Final Results

RNS Number : 8029Q

Manx Financial Group PLC

03 March 2016

FOR IMMEDIATE RELEASE 3 March 2016

Manx Financial Group PLC (the 'Company')

Report and accounts for the year ended 31 December 2015

Manx Financial Group PLC (LSE: MFX), the financial services group which includes Conister Bank Limited, Edgewater Associates Limited, Conister Card Services Limited and Manx Incahoot Limited, presents its final results for the year ended 31 December 2015.

Jim Mellon, Executive Chairman, commented: "I am pleased to announce that we have secured a record Profit Before Tax for the year, which has increased by 34% to £2.31 million (2014: £1.73 million), providing a Return on Equity of 17.3% (2014: 15.9%) which, in relative terms to the banking sector, is extremely high."

The 2015 Audited Annual Report and Accounts will be available from the Company's website shortly and will also be posted to shareholders. www.mfg.im

Financial Highlights

Profit before tax:	£2.3 million - up 34%	(2014: £1.7 million)

Profit for the year:	£2.1 million - up 32%	(2014: £1.6 million)

Net interest income:	£14.6 million - up 34%	(2014: £10.8 million)

Loans:	£101.4 million - up 13%	(2014: £89.3 million)

Total assets:	£130.0 million - up 9%	(2014: £119.5 million)

Customer accounts:	£106.3 million - up 6%	(2014: £100.3 million)

Earnings per share:	2.06 pence - up 32%	(2014: 1.56 pence)

Contacts:

Manx Financial Group PLC

Denham Eke, Chief Executive

Tel: +44 (0)1624 694694

Beaumont Cornish Limited

Roland Cornish/James Biddle

Tel: +44 (0)20 7628 3396

Britton Financial PR

Tim Blackstone

Tel: +44 (0)7957 140416

Chairman's Statement

Review of performance

Dear Shareholders,

I am pleased to announce that we have secured a record Profit Before Tax for the year, which has increased by 34% to £2.31 million (2014: £1.73 million), providing a Return on Equity of 17.3% (2014: 15.9%) which, in relative terms to the banking sector, is extremely high. This is the sixth period running where we have demonstrated unbroken growth and, as a result, our balance sheet is stronger than ever. Of particular note is that Conister Bank, our principal banking subsidiary, increased Profit Before Tax by 95% to £2.24 million (2014: £1.15 million).

We have achieved this result against an ever increasing global concern over the world's banking system which has given rise to increased regulation and capital support requirements. In the Isle of Man and UK, this will manifest itself through the introduction of Basel III and the adoption of recommendations of the various committees that were established in the aftermath of the 2008 crisis. In particular, the regulation of consumer credit lending in the UK, an area we have long identified as providing profitable opportunities, has been strengthened by the UK Financial Conduct Authority ("FCA") taking oversight of this market from the Office of Fair Trading. As part of this change of regulator, the FCA is reviewing all consumer credit licence holders. Currently, we hold interim licences as our existing licences are reviewed and we would expect to have completed the re-application process by the end of 2016 with new full licences being granted. In tandem, we have strengthened our banking subsidiary's risk evaluation and compliance processes to ensure we continue to grow in a controlled and disciplined manner. In the last two years alone, our net assets have increased by more than a third and this investment in such an important element of our infrastructure will prove to be invaluable as we continue to grow in an ever increasing competitive market.

Our strategy for growth is through innovative product diversification. This allows us to leverage our existing expertise for both direct lending and lending through trusted relationships. As well as supporting growth, this strategy will provide an insulation against the wider increase in liquidity that is now returning to our lending markets.

New developments in financial technology have enabled fleet-footed lenders to create ever smarter distribution networks for their customers' advantage. In the last two years, we have seen developments that will materially improve the efficiency of financial institutions. In order to match these benefits, we will continue with the process of upgrading our key banking systems which we believe will inevitably lead to both the improved delivery of our products and the achievement of financial efficiencies.

Manx Financial Group PLC

Turning to our financial performance, Net Interest Income increased by 34% to £14.55 million (2014: £10.83 million), with Net Trading Income rising by 23% to £8.93 million (2014: £7.25 million). This led to a 24% increase in Operating Income to £9.10 million (2014: £7.35 million). Although Total Costs increased by 21% to £6.79 million (2014: £5.62 million), including a 20% increase in Personnel expenses to £3.52 million (2014: £2.93 million), the Profit Before Tax increased by 34% to £2.31 million (2014: £1.73 million). As a result, our 2015 Profit After Tax rose by 32% to £2.10 million (2014: £1.59 million), leading to a 32% increase in our basic earnings per share to 2.06 pence (2014: 1.56 pence).

Our balance sheet showed a similar improvement, whereby Loans and Customer Advances increased by 13% to £101.36 million (2014: £89.34 million), supported by Deposits of £106.33 million (2014: £100.26 million) and Cash of £7.16 million (2014: £6.12 million). Total Assets increased by 9% to £130.01 million (2014: £119.51 million) and Equity increased by 22% to £12.15 million (2014: £9.98 million).

Conister Bank Limited

The 2015 outcome is a reflection of the Group as a whole. Interest Income grew by 29% to £17.56 million (2014: £13.63 million) leading to a 23% increase in Net Trading Income to £7.38 million (2014: £6.02 million). Operating Income grew by 24% to £7.62 million (2014: £6.15 million). We have prudently increased Provisions by £1.06 million during the year (2014: £0.55 million) to a total of £2.06 million (2014: £1.81 million), representing 1.6% of our gross loan book. Personnel, Depreciation and all other Costs decreased by 3% to £4.32 million (2014: £4.45 million), which resulted in an 95% improvement in Profit Before Tax to £2.24 million (2014: £1.15 million).

Being totally funded by Isle of Man deposits remains a key strength and our Loan to Deposit ratio improved by 5.6% to 94.6% (2014: 89.0%). We remain committed to our very conservative liquidity policy: one which has no behavioural adjustments and no negative cumulative mismatches. This, along with our high regulatory Risk Asset Ratio of 16.4% (2014: 16.6%), provides additional comfort to our deposit base. Our reputation for prudent stewardship will assist deposit acquisition as we continue to grow our balance sheet.

I am pleased to welcome Ian Morley to the Bank's board as an independent Non-executive Director. Ian has advised Central Banks, International Regulators and other International Organisations, such as the EU and OECD on matters related to Economics, Markets and Regulation. Ian joins Neil Duggan who, as already reported, succeeded Don McCrickard as Chairman of the bank, following Don's retirement on 30 June 2015.

Edgewater Associates Limited

In my last annual report, I predicted an annual run rate of £0.36 million and I am pleased to report that our adjusted performance achieved this goal. During the year, we reviewed our cost base and incurred several one-off costs relating to moving office accommodation. The business is now housed in the same building as Conister Bank and the full impact of the cost savings achieved by this move will flow through to the 2016 Income Statement. With an annual adjusted return on equity of 18% and a fully developed 'back office' offering, this market sector is one I am keen on investing further in. As such we continue to review potential IFA acquisitions to bolt onto this business.

Conister Card Services Limited

Whilst progress towards our ambition of monetising our MasterCard® licence has been slow, I am content that proper due diligence and contract negotiations take precedence to any short term gain. We have a number of opportunities within in pre-paid card space which are in the process of development.

Other operating subsidiaries

We continue to incubate new business lines, including foreign exchange services, peer-to-peer lending and loan broking, both to test market competitiveness and to broaden the suite of financial services we offer. We continue to nurture those that show promise and I look forward to reporting in more detail about these ventures in future reports.

Outlook

I believe further liquidity will return to the traditional lending markets forcing pressure on yields and that interest rates in the UK will continue to remain at their historic low levels for most of 2016. With this backdrop, I believe that our lending strategy of growth through product extension will continue to be successful as we further increase our product range and source our liquidity through our fixed term rate structure. Our fixed term deposits will also provide a partial shield against yield pressure in the more competitive lending markets. Thus I see no current reason as to why the year-end 2016 should not continue our profit growth at the same or similar rate.

Whilst our strategy is not acquisition led we will continue to review acquisition opportunities where they make good, sound financial sense.

Finally, I would like to take this opportunity to thank you, our shareholders, our staff, your Board and our wider stakeholders for their continued support. I look forward to working with you all to continue to grow Manx Financial Group into an enlarged and diversified financial services company.

Jim Mellon

Executive Chairman

29 February 2016

Consolidated Income Statement

For the year ended 31 December	Notes	2015 £000	2014 £000

Interest income	6	17,556	13,634
Interest expense	10	(3,002)	(2,809)


Net interest income		14,554	10,825

Fee and commission income		1,527	1,276
Profit / (loss) on joint venture	20	28	(2)
Fee and commission expense		(984)	(1,102)
Commission sharing schemes	3(t)	(6,196)	(3,749)


Net trading income		8,929	7,248
Other operating income		166	97


Operating income		9,095	7,345

Personnel expenses		(3,515)	(2,931)
Other expenses	7	(2,385)	(1,950)
Provision for impairment on loan assets	8	(1,059)	(550)
Depositors' Compensation Scheme recovery	9	10	11
Depreciation	18	(226)	(228)
Amortisation	19	(44)	-
Realised gains on available for sale financial assets	16	80	32
Unrealised gain / (loss) on financial assets carried at fair value	15	30	(1)
Gain on acquisition of subsidiary	20	28	-
Bargain purchase	20	295	-


Profit before tax payable	10	2,309	1,728

Tax payable	11	(207)	(139)


Profit for the year		2,102	1,589

Basic earnings per share (pence)	12	2.06	1.56
Diluted earnings per share (pence)	12	1.29	0.98

Consolidated Statement of Other Comprehensive Income

For the year ended 31 December

Notes

2015 £000

2014 £000

Other comprehensive income:

Items that will be reclassified to profit or loss
Available for sale gains taken to equity	16	-	6

Items that will never be reclassified to profit or loss
Actuarial gains / (losses) on defined benefit pension scheme taken to equity	26	19	(173)

Total comprehensive income for the period attributable to owners		2,121	1,422

Basic earnings per share (pence)	12	2.08	1.39
Diluted earnings per share (pence)	12	1.30	0.89

Consolidated and Company Statement of Financial Position

		Group		Company
As at 31 December	Notes	2015 £000	2014 £000	2015 £000	2014 £000
Assets
Cash and cash equivalents	14	7,156	6,123	100	-
Financial assets at a fair value through profit or loss	15	77	47	-	-
Available for sale financial instruments	16	15,981	18,775	-	-
Loans and advances to customers	17	101,356	89,338	-	-
Commissions receivable		361	326	-	-
Property, plant and equipment	18	872	605	247	-
Intangible assets	19	398	-	-	-
Investment in Group undertakings	20	-	-	12,072	12,072
Amounts due from Group undertakings	20	-	-	285	350
Trade and other receivables	21	1,377	1,166	98	62
Investment in joint venture	20	-	499	-	-
Subordinated loan	20	-	-	4,078	4,078
Deferred tax asset	11	83	284	-	-
Goodwill	20	2,344	2,344	-	-


Total assets		130,005	119,507	16,880	16,562


Liabilities
Customer accounts	22	106,328	100,259	-	-
Creditors and accrued charges	23	3,343	1,715	12	20
Block creditors	24	588	-	-	-
Amounts owed to Group undertakings	20	-	-	2,874	2,599
Loan notes	25	7,265	7,165	7,265	7,165
Pension liability	26	334	388	-	-


Total liabilities		117,858	109,527	10,151	9,784


Equity
Called up share capital	27	18,933	18,933	18,933	18,933
Profit and loss account		(6,786)	(8,953)	(12,204)	(12,155)


Total equity		12,147	9,980	6,729	6,778


Total liabilities and equity		130,005	119,507	16,880	16,562

Consolidated Statement of Cash Flows

For the year ended 31 December	Notes	2015 £000	2014 £000

RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax on continuing activities		2,309	1,728
Unrealised (gain) / loss on financial assets carried at fair value		(30)	1
Gain on disposal of property, plant and equipment		(12)	(5)
(Profit) / loss on joint venture		(28)	2
Gain on acquisition of subsidiary	20	(28)	-
Depreciation	18	226	228
Amortisation	19	44	-
Bargain purchase	20	(295)	-
Actuarial loss on defined benefit pension scheme taken to equity	26	19	(173)
(Decrease) / increase in pension liability	26	(54)	136
Share-based payment expense	27	46	24
Increase in trade and other receivables		(208)	(152)
Increase in trade and other payables		1,168	934
Increase in commission debtors		(35)	(37)


Net cash inflow from trading activities		3,122	2,686

Increase in loans and advances to customers		(11,369)	(13,519)
Increase in deposit accounts		6,069	22,144


Cash (outflow) / inflow from operating activities		(2,178)	11,311


CASH FLOW STATEMENT
Cash flows from operating activities
Cash (outflow) / inflow from operating activities		(2,178)	11,311
Taxation paid		(6)	-


Net cash (outflow) / inflow from operating activities		(2,184)	11,311

Cash inflow / (outflow) from investing activities
Purchase of property, plant and equipment	18	(493)	(208)
Purchase of intangible assets	19	(21)	-
Acquisition of Incahoot Limited business	20	(101)	-
Sale / (purchase) of available for sale financial instruments	16	2,794	(9,769)
Sale of property, plant and equipment		12	7
Cash acquired on acquisition of subsidiary	20	926	-
Investment in joint venture	20	-	(501)


Net cash inflow / (outflow) from investing activities		3,117	(10,471)

Cash flows from financing activities
Issue of loan notes	25	100	1,100


Net cash inflow from financing activities		100	1,100

Increase in cash and cash equivalents		1,033	1,940

Included in cash flows are:
Interest received - cash amounts		17,203	13,360
Interest paid - cash amounts		(2,906)	(2,802)

Consolidated and Company Statement of Changes in Equity

For the year ended 31 December Group	Share Capital £000	Retained Earnings £000	2015 £000	2014 £000

Balance as at 1 January	18,933	(8,953)	9,980	8,534
Profit for the year	-	2,102	2,102	1,589
Other comprehensive income	-	19	19	(167)

Transactions with owners:
Share-based payment expense (see note 27)	-	46	46	24


Balance as at 31 December	18,933	(6,786)	12,147	9,980

For the year ended 31 December Company	Share Capital £000	Retained Earnings £000	2015 £000	2014 £000

Balance as at 1 January	18,933	(12,155)	6,778	6,356
(Loss) / profit for the year	-	(95)	(95)	398

Transactions with owners:
Share-based payment expense (see note 27)	-	46	46	24


Balance as at 31 December	18,933	(12,204)	6,729	6,778

Notes to the Consolidated Financial Statements

1. Reporting entity

Manx Financial Group PLC is a company incorporated in the Isle of Man. The consolidated financial statements of Manx Financial Group PLC (the "Company") for the year ended 31 December 2015 comprise the Company and its subsidiaries (the "Group").

A summary of the principal accounting policies, which have been applied consistently, are set out below.

2. Basis of preparation

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations applicable to companies reporting under IFRS, including International Accounting Standards ("IAS").

The Group has continued to apply the accounting policies used for the 2014 annual report, with the exception of those detailed below.

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2015:

n Defined Benefit Plans: Employee Contributions (Amendments to IAS 19);

n Annual Improvements to IFRS 2010 - 2012 Cycle; and

n Annual Improvements to IFRS 2011 - 2013 Cycle.

No significant changes followed the implementation of these standards and amendments.

(b) Basis of measurement

The financial statements are prepared on a historical cost basis except:

n financial instruments at fair value through profit or loss and available for sale financial instruments are measured at fair value; and

n equity settled share-based payment arrangements are measured at fair value.

These financial statements are presented in pounds sterling, which is the Group's functional currency. Except as indicated, financial information presented in pounds sterling has been rounded to the nearest thousand. All subsidiaries of the Group have pounds sterling as their functional currency.

(d) Use of estimates and judgements

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 3(p).

3. Significant accounting policies

(a) Basis of consolidation of subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power to affect those returns. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Intra-Group balances, income and expenses and unrealised losses or gains arising from intra-Group transactions, are eliminated in preparing the consolidated financial statements.

(b) Accounting for business combinations

Business combinations are accounted for by using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable.

The Group measures goodwill at the acquisition date as:

n the fair value of the consideration transferred; plus

n the recognised amount of any non-controlling interests in the acquiree; plus

n if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less

n the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in the income statement.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in the income statement.

Items of property, plant and equipment are stated at historical cost less accumulated depreciation (see below). Historical cost includes expenditure that is directly attributable to the acquisition of the items.

The assets' residual values and useful economic lives are reviewed, and adjusted if appropriate, at each reporting date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment.

An intangible asset is an identifiable non-monetary asset without physical substance. An item is identifiable if it is separable or arises from contractual or other legal rights. The initial measurement of an intangible asset depends on whether it has been acquired separately or has been acquired as part of a business combination.

Intangible assets that are acquired by an entity and having finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.

Intangible assets acquired as part of a business combination, with an indefinite useful live are measured at fair value. Intangible assets with indefinite useful lives are not amortised but instead are subject to impairment testing at least annually.

Depreciation and amortisation

Assets are depreciated or amortised on a straight-line basis, so as to write off the book value over their estimated useful lives. The useful lives of property, plant and equipment and intangibles are as follows:

Property, plant and equipment

Leasehold improvements to expiration of the lease

Equipment 4-5 years

Vehicles 4 years

Furniture 10 years

Intangible assets

Customer contracts to expiration of the agreement

Business intellectual property rights indefinite

Website development costs indefinite

(d) Financial assets

Management have determined the classification of the Group's financial assets into one of the following categories:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money directly to a customer with no intention of trading the receivable. This classification includes advances made to customers under HP and finance lease agreements, litigation, finance loans, personal loans, block discounting, secured commercial loans and stocking plans.

Loans are recognised when cash is advanced to the borrowers. Loans and receivables are carried at amortised cost using the effective interest rate method with all movements being recognised in the income statement after taking into account provision for impairment losses (see note 3(e)).

Financial assets at fair value through profit or loss

A financial asset is classified in this category if it is acquired principally for the purpose of selling in the short term or if so designated by management. The fair value of the financial asset at fair value through profit or loss is based on the quoted bid price at the reporting date.

Available for sale financial instruments

Available for sale investments are non-derivative investments that are designated as available for sale or are not classified as another category of financial assets. Available for sale investments are carried at fair value.

Dividend income is recognised in the income statement when the Group becomes entitled to the dividend. Other fair value changes are recognised in other comprehensive income until the investment is sold or impaired, whereupon the cumulative gains and losses previously recognised in other comprehensive income are recognised in the income statement.

Investments in subsidiary undertakings

Investments in subsidiary undertakings in the parent company statement of financial position are measured at cost less any provision for impairment.

Fair value

The fair value hierarchy is applied to all financial assets. Refer to note 4(c) for further information.

(e) Impairment of financial assets

The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. This arises if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the financial asset, or group of financial assets, that can be reliably estimated. Impairment losses are recognised in the income statement for the year.

Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers.

Loans and other receivables are reviewed for impairment where there are repayment arrears and doubt exists regarding recoverability. The impairment allowance is based on the level of arrears together with an assessment of the expected future cash flows, and the value of any underlying collateral after taking into account any irrecoverable interest due. Amounts are written off when it is considered that there is no further prospect of recovery.

Where past experience has indicated that, over time, a particular category of financial assets has suffered a trend of impairment losses, a collective impairment allowance is made for expected losses to reflect the continuing historical trend.

(f) Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash and deposit balances with an original maturity date of three months or less.

(g) Financial liabilities

Financial liabilities consist of customer deposit accounts, other creditors, loan notes and accrued charges. Customer accounts are recognised immediately upon receipt of cash from the customer. Interest payable on customer deposits is provided for using the interest rate prevailing for the type of account.

(h) Long term employee benefits

Pension obligations

The Group has pension obligations arising from both defined benefit and defined contribution pension plans.

A defined contribution pension plan is one under which the Group pays fixed contributions into a separate fund and has no legal or constructive obligations to pay further contributions. Defined benefit pension plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and remuneration.

Under the defined benefit pension plan, in accordance with IAS 19 Employee benefits, the full service cost for the period, adjusted for any changes to the plan, is charged to the income statement. A charge equal to the expected increase in the present value of the plan liabilities, as a result of the plan liabilities being one year closer to settlement, and a credit reflecting the long-term expected return on assets based on the market value of the scheme assets at the beginning of the period, is included in the income statement.

The statement of financial position records as an asset or liability as appropriate, the difference between the market value of the plan assets and the present value of the accrued plan liabilities. The difference between the expected return on assets and that actually achieved in the period, is recognised in the income statement in the year in which they arise. The defined benefit pension plan obligation is calculated by independent actuaries using the projected unit credit method and a discount rate based on the yield on AA rated corporate bonds.

The Group's defined contribution pension obligations arise from contributions paid to a Group personal pension plan, an ex gratia pension plan, employee personal pension plans and employee co-operative insurance plans. For these pension plans, the amounts charged to the income statement represent the contributions payable during the year.

Share-based compensation

The Group maintains a share option programme which allows certain Group employees to acquire shares of the Group. The change in the fair value of options granted is recognised as an employee expense with a corresponding change in equity. The fair value of the options is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options.

At each statement of financial position date, the Group revises its estimate of the number of options that are expected to vest and recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

The share option programme was originally set up for Group employees to subscribe for shares in Conister Trust Limited (now Conister Bank Limited). Since the Scheme of Arrangement, the shareholders of Conister Bank Limited became shareholders of Manx Financial Group PLC. The share option programme is now operated by Manx Financial Group PLC. The fair value is estimated using a proprietary binomial probability model. The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium when the options are exercised.

Other obligations

Provision is made for short-term benefits payable for salaries, holiday pay, social security costs and sick leave on a pro-rata basis and is included within creditors and accrued charges.

(i) Leases

A Group company is the lessor

Finance leases and HP contracts

When assets are subject to a finance lease or HP contract, the present fair value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. HP and lease income is recognised over the term of the contract or lease reflecting a constant periodic rate of return on the net investment in the contract or lease. Initial direct costs, which may include commissions and legal fees directly attributable to negotiating and arranging the contract or lease, are included in the measurement of the net investment of the contract or lease at inception.

A Group company is the lessee

Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

(j) Current and deferred taxation

Current taxation relates to the estimated corporation tax payable in the current financial year. Deferred taxation is provided in full, using the liability method, on timing differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred taxation is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred tax is realised. Deferred taxation assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

(k) Interest income and expense

Interest income and expense are recognised in the income statement using the effective interest rate method.

Effective interest rate

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts of the financial instrument to the net carrying amount of the financial asset or financial liability. The discount period is the expected life or, where appropriate, a shorter period. The calculation includes all amounts receivable or payable by the Group that are an integral part of the overall return, including origination fees, loan incentives, broker fees payable, estimated early repayment charges, balloon payments and all other premiums and discounts. It also includes direct incremental transaction costs related to the acquisition or issue of the financial instrument. The calculation does not consider future credit losses.

Once a financial asset or a group of similar financial assets has been written down as a result of impairment, subsequent interest income continues to be recognised using the original effective interest rate applied to the reduced carrying value of the financial instrument.

(l) Fees and commission income

Fees and commission income other than that directly related to the loans is recognised over the period for which service has been provided or on completion of an act to which the fees relate.

(m) Programme costs

Programme costs are direct expenditure incurred in relation to prepaid card programmes. The costs are recognised over the period in which income is derived from operating the programmes.

(n) Segmental reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group's primary format for segmental reporting is based on business segments.

(o) New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not effective for the year and have not been applied in preparing these consolidated financial statements.

New/revised International Accounting Standards/International Financial Reporting Standards (IAS/IFRS)	Effective date (accounting periods commencing on or after)
IFRS 14 Regulatory Deferral Accounts	1 January 2016
Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)	1 January 2016
Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)	1 January 2016
Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)	1 January 2016
Equity Method in Separate Financial Statements (Amendments to IAS 27)	1 January 2016
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)	1 January 2016
Annual Improvements to IFRS 2012 - 2014 Cycle - various standards	1 January 2016
Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)	1 January 2016
Disclosure Initiative (Amendments to IAS 1)	1 January 2016
IFRS 15 Revenue from Contracts with Customers	1 January 2018
IFRS 9 Financial Instruments	1 January 2018

The Directors do not expect the adoption of the standards and interpretations to have a material impact on the Group's financial statements in the period of initial application with the exception of IFRS 9 Financial Instruments.

IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and de-recognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

The Group is assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 9. Given the nature of the Group's operations, this standard is expected to have a pervasive impact on the Group's financial statements. In particular, calculation of impairment of financial instruments on an expected credit loss basis is expected to result in an increase in the overall level of impairment allowances.

(p) Key sources of estimation uncertainty

Management believe that a key area of estimation and uncertainty is in respect of the impairment allowances on loans and advances to customers, goodwill and the Incahoot bargain purchase. Loans and advances to customers are evaluated for impairment on a basis described in note 4a(i), credit risk. The Group has substantial historical data upon which to base collective estimates for impairment on HP contracts, finance leases and personal loans. The accuracy of the impairment allowances and provisions for counter claims and legal costs depend on how closely the estimated future cash flows mirror actual experience. An impairment review is performed annually for goodwill at different discount rates to allow for any uncertainty.

(q) Fiduciary deposits

Deposits received on behalf of clients by way of a fiduciary agreement are placed with external parties and are not recognised in the statement of financial position. Income in respect of fiduciary deposit taking is included within interest income and recognised on an accruals basis.

(r) Prepaid card funds

The Group could receive funds for its prepaid card activities. These funds would be held in a fiduciary capacity for the sole purpose of making payments as and when card-holders utilise the credit on their cards and therefore would not be recognised in the statement of financial position.

(s) Foreign exchange

Foreign currency assets and liabilities (applicable to the Conister Card Services division only) are translated at the rates of exchange ruling at the reporting date. Transactions during the year are recorded at rates of exchange in effect when the transaction occurs. The exchange movements are dealt with in the income statement.

(t) Commission sharing schemes

This represents the cost incurred in relation to certain loan books where commission is paid based on the overall profitability of the relevant book. Each such lending scheme has its own commercially agreed terms.

(u) Joint ventures

Investments in joint ventures are initially recognised at cost. Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Joint ventures are accounted for using the equity method. The consolidated financial statements include the Group's share of the income and expenses of the equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that joint control commences until it ceases. When the Group's share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

Unrealised gains on transactions between the Company and its equity accounted investees are eliminated to the extent of the Company's interest in the equity accounted investees. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Investments in joint ventures and associates are kept under review for impairment. Where, in the opinion of the Directors, the net realisable value of an investment falls below the carrying value, a provision is made against the investment and charged to the income statement.

4. Risk and capital management

(a) Risk management

Introduction and overview

The Group has exposure to the following risks from its use of financial instruments:

n credit risk;

n liquidity risk;

n operational risk; and

n market risk.

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for managing risk and capital within the Bank. The Bank is the main operating entity exposed to these risks.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework within the Group.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions. The Group has a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Board of Directors of the Bank (the "Board of the Bank") delegate responsibility for risk management to the Executive Risk Committee ("ERC") which reports to the Audit, Risk and Compliance Committee ("ARCC"). It is responsible for the effective risk management of the Bank. Operational responsibility for asset and liability management is delegated to the Executive Directors of the Bank, through the Bank's Assets and Liabilities Committee ("ALCO").

ARCC is responsible for monitoring compliance with the risk management policies and procedures faced by the Group's regulated entities, and for reviewing the adequacy of the risk management framework. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the ARCC.

i) Credit risk

Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations. For risk management reporting purposes, the Bank considers and consolidates all elements of credit risk exposure, such as individual obligor default, country and sector risk. The Bank is principally exposed to credit risk with regard to loans and advances to customers, comprising HP and finance lease receivables, litigation funding loans, unsecured personal loans, secured commercial loans, block discounting and stock plan loans. It is also exposed to credit risk with regard to cash balances and trade and other receivables.

Management of credit risk

The Board of the Bank delegates responsibility for the management of credit risk to the Credit Committee ("CC") for loans and ALCO for other assets. The following measures are taken in order to manage the exposure to credit risk:

n explicit credit policies, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements;

n a rigorous authorisation structure for the approval and renewal of credit facilities. Each opportunity is researched for viability, legal/regulatory restriction and risk. If recommended, the proposal is submitted to Board of the Bank or the CC. The CC reviews lending assessments in excess of individual credit control or executive discretionary limits;

n reviewing and assessing existing credit risk and collateral. The CC assesses all credit exposures in excess of designated limits, as set out in the underwriting manual for asset and personal finance;

n limiting concentrations of exposure to counterparties, geographies and industries defining sector limits, lending caps and exposure to minimise interest rate risk;

n ensuring that appropriate records of all sanctioned facilities are maintained;

n ensuring regular account reviews are carried out for all accounts agreed by the CC; and

n ensuring Board of the Bank approval is obtained on all decisions of the CC above the limits set out in the Bank's credit risk policy.

An analysis of the credit risk on loans and advances to customers is as follows:

	2015 £000	2014 £000

Carrying amount	101,356	89,338


Individually impaired¹
Grade A	-	-
Grade B	-	-
Grade C	2,916	3,043


Gross value	2,916	3,043
Allowance for impairment	(2,011)	(1,754)


Carrying value	905	1,289


Collective allowance for impairment	(50)	(51)


Past due but not impaired
Less than 1 month	3,070	712
1 month but less than 2 months	1,507	1,001
2 months but less than 3 months	397	305
3 months and over	630	371


Carrying value	5,604	2,389


Neither past due nor impaired	94,897	85,711

¹ Loans are graded A to C depending on the level of risk. Grade C relates to agreements with the highest of risk, Grade B with medium risk and Grade A relates to agreements with the lowest risk.

Impaired loans

Impaired loans are loans where the Group determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan agreements.

Past due but not impaired loans

Past due but not impaired loans are loans where the contractual interest or principal payments are past due but the Group believes that impairment is not appropriate on the basis of the level of security, collateral available and/or the stage of collection of amounts owed to the Group.

Allowances for impairment

The Group establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss allowance that relates to individually significant exposures, and a collective loan loss allowance, which is established for the Group's assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment. The collective loan loss allowance is based on historical experience, the current economic environment and an assessment of its impact on loan collectability. Guidelines regarding specific impairment allowances are laid out in the Bank's Debt Recovery Process Manual which is reviewed annually.

Write-off policy

The Group writes off a loan balance (and any related allowances for impairment losses) when management determines that the loans are uncollectable. This determination is reached after considering information such as the occurrence of significant changes in the borrower's financial position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure.

Collateral

The Group holds collateral in the form of the underlying assets (typically private and commercial vehicles, plant and machinery) as security for HP, finances leases, vehicle stocking plans, block discounting and secured commercial loan balances, which are sub-categories of loans and advances to customers. In addition, the commission share schemes have an element of capital indemnified, 2015: 57.6% of loans and advances (2014: 53.2%). Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. At the time of granting credit within the sub-categories listed above, the loan balances due are secured over the underlying assets held as collateral (see note 17 for further details).

Concentration of credit risk

Geographical

Lending is restricted to individuals and entities with Isle of Man or UK addresses.

Segmental

The Bank is exposed to credit risk with regard to customer loan accounts, comprising HP and finance lease balances, unsecured personal loans, secured commercial loans, block discounting and vehicle stocking plan loans. In addition, the Bank lends via significant introducers into the UK. There were two introducers that accounted for more than 20% of the Bank's total lending portfolio at the end of 31 December 2015 (2014: one introducer).

ii) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting financial liability obligations as they fall due.

Management of liquidity risk

The Group's approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The Group uses various methods, including forecasting of cash positions, to monitor and manage its liquidity risk to avoid undue concentration of funding requirements at any point in time or from any particular source. Maturity mismatches between lending and funding are managed within internal risk policy limits.

Minimum liquidity

The Isle of Man Financial Services Authority ("FSA") requires that the Bank should be able to meet its obligations for a period of at least one month. In order to meet this requirement, the Bank measures its cash flow commitments, and maintains its liquid balances in a diversified portfolio of short-term bank balances and short dated UK Government Treasury Bills.

Bank balances are only held with financial institutions approved by the Board of the Bank and which meet the requirements of the FSA.

Measurement of liquidity risk

The key measure used by the Bank for managing liquidity risk is the assets and liabilities maturity profile.

The table below shows the Group's financial liabilities classified by their earliest possible contractual maturity, on an undiscounted basis including interest due at the end of the deposit term. Based on historical data, the Group's expected actual cash flow from these items vary from this analysis due to the expected re-investment of maturing customer deposits.

Residual contractual maturities of financial liabilities as at the balance sheet date (undiscounted)

31 December 2015	Sight- 8 days £000	>8 days - 1 month £000	>1 month - 3 months £000	>3 months - 6 months £000	>6 months - 1 year £000	>1 year - 3 years £000	>3 years - 5 years £000	>5 years £000	Total £000


Customer accounts	2,312	1,176	2,287	4,213	25,279	52,859	23,533	-	111,659
Other liabilities	3,353	58	131	199	1,288	4,061	3,386	334	12,810


Total liabilities	5,665	1,234	2,418	4,412	26,567	56,920	26,919	334	124,469

31 December 2014	Sight- 8 days £000	>8 days - 1 month £000	>1 month - 3 months £000	>3 months - 6 months £000	>6 months - 1 year £000	>1 year - 3 years £000	>3 years - 5 years £000	>5 years £000	Total £000


Customer accounts	1,865	2,429	2,646	4,282	35,498	36,904	21,791	-	105,415
Other liabilities	1,725	29	1,028	346	489	4,173	1,990	388	10,168


Total liabilities	3,590	2,458	3,674	4,628	35,987	41,077	23,781	388	115,583

Maturity of assets and liabilities at the balance sheet date

31 December 2015	Sight- 8 days £000	>8 days - 1 month £000	>1 month - 3 months £000	>3 month- 6 months £000	>6 month - 1 year £000	>1 year - 3 years £000	>3 years - 5 years £000	>5 years £000	Total £000

Assets
Cash & cash equivalents	7,156	-	-	-	-	-	-	-	7,156
Available for sale financial instruments	-	3,000	6,995	5,986	-	-	-	-	15,981
Customer accounts receivable	2,054	1,765	6,367	9,006	16,746	47,742	16,782	894	101,356
Commission debtors	33	88	240	-	-	-	-	-	361
Other assets	77	-	-	-	-	-	-	5,074	5,151


Total assets	9,320	4,853	13,602	14,992	16,746	47,742	16,782	5,968	130,005


Liabilities
Customer accounts	2,313	1,175	2,283	4,179	24,869	50,498	21,011	-	106,328
Other liabilities	3,343	28	56	84	1,072	3,453	3,160	334	11,530


Total liabilities	5,656	1,203	2,339	4,263	25,941	53,951	24,171	334	117,858

31 December 2014	Sight- 8 days £000	>8 days - 1 month £000	>1 month - 3 months £000	>3 month- 6 months £000	>6 month - 1 year £000	>1 year - 3 years £000	>3 years - 5 years £000	>5 years £000	Total £000

Assets
Cash & cash equivalents	6,123	-	-	-	-	-	-	-	6,123
Available for sale financial instruments	-	2,000	10,789	5,986	-	-	-	-	18,775
Customer accounts receivable	166	2,681	6,519	9,061	17,107	40,478	13,138	188	89,338
Commission debtors	29	80	217	-	-	-	-	-	326
Other assets	47	-	-	-	-	-	-	4,898	4,945


Total assets	6,365	4,761	17,525	15,047	17,107	40,478	13,138	5,086	119,507


Liabilities
Customer accounts	1,861	2,427	2,639	4,250	34,936	34,851	19,295	-	100,259
Other liabilities	1,715	-	960	250	300	3,750	1,905	388	9,268


Total liabilities	3,576	2,427	3,599	4,500	35,236	38,601	21,200	388	109,527

(iii) Operational risk

Operational risk arises from the potential for inadequate systems including systems' breakdown, errors, poor management, breaches in internal controls, fraud and external events to result in financial loss or reputational damage. Operational risk also occurs when lending through an outsourced partner. The Group manages the risk through appropriate risk controls and loss mitigation actions. These actions include a balance of policies, procedures, internal controls and business continuity arrangements. Operational risk across the Group is analysed and discussed at all Board meetings, with ongoing monitoring of actions arising to address the risks identified.

(iv) Market risk

Market risk is the risk that changes in the level of interest rates, changes in the rate of exchange between currencies or changes in the price of securities and other financial contracts including derivatives will have an adverse financial impact. The primary market risk within the Group is interest rate risk exposure in the Bank. As at 31 December 2015 and 2014, the fair value of the financial instruments as presented in the interest risk table below are considered to be equal to their carrying amounts.

During the year the Group was exposed to market price risk through holding available for sale financial instruments, and a financial asset carried at fair value through profit and loss. The only significant exposure relates to the financial asset carried at fair value through profit and loss, which is an equity investment stated at market value. Given the size of this holding, which was £77,000 at 31 December 2015 (2014: £47,000) the potential impact on the results of the Group is relatively small and no sensitivity analysis has been provided for the market price risk.

Interest rate risk

Interest rate risk exposure in the Bank arises from the difference between the maturity of capital and interest payable on customer deposit accounts, and the maturity of capital and interest receivable on loans and financing. The differing maturities on these products create interest rate risk exposures due to the imperfect matching of different financial assets and liabilities. The risk is managed on a continuous basis by management and reviewed by the Board of the Bank. The Bank monitors interest rate risk on a monthly basis via the ALCO. The matching of the maturity interest rates of assets and liabilities is fundamental to the management of the Bank. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest bearing liabilities as they mature are important factors in assessing the liquidity of the Bank and its exposure to changes in interest rates.

Interest rate re-pricing table

The following tables present the interest rate mismatch position between assets and liabilities over the respective maturity dates. The maturity dates are presented on a worst case basis, with assets being recorded at their latest maturity and customer accounts at their earliest.

31 December 2015	Sight- 1 month £000	>1month-3month £000	>3month-6months £000	>6month - 1 year £000	>1 year - 3 years £000	>3 years - 5 years £000	>5 years £000	Non-Int. Bearing £000	Total £000


Assets
Cash & cash equivalents	7,156	-	-	-	-	-	-	-	7,156
Available for sale financial instruments	3,000	6,995	5,986	-	-	-	-	-	15,981
Customer accounts receivable	3,819	6,367	9,006	16,746	47,742	16,782	894	-	101,356
Commission debtors	-	-	-	-	-	-	-	361	361
Other assets	-	-	-	-	-	-	-	5,151	5,151


Total assets	13,975	13,362	14,992	16,746	47,742	16,782	894	5,512	130,005


Liabilities
Customer accounts	3,488	2,283	4,179	24,869	50,498	21,011	-	-	106,328
Other liabilities	28	56	84	1,072	3,453	3,160	334	3,343	11,530
Total capital and reserves	-	-	-	-	-	-	-	12,147	12,147


Total liabilities and equity	3,516	2,339	4,263	25,941	53,951	24,171	334	15,490	130,005

Interest rate sensitivity gap	10,459	11,023	10,729	(9,195)	(6,209)	(7,389)	560	(9,978)	-


Cumulative	10,459	21,482	32,211	23,016	16,807	9,418	9,978	-	-

31 December 2014	Sight- 1 month £000	>1month-3month £000		>3month-6months £000		>6month - 1 year £000		>1 year - 3 years £000		>3 years - 5 years £000		>5 years £000		Non-Int. Bearing £000		Total £000


Assets
Cash & cash equivalents	6,123	-	-		-		-		-		-		-		6,123
Available for sale financial instruments	2,000	10,789	5,986		-		-		-		-		-		18,775
Customer accounts receivable	2,847	6,519	9,061		17,107		40,478		13,138		188		-		89,338
Commission debtors	-	-	-		-		-		-		-		326		326
Other assets	-	-	-		-		-		-		-		4,945		4,945


Total assets	10,970	17,308	15,047		17,107		40,478		13,138		188		5,271		119,507


Liabilities
Customer accounts	1,861	2,427	2,639		4,250		34,936		34,851		19,295		-		100,259
Other liabilities	-	-	960		250		300		3,750		1,905		2,103		9,268
Total capital and reserves	-	-	-		-		-		-		-		9,980		9,980


Total liabilities and equity	1,861	2,427	3,599		4,500		35,236		38,601		21,200		12,083		119,507

Interest rate sensitivity gap	9,109	14,881	11,448		12,607		5,242		(25,463)		(21,012)		(6,812)		-


Cumulative	9,109	23,990	35,438		48,045		53,287		27,824		6,812		-		-

Sensitivity analysis for interest rate risk

The Bank monitors the impact of changes in interest rates on interest rate mismatch positions using a method consistent with the FSA required reporting standard. The methodology applies weightings to the net interest rate sensitivity gap in order to quantify the impact of an adverse change in interest rates of 2.0% per annum (2014: 2.0%). The following tables set out the estimated total impact of such a change based on the mismatch at the balance sheet date.

31 December 2015	Sight- 1 month £000	>1month-3month £000	>3month-6months £000	>6month - 1 year £000	>1 year - 3 years £000	>3 years - 5 years £000	>5 years £000	Non-Int. Bearing £000	Total £000


Interest rate sensitivity gap	10,459	11,023	10,729	(9,195)	(6,209)	(7,389)	560	(9,978)	-


Weighting	0.000	0.003	0.007	0.014	0.027	0.054	0.115	0.000	-


£000	-	33	75	(129)	(168)	(399)	63	-	(525)

31 December 2014	Sight- 1 month £000		>1month-3month £000		>3month-6months £000		>6month - 1 year £000		>1 year - 3 years £000		>3 years - 5 years £000		>5 years £000		Non-Int. Bearing £000		Total £000



Interest rate sensitivity gap		9,109		14,881		11,448		12,607		5,242		(25,463)		(21,012)		(6,812)		-


Weighting		0.000		0.003		0.007		0.014		0.027		0.054		0.115		0.000		-


£000		-		45		80		177		142		(1,375)		(2,416)		-		(3,347)

(b) Capital Management

Regulatory capital

The Group considers capital to comprise share capital, share premium, reserves and subordinated loans. Capital is deployed by the Board to meet the commercial objectives of the Group, whilst meeting regulatory requirements in the Bank. The Group's policy is to maintain a strong capital base so as to maintain investor, creditor, depositor and market confidence and to sustain future development of the business.

In implementing current capital requirements the capital position in the Bank is also subject to prescribed minimum requirements by the FSA in respect of the ratio of total capital to total risk-weighted assets. The requirement applies to the Bank (a wholly owned subsidiary of Manx Financial Group PLC) as a component of Manx Financial Group PLC and has been adhered to throughout the year.

The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques.

For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

Valuation models

The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements:

n Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments;

n Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data; and

n Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Financial instruments measured at fair value - fair value hierarchy

The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial position.

31 December 2015	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Investment securities
Government bonds	15,981	-	-	15,981
Equities	77	-	-	77
	16,058	-	-	16,058

Financial instruments not measured at fair value

The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised.

31 December 2015	Level 1 £000	Level 2 £000	Level 3 £000	Total fair values £000	Total carrying amount £000
Assets
Cash and cash equivalents	-	7,156	-	7,156	7,156
Loans and advances to customers	-	101,356	-	101,356	101,356
Commissions receivable	-	361	-	361	361
Trade and other receivables	-	1,377	-	1,377	1,377
	-	110,250	-	110,250	110,250

Liabilities
Customer accounts	-	106,328	-	106,328	106,328
Creditors and accrued charges	-	3,343	-	3,343	3,343
Block creditors	-	588	-	588	588
Loan notes	-	7,265	-	7,265	7,265
	-	117,524	-	117,524	117,524

Where available, the fair value of loans and advances is based on observable market transactions. Where observable market transactions are not available, fair value is estimated using valuation models, such as discounted cash flow techniques. Input into the valuation techniques includes expected lifetime credit losses, interest rates, prepayment rates and primary origination or secondary market spreads. For collateral-dependent impaired loans, the fair value is measured based on the value of the underlying collateral. Input into the models may include data from third party brokers based on over the counter trading activity, and information obtained from other market participants, which includes observed primary and secondary transactions.

5. Segmental analysis

Segmental information is presented in respect of the Group's business segments. The Directors consider that the Group currently operates in one geographic segment, the Isle of Man and UK. The primary format, business segments, is based on the Group's management and internal reporting structure. The Directors consider that the Group operates in four product orientated segments in addition to its investing activities: Asset and Personal Finance (including provision of HP contracts, finance leases, personal loans, commercial loans and block discounting); Manx Incahoot; Conister Card Services; and Edgewater Associates Limited.

For the year ended 31 December 2015	Asset and Personal Finance £000	Manx Incahoot £000	Conister Card Services £000	Edgewater Associates £000		Investing Activities £000	Total £000

Net interest income	14,554	-	-		-	-	14,554
Operating income	7,591	84	(98)		1,369	149	9,095

Profit/(loss) before tax payable	2,299	203	(71)		148	(270)	2,309


Capital expenditure	173	122	-		44	274	613


Total assets	128,357	447	123		580	498	130,005

For the year ended 31 December 2014	Asset and Personal Finance £000	Litigation Finance £000	Conister Card Services £000	Edgewater Associates £000		Investing Activities £000	Total £000

Net interest income	10,825	-	-		-	-	10,825
Operating income	8,492	-	(108)		1,255	-	7,345

Profit/(loss) before tax payable	1,733	45	(150)		146	(46)	1,728


Capital expenditure	183	-	-		25	-	208


Total assets	118,515	-	106		824	62	119,507

6. Interest income

Interest receivable and similar income represents charges and interest on finance and leasing agreements attributable to the year after adjusting for early settlements and interest on bank balances.

7. Other expenses

	2015 £000	2014 £000


Professional and legal fees	654	496
Marketing costs	161	131
IT costs	339	348
Establishment costs	547	355
Communication costs	66	71
Travel costs	75	72
Bank charges	115	71
Insurance	115	111
Irrecoverable VAT	228	206
Other costs	85	89


	2,385	1,950

8. Allowance for impairment

The charge in respect of specific allowances for impairment comprises:

	2015 £000	2014 £000


Specific impairment allowances made	1,255	890
Reversal of allowances previously made	(195)	(212)


Total charge for specific provision for impairment	1,060	678

The credit in respect of collective allowances for impairment comprises:

	2015 £000	2014 £000


Collective impairment allowances made	2	23
Release of allowances previously made	(3)	(151)


Total credit for collective allowances for impairment	(1)	(128)


Total charge for allowances for impairment	1,059	550

9. Depositors' Compensation Scheme

	2015	2014
	£000	£000
Receipt in respect of the Isle of Man Government Depositors' Compensation Scheme	10	11

On 27 May 2009, Kaupthing Singer & Friedlander (Isle of Man) Limited activated the Isle of Man Government Depositors' Compensation Scheme (the Scheme) in connection with its liquidation. Three payments of £73,880 were made in to the Scheme. Repayments from the FSA of £133,506 and £34,424 have been received and a further £53,710 is expected from the Scheme. In 2015, the Bank received £9,408 as a final repayment for a Scheme for the Bank of Credit and Commerce Overseas Limited launched in 1991.

10. Profit before tax payable

The profit before tax payable for the year is stated after charging:

	2015 £000	2014 £000
Interest expense payable to depositors	2,573	2,360
Interest expense payable on loan notes	429	449
Profit on sale of fixed assets	(12)	(5)
Share options expense	46	24
Directors' remuneration	297	286
Directors' fees	202	179
Directors' pensions	30	29
Directors' performance related pay	54	60
Auditors' remuneration: as Auditors current year	86	85
non-audit services	19	26
Pension cost defined contribution scheme	14	12
Operating lease rentals for property	342	213

11. Tax expense

	2015	2014
	£000	£000
Current tax expense
Current year	21	29
Changes to estimates for prior years	(15)	-
	6	29
Deferred tax expense
Origination and reversal of temporary differences	6	12
Utilisation of previously recognised tax losses	197	123
Changes to estimates for prior years	(2)	(25)
	201	110

Total tax expense	207	139

		2015		2014
		£000		£000
Reconciliation of effective tax rate
Profit before tax on continuing operations		2,309		1,728
Tax using the Banking division's domestic tax rate	10.0%	231	10.0%	173
Effect of tax rates in foreign jurisdictions	0.4%	8	0.9%	12
Non-deductible expenses	0.6%	15	2.3%	40
Tax exempt income	(0.8)%	(18)	(3.3)%	(58)
Timing differences in current year	(0.8)%	(18)	(0.9)%	(15)
Origination and reversal of temporary differences in deferred tax	0.3%	6	0.6%	12
Changes to estimates for prior years	(0.7)%	(17)	(1.5)%	(25)

Total tax expense	9.0%	207	8.1%	139

The main rate of corporation tax in the Isle of Man is 0.0% (2014: 0.0%). However the profits of the Group's Manx banking activities are taxed at 10.0% (2014: 10.0%). The profits of the Group's subsidiaries that are subject to UK corporation tax are taxed at a rate of 20.0% (2014: 21.5%).

The value of tax losses carried forward and timing differences reduced to £83,000 (2014: £284,000) and resulted in an expense of £201,000 (2014: £110,000) to the income statement.

12. Earnings per share

	2015	2014

Profit for the year	£2,102,000	£1,589,000
Weighted average number of ordinary shares in issue	102,070,252	102,070,252
Basic earnings per share (pence)	2.06	1.56
Diluted earnings per share (pence)	1.29	0.98

Total comprehensive income for the period	£2,121,000	£1,422,000
Weighted average number of ordinary shares in issue	102,070,252	102,070,252
Basic earnings per share (pence)	2.08	1.39
Diluted earnings per share (pence)	1.30	0.89

The basic earnings per share calculation is based upon the profit for the year after taxation and the weighted average of the number of shares in issue throughout the year.

	2015	2014

Reconciliation of weighted average number of ordinary shares in issue between basic and diluted earnings per share
As per basic earnings per share	102,070,252	102,070,252
Number of shares issued if all convertible loan notes were exchanged for equity (note 25)	61,500,000	61,500,000
Dilutive element of warrants if taken up (note 25)	17,641,990	21,172,093
Dilutive element of share options if exercised (note 27)	22,665	130,990


As per dilutive earnings per share	181,234,907	184,873,335

Reconciliation of earnings between basic and diluted earnings per share
As per basic earnings per share	£2,102,000	£1,589,000
Interest expense saved if all convertible loan notes were exchanged for equity (note 25)	£230,150	£221,900


As per dilutive earnings per share	£2,332,150	£1,810,900

The diluted earnings per share calculation assumes that all convertible loan notes, warrants and share options have been converted/exercised at the beginning of the year where they are dilutive.

13. Company loss

The loss on ordinary activities after taxation of the Company is £95,000 (2014: £398,000 profit).

14. Cash and cash equivalents

	Group		Company
	2015 £000	2014 £000	2015 £000	2014 £000


Cash at bank and in hand	7,156	6,123	100	-
Short-term deposits	-	-	-	-


	7,156	6,123	100	-

Cash at bank includes an amount of £140,000 (2014: £25,000) representing receipts which are in the course of transmission.

15. Financial assets at fair value through profit or loss

The investment represents shares in a UK quoted company, elected to be classified as a financial asset at fair value through profit or loss. The investment is stated at market value and is classified as a level 1 investment in the IFRS 13 fair value hierarchy. The cost of the shares was £471,000. The unrealised difference between cost and market value has been taken to the income statement. Dividend income of £350,000 has been received from this investment since it was made.

16. Available for sale financial instruments

	Group		Company
	2015 £000	2014 £000	2015 £000	2014 £000


UK Government Treasury Bills	15,981	18,775	-	-


	15,981	18,775	-	-

UK Government Treasury Bills are stated at fair value and unrealised changes in the fair value are reflected in equity.

17. Loans and advances to customers

Group	Gross Amount £000	2015 Impairment Allowance £000	Carrying Value £000	Gross Amount £000	2014 Impairment Allowance £000	Carrying Value £000


Hire Purchase balances	62,814	(1,136)	61,678	52,059	(881)	51,178
Finance lease balances	10,240	(656)	9,584	11,422	(714)	10,708
Unsecured personal loans	4,023	(180)	3,843	3,514	(148)	3,366
Vehicle stocking plans	1,119	-	1,119	1,284	-	1,284
Block discounting	8,935	-	8,935	6,766	-	6,766
Secured commercial loans	4,947	(89)	4,858	7,347	(62)	7,285
Secured personal loans	11,339	-	11,339	8,751	-	8,751

	103,417	(2,061)	101,356	91,143	(1,805)	89,338

Collateral is held, in the form of underlying assets, for HP, finance leases, vehicles stocking plans, block discounting, secured commercial and personal loans. An estimate of the fair value of collateral on past due or impaired loans and advances is not disclosed as it would be impractical to do so.

Specific allowance for impairment	2015 £000	2014 £000


Balance at 1 January	1,754	3,578
Specific allowance for impairment made	1,255	890
Release of allowances previously made	(130)	(212)
Write-offs	(868)	(2,502)
Balance at 31 December	2,011	1,754

Collective allowance for impairment	2015 £000	2014 £000


Balance at 1 January	51	179
Collective allowance for impairment made	2	23
Release of allowances previously made	(3)	(151)


Balance at 31 December	50	51


Total allowances for impairment	2,061	1,805

Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2015 £208,017 (2014: £125,983) had been lent on this basis. In the Group's ordinary course of business, advances may be made to Shareholders but all such advances are made on normal commercial terms.

As detailed below, at the end of the current financial year four loan exposures exceeded 10.0% of the capital base of the Bank (2014: two loan exposures):

Exposure	Outstanding Balance 2015 £000	Outstanding Balance 2014 £000	Facility limit £000

Block discounting facility	7,345	3,501	12,500

HP and finance lease receivables

Loans and advances to customers include the following Hire Purchase and finance lease receivables:

	2015 £000	2014 £000

Less than one year	33,987	30,615
Between one and five years	60,501	50,456


Gross investment in HP and finance lease receivables	94,488	81,071

The investment in HP and finance lease receivables net of unearned income comprises:

	2015 £000	2014 £000

Less than one year	24,425	22,514
Between one and five years	48,629	40,967


Net investment in HP and finance lease receivables	73,054	63,481

18. Property, plant and equipment

Group	Leasehold Improvements £000		IT Equipment £000		Furniture & Equipment £000		Motor Vehicles £000		Total £000


Cost
As at 1 January 2015		182		1,263		600		80		2,125
Additions		235		205		22		31		493
On acquisition (see note 20)		-		-		1		-		1
Disposals		-		-		-		(54)		(54)


As at 31 December 2015		417		1,468		623		57		2,565


Accumulated depreciation
As at 1 January 2015		56		893		510		61		1,520
Charge for year		14		132		68		12		226
Disposals		-		-		-		(53)		(53)


As at 31 December 2015		70		1,025		578		20		1,693


Carrying value at 31 December 2015		347		443		45		37		872


Carrying value at 31 December 2014		126		370		90		19		605

Company	Leasehold Improvements £000		IT Equipment £000		Furniture & Equipment £000		Total £000


Cost
As at 1 January 2015		-		-		-		-
Additions		234		13		15		262
Disposals		-		-		-		-


As at 31 December 2015		234		13		15		262


Accumulated depreciation
As at 1 January 2015		-		-		-		-
Charge for year		15		-		-		15
Disposals		-		-		-		-


As at 31 December 2015		15		-		-		15


Carrying value at 31 December 2015		219		13		15		247


Carrying value at 31 December 2014		-		-		-		-

19. Intangible assets

Group	Customer Contracts £000		Intellectual Property Rights £000		Website Development £000		Total £000


Cost
As at 1 January 2015		-		-		-		-
Additions		-		-		21		21
On acquisition (see note 20)		76		345		-		421
Disposals		-		-		-		-


As at 31 December 2015		76		345		21		442


Accumulated amortisation
As at 1 January 2015		-		-		-		-
Charge for year		44		-		-		44
Disposals		-		-		-		-


As at 31 December 2015		44		-		-		44


Carrying value at 31 December 2015		32		345		21		398


Carrying value at 31 December 2014		-		-		-		-

20. Investment in Group undertakings

The Company has the following investments in subsidiaries incorporated in the Isle of Man:

Carrying value of investments	Nature of Business	31 December 2015 % Holding		Date of Incorporation		Total 2015 £000	Total 2014 £000


Conister Bank Limited	Asset and Personal Finance		100		05/12/1935	10,067	10,067
TransSend Holdings Limited	Holding Company for Prepaid Card Division		100		05/11/2007	-	-
Bradburn Limited	Holding Company		100		15/05/2009	-	-
Edgewater Associates Limited	Wealth Management		100		24/12/1996	2,005	2,005

						12,072	12,072

Amounts owed to and from Group undertakings are unsecured, interest-free and repayable on demand.

Subordinated loans

MFG has issued several subordinated loans as part of its equity funding into the Bank and EWA. Interest charged is at the discretion of the lender.

			Company 2015	Company 2014
Creation	Maturity	Interest rate	£000	£000

Conister Bank Limited
25 October 2013	22 October 2020	7.0%	1,000	1,000
11 February 2014	11 February 2024	7.0%	500	500
27 May 2014	27 May 2024	7.0%	500	500
9 July 2014	9 July 2024	7.0%	500	500
17 September 2014	17 September 2026	7.0%	400	400
22 July 2013	22 July 2033	7.0%	1,000	1,000

Edgewater Associates Limited
14 May 2012	14 May 2017	7.0%	128	128
28 February 2013	28 February 2018	7.0%	50	50
			4,078	4,078

Goodwill

	Group 2015 £000	Group 2014 £000


Edgewater Associates Limited ("EWA")	1,849	1,849
ECF Asset Finance PLC ("ECF")	454	454
Three Spires Insurance Services Limited ("Three Spires")	41	41

	2,344	2,344

Goodwill impairment

The goodwill is considered to have an indefinite life and is reviewed on an annual basis by comparing its estimated recoverable amount with its carrying value.

The estimated recoverable amount in relation to the goodwill generated on the purchase of EWA is based on the forecasted 3 year cash flow projections, extrapolated to 10 years using a 5.0% annual increment, and then discounted using a 12.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% on stable profit levels.

The estimated recoverable amount in relation to the goodwill generated on the purchase of ECF is based on forecasted 3 year sales interest income calculated at 5.0% margin, extrapolated to 10 years using a 5.0% annual increment, and then discounted using a 12.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% on varying sales volumes.

There has been no change in the detailed method of measurement for EWA and ECF when compared to 2014. The goodwill generated on the purchase of Three Spires has been reviewed at the current year end and is considered adequate given its income streams referred to EWA. On the basis of the above reviews no impairment to goodwill has been made in the current year.

Investment in joint venture and acquisition of subsidiary

On 7 August 2014, a joint venture agreement was entered into between Manx Financial Limited ("MFL"), previously a subsidiary of the Group, and Andrew Flowers. Additional shares were issued such that 49.9% of the voting share capital was sold for £500,000, creating £1,000 share premium in the company. Control was lost on this day and consequently the assets and liabilities of the subsidiary were derecognised. There was no profit or loss incurred upon ceding control. Manx Financial Group PLC has invested £501,000 for 50.1% of the voting share capital and has provided a corporate guarantee to block funders in Manx Financial Limited. In December 2015, Andrew Flowers disposed of his shares to the parent of MFL, Bradburn Limited, for £500,000 when the net assets of MFL at the time were £1,053,000. This generated a gain on acquisition of the joint venture of £28,000 and MFL became a subsidiary of the Group.

	2015 £000	2015 £000


Fair value of consideration
Cash (included in creditors and accrued charges)		500

Fair value of assets acquired
Cash	926
Loans and advances	649
Trade and other receivables	78
	(1,653)
Fair value of liabilities acquired
Block creditors	588
Creditors and accrued charges	9
	(1,056)
50% acquired		(528)

Gain on acquisition		(28)

Acquisition of Incahoot

On 6 March 2015, the business of Incahoot Limited was acquired by Manx Incahoot Limited, a subsidiary of the Group. Incahoot Limited was in administration at the time and sold its intellectual property rights, a customer contract and property, plant and equipment. Two employees were also transferred under the Transfer of Undertakings (Protection of Employment) Regulations 2006 which carried over £26,000 of unpaid wages.

In exchange for the net assets acquired, Manx Incahoot Limited paid £101,000 in cash and pledged a further 10.0% share of future revenue streams on pipeline listed at the time of acquisition generated within 2 years of purchase, up to a cap of £100,000. No revenue has yet been generated from this pipeline and the Directors believe that it is unlikely that any will. Therefore the contingent consideration has been valued at nil.

	2015 £000	2015 £000


Fair value of consideration
Cash	101
Contingent consideration	-

Fair value of assets acquired		101
Intellectual property rights (including website)	35
Fair value increase on intellectual property rights	310
Customer contract	76
Property, plant and equipment	1
	(422)
Fair value of liabilities acquired
Unpaid employee wages	26
		(396)

Bargain purchase		(295)

On 12 November 2015, a valuation was conducted by an independent firm of professional advisers on the intellectual property rights acquired for the purpose of including within these financial statements as determined by IFRS 3: Business Combinations. The independent firm addressed the three levels of the IFRS fair value hierarchy and concluded that level 3 was most appropriate as the intellectual property rights acquired had no active markets (Level 1), or comparable assets against which to index prices (Level 2). Therefore, the report valued the intellectual property rights acquired based on internally generated data (Level 3) being: costs incurred to date and cash flow projections. The replacement cost approach was determined as £310,500 after tax and the income approach valued the business at £233,701 using a discount factor of 42.5%. The report averaged the two approaches to arrive at a final valuation of £276,000. In addition, the domain name was separately valued as an intangible asset, citing comparable domains sold recently with a range of £6,000 to £35,000.

It is the view of the Directors that only one approach should be used when valuing the assets acquired and that the replacement cost approach is the better of the two due to the uncertainty of the cash flows given its recent acquisition. Thus the replacement cost has been adopted as the basis for the valuation in order to arrive at a reliable estimate. In addition, the Directors believe that the value of the domain name should be valued at the upper end of the range cited given market conditions for this product. Therefore, the value attributed in these financial statements on the assets acquired is £345,500, being £310,500 for the intellectual property and £35,000 for the domain name.

This valuation gave rise to the fair value of assets and liabilities acquired being £295,000 greater than what was paid and consequently in accordance with IFRS 3: Business Combinations has been recognised as a gain on bargain purchase in the consolidated income statement as a separate line item.

21. Trade and other receivables

	Group		Company
	2015 £000	2014 £000	2015 £000	2014 £000


Prepayments and other debtors	857	646	98	62
Depositors Compensation Scheme Receivable	54	54	-	-
VAT recoverable	466	466	-	-

	1,377	1,166	98	62

Included in trade and other receivables is an amount of £466,000 (2014: £466,000) relating to a reclaim of value added tax ("VAT"). Conister Bank Limited, as the Group VAT registered entity, has for some time considered the VAT recovery rate being obtained by the business was neither fair nor reasonable, specifically regarding the attribution of part of the residual input tax relating to the HP business not being considered as a taxable supply. Queries have been raised with the Isle of Man Government Customs & Excise Division ("C&E"), and several reviews of the mechanics of the recovery process were undertaken by the Company's professional advisors.

The decision of the First-Tier Tax Tribunal released 18 August 2011 in respect of Volkswagen Financial Services (UK) Limited ("VWFS") v HM Revenue & Customs (TC01401) ("VWFS Decision") added significant weight to the case put by the Bank and a request for a revised Partial Exemption Special Method was submitted in December 2011. The proposal put forward by the Bank was that the revised method would allocate 50.0% of costs in respect of HP transactions to a taxable supply and 50.0% to an exempt supply. In addition at this time a Voluntary Disclosure was made as a retrospective claim for input VAT under-claimed in the last 4 years.

In November 2012, it was announced that the HMRC Upper Tribunal had overturned the First-Tier Tribunal in relation to the VWFS Decision. VWFS has subsequently been given leave to appeal and this was scheduled to be heard in October 2013. However, this was delayed and the case was heard by the court of appeal on 17 April 2015 who overturned the Upper Tribunal's decision ruling in favour of VWFS. HMRC have now been given leave to appeal this decision to the Supreme Court and to seek reference to the European Court.

The Bank's total exposure in relation to this matter is £589,000, comprising the debtor balance referred to above plus an additional £123,000 VAT reclaimed under the partial Exemption Special Method, in the period from Q4 2011 to Q3 2012 (from Q4 2012 the Bank reverted back to the previous method). On the basis of the discussions and correspondence which have taken place between the Bank and C&E, in addition to the VWFS case, the Directors are confident that the VAT claimed referred to above will be secured.

22. Customer accounts

	2015 £000	2014 £000

Retail customers: term deposits	103,041	98,420
Corporate customers: term deposits	3,287	1,839


	106,328	100,259

23. Creditors and accrued charges

	Group		Company
	2015 £000	2014 £000	2015 £000	2014 £000


Commission creditors	2,313	1,389	-	-
Other creditors and accruals	530	326	12	20
Consideration for acquisition of MFL (see note 20)	500	-	-	-


	3,343	1,715	12	20

24. Block creditors

	2015 £000	2014 £000

Drawdown 1 - repayable 25/12/2016, interest payable at 5.6%, secured on assets of MFL	194	-
Drawdown 2 - repayable 25/07/2018, interest payable at 5.6%, secured on assets of MFL	394	-


	588	-

25. Loan notes

		Group		Company
	Notes	2015 £000	2014 £000	2015 £000	2014 £000


Related parties
J Mellon	JM	1,750	1,750	1,750	1,750
Burnbrae Limited	BL	1,200	1,200	1,200	1,200
Southern Rock Insurance Company Limited	SR	460	460	460	460
Life Science Developments Limited	LS	500	500	500	500


		3,910	3,910	3,910	3,910

Unrelated parties	UP	3,355	3,255	3,355	3,255

		7,265	7,165	7,265	7,165

JM - Two loans, one of £500,000 maturing on 31 July 2017 with interest payable of 7.0% per annum, and one of £1,250,000 maturing on 26 February 2020, paying interest of 6.5% per annum. Both loans are convertible at the rate of 4 pence and 9 pence respectively. JM is also entitled to 8.3 million warrants at an exercise price of 6 pence which lapse on 31 July 2017.

BL - One loan consisting of £1,200,000 maturing on 31 July 2017 with interest payable of 7.0% per annum. Jim Mellon is the beneficial owner of BL and Denham Eke is also a director. The loan is convertible at a rate of 4 pence. BL is also entitled to 20 million warrants at an exercise price of 6 pence which lapse on 31 July 2017.

SR - One loan consisting of £460,000 maturing on 26 February 2020 with interest payable of 6.5% per annum. The loan is convertible at a rate of 9 pence. SR is also entitled to 8.3 million warrants on a previously converted loan note at an exercise price of 6 pence which lapse on 24 October 2017. Arron Banks is a non-executive director and is a major shareholder of SR. John Banks, a Non-executive Director is also a director of SR.

LS - One loan of £350,000 maturing on 5 September 2017 with interest payable of 5.0% per annum, and another loan of £150,000 maturing on 3 October 2017 paying interest of 5.0% per annum. Denham Eke is a director of LS.

UP - Fifteen loans consisting of an average £223,667, with an average interest payable of 5.6% per annum. The earliest maturity date is 14 July 2016 and the latest maturity is 25 November 2020.

With respect to the convertible loans, the interest rate applied was deemed by the Directors to be equivalent to the market rate with no conversion option.

26. Pension liability

The Conister Trust Pension and Life Assurance Scheme ("Scheme") operated by the Company is a funded defined benefit arrangement which provides retirement benefits based on final pensionable salary. The Scheme is closed to new entrants and the last active member of the Scheme left pensionable service in 2011.

The Scheme is approved in the Isle of Man by the Assessor of Income Tax under the Income Tax (Retirement Benefit Schemes) Act 1978 and must comply with the relevant legislation. In addition, it is registered as an authorised scheme with the FSA in the Isle of Man under the Retirement Benefits Scheme Act 2000. The Scheme is subject to regulation by the FSA but there is no minimum funding regime in the Isle of Man.

The Scheme is governed by two corporate trustees, Conister Bank Limited and Boal & Co (Pensions) Limited. The trustees are responsible for the Scheme's investment policy and for the exercise of discretionary powers in respect of the Scheme's benefits.

The rules of the Scheme state: "Each Employer shall pay such sums in each Scheme Year as are estimated to be required to provide the benefits of the Scheme in respect of the Members in its employ".

Exposure to risk

The Company is exposed to the risk that additional contributions will be required in order to fund the Scheme as a result of poor experience. Some of the key factors that could lead to shortfalls are:

n investment performance - the return achieved on the Scheme's assets may be lower than expected; and

n mortality - members could live longer than foreseen. This would mean that benefits are paid for longer than expected, increasing the value of the related liabilities.

In order to assess the sensitivity of the Scheme's pension liability to these risks, sensitivity analyses have been carried out. Each sensitivity analysis is based on changing one of the assumptions used in the calculations, with no change in the other assumptions. The same method has been applied as was used to calculate the original pension liability and the results are presented in comparison to that liability. It should be noted that in practice it is unlikely that one assumption will change without a movement in the other assumptions; there may also be some correlation between some of these assumptions. It should also be noted that the value placed on the liabilities does not change on a straight line basis when one of the assumptions is changed. For example, a 2.0% change in an assumption will not necessarily produce twice the effect on the liabilities of a 1.0% change.

No changes have been made to the method or to the assumptions stress-tested for these sensitivity analyses compared to the previous period. The investment strategy of the Scheme has been set with regard to the liability profile of the Scheme. However, there are no explicit asset-liability matching strategies in place.

Restriction of assets

No adjustments have been made to the balance sheet items as a result of the requirements of IFRIC 14 issued by IASB's International Financial Reporting Interpretations Committee.

Scheme amendments

There have not been any past service costs or settlements in the financial year ending 31 December 2015 (2014: none).

Funding policy

The funding method employed to calculate the value of previously accrued benefits is the Projected Unit Method. Following the cessation of accrual of benefits when the last active member left service in 2011, regular future service contributions to the Scheme are no longer required. However, additional contributions will still be required to cover any shortfalls that might arise following each funding valuation.

The most recent full actuarial valuation was carried out at 1 April 2013, which showed that the market value of the Scheme's assets was £1,283,000 representing 80.0% of the benefits that had accrued to members, after allowing for expected future increases in earnings. As required by IAS 19 this valuation has been updated by the actuary as at 31 December 2015.

The amounts recognised in the Consolidated Statement of Financial Position are as follows:

Total underfunding in funded plans recognised as a liability	2015 £000	2014 £000

Fair value of plan assets	1,332	1,345
Present value of funded obligations	(1,666)	(1,733)


	(334)	(388)

Movement in the liability for defined benefit obligations	2015 £000	2014 £000

Opening defined benefit obligations at 1 January	1,733	1,497
Benefits paid by the plan	(82)	(62)
Interest on obligations	64	70
Actuarial (gain) / loss	(49)	228


Liability for defined benefit obligations at 31 December	1,666	1,733

Movement in plan assets	2015 £000	2014 £000

Opening fair value of plan assets at 1 January	1,345	1,245
Expected return on assets	50	58
Contribution by employer	49	49
Actuarial (loss) / gain	(30)	55
Benefits paid	(82)	(62)


Closing fair value of plan assets at 31 December	1,332	1,345

Expense recognised in income statement	2015 £000	2014 £000

Interest on obligation	64	70
Expected return on plan assets	(50)	(58)


Total included in personnel costs	14	12


Actual return on plan assets	20	113

Actuarial gain / (loss) recognised in other comprehensive income	2015 £000	2014 £000

Actuarial (loss) / gain on plan assets	(30)	55
Actuarial gain / (loss) on defined benefit obligations	49	(228)


	19	(173)

The actuarial assumptions used to calculate Scheme liabilities under IAS19 are as follows:	2015 %	2014 %	2013 %

Rate of increase in pension in payment:
- service up to 5 April 1997	-	-	-
- service from 6 April 1997 to 13 September 2005	2.7	2.7	3.1
- service from 14 September 2005	2.0	2.0	2.1
Rate of increase in deferred pensions	5.0	5.0	5.0
Discount rate applied to scheme liabilities	3.9	3.8	4.8
Inflation	2.8	2.8	3.2

The assumptions used by the actuary are best estimates chosen from a range of possible assumptions, which due to the timescale covered, may not necessarily be borne out in practice.

27. Called up share capital

Authorised: Ordinary shares of no par value	Number
At 31 December 2014 & 2015	150,000,000

Issued and fully paid: Ordinary shares of no par value	Number	£000
At 31 December 2014 & 2015	102,070,252	18,933

There are a number of convertible loans at 31 December 2015 of £3.41 million (2014: £3.41 million) involving warrants of 28.3 million (31 December 2014: 28.3 million) (see note 25 for further details). The total number of warrants in issue at 31 December 2015 is 36.6 million (2014: 36.6 million) (see note 25 for further details).

On 23 June 2014, 1.75 million share options were issued to Executive Directors and senior management within the Group at an exercise price of 14 pence. The options vest over three years with a charge based on the fair value of 8 pence per option at the date of grant.

Share options

Share option reserve	No of Shares 000	Value £000


As at 31 December 2014	2,806	142
Grant of options	-	46
Lapses	-	-
As at 31 December 2015	2,806	188

Performance and service conditions attached to share options that have not fully vested are as follows:

(a) The options granted on 25 June 2010 (1,056,000 options) will vest if the mid-market share price of £0.30 is achieved during the period of grant (10 years ending 25 June 2020).

(b) The options granted on 25 June 2010 and 23 June 2014 require a minimum of three years continuous employment service in order to exercise upon the vesting date.

The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using a binomial probability model with the following inputs for each award:

	23 June 2014	25 June 2010


Fair value at date of grant	£0.08	£0.03
Share price	£0.14	£0.11
Exercise price	£0.14	£0.11
Expected volatility	55.0%	47.0%
Option life	3	3
Risk-free interest rate (based on government bonds)	0.5%	2.2%
Forfeiture rate	33.3%	0.0%

28. Analysis of changes in financing during the year

Analysis of changes in financing during the year	2015 £000	2014 £000


Balance at 1 January	26,098	24,998
Issue of loan notes	100	1,100


	26,198	26,098

The 2015 closing balance is represented by £18.933 million share capital (2014: £18.933 million) and £7.265 million of loan notes (2014: £7.165 million).

29. Regulator

The Group is regulated by the Isle of Man Government FSA licensed to undertake banking activities and conduct investment business. In addition the Group is regulated by the Financial Conduct Authority in the United Kingdom for credit and brokerage related activities.

30. Related party transactions

Cash deposits

During the year, the Bank held cash on deposit on behalf of Jim Mellon (Executive Chairman of MFG) and companies related to Jim Mellon and Denham Eke (Chief Executive Officer of MFG). Total deposits amounted to £0.031 million (2014: £0.067 million), at normal commercial interest rates in accordance with the standard rates offered by the Bank.

Funds held in a fiduciary capacity

Fiduciary deposits

The Bank acts as agent bank to a number of customers, for balances totalling £4.0 million (2014: £4.9 million). The Bank invests these customer assets with third party banks on their behalf and in return for this service receives a fee. These balances are not included within the statement of financial position.

All funds held and accounts maintained in connection with the fiduciary services that the Bank offers in 2015 are to companies connected with Jim Mellon and Denham Eke.

Staff and commercial loans

Details of staff loans are given in note 17 to the financial statements.

Normal commercial loans are made to various companies connected to Jim Mellon and Denham Eke. As at 31 December 2015, £0.132 million of capital and interest was outstanding (2014: £0.193 million).

Media promotions services

In 2015, Manx Incahoot Limited provided services to Burnbrae Media Limited, a company associated with Denham Eke and Jim Mellon, for £12,000.

Intercompany recharges

Various intercompany recharges are made during the course of the year as a result of the Bank settling debts in other Group companies. In addition, MFG provided investment management and administration services in the previous year for £0.439 million. No charge for such services was made in 2015. EWA provides services to the Group in arranging its insurance and defined contribution pension arrangements.

Investments

The Bank holds less than 1% equity in the share capital of an investment of which Jim Mellon is a shareholder (note 15). Denham Eke acts as a non-executive director.

Subordinated loans

Manx Financial Group PLC has advanced no further subordinated loans in 2015 (2014: £1.9 million) (see note 20).

Loan notes

See note 25 for a list of related party loan notes as at 31 December 2015 and 2014.

Key management personnel's remuneration including Executive Directors

	2015 £000	2014 £000


Short-term employee benefits	402	397

31. Operating leases

Non-cancellable lease rentals are payable in respect of property and motor vehicles as follows:

	2015		2014
	Leasehold Property £000	Other £000	Leasehold Property £000	Other £000


Less than one year	193	-	317	-
Between one and five years	782	-	493	-
Over five years	594	-	213	-


	1,569	-	1,023	-