ -------- --------
Net interest income 69.8 49.2 16.4 5.9 2.8 144.1
Fees and commissions income 1.3 2.0 0.2 0.2 4.8 8.5
Gain on sale of loans - - - - 17.7 17.7
Net loss from derivatives - - - - (0.1) (0.1)
Provision for loan impairments - net charge (0.4) - - (0.1) - (0.5)
-------- ------------ ------ ------ -------- --------
Segment profit 70.7 51.2 16.6 6.0 25.2 169.7
======== ============ ====== ====== ========
Administrative expenses (58.0)
--------
Profit before tax 111.7
Tax charge (30.4)
--------
Profit after tax 81.3
========
Segment assets
As at 31 December 2017
Segment assets 3,232.2 1,718.2 218.9 170.8 1,069.3 6,409.4
======== ============ ====== ====== ========
Unallocated assets 15.0
--------
6,424.4
========
5. Interest income and similar income
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Interest revenue calculated using
the EIR method
Interest on customer loans and receivables 127.6 98.6 214.1
Interest and other income on debt
securities 0.6 1.6 3.2
Interest and other income on liquid
assets 2.3 0.6 2.0
Other interest revenue
Interest on customer loans and receivables 0.4 - -
Net expense on derivative financial
instruments designated as hedging
instruments (3.5) (3.6) (8.2)
------------ ------------ --------------
127.4 97.2 211.1
============ ============ ==============
6. Interest expense and similar charges
Six months ended Six months ended Year ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Interest expense on deposits and other borrowings 37.1 30.3 63.3
Interest expense on asset backed loan notes 6.4 3.4 7.5
Net income on derivative financial instruments designated as
hedging instruments (0.5) (1.8) (3.8)
---------------- ---------------- ------------
43.0 31.9 67.0
================ ================ ============
7. Non-interest income
Six months ended Six months ended Year ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Sale of investment in debt securities - - 2.1
Fair value gain on residential mortgages held at fair value 0.3 - -
Revenue from contracts with customers for services relating
to:
Mortgage administration 1.2 1.4 2.5
Mortgage applications 2.4 1.6 3.9
3.9 3.0 8.5
================ ================ ============
8. Net loss from derivative financial instruments
Six months ended Six months ended Year ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Macro hedging:
(Loss) / gain on derivatives designated as fair value
hedges (4.5) 6.5 6.8
Gain / (loss) in fair value of hedged items attributable to
hedged risk 4.5 (6.5) (6.8)
- - -
Non-hedging:
Net loss on disposal of interest rate swaps - - (0.1)
- - (0.1)
================ ================ ============
9. Profit before tax
Profit before tax for the period has been arrived at after
charging:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Depreciation of property, fixtures
and equipment 0.2 0.2 0.4
Amortisation of intangible assets 0.2 - 0.2
Operating lease costs 0.8 0.5 1.0
Research and development costs - - 0.1
Staff costs 19.4 13.6 31.3
IPO costs - 2.2 4.9
============ ============ ============
Staff costs include GBP0.9 million (30 June 2017: GBP0.5 million
and 31 December 2017: GBP1.1 million) relating to share-based
payments.
10. Tax
Six months ended Six months ended Year ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Current tax:
Current tax on profits for the period / year 17.6 12.1 24.8
Surcharge on bank profits for the period / year 4.3 3.7 7.6
Total current tax charge 21.9 15.8 32.4
---------------- ---------------- ------------
Deferred tax:
Current period / year 0.1 (0.1) (2.1)
Adjustments in respect of prior periods - - 0.1
Total deferred tax charge/(credit) 0.1 (0.1) (2.0)
---------------- ---------------- ------------
Tax per the Condensed consolidated statement of
comprehensive income 22.0 15.7 30.4
================ ================ ============
The tax charge on the profit for the six months ended 30 June
2018 was GBP22.0 million (six months ended 30 June 2017: GBP15.7
million, year ended 31 December 2017: GBP30.4 million). The
effective tax rate for the six months ended 30 June 2018 is 23.56%
(30 June 2017: 26.36%, 31 December 2017: 27.23%). A reconciliation
from the expected tax charge based on the standard rate of tax for
the six months ended 30 June 2018 of 19.00% (six months ended 30
June and year ended 31 December 2017: 19.25%) to the actual tax
charge is set out below.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Profit before tax:
Continuing operations 93.1 59.3 111.7
------------ ------------ ------------
Tax at the UK corporation tax rate
of 19.00% (2017: 19.25%) 17.7 11.4 21.5
Banking surcharge 4.3 3.7 7.6
Expenses not deductible for tax
purposes - 0.6 1.2
Securitisation regulations - - (0.1)
Adjustments in respect of prior
periods - - 0.1
Effect of differences in tax rate - - 0.1
Tax charge for the period / year 22.0 15.7 30.4
============ ============ ============
Change in tax rate
Reductions in the UK corporation tax rate from 21% to 19%
(effective 1 April 2017) and to 18% (effective 1 April 2020) were
substantively enacted on 26 October 2015, and a further reduction
to 17% (effective 1 April 2020) was substantively enacted on 6
September 2016. This will reduce the Company's future current tax
charge accordingly. The deferred tax asset as at each Condensed
consolidated statement of financial position date has been
calculated based on the enacted rate at the relevant date.
11. Earnings per share
Earnings per share ("EPS") are based on the profit for the
period and the number of ordinary shares in issue. Basic EPS are
calculated by dividing profit attributable to ordinary shareholders
by the weighted average number of ordinary shares in issue during
the period. Diluted EPS take into account share options and awards
which can be converted to ordinary shares.
Six months ended Six months ended Year ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
Profit for the period (GBPmillion) 71.1 43.6 81.3
Weighted average number of ordinary shares of GBP0.01 each
Basic 239,130,419 230,396,795 232,536,247
Dilutive effects 1,919,414 - 656,514
Diluted 241,049,833 230,396,795 233,192,761
Per share amount (pence)
Basic 29.7 18.9 35.0
Diluted 29.5 18.9 34.9
The Group reorganised its share capital in September 2017 in
preparation for the IPO. As there were no changes in equity as a
result of the reorganisation, earnings per share for all the
periods has been prepared on the basis of the new structure after
the reorganisation, in accordance with IAS 33.
12. Investment in debt securities
As at As at
30 June 30 June As at 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Debt securities held at amortised cost 68.7 159.6 78.4
============ ============ =================
Investment in debt securities at 30 June 2017 and 31 December
2017 were classified as Held to Maturity debt securities under IAS
39, they are now classified as held at amortised cost from 1
January 2018 as required under IFRS 9.
The contractual maturity of the above balance is greater than
one year.
13. Customer loans and receivables
As at As at As at 31
30 June 30 June December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Residential mortgages held at amortised
cost 5,696.4 4,432.2 5,385.2
Residential mortgages held at fair
value 22.7 - -
------------ ------------ ----------
5,719.1 4,432.2 5,385.2
EIR adjustment (23.1) (16.2) (20.0)
Provision for loan impairments (2.2) (0.5) (1.0)
------------ ------------ ----------
5,693.8 4,415.5 5,364.2
============ ============ ==========
Residential mortgages held at fair value were reclassified from
held at amortised cost on 1 January 2018 in accordance with IFRS 9.
These residential mortgages held at fair value are an acquired
portfolio that includes cashflows which are not solely payments of
principal and interest.
Analysis of customer loans and receivables
Customer loans and receivables comprise residential mortgage
loans. An analysis by type is set out below:
As at As at
30 June 30 June As at 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Buy to let 3,902.4 2,526.2 3,232.2
Residential lending 1,412.4 1,509.0 1,742.3
Short term lending 203.5 218.2 218.9
Second charge lending 175.5 162.1 170.8
------------ ------------ -----------------
5,693.8 4,415.5 5,364.2
============ ============ =================
Residential and Buy to let mortgages are secured on residential
property within the United Kingdom.
At 30 June 2018 included within customer loans and receivables
is GBP200.5 million (30 June 2017: GBP211.4 million; 31 December
2017: GBP211.7 million) of balances due within 12 months and
GBP5,493.3 million (30 June 2017: GBP4,204.1 million; 31 December
2017: GBP5,152.5 million) due after 12 months.
Mortgage loans have a contractual term of up to thirty five
years. Borrowers may settle the loan at any point and in most cases
settlement before the contractual date does take place. All
borrowers are required to make monthly payments, except where
interest is retained on origination and applied to the account as
monthly payments would fall due.
Encumbered assets
The residential mortgage loans above pledged as collateral for
liabilities are:
As at As at As at 31
30 June 30 June December
2018 2017 2017
Note (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
In respect of:
Bank of England Term Funding
Scheme (TFS) 16 1,541.0 1,167.4 1,326.1
Asset backed loan notes 18 831.9 321.1 654.0
------------ ------------ ----------
2,372.9 1,488.5 1,980.1
============ ============ ==========
The Group's securitisation programme and use of the TFS results
in certain assets being encumbered as collateral against such
funding. Assets that are encumbered cannot be used for other
purposes. As at 30 June 2018 the percentage of customer loans and
receivables that are encumbered is 41.7% (30 June 2017: 33.7%; 31
December 2017: 36.9%).
Residential mortgages held at amortised cost
Provision
for loan
Gross balances EIR adjustments impairments Net balance
Stage Stage Stage Total
1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance as at
31 December 2017
as originally
presented* 5,385.2 (20.0) (1.0) 5,364.2
IFRS 9 adjustment (note
3):
Reclassification
and adjustment
to fair value (24.1) - - (24.1)
Loan impairments - - (0.7) (0.7)
-------- ------- ------ -------- ---------------- ------------- ------------
At beginning of
year 5,183.7 171.7 5.7 5,361.1 (20.0) (1.7) 5,339.4
Originations 1,356.7 - - 1,356.7 - - 1,356.7
Sales to third
parties (562.5) - - (562.5) (1.5) 0.2 (563.8)
Transfers between
stages (65.4) 61.6 3.8 - - - -
Repayments, redemptions,
interest charged
and other debits (436.0) (21.5) (1.4) (458.9) - - (458.9)
EIR adjustments - - - - (1.6) - (1.6)
Loan impairments
P&L net charge - - - - - (0.7) (0.7)
-------- ------- ------ -------- ---------------- ------------- ------------
5,476.5 211.8 8.1 5,696.4 (23.1) (2.2) 5,671.1
======== ======= ====== ======== ================ ============= ============
*Analysis of gross balances by stage implemented from 1 January
2018 as required under IFRS 9, not previously a requirement under
IAS 39.
Ageing of past due but not impaired customer loans and
receivables
As at As at As at 31
30 June 30 June December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
1-30 days 34.3 27.7 34.6
31-60 days 11.2 8.7 7.1
61-89 days 6.7 2.1 4.1
------------
52.2 38.5 45.8
============ ============ ==========
At 30 June 2018, a stage 1 and stage 2 total provision of GBP1.6
million (30 June 2017: GBP0.5 million; 31 December 2017: GBP0.6
million, incurred collective provision) is held relating to
customer loans and receivables for which objective evidence of
impairment had not been identified.
Ageing of past due and impaired customer loans and
receivables
As at As at As at 31
30 June 30 June December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
1-30 days - - 0.4
90-120 days 2.9 1.5 2.1
* 120 days 4.0 1.9 4.0
------------
6.9 3.4 6.5
============ ============ ==========
At 30 June 2018, a stage 3 provision of GBP0.6 million (30 June
2017: GBP0.05 million; 31 December 2017: GBP0.4 million, specific
provision) is held relating to impaired mortgage loan receivables.
Mortgage loans which are not past due but considered to be impaired
totalled GBP40.8 million (30 June 2017: GBP22.6 million; 31
December 2017: GBP40.1 million) and a stage 3 provision of GBP0.5
million (30 June 2017: GBPnil; 31 December 2017: GBPnil, specific
provision) is held against these mortgages.
Impairment provisions on residential mortgages
Impairment provisions as at 30 June 2018 were GBP2.2 million (30
June 2017: GBP0.5 million; 31 December 2017: GBP1.0 million) and
comprise:
Six months ended 30 June 2018 (Unaudited) GBPm
Total impairment provisions at 31 December 2017 (under
IAS 39) 1.0
IFRS 9 adjustment to opening provision for loan impairments 0.7
-----
Total impairment provisions at 1 January 2018 (under
IFRS 9) 1.7
=====
Comprising:
Stage 1 0.9
Stage 2 0.4
Stage 3 0.4
-----
1.7
=====
Stage 1
At 1 January 2018 0.9
Sale of loans (0.2)
Charge for the period 0.4
-----
At 30 June 2018 1.1
-----
Stage 2
At 1 January 2018 0.4
Charge for the period 0.1
-----
At 30 June 2018 0.5
-----
Stage 3
At 1 January 2018 0.4
Charge for the period 0.2
-----
At 30 June 2018 0.6
-----
Total impairment provisions 2.2
=====
The above table is prepared on an IFRS 9 basis. In accordance
with the transitional provisions of the standard, comparatives set
out in the tables below have not been restated. Refer to Note 3 for
further information.
Year
Six months ended ended
30 June 31 December
2017 2017
(Unaudited) (Audited)
GBPm GBPm
Collective impairment provisions
At 1 January 2017 0.5 0.5
Charge for the period / year - 0.1
---------------- ------------
At 31 December 2017 0.5 0.6
---------------- ------------
Specific impairment provisions
At 1 January 2017 - -
Charge for the period / year - 0.4
---------------- ------------
At 31 December 2017 - 0.4
---------------- ------------
Total impairment provisions 0.5 1.0
================ ============
Residential mortgages held at fair value
Residential mortgages held at fair value are categorised as
level 3. The fair value is based on expected future cash flows
using an assumed amortisation profile of the pool of mortgages. The
cash flows are discounted to present value using zero coupon rates.
Movements in the residential mortgages held at fair value were:
Six months ended
30 June
2018
(Unaudited)
GBPm
Balance at 31 December 2017 at amortised cost as originally presented 24.1
IFRS 9 adjustment to fair value -
----------------
Restated balance at 1 January 2018 24.1
Repayments, redemptions, interest charged and other debits (1.7)
Fair value gain 0.3
----------------
Balance at 30 June 2018 22.7
================
Fair value adjustment for hedged risk ("FVAHR")
The Group has entered into interest rate swaps and caps that
protect it from mismatches in interest rates between the portfolio
of fixed rate mortgages and floating rate liabilities that are used
to fund it. The net position of certain fixed rate mortgages and
floating rate liabilities has been designated as the hedged item in
this hedging relationship. Changes in the fair value of these swaps
are offset by changes in the FVAHR of the fixed rate mortgages.
As at As at As at
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Fair value adjustment for hedged
risk (14.9) (4.2) (6.2)
============ ============ ============
14. Derivative financial instruments
Notional Positive fair value Negative fair value
GBPm GBPm GBPm
Interest rate swaps at 30 June 2018 (Unaudited)
Level 2 derivatives 6,832.0 19.3 (9.3)
Level 3 derivatives 845.7 - (0.2)
-------------- ------------------- -------------------
7,677.7 19.3 (9.5)
============== =================== ===================
Interest rate swaps at 30 June 2017 (Unaudited)
Level 2 derivatives 5,365.7 10.1 (4.8)
Level 3 derivatives 9.7 - (0.1)
-------------- ------------------- -------------------
5,375.4 10.1 (4.9)
============== =================== ===================
Interest rate swaps at 31 December 2017 (Audited)
Level 2 derivatives 6,484.5 11.9 (6.5)
Level 3 derivatives 1,206.7 - -
-------------- ------------------- -------------------
7,691.2 11.9 (6.5)
============== =================== ===================
Interest rate swap agreements with a notional value of
GBP3,763.2 million as at 30 June 2018 (30 June 2017: GBP2,482.4
million; 31 December 2017: GBP3,355.2 million), under which the
Group pays a fixed rate of interest and receives an interest based
on LIBOR, are used to hedge the exposure to changes in fair value
of fixed rate mortgage assets as a result of changes in market
interest rates. The notional value of these interest rate swaps is
linked to the notional of the hedged mortgage assets and this
resets each quarter.
Interest rate swap agreements with a notional value of
GBP2,774.5 million as at 30 June 2018 (30 June 2017: GBP2,593.0
million; 31 December 2017: GBP2,836.0 million), under which the
Group receives a fixed rate of interest and pays an interest based
on LIBOR, are used to hedge the exposure to changes in fair value
of fixed rate deposits from customers as a result of changes in
market interest rates. The notional value of these interest rate
swaps is linked to the notional of the hedged deposits from
customers.
As at 30 June 2018, the Group held interest rate options (caps)
with a notional value of GBP300.0 million (30 June 2017: GBP300.0
million; 31 December 2017: GBP300.0 million) with a fair value of
GBPnil (30 June 2017: GBPnil; 31 December 2017: GBPnil) and held
basis swaps with a notional value of GBP840.0 million (30 June
2017: GBPnil; 31 December 2017: GBP1,200.0 million).The caps and
the majority of interest rate swaps are Level 2 fair value
measurements, being derived from inputs which are not quoted in
active markets but are based on observable market data. The fair
value is based on discounted future cash flows using a forecast
future interest rate curve derived from market data.
Basis swaps and certain balance guaranteed swaps within
derivative liabilities are categorised as level 3. Balance
guaranteed swaps are valued based on expected future cash flows
using an assumed amortisation profile of the pool of mortgages up
to the swap maturity date and predicted future LIBOR. The cash
flows are discounted to present value using zero coupon rates.
There were no movements in the fair values of the basis swaps
during the period. Movements in the fair values of level 3 balance
guaranteed swaps were:
Six months ended Six months ended Year ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Opening balance - (0.3) (0.3)
(Loss) / gain (0.2) 0.2 0.3
---------------- ---------------- ------------
Closing balance (0.2) (0.1) -
================ ================ ============
15. Property, fixtures and equipment and intangible assets
Property, fixtures and equipment
The net book value of property, fixtures and equipment at 30
June 2018 was GBP1.1 million (30 June 2017: GBP0.8 million; 31
December 2017: GBP0.9 million). Movements in the six months ended
30 June 2018 comprise purchases of GBP0.4 million (30 June 2017:
GBP0.1 million; 31 December 2017: GBP0.4 million) of leasehold
property improvements, fixtures and equipment and computer
equipment and depreciation of GBP0.2 million (30 June 2017: GBP0.2
million; 31 December 2017: GBP0.4 million).
Intangible fixed assets
The net book value of intangible fixed assets at 30 June 2018
was GBP1.7 million (30 June 2017: GBP0.7 million; 31 December 2017:
GBP1.4 million). Movements in the six months ended 30 June 2018
comprise purchases of GBP0.5 million (30 June 2017: GBP0.1 million;
31 December 2017: GBP1.0 million) of development costs, computer
software and licenses and depreciation of GBP0.2 million (30 June
2017: GBPnil; 31 December 2017: GBP0.2 million).
16. Deposits from banks
As at As at As at
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Collateral received on interest
rate swap contracts 8.3 1.9 4.7
Bank of England Term Funding Scheme
(TFS) 1,149.2 878.3 998.8
------------
Total deposits 1,157.5 880.2 1,003.5
============ ============ ============
As at 30 June 2018, the carrying value of assets pledged as
collateral for the TFS is GBP1,541.0 million (30 June 2017:
GBP1,167.4 million; 31 December 2017: GBP1,326.1 million). Deposits
from banks includes GBP1.4 million of accrued interest (30 June
2017: GBP0.5 million; 31 December 2017: GBP1.0 million).
As at 30 June 2018 and 31 December 2017, all bank deposits are
denominated in pounds sterling. As at 30 June 2017 GBP0.1 million
of collateral received on interest rate swap contracts was
denominated in euros and all other bank deposits were denominated
in pounds sterling.
At 30 June 2018 included within deposits from banks is GBP9.7
million (30 June 2017: GBP2.4 million; 31 December 2017: GBP5.7
million) of balances due within 12 months and GBP1,147.8 million
(30 June 2017: GBP877.8 million; 31 December 2017: GBP997.8
million) due after 12 months.
17. Deposits from customers
The contractual maturity of deposits from customers is analysed
below.
As at As at As at 31
30 June 30 June December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Amounts repayable
On demand 476.9 241.2 526.6
In less than 3 months 765.0 692.9 767.7
In more than 3 months but less
than 1 year 2,049.5 2,314.7 2,393.3
In more than 1 year but less than
2 years 714.9 592.3 569.3
In more than 2 years but less
than 5 years 256.3 135.6 163.1
------------
Total deposits 4,262.6 3,976.7 4,420.0
============ ============ ==========
Fair value adjustment for hedged risk ("FVAHR")
The Group has entered into interest rate swaps that protect it
from mismatches in interest rates between the portfolio of fixed
rate customer deposits and the floating rate assets that are funded
by it. The net position of certain fixed rate deposits from
customers and floating rate liabilities has been designated as the
hedged item in this hedging relationship. Changes in the fair value
of these swaps are offset by changes in the FVAHR of the fixed rate
customer deposits.
As at As at As at 31
30 June 30 June December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Fair value adjustment for hedged
risk (1.4) 1.4 (0.2)
============ ============ ==========
18. Debt securities in issue
As at As at As at
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Asset backed loan notes 825.7 297.5 627.4
------------ ============ ------------
Amount due for settlement within
12 months 0.7 0.3 42.0
Amount due for settlement after
12 months 825.0 297.2 585.4
------------ ------------ ------------
825.7 297.5 627.4
============ ============ ============
All borrowings are payable in pounds sterling.
The asset backed loan notes are secured on fixed and variable
rate mortgages and are redeemable in part from time to time, but
such redemptions are limited to the net principal received from
borrowers in respect of underlying assets. The maturity date of the
funds matches the maturity date of the underlying assets. It is
likely that a large proportion of the underlying assets and
therefore these notes will be repaid within five years. As at 30
June 2018, the carrying value of assets pledged as collateral for
the Groups debt securities in issue is GBP831.9 million (30 June
2017: GBP321.1 million; 31 December 2017: GBP654.0 million).
Asset backed loan notes may all be repurchased by the Group at
any interest payment date on or after the call dates, or at any
interest payment date when the current balance of the mortgages
outstanding is less than or equal to ten percent of the principal
amount outstanding on the loan notes on the date they were
issued.
Interest is payable at fixed margins above LIBOR for three month
pounds sterling deposits.
Notes are issued through eight funding vehicles.
As at As at As at
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Buttermere Plc asset backed
loan notes - 0.5 -
PMF No. 1 asset backed loan
notes 36.3 47.6 41.5
PMF 2014-1 asset backed loan
notes 43.3 65.0 54.7
PMF 2014-2 asset backed loan
notes 54.1 77.9 63.8
PMF 2015-1 asset backed loan
notes 69.1 106.0 85.7
CCFS Warehouse No.1 asset backed
loan notes - 0.5 0.5
CMF 2017-1 asset backed loan
notes - - 281.1
CML Warehouse Number 1 loan
facility - - 100.1
PMF 2018-1B asset backed loan
notes 244.8 - -
PMF 2018-2B asset backed loan
notes 378.1 - -
------------ ------------ ------------
825.7 297.5 627.4
============ ============ ============
CCFS Warehouse No.1 Plc asset backed loan notes
CCFS Warehouse No.1 Plc was closed to new drawings on 16 January
2018.
CMF 2017-1 Plc
The Group sold the unrated and subordinated retained position in
January 2018 and CMF 2017-1 Plc is no longer consolidated.
PMF 2018-1B Plc
A pass through publically rated securitisation; PMF 2018-1B Plc,
closed on 24 January 2018 and issued external to the Group GBP254.7
million of pounds sterling mortgage backed floating rate notes at
par. GBP222.7 million of the notes were rated AAA, GBP7.4 million
rated AA+, GBP7.4 million rated A+, GBP4.9 million rated BBB+,
GBP3.7 million rated BBB- and GBP8.6 million rated BB+. The Group
retained and continues to hold the Residual Certificates position
(RC1 and RC2).
PMF 2018-2B Plc
A pass through publically rated securitisation; PMF 2018-2B Plc,
closed on 20 March 2018 and issued external to the Group GBP387.6
million of pounds sterling mortgage backed floating rate notes at
par. GBP338.9 million of the notes were rated AAA, GBP11.2 million
rated AA, GBP11.2 million rated A+, GBP7.5 million rated BBB+,
GBP5.6 million rated BBB- and GBP13.1 million rated BB+. On
closing, the Group retained the Residual Certificates position (RC1
and RC2). The Group subsequently sold the RC1 position in July
2018.
CMF 2018-1 Plc
A pass through publically rated securitisation; CMF 2018-1 Plc,
closed on 8 June 2018 and issued external to the Group GBP298.9
million of pounds sterling mortgage backed floating rate notes at
par. GBP261.7 million of the notes were rated AAA, GBP7.2 million
rated AA+, GBP7.2 million rated A+, GBP7.2 million rated A-, GBP2.9
million rated BBB+ and GBP12.9 million rated BB+. The Group agreed
the sale of the Residual Certificates positions (RC1 and RC2) at
closing, and holds no residual interest in the transaction.
19. Net cash flows from operating activities
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2018 2017 2017
Note (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Profit before tax 93.1 59.3 111.7
Non-cash items
Provision for loan impairments 13 0.7 - 0.5
Depreciation of property, fixtures
and equipment 0.2 0.2 0.4
Amortisation of intangible
assets 0.2 - 0.2
Gain on sale of investment
in debt securities - - (2.1)
EIR adjustment 3.0 1.1 4.4
Movement in fair value hedge 7.5 8.5 7.1
Movement in other assets held
at fair value 0.1 - -
Recognition of equity-settled
employee benefits payments 0.9 0.5 1.1
Operating cash flows before
movements in working capital 105.7 69.6 123.3
Movement in derivatives (4.4) (6.4) (6.6)
Decrease / (increase) in receivables 1.5 (1.5) (2.1)
Increase in residential mortgages (896.6) (909.1) (1,862.2)
(Decrease) / increase in payables (2.0) 3.3 7.0
Decrease / (increase) in retail
deposits (157.4) 542.2 987.4
Increase in deposits from banks 154.0 840.2 963.5
Cash generated by operations (799.2) 538.3 210.3
Tax paid (17.0) (5.5) (20.7)
Net cash generated by operating
activities (816.2) 532.8 189.6
============ ============ ============
20. Related party transactions
The Group had no related party transactions during the six month
period to 30 June 2018 that would materially affect the position or
performance of the Group. Details of transactions for the year
ended 31 December 2017 can be found in note 43 of the 2017
financial statements.
21. Post balance sheet event
In July 2018, the Group sold PMF 2018-2B Plc's RC1 position to a
third party. The Group has retained the RC2 position and so
continues to treat PMF 2018-2B Plc as a consolidated
subsidiary.
22. Fair values of financial instruments
Financial instruments carried at amortised cost
The fair values of the Group's financial instruments carried at
amortised cost are not materially different from their carrying
values, except for the following:
Carrying value Fair value
GBPm GBPm
30 June 2018
Investment in debt securities 68.7 69.2
Customer loans and receivables 5,671.1 5,902.8
30 June 2017
Investment in debt securities 159.6 159.7
Customer loans and receivables 4,415.5 4,592.8
31 December 2017
Investment in debt securities 78.4 79.2
Customer loans and receivables 5,364.2 5,565.6
There have been no changes in the circumstances that
significantly affects the fair values of financial assets and
financial liabilities in the six months ended 30 June 2018.
Financial instruments carried at fair value
The Group held the following financial instruments at fair value
at 30 June 2018.
Carrying value Level 2 Level 3
GBPm GBPm GBPm
Recurring fair value measurements:
As at 30 June 2018
Residential mortgages at FVTPL 22.7 - 22.7
Other financial assets - designated
as FVTPL 0.1 - 0.1
Derivative financial instruments
- assets 19.3 19.3 -
Derivative financial instruments
- liabilities (9.5) (9.3) (0.2)
As at 30 June 2017
Other financial assets - designated
as FVTPL 0.2 - 0.2
Derivative financial instruments
- assets 10.1 10.1 -
Derivative financial instruments
- liabilities (4.9) (4.8) (0.1)
As at 31 December 2017
Other financial assets - designated
as FVTPL 0.2 - 0.2
Derivative financial instruments
- assets 11.9 11.9 -
Derivative financial instruments
- liabilities (6.5) (6.5) -
There are no non-recurring fair value measurements.
23. Share based payments
On 26 March 2018 Executive Directors and members of senior
management were granted options over 1,128,413 ordinary shares of
GBP0.01 pence each in the Group under the Group's Performance Share
Plan 2017 at a nil exercise price. The Group expects options over
750,395 ordinary shares of GBP0.01 pence each to vest. The fair
value of the options at date of grant is GBP1,779,509.
Appendix: Alternative performance measures
This financial report provides alternative performance measures
("APMs") which are not defined or specified under the requirements
of International Financial Reporting Standards. We believe these
APMs provide readers with important additional information on our
business. To support this we have included a reconciliation of the
APMs we use, where relevant, and a glossary indicating the APMs we
use, an explanation of how they are calculated and why we use
them.
A. 2018 highlights
The Group incurred costs on the Initial Public Offering in 2017.
These costs, included within administrative expenses, are not
considered to be part of the underlying administrative expenses of
the Group as they relate to a very specific one-off activity.
Underlying KPIs exclude these costs.
All ratios have been calculated using unrounded data.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Net interest margin
Net interest income (i) 84.4 65.3 144.1
Average customer loans and
receivables
(monthly average(*) ) (ii) 5,528.1 4,153.3 4,520.5
----------- ----------- -------------
Net interest margin(**) (i)
/ (ii) 3.08% 3.17% 3.19%
=========== =========== =============
Cost Income Ratio
Statutory administrative expenses
(i) 30.9 26.7 58.0
IPO costs - (2.2) (4.9)
Private sale costs - (0.1) (0.1)
----------- ----------- -------------
Underlying administrative expenses
(ii) 30.9 24.4 53.0
=========== =========== =============
Statutory total income (iii) 124.7 86.0 170.2
=========== =========== =============
Statutory cost income ratio
(i) / (iii) 24.8% 31.0% 34.1%
=========== =========== =============
Underlying cost income ratio
(ii) / (iii) 24.8% 28.4% 31.2%
=========== =========== =============
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Cost of Risk
Provision for loan impairments
- net charge (i) (0.7) - (0.5)
=========== =========== =============
Average customer loans and
receivables (monthly average(*)
) (ii) 5,528.1 4,153.3 4,520.5
=========== =========== =============
Cost of risk (i) / (ii) 0.025% 0.004% 0.011%
=========== =========== =============
Return on Equity
Profit after tax (i) 71.1 43.6 81.3
=========== =========== =============
Opening equity 335.0 233.5 233.5
Closing equity 406.5 277.6 335.0
----------- ----------- -------------
Average equity for RoE
(2 point average(***) ) (ii) 370.8 255.5 284.3
=========== =========== =============
RoE (i) / (ii) 38.4% 34.1% 28.6%
=========== =========== =============
(*) The average customer loans and receivables balances is
calculated as the sum of the opening and closing balances for the
period and the balances at each month end during the period divided
by 7 for the six months ended 30 June 2018 and the six months ended
30 June 2017 and divided by 13 for the year ended 31 December
2017.
(**) For six month periods net interest income is annualised by
multiplying by 365 days and then dividing by 181 days.
(***) The average equity for RoE is calculated as the sum of the
opening and closing equity for the period / year divided by
two.
B. Other financial APMs
As at As at As at 31
30 June 30 June December
2018 2017 2017
GBPm GBPm GBPm
Percentage of loan book in arrears
These APMs are a measure of the amount of arrears in the mortgage
portfolio and an indicator of the quality of the Group's mortgage
portfolio.
Customer loans and receivables in arrears of one month or more
Past due but not impaired
31-60 days 11.2 8.7 7.1
61-89 days 6.7 2.1 4.1
Past due and impaired
90-120 days 2.9 1.5 2.1
> 120 days 4.0 1.9 4.0
---------- ---------- -----------
Total in arrears of one month
or more (i) 24.8 14.2 17.3
========== ========== ===========
Past due and impaired customer loans and receivables in arrears
of three months or more
90-120 days 2.9 1.5 2.1
> 120 days 4.0 1.9 4.0
---------- ----------
Total in arrears of three
months or more (ii) 6.9 3.4 6.1
========== ========== ===========
Customer loans and receivables
(iii) (note 13) 5,693.8 4,415.5 5,364.2
========== ========== ===========
Percentage of loan book in
arrears of one month or more
(i) / (iii) 0.4% 0.3% 0.3%
========== ========== ===========
Percentage of loan book in
arrears of three months or
more (ii) / (iii) 0.1% 0.1% 0.1%
========== ========== ===========
Loan deposit ratio
This APM is used in assessing the Group's liquidity.
Customer loans and receivables
(note 13) 5,693.8 4,415.5 5,364.2
========== ========== ===========
Deposits from customers (note
17) 4,262.6 3,976.7 4,420.0
========== ========== ===========
Loan deposit ratio 133.6% 111.1% 121.4%
========== ========== ===========
As at As at As at 31
30 June 30 June December
2018 2017 2017
GBPm GBPm GBPm
Percentage increase in mortgage originations (year
on year)
This APM demonstrates the growth in the Group's mortgage origination
activity.
Customer loans and receivables
originations
Prior period 1,305.4 1,169.1 2,496.8
Current period 1,356.7 1,305.4 2,737.3
Increase (Current period originations
less prior period originations) 51.3 136.3 240.5
========== ========= ==========
Percentage increase (increase
/ prior period originations) 3.9% 11.7% 9.6%
========== ========= ==========
Percentage loan book growth
(year on year)
This APM demonstrates the growth in the Group's mortgage portfolio.
Opening balance of customer
loans and receivables (i) 4,415.5 2,786.7 3,807.9
Closing balance of customer
loans and receivables 5,693.8 4,415.5 5,364.2
---------- --------- ----------
Increase (ii) 1,278.3 1,628.8 1,556.3
========== ========= ==========
Add back:
Asset sales in the period 562.5 300.0 300.0
---------- --------- ----------
Increase including asset sales
(iii) 1,840.8 1,928.8 1,856.3
========== ========= ==========
Percentage increase (ii) /
(i) 29.0% 58.4% 40.9%
========== ========= ==========
Underlying percentage increase
(iii) / (i) 41.7% 69.2% 48.7%
==========
Percentage residential loan book growth since
year end
This APM demonstrates the underlying growth in the
Group's residential mortgage portfolio in H1 2018.
Opening balance of residential
lending (i) 1,742.3 1,290.7 1,290.7
Closing balance of residential
lending 1,412.4 1,509.0 1,742.3
---------- --------- ----------
(Decrease) / increase (ii) (329.9) 218.3 451.6
Add back:
Asset sales in the period 562.5 - -
---------- --------- ----------
Increase including asset sales
(iii) 232.6 218.3 451.6
========== ========= ==========
Percentage (decrease) / increase
(ii) / (i) (18.9)% 16.9% 35.0%
========== ========= ==========
Underlying percentage increase
(iii) / (i) 13.4% 16.9% 35.0%
========== ========= ==========
B. Other financial APMs (continued)
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Originations by segment
This APM shows the level of mortgage origination activity
by segment
BTL originations 835.3 756.2 1,592.1
Residential originations 362.9 356.2 770.6
Bridging loans originations 131.4 162.0 314.2
Second charge loans originations 27.1 31.0 60.4
----------- ----------- -------------
Total originations (note 13) 1,356.7 1,305.4 2,737.3
=========== =========== =============
Cost of funds
This APM measures the average interest rate payable on all
funding and is an indicator of the efficiency with which the
Group sources funding.
Interest expense and similar
charges (i) 43.0 31.9 67.0
=========== =========== =============
Average funding (monthly average)(*)
(ii) 6,117.8 4,709.6 5,116.5
=========== =========== =============
Cost of funds(**) (i) / (ii) 1.42% 1.37% 1.31%
=========== =========== =============
* The average funding is calculated as the sum of deposits from
banks, deposits from customers, debt securities in issue and other
funding facilities opening and closing balances for the period and
the balances at each month end during the period divided by 7 for
the six months ended 30 June 2018 and the six months ended 30 June
2017 and divided by 13 for the year ended 31 December 2017.
(**) For six month periods interest expense and similar charges
are annualised by multiplying by 365 days and then dividing by 181
days.
C. Non-financial APMs
The APMs below have no close equivalent statutory measure.
APM Definition and purpose
Number of intermediaries registered with the Group Measure of the size of the mortgage distribution network
Number or value of securitisation transactions completed Measure of the level of securitisation activity undertaken
by the Group.
D. Regulatory APMs
The APMs below have no close equivalent statutory measure.
APM Definition and purpose
Common Equity Tier 1 capital ratio Common equity tier 1 capital including retained profits for H! 2018 divided by
risk-weighted
assets. This is a measure of the amount of capital that the Group holds as a
percentage of
its risk weighted assets.
Leverage ratio A regulatory standard ratio proposed by the Basel III as a supplementary measure
to the risk
based capital requirements. It is calculated by dividing Tier 1 capital
resources by a defined
measure of on- and off-balance sheet items plus derivatives and is intended to
constrain the
build-up of excess leverage in the banking sector.
Appendix: Implementation of IFRS 9
IFRS 9 Financial instruments is the replacement of IAS 39
'Financial Instruments: recognition and measurement' and is being
applied for the first time in the Group's financial statements for
the year ended 31 December 2018. The new standard has three
components, impairment, classification and measurement, hedge
accounting and will see significant changes from existing
requirements.
The Group has elected not to restate comparatives on initial
application of IFRS 9 on 1 January 2018.
Impairment
IFRS 9 introduces a new impairment model for financial
instruments which will require entities to recognise expected
credit losses based on unbiased forward-looking information. The
impairment model is applicable to all financial assets at amortised
cost, lease receivables, debt financial assets at fair value
through other comprehensive income, loan commitments and financial
guarantee contracts. Intercompany exposures, including loan
commitments and financial guarantee contracts, are also in scope in
the stand-alone reporting entity accounts.
The measurement of expected loss involves increased complexity
and judgement including estimation of probabilities of defaults,
loss given default, a range of unbiased future economic scenarios,
estimation of expected lives, estimation of exposures at default
and assessing increases in credit risk.
It is expected that the impairment charge under IFRS 9 will tend
to be more volatile than under the previous incurred loss model of
IAS 39. It has resulted in an increase in the total level of
impairment allowances, since all financial assets are assessed for
at least a 12-month expected credit losses and the population of
financial assets to which lifetime expected credit losses applies
is larger than the population for which there is objective evidence
of impairment in accordance with IAS 39.
Impairment: Key concepts and management judgements
The impairment requirements of IFRS 9 are complex and require
management judgements, estimates and assumptions. Key concepts and
management judgements include:
a) Determining whether a significant increase in credit risk
since initial recognition has occurred
IFRS 9 requires the recognition of the expected credit losses
from default events expected within 12 months of the reporting date
if credit risk has not significantly increased since initial
recognition (Stage 1), and lifetime expected credit losses for
financial instruments for which the credit risk has increased
significantly since initial recognition (Stage 2) or which are
credit impaired (Stage 3).
When determining whether the risk of default has increased
significantly since initial recognition, the Group considers both
quantitative and qualitative information and analysis based on the
Group's historical experience, early warning indicators and expert
credit risk assessment. The approach to identifying significant
increases in credit risk is consistent across the Group's products.
In addition, the Group considers that significant increase in
credit risk occurs when the borrower is more than 30 days past due
on their contractual payments.
Exposures are moved back to Stage 1 once they no longer meet the
criteria for a significant increase in credit risk.
Except for certain investments in debt securities, the Group has
not relied on the low credit risk exemption.
Impairment: Key concepts and management judgements
(continued)
b) Definition of default and credit impaired assets
The Group defines a financial instrument as in default, when it
meets one or more of the following criteria:
Quantitative criteria: The borrower is more than 90 days past
due on their contractual payments.
Qualitative criteria: The borrower is less than 90 days past due
on their contractual payments but is judged to be unlikely to pay,
in circumstances such as bankruptcy or a borrower being
deceased.
The above criteria are applied to all financial instruments held
by the Group and are consistent with the definition of default used
for internal credit risk management purposes. The default
definition has been applied consistently to model the probability
of default (PD), Exposure at Default ("EAD") and Loss Given Default
("LGD") throughout the Group's expected credit loss
calculations.
An instrument is considered to be no longer in default (i.e. to
have cured) when it no longer meets any of the default
criteria.
c) Forward-looking information
The calculation of expected credit losses incorporates the use
of forward-looking information. The Group has obtained external
analysis or performed historical analysis and identified the key
economic variables impacting credit risk and expected credit losses
for each portfolio.
The economic variables and their associated impact on the PD,
EAD and LGD vary by financial instrument. Expert judgement has also
been applied in this process. Forecasts of these economic variables
(the 'base economic scenario') are sourced externally and provide
the best estimate view of the economy over at least the next five
years.
Where scenarios have a forecasted outlook shorter than the
lifetime, the relevant metrics are unchanged through the life of
the loan.
The impact of these economic variables on the PD, EAD and LGD
has been determined through statistical analysis to understand how
the changes in these variables historically have affected default
rates and the components of LGD and EAD. This has either been
achieved through wider market analysis sourced by the bank or
internal analysis of the bank's portfolios.
Impairment: Key concepts and management judgements
(continued)
The forward looking scenarios have been reviewed regularly as
part of a working group, with the selection of scenarios and the
scenario weightings at of 30 June 2018 remaining consistent since
the date of transition. The following is a summary of the scenarios
adopted as at 30 June 2018.
Scenario Description Weighting
Scenario defined based on strong near term growth. This is principally based on a
favourable
separation from the EU, which has the effect of increasing housing stock prices and
household
Upside wealth. 15%
-------------------------------------------------------------------------------------------- ----------
Scenario defined based on a slow, but positive economic trajectory through the Brexit
negotiations
Base Case and separation. 70%
-------------------------------------------------------------------------------------------- ----------
Scenario defined based on a deep recession affecting the UK. This is principally based on
the UK failing to reach a trade deal and this has a sharp effect on housing stock prices
and
Downside 1 household wealth. 10%
-------------------------------------------------------------------------------------------- ----------
Scenario is defined based on a stress to the market, aligned to central bank stress testing
Downside 2 scenario. 5%
-------------------------------------------------------------------------------------------- ----------
As with any economic forecasts, the projections and likelihoods
of occurrence are subject to a high degree of inherent uncertainty
and therefore the actual outcomes may be significantly different to
those projected. The Group considers these forecasts to represent
its best estimate of the possible outcomes and has analysed the
non-linearities and asymmetries within the Group's different
portfolios to establish that the chosen scenarios are appropriately
representative of the range of possible scenarios.
The assessment of significant increases in credit risk takes
forward looking macroeconomic data into account through a
management judgement process.
d) Modelling techniques
Expected credit losses are determined by projecting the PD, LGD
and EAD for each future month and for each individual exposure.
These three components are multiplied together and adjusted for the
likelihood of survival (i.e. the exposure has not prepaid or
defaulted in an earlier month). This effectively calculates an
expected credit loss for each future month, which is then
discounted back to the reporting date and summed. The discount rate
used in the expected credit loss calculation is the original
effective interest rate. This calculation is undertaken for each of
the selected economic scenarios and probability weighted to produce
the final loss allowance.
The committed mortgage pipeline follows the same methodology
with the addition of an assumed time to completion and completion
rate coefficient.
Impairment: Impact on loan loss allowance as at 1 January
2018
The impairment allowance measured in accordance with the IFRS 9
expected loss model is GBP1.7 million, an increase of GBP0.7
million, 70%, compared with GBP1.0 million closing impairment
allowance as at 31 December 2017 measured in accordance with the
IAS 39 incurred loss model. The GBP0.7 million relates to loans and
receivables and there is an immaterial amount relating to loan
commitments and guarantees.
Classification and measurement
IFRS 9 will require financial assets to be classified on the
basis of two criteria:
1. The business model within which financial assets are managed, and;
2. Their contractual cash flow characteristics (whether the cash flows represent 'solely payments
of principal and interest').
Financial assets will be measured at amortised cost if they are
held within a business model whose objective is to hold financial
assets in order to collect contractual cash flows, and their
contractual cash flows represent solely payments of principal and
interest. Financial assets will be measured at fair value through
other comprehensive income ("FVOCI") if they are held within a
business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets, and their
contractual cash flows represent solely payments of principal and
interest. Other financial assets are measured at fair value through
profit and loss ("FVTPL").
The measurement category and carrying amount of financial assets
and liabilities in accordance with IAS 39 as at 31 December 2017,
and the equivalent under IFRS 9 at 1 January 2018, are as
follows:
IAS 39 IFRS 9
Measurement category Net carrying amount Measurement Category Net carrying amount
Financial assets GBPm GBPm
Cash and cash
equivalents Amortised cost 966.8 Amortised cost 966.8
Loans and receivables Amortised cost 5,340.1 Amortised cost 5,339.4
Loans and receivables Amortised cost 24.1 FVTPL 24.1
-------------------- --------------------
5,364.2 5,363.5
Derivative financial FVTPL (Hedging FVTPL (Hedging
instruments instruments) 11.9 instruments) 11.9
Investments in debt Amortised cost (Held
securities to maturity) 78.4 Amortised cost 78.4
Financial liabilities
Deposits from banks Amortised cost 1,003.5 Amortised cost 1,003.5
Deposits from customers Amortised cost 4,420.0 Amortised cost 4,420.0
Debt securities in
issue Amortised cost 627.4 Amortised cost 627.4
Derivative financial
instruments Amortised cost 6.5 Amortised cost 6.5
IFRS 9 is applied retrospectively, although comparatives are not
restated, with adjustments arising from classification and
measurement changes recognised in opening equity.
Hedge accounting
IFRS 9 contains revised requirements on hedge accounting, which
are more closely aligned with an entity's risk management
strategies and risk management objectives. These requirements
replace the IAS 39 quantitative effectiveness test with a simpler
version, and mandate that an economic relationship exist between
the hedged item and the hedging instrument. Under IFRS 9, voluntary
hedge de-designations are not allowed.
Adoption of the IFRS 9 hedge accounting requirements is
optional, and certain aspects of IAS 39, being the portfolio fair
value hedge for interest rate risk, continue to be available for
entities (while applying IFRS 9 to the remainder of the entity's
hedge accounting relationships) until the IASB completes its
accounting for dynamic risk management project.
The Group has decided to continue to apply IAS 39 requirements
as they relate to hedge accounting, and comply with the amended
IFRS 7 hedge accounting disclosure requirements.
IFRS 9 Financial instruments - Accounting policies applied from
1 January 2018
Financial assets
Classification
From 1 January 2018 the Group classifies its financial assets in
the following measurement categories:
-- those to be measured at amortised cost; and
-- those to be measured subsequently at fair value (either through OCI, or through profit or
loss),
Financial assets are classified on the basis of two
criteria:
1. The business model within which financial assets are managed; and
2. Their contractual cash flow characteristics (whether the cash flows represent 'solely payments
of principal and interest').
Financial assets are measured at amortised cost if they are held
within a business model whose objective is to hold financial assets
in order to collect contractual cash flows, and their contractual
cash flows represent solely payments of principal and interest.
Financial assets are measured at fair value through other
comprehensive income ("FVOCI") if they are held within a business
model whose objective is achieved by both collecting contractual
cash flows and selling financial assets, and their contractual cash
flows represent solely payments of principal and interest. Other
financial assets are measured at fair value through profit and loss
("FVTPL").
The Group makes infrequent, opportunistic sales of the residual
interests in mortgage securitisations, resulting in the
derecognition of the associated mortgage assets. The Group monitors
the frequency and amount of the sales and potential sales in future
forecasts to review and conclude at each period end on the
appropriate classification for mortgage assets.
Measurement
At initial recognition, the Group measures a financial asset at
its fair value. In the case of a financial asset not at FVTPL,
transaction costs that are directly attributable to the acquisition
of the financial asset are added to the fair value. In the case of
financial asset carried at FVTPL, transaction costs are expensed in
profit or loss.
Financial assets with embedded derivatives are considered in
their entirety when determining whether their cash flows are solely
payment of principal and interest.
Financial assets measured at amortised cost
Financial assets measured at amortised cost are initially
recognised at fair value including direct and incremental
transaction costs. They are subsequently valued at amortised cost,
using the effective interest rate ("EIR") method. The Group incurs
transaction costs and fees for the origination of financial
assets.
Financial assets measured at amortised cost consist of customer
loans and receivables (principally residential mortgage loans)
originated by the Group, investments in debt securities and cash
and cash equivalents.
Customer loans and receivables are originated by the Group with
the intention of holding the assets until maturity and to collect
contractual cash flows where those cash flows represent solely
payments of principal and interest. The Group incurs direct and
incremental costs and fees, such as application fees and broker
commissions. These costs and fees are included within customer
loans and receivables and are amortised over the expected life of
those assets using the EIR method.
Investments in debt securities are non-derivative financial
assets that the Group has the positive intention and ability to
hold to maturity, with fixed or determinable payments and fixed
maturities. These investments are initially recognised at fair
value including direct and incremental transactions costs and
measured subsequently at amortised cost, using the EIR method.
Cash and cash equivalents comprise cash on hand, demand deposits
and restricted cash. Where cash is not freely available for the
Group to use for its general purposes, it is disclosed as
restricted cash; this includes cash collected in the securitisation
vehicles prior to paying down loan notes.
Financial assets measured at FVTPL
Customer loans and receivables acquired by the Group are
initially recognised at fair value. Direct and incremental costs of
acquisition are expensed through profit or loss. They are
subsequently carried at fair value as the contractual cash flows
from these loans include payments that are not solely payments of
principal and interest.
Impairment
From 1 January 2018, the Group assesses on a forward looking
basis the expected credit losses associated with its financial
assets carried at amortised cost and FVOCI.
Expected credit losses are determined by projecting the
probability of default ("PD"), Exposure at Default ("EAD") and Loss
Given Default ("LGD") for each future month and for each individual
exposure. These three components are multiplied together and
adjusted for the likelihood of survival (i.e. the exposure has not
prepaid or defaulted in an earlier month). This calculates an
expected credit loss for each future month, which is then
discounted back, using the original effective interest rate, to the
reporting date and summed. This calculation is undertaken for a
number of the selected economic scenarios and probability weighted
to produce the final loss allowance.
The impairment methodology applied depends on whether there has
been a significant increase in credit risk.
The Group recognises expected credit losses from default events
expected within 12 months of the reporting date if credit risk has
not significantly increased since initial recognition (Stage 1),
and lifetime expected credit losses for financial instruments for
which the credit risk has increased significantly since initial
recognition (Stage 2) or which are credit impaired (Stage 3).
a) Determining whether a significant increase in credit risk
since initial recognition has occurred
When determining whether the risk of default has increased
significantly since initial recognition, the Group considers both
quantitative and qualitative information and analysis based on the
Group's historical experience, early warning indicators and expert
credit risk assessment. In addition, the Group considers that
significant increase in credit risk occurs when the borrower is
more than 30 days past due on their contractual payments.
b) Definition of default and credit impaired assets
The Group defines a financial instrument as in default, when it
meets one or more of the following criteria:
Quantitative criteria: The borrower is more than 90 days past
due on their contractual payments.
Qualitative criteria: The borrower is less than 90 days past due
on their contractual payments but is judged to be unlikely to pay,
in circumstances such as bankruptcy or a borrower being
deceased.
The above criteria are applied to all financial instruments held
by the Group. The default definition is applied consistently to
model the PD, EAD and LGD throughout the Group's expected credit
loss calculations. An instrument is considered to be no longer in
default (i.e. to have cured) when it no longer meets any of the
default criteria.
c) Forward-looking information
The Group's calculation of expected credit losses incorporates
the use of internal and external forward-looking information and
key economic variables impacting credit risk and expected credit
losses for each portfolio. This information is used to develop a
base economic scenarios and other possible scenarios that are
weighted according to management judgement of each scenario's
likelihood.
The assessment of significant increases in credit risk takes
forward looking macroeconomic data into account through a
management judgement process.
Derecognition of financial assets
When the Group completes a securitisation, management considers
whether the assets securitised meet the criteria to be
derecognised, or should continue to be recognised by the Group. A
financial asset is derecognised when the rights to the cash flows
from that asset expire; or when the contractual rights to the cash
flows are transferred; or when the risks and rewards of the
financial asset are substantially transferred.
Shareholder information
Registered office
2 Charter Court, Broadlands, Wolverhampton, West Midlands, WV10
6TD
Company number
06712054
Communications
Information about the Group, including details of the current
share price, is available on our website,
www.chartercourtfs.co.uk.
Investor Relations
Private investors with queries relating to their shareholding
should contact our registrar. You can find details of our registrar
below.
Institutional investors can contact CitigateDeweRogerson.
Financial reports
The Group's financial reports are available on our website
www.chartercourtfs.co.uk. A summary of reports is listed in the
Important Dates section below.
Important Dates
Available format
Financial Calendar Dates Description Online Email RNS Paper
--------------------------------- ------- ------ ------- ------
21 August 2018 Half year 2018 financial results ü ü
--------------------------------- ------- ------ ------- ------
13 November 2018 Third quarter trading update ü ü
--------------------------------- ------- ------ ------- ------
On 4 October 2018, an interim dividend will be paid to
shareholders on the register on the record date of 31 August
2018.
Registrar
Our register of members is maintained by Equiniti Limited. You
can contact Equiniti as follows:
By post: By telephone: By email:
Equiniti Limited, Aspect House, 0371 384 2030 or +44 121 415 7047 (if Secure enquiries can be submitted via
Spencer Road, Lancing, West Sussex calling from outside the UK). email at: help.shareview.co.uk
BN99 6DA Lines open 8.30am to 5.30pm (UK time)
Monday to Friday (excluding public
holidays in England
and Wales).
The registrar also provides services to help you manage your
shares online which you may find useful. For more information visit
www.shareview.co.uk.
Whichever way you choose to communicate with our registrar, you
will need to provide your full name, address and your 8 or 11 digit
shareholder reference which can be found on your share certificate
or proxy card.
Share Certificates
Your share certificate is a valuable document. If your share
certificate is lost or stolen you should contact our registrar
immediately to prevent it being used fraudulently. Visit
www.shareview.co.uk for contact details and information regarding
the process and costs.
Share fraud warning
Fraudsters use persuasive and high-pressure tactics to lure
investors into scams. They may offer to sell shares that turn out
to be worthless or non-existent, or to buy shares at an inflated
price in return for an upfront payment. While high profits are
promised, if you buy or sell shares in this way you will probably
lose your money.
How to avoid share fraud
The FCA provides guidance on how to avoid scams at:
www.fca.org.uk/consumers/protect-yourself-scams.
If you are approached by fraudsters please tell the FCA using
the share fraud reporting form at www.fca.org.uk/scams, where you
can find out more about investment scams. You can also call the FCA
Consumer Helpline on 0800 111 6768.
You should also contact the Police as soon as possible -
particularly if you have already paid money to share fraudsters -
via Action Fraud on 0300 123 2040.
[1] This financial report provides alternative performance
measures ("APMs") which are not defined or specified under the
requirements of International Financial Reporting Standards. We
believe these APMs provide readers with important additional
information on our business. To support this, we have included a
reconciliation of the APMs we use, where relevant, and a glossary
indicating the APMs we use, an explanation of how they are
calculated and why we use them. Please see page 54 for further
details.
Comparative numbers and KPIs for 2017 have not been restated for
the implementation of IFRS 9 on 1 January 2018 (see note 3 to the
condensed financial statements).
[2] Previously disclosed 2017 underlying profit before tax, cost
income ratio and return on equity that were adjusted for the impact
of IPO costs incurred during 2017 of GBP5.0 million and H1 2017 of
GBP2.3 million are no longer disclosed as they are not considered
relevant.
[3] UK Finance: Mortgage Trends Update June 2018, UK Finance:
Mortgage Trends Update December 2017
[4] BDRC Landlord Panel Q2 2018
[5] UK Finance: Mortgage Trends Update June 2018, UK Finance:
Mortgage Trends Update December 2017
[6] J.P. Morgan European ABS & CB Research
[7] Excluding the impact of the sale of economic interest in
securitisations ("the structured asset sales").
[8] Excluding derecognition through asset sales.
[9] Unaudited, inclusive of retained verified profits to 30 June
2018 and increased dividend payout ratio.
[10] A reconciliation of the underlying loan book is included in
the Alternative performance measures appendix. For further details
regarding the structured asset sales please see the Wholesale
funding section.
[11] BDRC presentation: Project Mercury Q1 2018 ("the BDRC
report")
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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