Report and Accounts for the year ended 31 Dec 2021

RNS Number : 2541E

Manx Financial Group PLC

10 March 2022

 

FOR IMMEDIATE RELEASE  10th March 2022

Manx Financial Group PLC (the 'Company')

Report and accounts for the year ended 31 December 2021  

Manx Financial Group PLC (LSE: MFX), the financial services group which includes Conister Bank Limited, Conister Finance & Leasing Ltd, Blue Star Business Solutions Limited, Edgewater Associates Limited and Manx FX Limited presents its audited final results for the year ended 31 December 2021.

Jim Mellon, Executive Chairman, commented: " The year's financial performance is pleasing with profit before tax payable increasing by £1 million to £3 million despite two further lockdowns and continued economic uncertainty. As a result, the dividend recommended for shareholder approval will be 0.2443 pence per share - a 42% uplift from last year."

The 2021 Audited Annual Report and Accounts will be posted to Shareholders and will be available from the Company's website  www.mfg.im  shortly.

This announcement contains inside information for the purposes of Article 7 of EU Regulation No. 596/2014 on market abuse. Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

For further information, please contact:

Manx Financial Group PLC Denham Eke, Executive Vice Chairman Tel [phone]

Beaumont Cornish Limited Roland Cornish/James Biddle Tel [phone]

Greentarget Limited Dafina Grapci-Penney Tel [phone]

Dear Shareholders

Introduction

The current uncertainties in global markets, fuelled firstly by the effects of the COVID pandemic, and now the Ukraine crisis, look to dominate the economic environment for the foreseeable future as our previous world order is challenged. It seems clear that inflationary pressures will continue for some considerable time. Interest rates will increase as central banks attempt to address these issues in their efforts to stabilise money supply and maintain the availability of credit. The United Kingdom, however, is better placed than some as it does not suffer from certain of the structural weaknesses of its competitors. Notwithstanding, there is no doubt that the operating expense of doing business, especially wage inflation, will increase, driven by the mounting cost of living, coupled with a very tight labour market.

With uncertainty comes opportunity and, whilst the pandemic has undoubtedly had a negative impact on our income statement, we have managed to strengthen our balance sheet during the last two years. In this time, our lending has increased by £50 million from £179 million to £229 million; our total assets by £56 million from £253 million to £309 million; and funds available to shareholders by £3 million from £22 million to £25 million. All this positions us well for the future.

Our enhanced balance sheet has allowed the Group to start paying dividends again after a 16-year hiatus. The Board's commitment is to return 10% of the Group's profit available to shareholders each year in the form of cash or shares. This year, the total dividend recommended for shareholder approval will be 0.2443 pence per share (2020: 0.1724 pence per share) - a 42% uplift, as we continue to reward our loyal shareholders in a manner that will not impede the development of the Group.

Financial Performance

The year's financial performance is pleasing despite two further lockdowns and continued economic uncertainty. Profit before tax payable increased by £1.0 million to £3.0 million (2020: £2.0 million), a growth of 50%. Of particular note is Conister Bank's record lending of £212.6 million (2020: £167.2 million). This, along with our strategy of reducing onerous commission payments, has led to net trading income growing by £3.6 million to £19.0 million (2020: £15.4 million) and operating income by £3.6 million to £20.0 million (2020: £16.4 million).

Operating expenses, excluding provisions and recovered VAT, increased by £1.2 million to £11.7 million (2020: £10.5 million) with £0.3 million of this relating to headcount as we bolster our UK establishment, both organically and through our acquisitions. The balance, £0.8 million, relates to higher IT, operational, and legal costs as we continued to improve our technology and grow our loan book. Total costs, excluding the one-off VAT credits, increased by £1.8 million to £17.1 million (2020: £15.3 million), with additional provisions of £0.4 million to £4.4 million (2020: £4.0 million), together with depreciation and amortisation of intangibles increasing by £0.2 million to £1.1 million (2020: £0.9 million). Our operating income ratio, measured as operating income less impairment provisions on loans and advances to customers as a percentage of interest income, improved by 7.8% to 68.0% (2020: 60.2%), reflecting the development of a more efficient operating environment.

Turning to the balance sheet, our total assets showed a £40.8 million improvement to £308.8 million (2020: £268.0 million), driven mainly by a loan book increase of £36.1 million. Our loyal Isle of Man depositor base continued to support our growth with deposits increasing by £35.2 million to £253.5 million (2020: £218.3 million). Over the year, our loan to deposit ratio improved by 1.9% to 90.4% (2020: 88.5%) - a key measure of operational efficiency. Total liabilities increased by £38.5 million to £284.0 million (2020: £245.5 million), leading to an increase in total equity of £2.6 million to £25.0 million (2020: £22.4 million).

Key Objectives

In this uncertain economic environment, our fundamental focus continued to be the protection of shareholder value. Thus, our strategic concentration remained as previously reported, namely to:

§ Provide the highest quality of service throughout our operations to all customers, ensuring that their treatment is both fair and appropriate;

§ Adopt a pro-active strategy to managing risk within a structured and compliant regime;

§ Concentrate on developing our core business by considered acquisitions, increasing prudential lending, and augmenting the range of financial services we offer;

§ Maintain the implementation of an enhanced and scalable IT infrastructure to better service the operational requirements of a growing Group without the requirement for a disproportionate increase in headcount and other associated operational costs;

§ Continue to develop our Treasury management to improve the return on the liabilities side of our balance sheet; and

§ Manage our balance sheet to exceed the regulatory requirements for capital adequacy.

Environmental, Social and Corporate Governance

We recognise the value and contribution that businesses such as the Group can make to society, in protecting the environment, being responsible and ensuring good practice through the services and support it provides. We have witnessed a rapid growth in the international focus on sustainability, tackling dangerous climate change and, in particular, the part that the finance sector is being asked to play in meeting these challenges.

We now integrate ESG across our business, in our decision making and in what we do. Through our stewardship and engagement with those whom we work, we encourage and finance others to be more sustainable. We do this by understanding and responding to the ESG issues that are material to both us and to our stakeholders. We have incorporated this philosophy in our strategy, risk management and governance as described in greater detail later in this Report.

Conister Bank Limited

The Bank continued to progress a prudent lending strategy with the loan book increasing by £41.0 million to £234.4 million (2020: £193.4 million). We recorded growth in both of our markets, namely, our home market, the Isle of Man, and in the UK.

The Isle of Man market demand for loan finance has virtually returned to its pre-pandemic levels and the Bank has improved its market share through flexible online offerings and being accredited to the Isle of Man Government's Business Support Schemes. On Island, the Bank lent a record £42.9 million (2020: £34.9 million) to consumers and Small and Medium Sized Enterprises ("SMEs") with over 60% of this originating from our online portal.

In the UK, the Bank lent £40.9 million in conjunction with the British Business Bank to support SMEs through its accreditation to the UK Government Loan Schemes. These schemes indemnified the Bank for between 80% to 100% of any loss. Since the year-end, the Bank has been accredited to provide a further £20.0 million of liquidity through the new Recovery Loan Scheme ("RLS") which came into effect on 1 January 2022. With the tapering of Government guarantee support, the RLS will provide the Bank with a guaranteed 70% of any loss incurred. These guarantee schemes are important to the Bank as the government support, whether from the Isle of Man or the UK, provide a considerable level of insulation against loss. These are a safer form of lending during these difficult times and allow the Bank the opportunity to re-build its pipeline as businesses adapt to the new economic environment.

The Bank continues to seek acquisitions that provide access to niche lending markets in the UK. By owning the customer, the Bank continued its strategy to reduce its reliance on other introducers and their expensive commissions. In the last five years, I am pleased to say, commissions have decreased by 58%, or £4.9 million, from £8.4 million in 2017 to a more normalised commission level of £3.5 million in 2021 (2020: £3.6 million). Over the same five-year period, interest income has increased by £1.3 million to £22.0 million (2020: £20.7 million).

The Bank's Isle of Man depositor base remains very loyal with a retention rate in excess of 70%. Whilst we continue to consider new products for this market, it remains our intention to reduce our on-Island reliance. I expect to announce more on this topic in the coming months.

During the year, the Bank continued to attract deposits at historically low rates to fund lending with cash and cash equivalents and debt securities totalling £58.5 million (2020: £57.4 million). We continued to apply our liquidity in our preferred markets: the Isle of Man; the UK Government backed schemes; the UK Structured Finance markets; and the UK credit broker market. We have been building our Structured Finance team over the last three years, and this year the Bank lent £114.1 million (2020: £96.9 million) through this distribution channel. Structured Finance is an area we expect to grow our presence in further in the coming years.

Turning to the overheads, personnel expenses increased by £0.3 million reflecting the additional staff cost associated with our UK growth strategy with overheads overall increasing to £8.3 million (2020: £7.4 million). We continued to focus on favourable customer outcomes and with the pandemic this has necessitated a level of forbearance which runs in tandem with lending through the Government support schemes. The Bank's forbearance agreements reduced by 43% during the year. This, along with loan book growth of £41.0 million, allowed our provisioning to only increase by £0.3 million to £4.3 million (2020: £4.0 million), reflecting the continued prudent approach we have taken during the pandemic. Depreciation and amortisation remained constant at £0.6 million. In total, the Bank's cost base increased by £1.1 million to £13.2 million (2020: £12.1 million) but, driven by the increase in turnover, the Bank's profit before tax margin increased by 1.8% to 5.0% (2020: 3.2%).

Total assets increased by £36.6 million to £296.8 million (2020: £260.2 million), a growth of 14%. Shareholder funds increased by £1.1 million to £31.2 million (2020: £30.1 million). The balance sheet has strengthened over the two years of the pandemic by 24% or £6.2 million, to £31.2 million from £25.0 million in 2020.

Edgewater Associates Limited

We have re-focused and resourced this business to meet the demands of legislation relating to the provision of regulated financial advice on the Isle of Man. In addition, through a project to improve our technology, our customer segmentation will allow an improved customer focused journey which will also deliver operational efficiencies. Despite progressing the above projects and the negative impact of two extensive Isle of Man lockdowns preventing client meetings, the business achieved income growth of 9.5% to £2.3 million (2020: £2.1 million), with recurring income increasing by 9.1% to £1.2 million (2020: £1.1 million). Encouragingly, with the markets improving, the assets under advice grew by £7 million to £368 million (2020: £361 million). Operations incurred one-off costs mainly relating to the above projects and professional fees, which after adjustment, generated an implied underlying profit of £0.2 million (2020 adjusted: nil). We expect, assuming no further Covid related lockdowns, a further improved financial performance in 2022.

Manx FX Limited

Our foreign exchange advisory continued to perform positively and recorded a record profit for the year of £1.2 million (2020: £1.1 million), with a marginal increase in the cost to income ratio to 19.0% (2020: 17.3%) as we build resilience. This is a highly cash generative business which contributed £1.0 million (2020: £0.6 million) to the Group's treasury.

We were successful in seeking ways to increase market share, and showed a growth of 26% in 2021, further reducing any reliance on certain market sectors. The expansion strategy will require the business to be re-branded as MFX Limited in the coming months.

Blue Star Business Solutions Limited

With two UK lockdowns in the year, the business's traditional markets were badly impacted. However, through the Bank's accreditation to the UK Government guaranteed loan schemes, the business was able to grow its brokered lending to £14.3 million (2020: £7.5 million). Of the total advanced, the Bank wrote £8.8 million (2020: £3.7 million) with the balance being passed to other funders - providing the business with a second income stream.

The business was profitable in its own right and contributed £0.5 million (2020: £0.4 million) to the Group's income this year.

We acquired this business in April 2019 and we will incur our final contractual deferred consideration payment in April 2022. So far this has been a very successful acquisition.

Ninkasi Rentals & Finance Limited

The business changed its name from Beer Swaps Limited to Ninkasi Rentals & Finance Limited on 16 November 2021 to more accurately reflect its core business.

The business continued to be the largest tank lessor in the UK brewing market with a fleet size 261 (2020: 185) providing 1.2 million litres of brewing capacity (2020: 0.7 million litres).

A key measure of performance is the deployment of its fleet which, despite the 41% increase in fleet size and the resulting 72% increase in brewing capacity, is currently 89% (2020: 88%). The business, in addition to being profitable in its own right, generated £1.4 million (2020: £0.6 million) to the Group's income this year.

The Business Lending Exchange Limited

On 11 October 2021, we announced the purchase of the remaining shareholding in this business by exercising the option we negotiated in October 2016. The enterprise value of the business at acquisition was £2.2 million for which we paid £1.3 million including a significant deferred element.

This business specialises in prudent lending through their experienced management team to the profitable sub-prime SME market, a sector in which the Bank lacked meaningful access. In addition to being profitable in its own right, the business generated £0.4 million (2020: £nil) to the Group's income.

Outlook

Against a backdrop of inflation, increasing interest rates and the tapering of government support schemes, 2022 will be a challenging year but it will also bring opportunity.

On the Isle of Man, the lending market is buoyant and the Bank has new products in development which will allow it to increase market share, particularly for those markets currently untapped.

In the UK, the Bank does not operate in the mainstream clearing bank markets but in niche, resilient sectors and, as such, we expect the competitive environment to remain similar to this year. Further, it already has a healthy pipeline for its Structured Finance products which, along with its accreditation to government support schemes, will form the backbone to our loan book growth next year.

Uncertainty, whilst historically challenging for our Isle of Man IFA business, should not impact Edgewater Associates Limited to the same extent as the constraints forced upon the operation during the pandemic. Conversely, our FX business has thrived on currency swings, and the current global concerns should allow this business to maintain its profitability.

Our existing investments in Blue Star Business Solutions Limited (financing technology); Ninkasi Leasing & Rental Limited (leasing fermentation tanks) and The Business Lending Exchange Limited (lending to sub-prime SMEs) are all performing well and we seek to replicate this success with similar acquisitions.

In summary, our diversity will continue to be a strength during this period of uncertainty.

Board changes

In November, I announced changes to the Board composition. Denham Eke, our previous CEO, has moved to the newly created position of Executive Vice-Chairman. I would like to put on record my thanks to Denham for his capable leadership during his tenure. Douglas Grant, previously our CFO, has accepted the position of CEO in Denham's stead. James Smeed, previously our Group Financial Controller, has, in turn, accepted the position of CFO and joined the Board together with Greg Jones as an Independent Non-Executive Director.

Greg also joins the Board of the Bank as a Non-Executive Director and as a member of the Audit, Risk and Compliance Committee. Greg will be an invaluable addition to the Group, particularly in providing assistance in matters both legal and tax, and also by broadening the already significant skill range of our Independent Directors.

I believe these appointments further strengthen our Board and I look forward to working with my colleagues to meet the challenges and opportunities our industry will provide in the coming years.

Changes to our Memorandum and Articles of Association

As we continue with our expansion, it has become apparent to the Board that we will have to modify our Memorandum and Articles of Association if we are to meet the regulatory licence application requirements for additional jurisdictions. Thus, at the forthcoming General Meeting, shareholders will be presented with a number of amendments to adopt. Whilst initially these changes may appear complex, their sole intention is to provide an enhanced layer of protection for our current banking licence and any additional licences we may seek to secure in the future. This requirement will be explained more thoroughly in a Circular which will accompany the Notice for the General Meeting.

Thank you

The last two years have proved difficult for our staff, both personally and professionally, but they have been a great credit to the Group. I would like to take this opportunity to thank them all for their dedication to both our customers and to our business during these difficult times. But it is not only our staff I need to thank, but also all our other stakeholders for the support provided to the Group over the year.

Jim Mellon

Executive Chairman

9 March 2022

  CONSOLIDATED STATEMENT OF PROFIT OF LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December	Notes		2021 £000		2020 £000
Interest income			22,947		20,692
Interest expense			(4,967)		(5,222)
Net interest income	9		17,980		15,470
Fee and commission income	10		4,621		3,865
Fee and commission expense	10		(3,339)		(3,481)
Depreciation on leasing assets	22		(269)		(406)
Net trading income			18,993		15,448
Other operating income			365		200
Gain on financial instruments	19		30		259
Realised (loss) / gain on debt securities	18		(1)		261
Revaluation on acquisition of subsidiary	31(F)		660		237
Operating income			20,047		16,405
Personnel expenses	11		(7,156)		(6,823)
Other expenses	12		(4,500)		(3,707)
Impairment on loans and advances to customers	13		(4,360)		(3,950)
Depreciation	22		(675)		(490)
Amortisation and impairment of intangibles	23		(458)		(374)
Share of profit of equity accounted investees, net of tax	29		32		54
VAT recovery	21		113		906
Profit before tax payable	14		3,043		2,021
Income tax expense	15		(234)		(53)
Profit for the year			2,809		1,968

For the year ended 31 December	Notes			2021 £000			2020 £000
Profit for the year				2,809			1,968
Other comprehensive income:
Items that will be reclassified to profit or loss
Unrealised loss on debt securities	18			(18)			(51)
Revaluation gain on property, plant and equipment	22			15			-
Recognition of deferred tax credit on defined benefit pension				67			-
Items that will never be reclassified to profit or loss
Actuarial gain / (loss) on defined benefit pension scheme taken to equity	27			172			(241)
Total comprehensive income for the period attributable to owners				3,045			1,676
Profit attributable to:
Owners of the Company				2,793			1,935
Non-controlling interests				16			33
				2,809			1,968
Total comprehensive income attributable to:
Owners of the Company				3,029			1,643
Non-controlling interests				16			33
				3,045			1,676
Earnings per share - Profit for the year
Basic earnings per share (pence)	16			2.46			1.65
Diluted earnings per share (pence)	16			1.97			1.37
Earnings per share - Total comprehensive income for the year
Basic earnings per share (pence)	16			2.66			1.41
Diluted earnings per share (pence)	16			2.13			1.19
The Directors believe that all results derive from continuing activities.

  COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December	Notes			2021 £000			2020 £000
Dividend income				1,259			572
Interest income				518			522
Other income				78			-
Operating income				1,855			1,094
Personnel expenses				(129)			(74)
Administration expenses				(59)			(122)
Depreciation expense				(91)			(101)
Amortisation expense				(2)			-
Impairment of intercompany receivable				(545)			-
Profit before tax payable	14			1,029			797
Tax payable				-			-
Profit for the year				1,029			797
Total comprehensive income for the year				1,029			797
The Directors believe that all results derive from continuing activities.

  CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December			Notes		2021 £000		2020 £000
Assets
Cash and cash equivalents			17		20,279		34,053
Debt securities			18		40,987		25,532
Financial asset			33		68		4
Loans and advances to customers			20		229,251		193,143
Trade and other receivables			21		1,947		2,170
Property, plant and equipment			22		7,257		6,045
Intangible assets			23		2,508		2,286
Investment in associates			29		136		316
Goodwill			34		6,320		4,412
Total assets					308,753		267,961
Liabilities
Deposits from customers			24		253,459		218,285
Creditors and accrued charges			25		4,745		3,206
Contingent consideration			6(ii), 31		1,023		672
Loan notes			26		23,672		22,222
Pension liability			27		687		944
Deferred tax liability			15		182		197
Total liabilities					283,768		245,526
Equity
Called up share capital			28		19,133		19,121
Profit and loss account					5,781		3,230
Revaluation reserve			22		15		-
Non-controlling interest					56		84
Total equity					24,985		22,435
Total liabilities and equity					308,753		267,961

  COMPANY STATEMENT OF FINANCIAL POSITION

As at 31 December					Notes		2021 £000		2020 £000
Assets
Cash and cash equivalents					17		430		1,378
Trade and other receivables					21		472		309
Amounts due from Group undertakings					35		6,104		1,935
Property, plant and equipment					22		263		354
Intangible assets							20		7
Investment in subsidiaries					30		22,597		22,597
Subordinated loans					35		7,728		7,728
Total assets							37,614		34,308
Liabilities
Creditors and accrued charges					25		501		501
Amounts due to Group undertakings					35		3,309		2,297
Loan notes					26		23,672		22,222
Total liabilities							27,482		25,020
Equity
Called up share capital					28		19,133		19,121
Profit and loss account							(9,001)		(9,833)
Total equity							10,132		9,288
Total liabilities and equity							37,614		34,308

  CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY

					Attributable to owners of the Company
Group								Share capital £000		Profit and loss account £000		Revaluation reserve £000			Total £000		Non-controlling interests £000		Total equity £000
Balance as at 1 January 2020								20,732		1,587		-			22,319		-		22,319
Profit for the year								-		1,935		-			1,935		33		1,968
Other comprehensive income								-		(292)		-			(292)		-		(292)
Transactions with owners
Changes in ownership interests								(1,611)		-		-			(1,611)		-		(1,611)
Acquisition of subsidiary with non-controlling interest								-		-		-			-		51		51
Balance as at 31 December 2020								19,121		3,230		-			22,351		84		22,435
Profit for the year								-		2,793		-			2,793		16		2,809
Other comprehensive income								-		221		15			236		-		236
Transactions with owners
Dividend declared (see note 28)								12		(197)		-			(185)		-		(185)
Acquisition of subsidiary with non-controlling interest								-		(266)		-			(266)		(44)		(310)
Balance as at 31 December 2021								19,133		5,781		15			24,929		56		24,985

Company			Share capital £000		Profit and loss account £000		Total equity £000
Balance as at 1 January 2020			20,732		(10,630)		10,102
Profit for the year			-		797		797
Transactions with owners
Changes in ownership interests			(1,611)		-		(1,611)
Balance as at 31 December 2020			19,121		(9,833)		9,288
Profit for the year			-		1,029		1,029
Transactions with owners
Dividend declared (see note 28)			12		(197)		(185)
Balance as at 31 December 2021			19,133		(9,001)		10,132

  CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December	Notes		2021 £000		2020 £000
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax			3,043		2,021
Adjustments for:
Depreciation	22		944		896
Amortisation and impairment of intangibles	23		458		374
Share of profit of equity accounted investees	29		(32)		(54)
Contingent consideration interest expense	6(ii)		114		122
Pension charge included in personnel expenses	27		13		15
Gain on financial instruments	19		(30)		(253)
Revaluation on acquisition of subsidiary	31		(660)		(237)
			3,850		2,884
Changes in:
Financial asset			4		15
Trade and other receivables			223		415
Creditors and accrued charges			(109)		315
Net cash flow from trading activities			3,968		3,629
Changes in:
Loans and advances to customers			(36,128)		(16,023)
Deposits from customers			35,174		8,352
Pension contribution	27		(98)		-
Cash inflow / (outflow) from operating activities			2,916		(4,042)

CASH FLOW STATEMENT
Cash from operating activities
Cash inflow / (outflow) from operating activities			2,916		(4,042)
Income taxes paid			(10)		(172)
Net cash inflow / (outflow) from operating activities			2,906		(4,214)
Cash flows from investing activities
Purchase of property, plant and equipment	22		(2,109)		(1,187)
Purchase of intangible assets	23		(481)		(231)
Sale of tangible fixed assets	22		961		127
Acquisition of subsidiary or associate, net of cash acquired	31,32		(555)		(648)
(Purchase) / sale of debt securities	18		(15,473)		21,209
Contingent consideration	6(ii),31		(120)		(59)
Net cash (outflow) / inflow from investing activities			(17,777)		19,211
Cash flows from financing activities
Receipt of loan notes	26		1,450		4,640
Payment of lease liabilities (capital)	37		(201)		(204)
Dividend paid	28		(152)		-
Net cash inflow from financing activities			1,097		4,436
Net (decrease) / increase in cash and cash equivalents			(13,774)		19,433
Cash and cash equivalents at 1 January			34,053		14,620
Cash and cash equivalents at 31 December			20,279		34,053
Included in cash flows are:
Interest received - cash amounts			22,624		20,274
Interest paid - cash amounts			4,936		(5,053)

  COMPANY STATEMENT OF CASH FLOWS

For the year ended 31 December	Notes		2021 £000		2020 £000
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax			1,029		797
Adjustments for:
Depreciation	22		91		101
Amortisation			2		-
Dividend income			(1,259)		(572)
			(137)		326
Changes in:
Amounts due from group undertakings			(2,910)		(347)
Trade and other receivables			(163)		(78)
Creditors and accrued charges			66		17
Amounts due from Group undertakings			1,012		1,522
Cash (outflow) / inflow from operating activities			(2,132)		1,440
CASH FLOW STATEMENT
Cash from operating activities
Cash (outflow) / inflow from operating activities			(2,132)		1,440
Income taxes paid			-		-
Net cash (outflow) / inflow from operating activities			(2,132)		1,440
Cash flows from investing activities
Investment in subsidiaries	30		-		(4,775)
Purchase of property, plant and equipment			-		(5)
Purchase of intangible assets			(15)		-
Net cash outflow from investing activities			(15)		(4,780)
Cash flows from financing activities
Receipt of loan notes	26		1,450		4,640
Receipt of subordinated loan			-		50
Payment of finance lease liability			(99)		(91)
Dividend paid			(152)		-
Net cash inflow from financing activities			1,199		4,599
Net (decrease) / increase in cash and cash equivalents			(948)		1,259
Cash and cash equivalents at 1 January			1,378		119
Cash and cash equivalents at 31 December			430		1,378

The notes form part of these financial statements.

1.  Reporting entity

Manx Financial Group PLC ("Company") is a company incorporated in the Isle of Man. The consolidated financial statements of the Company for the year ended 31 December 2021 comprise the Company and its subsidiaries ("Group") including Conister Bank Limited (the "Bank"). The Group is primarily involved in the provision of financial services.

2.  Basis of accounting

The consolidated and the separate financial statements of the Company have been prepared in accordance with international accounting standards in accordance with UK-adopted international accounting standards ("UK-adopted IFRS" or "IFRSs"), on a going concern basis as disclosed in the Directors' Report.

3.  Functional and presentation currency

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

4.  Use of judgements and estimates

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.

The extent to which COVID-19 impacts the Group's business will depend on the effectiveness of government containment actions and the effectiveness of government and central bank stimulus measures. As the economic environment remains uncertain, actual results may differ from the estimates below.

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.

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties at year-end that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year is included in the following notes:

n Note 27 - measurement of defined benefit obligations: key actuarial assumptions;

n Note 23 and 34 - impairment test of intangible assets and goodwill: key assumptions underlying recoverable amounts;

n Note 43(G)(vii) - measurement of Expected Credit Loss ("ECL") allowance for loans and advances to customers and assessment of impairment allowances where loans are in default or arrears: key assumptions in determining the weighted-average loss rate; and

n Note 6 - measurement of contingent consideration.

5.  Financial instruments - Classification

For description of how the Group classifies financial assets and liabilities, see note 43(G)(ii).

The following table provides reconciliation between line items in the statement of financial position and categories of financial instruments.

		Mandatorily at FVTPL	Designated as at FVTPL	FVOCI - debt instruments	FVOCI - equity instruments	Amortised cost	Total carrying amount
31 December 2021		£000	£000	£000	£000	£000	£000
Cash and cash equivalents		-	-	-	-	20,279	20,279
Debt securities		-	-	40,987	-	-	40,987
Financial asset		-	68	-	-	-	68
Loans and advances to customers		-	-	-	-	229,251	229,251
Trade and other receivables		-	-	-	-	1,947	1,947
Total financial assets		-	68	40,987	-	251,477	292,532
Deposits from customers		-	-	-	-	253,459	253,459
Creditor and accrued charges		-	-	-	-	4,745	4,745
Contingent consideration		-	1,023	-	-	-	1,023
Loan notes		-	-	-	-	23,672	23,672
Total financial liabilities		-	1,023	-	-	281,876	282,899

	Mandatorily at FVTPL	Designated as at FVTPL	FVOCI - debt instruments	FVOCI - equity instruments	Amortised cost	Total carrying amount
31 December 2020	£000	£000	£000	£000	£000	£000
Cash and cash equivalents	-	-	-	-	34,053	34,053
Debt securities	-	-	25,532	-	-	25,532
Trading assets	4	-	-	-	-	4
Loans and advances to customers	-	-	-	-	193,143	193,143
Trade and other receivables	-	-	-	-	2,170	2,170
Total financial assets	4	-	25,532	-	229,366	254,902
Deposits from customers	-	-	-	-	218,285	218,285
Creditor and accrued charges	-	-	-	-	3,206	3,206
Loan notes	-	-	-	-	22,222	22,222
Total financial liabilities	-	-	-	-	243,713	243,713

6.  Financial instruments - Fair values

For description of the Group's fair value measurement accounting policy, see note 43(G)(vi).

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

	Carrying amount		Fair value
31 December 2021	Total £000		Level 1 £000		Level 2 £000		Level 3 £000		Total £000
Financial assets measured at fair value
Debt securities	40,987		-		40,987		-		40,987
Financial asset	68		-		-		68		68
	41,055		-		40,987		68		41,055
Financial assets not measured at fair value
Cash and cash equivalents	20,279		-		-		-		-
Loans and advances to customers	229,251		-		-		-		-
Trade and other receivables	1,947		-		-		-		-
	251,477		-		-		-		-
Financial liabilities measured at fair value
Contingent consideration	1,023		-		-		1,023		1,023
	1,023		-		-		1,023		1,023
Financial liabilities not measured at fair value
Deposits from customers	253,459		-		-		-		-
Creditors and accrued charges	4,745		-		-		-		-
Loan notes	23,672		-		-		-		-
	281,876		-		-		-		-

 

	Carrying amount		Fair value
31 December 2020	Total £000		Level 1 £000		Level 2 £000		Level 3 £000		Total £000
Financial assets measured at fair value
Debt securities	25,532		25,532		-		-		25,532
Trading assets	4		4		-		-		4
	25,536		25,536		-		-		25,536
Financial assets not measured at fair value
Cash and cash equivalents	34,053		-		-		-		-
Loans and advances to customers	193,143		-		-		-		-
Trade and other receivables	2,170		-		-		-		-
	229,366		-		-		-		-
Financial liabilities measured at fair value
Contingent consideration	672		-		-		672		672
	672		-		-		672		672
Financial liabilities not measured at fair value
Deposits from customers	218,285		-		-		-		-
Creditors and accrued charges	3,206		-		-		-		-
Loan notes	22,222		-		-		-		-
	243,713		-		-		-		-

Measurement of fair values

i. Valuation techniques and significant unobservable inputs

Type	Valuation technique	Significant unobservable inputs	Inter-relationship between significant unobservable inputs and fair value measurement
Debt securities	Market comparison/discounted cash flow: The fair value is estimated considering a net present value calculated using discount rates derived from quoted yields of securities with similar maturity and credit rating that are traded in active markets.	Not applicable.	Not applicable.
Contingent consideration	Discounted cash flows: The valuation model considers the present value of the expected future payments, discounted using a risk-adjusted discount rate.	Expected cash flows £1,133,820 (2020: £790,869). Risk-adjusted discount rate 14% (2020: 14%).	The estimated fair value would increase (decrease) if: -the expected cash flows were higher (lower); or -the risk-adjusted discount rate were lower (higher).

ii. Level 3 recurring fair values

Reconciliation of Level 3 fair values

The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values.

			2021 £000		2020 £000
Balance at 1 January			672		863
Assumed in a business combination (Note 31)			387		-
Finance costs			114		122
Net change in fair value (unrealised)			(30)		(253)
			84		(131)
Payment			(120)		(60)
Balance at 31 December			1,023		672

Sensitivity analysis

For the fair value of contingent consideration, reasonably possible changes at the reporting date to one of the significant unobservable inputs, holding other inputs constant would have the following effects.

			Profit or loss
31 December 2021			Increase		Decrease
Expected cash flows (10% movement)			113		66
Risk-adjusted discount rate (1% movement)			(12)		(8)

7.  Financial risk review

Risk management

This note presents information about the Group's exposure to financial risks and the Group's management of capital. For information on the Group's financial risk management framework, see note 37.

A. Credit risk

For definition of credit risk and information on how credit risk is mitigated by the Group, see note 41.

i. Credit quality analysis

Loans and advances to customers

Explanation of the terms 'Stage 1', 'Stage 2' and 'Stage 3' is included in note 43(G)(vii).

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

	2021					2020
	Stage 1 £000	Stage 2 £000	Stage 3 £000	Total £000		Stage 1 £000	Stage 2 £000	Stage 3 £000	Total £000
Grade A	213,103	-	-	213,103		173,673	-	-	173,673
Grade B	-	5,735	5,594	11,329		-	5,728	7,751	13,479
Grade C	342	541	12,656	13,539		335	9	12,771	13,115
Gross value	213,445	6,276	18,250	237,971		174,008	5,737	20,522	200,267
Allowance for impairment	(503)	(124)	(8,093)	(8,720)		(423)	(18)	(6,683)	(7,124)
Carrying value	212,942	6,152	10,157	229,251		173,585	5,719	13,839	193,143

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

The following table sets out information about the overdue status of loans and advances to customers in Stage 1, 2 and 3:

	2021					2020
31 December	Stage 1 £000	Stage 2 £000	Stage 3 £000	Total £000		Stage 1 £000	Stage 2 £000	Stage 3 £000	Total £000
Current	210,491	-	-	210,491		170,436	-	-	170,436
Overdue < 30 days	2,954	-	-	2,954		3,572	-	-	3,572
Overdue > 30 days	-	6,276	18,250	24,526		-	5,737	20,522	26,259
	213,445	6,276	18,250	237,971		174,008	5,737	20,522	200,267

For Stage 3 loans and advances that are overdue for more than 30 days, the Bank holds collateral with a value of £11,625,250 (2020: £13,362,468) representing security cover of 64% (2020: 65%).

Debt securities, cash and cash equivalents

The following table sets out the credit quality of liquid assets:

		2021	2020
		£000	£000
Government bonds and treasury bills
Rated A to A+		40,987	24,431
Floating rate notes
Rated A to A+		-	1,101
Cash and cash equivalents
Rated A to A+		20,279	34,053
		61,266	59,585

The analysis has been based on Standard & Poor's ratings.

ii. Collateral and other credit enhancements

The Group holds collateral in the form of the underlying assets (typically private and commercial vehicles, plant and machinery) to loan arrangements as security for HP, finances leases, vehicle stocking plans, block discounting, wholesale funding arrangements, integrated wholesale funding arrangements 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.  During 2021, 76% of loans and advances had an element of capital indemnification (2020: 34.0%). 

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. Collateral is valued at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired.

iii. Amounts arising from ECL

See accounting policy in note 43(G)(vii).

IFRS 9 significantly overhauled the requirements and methodology used to assess credit impairments by transitioning to a forward-looking approach based on an expected credit loss model.  The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments.  Under IFRS 9, credit losses are recognised earlier than under IAS 39 - Financial Instruments: Recognition and Measurement.

After a detailed review, the Group devised and implemented an impairment methodology in light of the IFRS 9 requirements outlined above noting the following:

§ A Significant Increase in Credit Risk ("SICR") is always deemed to occur when the borrower is 30 days past due on its contractual payments.  If the Group becomes aware ahead of this time of non-compliance or financial difficulties of the borrower, such as loss of employment, avoiding contact with the Group then a SICR has also deemed to occur.

§ The Group has granted payment holidays to customers with no prior arrears based on individual circumstances. These customers are not able to incur further arrears as no payments are being called whilst they are on the payment holiday. These customers have not been deemed to have a SICR unless the customer is under exceptional financial hardship due to COVID-19.

§ A receivable is always deemed to be in default and credit-impaired when the borrower is 90 days past due on its contractual payments or earlier if the Group becomes aware of severe financial difficulties such as bankruptcy, individual voluntary arrangements, abscond or disappearance, fraudulent activity or other similar events.

§ The ECL was derived by reviewing the Group's loss rate and loss-given-default over the past 9 years by product and geographical segment.

§ The Group has assumed that the future economic conditions will broadly mirror the current environment and therefore the forecasted loss levels in the next 3 years will match the Group's experience in recent years.

§ For portfolios where the Group has never had a default in its history or has robust credit enhancements such as credit insurance or default indemnities for the entire portfolio, then no IFRS 9 provision is made. 

§ If the Group holds objective evidence through specifically assessing a credit-impaired receivable and believes it will go on to completely recover the debt due to the collateral held and cooperation with the borrower, then no IFRS 9 provision is made.

There have been no significant changes to ECL assumptions from the prior year.

iv. Concentration of credit risk

Geographical

Lending is restricted to individuals and entities with Isle of Man, UK or Channel Islands 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, vehicle stocking plan loans and wholesale funding agreements.  In addition, the Bank lends via significant introducers into the UK. There was no introducer that accounted for more than 20% of the Bank's total lending portfolio at the end of 31 December 2021 (2020: none).

B. Liquidity risk

For the definition of liquidity risk and information on how liquidity risk is manged by the Group, see note 41.

i. Exposure to liquidity risk

The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers and short-term funding. For this purpose, net liquid assets includes cash and cash equivalents and investment-grade debt securities for which there is an active and liquid market.

Details of the reported Group ratio of net liquid assets to deposits from customers at the reporting date and during the reporting year were as follows:

	2021		2020
At 31 December	24%		27%
Average for the year	25%		28%
Maximum for the year	28%		32%
Minimum for the year	20%		25%

ii. Maturity analysis for financial liabilities and financial assets

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 reporting date (undiscounted):

31 December 2021	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
Deposits	6,864		4,743		18,359		63,733		61,891		88,036		16,738		-			260,364
Other liabilities	291		83		1,210		1,253		10,995		9,091		9,053		869			32,845
Total liabilities	7,155		4,826		19,569		64,986		72,886		97,127		25,791		869			293,209

31 December 2020	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
Deposits	3,106		3,194		19,775		53,380		59,023		61,491		25,221		-			225,190
Other liabilities	27		88		668		819		3,630		16,401		7,851		1,141			30,625
Total liabilities	3,133		3,282		20,443		54,199		62,653		77,892		33,072		1,141			255,815

Maturity of assets and liabilities at the reporting date:

31 December 2021	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
Assets
Cash	20,279		-		-		-		-		-		-			-			20,279
Debt securities	-		5,001		20,994		14,992		-		-		-			-			40,987
Loans and advances	9,271		8,372		12,378		25,458		30,835		94,395		44,081			4,462			229,252
Other assets	68		-		-		-		3,186		-		6,018			8,964			18,236
Total assets	29,618		13,373		33,372		40,450		34,021		94,395		50,099			13,426			308,754
Liabilities
Deposits	6,864		4,285		17,565		62,831		60,790		85,350		15,774			-			253,459
Other liabilities	238		-		1,000		946		10,512		7,967		8,777			869			30,309
Total liabilities	7,102		4,285		18,565		63,777		71,302		93,317		24,551			869			283,768

31 December 2020	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
Assets
Cash	34,053		-		-		-		-		-		-			-			34,053
Debt securities	-		5,301		14,000		-		6,231		-		-			-			25,532
Loans and advances	6,270		7,750		21,565		17,822		27,490		84,111		25,756			2,379			193,143
Other assets	4		-		-		-		2,578		-		5,637			7,014			15,233
Total assets	40,327		13,051		35,565		17,822		36,299		84,111		31,393			9,393			267,961
Liabilities
Deposits	3,106		2,736		18,981		52,478		57,922		58,805		24,257			-			218,285
Other liabilities	-		-		450		496		2,983		14,874		7,297			1,141			27,241
Total liabilities	3,106		2,736		19,431		52,974		60,905		73,679		31,554			1,141			245,526

iii. Liquidity reserves

The following table sets out the components of the Group's liquidity reserves:

	2021 Carrying amount		2021 Fair value		2020 Carrying amount		2020 Fair value
	£000		£000		£000		£000
Balances with other banks	20,279		20,279		34,053		34,053
Unencumbered debt securities	40,987		40,987		25,532		25,532
Total liquidity reserves	61,266		61,266		59,585		59,585

C. Market risk

For the definition of market risk and information on how the Group manages the market risks of trading and non-trading portfolios, see note 41.

The following table sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios:

			Market risk measure
	Carrying amount		Trading portfolios		Non-trading portfolios
31 December 2021	£000		£000		£000
Assets subject to market risk
Debt securities	40,987		-		40,987
Financial asset	68		-		68
Total	41,055		-		41,055

			Market risk measure
	Carrying amount		Trading portfolios		Non-trading portfolios
31 December 2020	£000		£000		£000
Assets subject to market risk
Debt securities	25,532		-		25,532
Financial asset	4		4		-
Total	25,536		4		25,532

i. Exposure to interest rate risk

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 deposits from customers at their earliest.

31 December 2021	Sight-   1 month   £000		>1month - 3months £000		>3months - 6months   £000		>6months- 1 year   £000		>1 year - 3 years   £000		>3 years - 5 years     £000		>5 years     £000		Non-Interest   Bearing   £000		Total £000
Assets
Cash & cash equivalents	20,279		-		-		-		-		-		-		-		20,279
Debt securities	5,001		20,994		14,992		-		-		-		-		-		40,987
Loans and advances to customers	17,642		12,378		25,458		30,835		94,395		44,081		4,462		-		229,251
Other assets	-		-		-		-		-		-		-		18,236		18,236
Total assets	42,922		33,372		40,450		30,835		94,395		44,081		4,462		18,236		308,753
Liabilities and equity
Deposits from customers	11,149		17,565		62,831		60,790		85,350		15,774		-		-		253,459
Other liabilities	238		1,000		946		7,050		7,967		8,777		687		3,644		30,309
Total equity	-		-		-		-		-		-		-		24,985		24,985
Total liabilities and equity	11,387		18,565		63,777		67,840		93,317		24,551		687		28,629		308,753
Interest rate sensitivity gap	31,535		14,807		(23,327)		(37,005)		1,078		19,530		3,775		(10,393)		-
Cumulative	31,535		46,312		23,015		(13,990)		(12,912)		6,618		10,393		-		-

31 December 2020	Sight- 1 month   £000		>1month - 3months £000		>3months - 6months   £000		>6months- 1 year   £000		>1 year - 3 years   £000		>3 years - 5 years   £000		>5 years   £000		Non-Interest   Bearing   £000		Total £000
Assets
Cash & cash equivalents	34,053		-		-		-		-		-		-		-		34,053
Debt securities	5,301		14,000		-		6,231		-		-		-		-		25,532
Loans and advances to customers	14,020		21,565		17,822		27,490		84,111		25,756		2,379		-		193,143
Other assets	-		-		-		-		-		-		-		15,233		15,233
Total assets	53,374		35,565		17,822		33,721		84,111		25,756		2,379		15,233		267,961
Liabilities and equity
Deposits from customers	5,842		18,981		52,478		57,922		58,805		24,257		-		-		218,285
Other liabilities	-		450		496		280		14,874		7,297		944		2,900		27,241
Total equity	-		-		-		-		-		-		-		22,435		22,535
Total liabilities and equity	5,842		19,431		52,974		58,202		73,679		31,554		944		25,335		267,961
Interest rate sensitivity gap	47,532		16,134		(35,152)		(24,481)		10,432		(5,798)		1,435		(10,102)		-
Cumulative	47,532		63,666		28,514		4,033		14,465		8,667		10,102		-		-

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 (2020: 2.0%). The following tables set out the estimated total impact of such a change based on the mismatch at the reporting date:

31 December 2021	Sight-   1 month		>1month -3months		>3months - 6months		>6months   - 1 year		>1 year - 3 years		>3 years - 5 years					>5 years					Non-Interest   Bearing					Total
Interest rate sensitivity gap £000	31,535		14,807		(23,327)		(37,005)		1,078		19,530					3,775					(10,393)					-
Weighting	0		0.003		0.007		0.014		0.027		0.054					0.115					0					0
£000	-		44		(163)		(518)		29		1,055					434					-					881

i. Exposure to interest rate risk (continued)

31 December 2020	Sight- 1 month		>1month -3months		>3months - 6months		>6months   - 1 year		>1 year - 3 years		>3 years - 5 years					>5 years					Non-Interest   Bearing					Total
Interest rate sensitivity gap £000	47,532		16,134		(35,152)		(24,481)		10,432		(5,798)					1,435					(10,102)					-
Weighting	-		0.003		0.007		0.014		0.027		0.054					0.115					-					-
£000	-		48		(246)		(343)		282		(313)					165					-					(407)

D. Capital Management

i. Regulatory capital

The lead regulator of the Group's wholly owned subsidiary, the Bank, is the FSA. The FSA sets and monitors capital requirements for the Bank.

The Bank's regulatory capital consists of the following elements.

n Common Equity Tier 1 ("CET1") capital, which includes ordinary share capital, retained earnings and reserves after adjustment for deductions for goodwill, intangible assets and intercompany receivable.

n Tier 2 capital, which includes qualifying subordinated liabilities and any excess of impairment over expected losses.

The FSA's approach to the measurement of capital adequacy is primarily based on monitoring the relationship of the capital resources requirement to available capital resources. The FSA sets individual capital guidance ("ICG") for the Bank in excess of the minimum capital resources requirement. A key input to the ICG setting process is the Bank's internal capital adequacy assessment process ("ICAAP").

The Bank is also regulated by the FCA in the UK for credit and brokerage related activities.

ii. Capital allocation

Management uses regulatory capital ratios to monitor its capital base. The allocation of capital between specific operations and activities is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The amount of capital allocated to each operation or activity is based primarily on regulatory capital requirements.

8.  Operating segments

Segmental information is presented in respect of the Group's business segments. The Directors consider that the Group currently operates in one geographic segment comprising of the Isle of Man, UK and Channel Islands. The primary format, business segments, is based on the Group's management and internal reporting structure. The Directors consider that the Group operates in three (2020: 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, block discounting, vehicle stocking plans and wholesale funding agreements); Edgewater Associates Limited (provision of financial advice); and Manx FX Limited (provision of foreign currency transaction services). 

For the year ended 31 December 2021	Asset and Personal Finance £000		Edgewater Associates £000		Manx FX £000		Investing Activities £000		Total £000
Net interest income	17,980		-		-		-		17,980
Fee and commission income	811		2,282		1,528		-		4,621
Operating income	16,251		2,282		1,514		-		20,047
Profit / (loss) before tax payable	2,528		114		1,227		(826)		3,043
Capital expenditure	3,083		13		1		5		3,102
Total assets	292,721		2,330		802		12,900		308,753
Total liabilities	265,751		638		61		17,318		283,768

For the year ended 31 December 2020		Asset and Personal Finance £000			Edgewater Associates £000			Manx FX £000			Investing Activities £000		Total £000
Net interest income		15,470			-			-			-		15,470
Fee and commission income		430			2,103			1,332			-		3,865
Operating income		13,206			2,103			1,096			-		16,405
Profit / (loss) before tax payable		1,316			(94)			1,096			(297)		2,021
Capital expenditure		1,138			46			2			1		1,187
Total assets		260,155			2,638			536			4,632		267,961
Total liabilities		230,001			660			12			14,853		245,526

9.  Net interest income

	2021		2020
	£000		£000
Interest income
Loans and advances to customers	21,010		19,484
Total interest income calculated using the effective interest method	21,010		19,484
Operating lease income	1,937		1,208
Total interest income	22,947		20,692
Interest expense
Deposits from customers	(3,512)		(4,044)
Loan note interest	(1,299)		(1,016)
Lease liability	(42)		(40)
Contingent consideration: interest expense	(114)		(122)
Total interest expense	(4,967)		(5,222)
Net interest income	17,980		15,470

10. Net fee and commission income

In the following table, fee and commission income from contracts with customers in the scope of IFRS 15 - Revenue from Contracts with Customers is disaggregated by major type of services. The table includes a reconciliation of the disaggregated fee and commission income with the Group's reportable segments. See note 43D regarding revenue recognition.

	2021		2020
	£000		£000
Major service lines
EAL: Independent financial advice income	2,282		2,103
MFX: Foreign exchange trading income	1,528		1,332
Asset and personal finance: Brokerage services income	510		430
MCL: Debt collection	301		-
Fee and commission income	4,621		3,865
Fee and commission expense	(3,339)		(3,481)
Net fee and commission income	1,282		384

11. Personnel expenses

	2021 £000		2020 £000
Staff gross salaries	(5,416)		(5,331)
Executive Directors' remuneration	(440)		(299)
Non-executive Directors' fees	(176)		(163)
Executive Directors' pensions	(34)		(21)
Executive Directors' performance related pay	(51)		(50)
Staff pension costs	(330)		(297)
National insurance and payroll taxes	(623)		(606)
Staff training and recruitment costs	(86)		(56)
	(7,156)		(6,823)

12. Other expenses

	2021 £000		2020 £000
Professional and legal fees	(1,367)		(1,063)
Marketing costs	(264)		(177)
IT costs	(1,001)		(822)
Establishment costs	(317)		(270)
Communication costs	(129)		(105)
Travel costs	(104)		(95)
Bank charges	(124)		(151)
Insurance	(344)		(300)
Irrecoverable VAT	(268)		(436)
Other costs	(582)		(288)
	(4,500)		(3,707)

13. Impairment on loans and advances to customers

The charge in respect of allowances for impairment comprises, excluding loss allowances on financial assets managed on a collective basis.

	2021 £000		2020 £000
Impairment allowances made	(5,457)		(6,833)
Reversal of allowances previously made	1,055		3,039
Total charge for provision for impairment	(4,402)		(3,794)

The charge in respect of allowances for impairment on financial assets managed on a collective basis comprises:

	2021 £000		2020 £000
Collective impairment allowances made	(77)		(421)
Release of allowances previously made	119		265
Total credit / (charge) for allowances for impairment on financial assets managed on a collective basis	42		(156)
Total charge for allowances for impairment	(4,360)		(3,950)

14. Profit before tax payable

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

				Group				Company
				2021 £000		2020 £000		2021 £000			2020 £000
Auditor's remuneration:   as Auditor current year				(232)		(167)		-			-
non-audit services				(2)		(10)		-			-
Pension cost defined benefit scheme				(13)		(16)		-			-
Operating lease rentals for property				(64)		(97)		-			-

15. Income tax expense

	2021		2020
	£000		£000
Current tax expense
Current year	(132)		3
Changes to estimates for prior years	(50)		-
	(182)		3
Deferred tax expense
Origination and reversal of temporary differences	(52)		(56)
Tax expense	(234)		(53)

			2021				2020
	%		£000		%		£000
Reconciliation of effective tax rate
Profit before tax			3,043				2,021
Tax using the Bank's domestic tax rate	(10.0)		(304)		(10.0)		(202)
Effect of tax rates in foreign jurisdictions	(1.45)		(44)		1.4		28
Tax exempt income	5.19		158		0.0		-
Timing difference in current year	0.0		-		3.2		65
Changes to estimates for prior years	1.64		50
Origination and reversal of temporary differences in deferred tax	(1.71)		(52)		2.8		56
R&D claim	(1.38)		(42)		0.0		-
Tax expense	(11.41)		(234)		(2.6)		(53)

The main rate of corporation tax in the Isle of Man is 0.0% (2020: 0.0%). However, the profits of the Group's Isle of Man banking activities are taxed at 10.0% (2020: 10.0%). The profits of the Group's subsidiaries that are subject to UK corporation tax are taxed at a rate of 19.0% (2020: 19.0%).

The value of tax losses carried forward reduced to nil and there is now a timing difference related to accelerated capital allowances resulting in a £182,000 liability (2020: £197,000 liability). This resulted in an expense of £52,000 (2020: £56,000) to the Consolidated Income Statement offset by a deferred tax credit on the defined benefit pension through the OCI of £67,000 (2020: £nil).

16. Earnings per share

				2021		2020
Profit for the year				£2,809,000		£1,968,000
Weighted average number of Ordinary Shares in issue (basic)				114,291,639		118,964,270
Basic earnings per share (pence)				2.46		1.65
Diluted earnings per share (pence)				1.97		1.37
Total comprehensive income for the year				£3,045,000		£1,676,000
Weighted average number of Ordinary Shares in issue (basic)				114,291,639		118,964,270
Basic earnings per share (pence)				2.66		1.41
Diluted earnings per share (pence)				2.13		1.19

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.

As at:				2021		2020
Reconciliation of weighted average number of Ordinary Shares in issue between basic and diluted
Weighted average number of Ordinary Shares (basic)				114,291,639		118,964,270
Number of shares issued if all convertible loan notes were exchanged for equity				36,555,556		36,555,556
Dilutive element of share options if exercised				-		-
Weighted average number of Ordinary Shares (diluted)				150,847,195		155,519,826
Reconciliation of profit for the year between basic and diluted
Profit for the year (basic)				£2,809,000		£1,968,000
Interest expense saved if all convertible loan notes were exchanged for equity				£166,250		£166,250
Profit for the year (diluted)				£2,975,250		£2,134,250

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

As at:				2021		2020
Reconciliation of total comprehensive income for the year between basic and diluted
Total comprehensive income for the year (basic)				£3,045,000		£1,676,000
Interest expense saved if all convertible loan notes were exchanged for equity				£166,250		£166,250
Total comprehensive income for the year (diluted)				£3,211,250		£1,842,250

17. Cash and cash equivalents

		Group								Company
		2021 £000				2020 £000				2021 £000		2020 £000
Cash at bank and in hand		18,278				11,728				430		1,378
Notice account balance (less than 90 days)		2,001				21,025				-		-
Fixed deposit (less than 90 days)		-				1,300				-		-
		20,279				34,053				430		1,378

Cash at bank includes an amount of £56,000 (2020: £120,000) representing receipts which are in the course of transmission.

18. Debt securities

	Group				Company
	2021 £000		2020 £000		2021 £000		2020 £000
Financial assets at FVOCI:
UK Government Treasury Bills	40,987		24,431		-		-
Floating Rate Notes	-		1,101		-		-
	40,987		25,532		-		-

UK Government Treasury Bills are stated at fair value and unrealised changes in the fair value are reflected in other comprehensive income. There were realised losses of £1,000 (2020: gains of £261,000) and unrealised losses of £18,000 (2020: unrealised losses of £51,000) during the year.

 

19. Financial assets

	Group				Company
	2021 £000		2020 £000		2021 £000		2020 £000
Financial assets at FVOCI:
Gain on Contingent consideration (see note 6(ii))	30		253		-		-
Gain on equity instrument	-		6		-		-
	30		259		-		-

The equity instrument representing an investment in a UK quoted company was disposed of during the period at the carrying amount. No gain / loss has thus been recognised due to the disposal.

The Bank acquired a new equity instrument during the financial year. (See Note 33)

20. Loans and advances to customers

Group	Gross Amount £000		2021 Impairment Allowance £000		Carrying Value £000		Gross Amount £000		2020 Impairment Allowance £000		Carrying Value £000
HP balances	71,789		(4,107)		67,682		72,930		(1,779)		71,151
Finance lease balances	28,131		(3,317)		24,814		34,373		(3,241)		31,132
Unsecured personal loans	31,267		(537)		30,730		27,762		(364)		27,398
Vehicle stocking plans	1,675		-		1,675		1,807		-		1,807
Wholesale funding arrangements	15,447		-		15,447		18,080		(808)		17,272
Block discounting	16,465		-		16,465		13,848		(418)		13,430
Secured commercial loans	11,099		(519)		10,580		9,602		(511)		9,091
Secured personal loans	1,739		-		1,739		2,152		-		2,152
Government backed loans	60,358		(239)		60,119		19,710		-		19,710
	237,970		(8,719)		229,251		200,264		(7,121)		193,143

Collateral is held in the form of underlying assets for HP, finance leases, vehicles stocking plans, block discounting, secured commercial and personal loans and wholesale funding arrangements.

Allowance for impairment			2021 £000		2020 £000
Balance at 1 January			6,824		4,632
Allowance for impairment made			5,457		5,231
Release of allowances previously made			(1,055)		(1,519)
Write-offs			(2,762)		(1,520)
Balance at 31 December			8,464		6,824

Collective allowance for impairment			2021 £000		2020 £000
Balance at 1 January			297		141
Collective allowance for impairment made			77		421
Release of allowances previously made			(119)		(265)
Balance at 31 December			255		297
Total allowances for impairment			8,719		7,121

Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2021 £945,625 (2020: £629,345) 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 (see note 33).

At the end of the current financial year 5 loan exposures (2020: 6) exceeded 10.0% of the capital base of the Bank:

Exposure	Outstanding Balance 2021 £000		Outstanding Balance 2020 £000		Facility Limit £000
Block discounting facility	16,465		5,878		46,529
Wholesale funding agreement	25,645		16,315		37,042

HP and finance lease receivables

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

			2021 £000		2020 £000
Less than one year			34,833		52,028
Between one and five years			58,949		71,348
Gross investment in HP and finance lease receivables			93,782		123,376

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

			2021 £000		2020 £000
Less than one year			32,495		45,250
Between one and five years			54,994		62,053
Net investment in HP and finance lease receivables			87,489		107,303

21. Trade and other receivables

	Group				Company
	2021 £000		2020 £000		2021 £000		2020 £000
Prepayments	498		482		100		53
VAT claim	-		586		371		256
Other debtors	1,449		1,102		1		-
	1,947		2,170		472		309

After consultation with its professional advisors, the Bank made a notice of error correction ("NEC") to the Isle of Man Government Customs & Exercise Division in respect of a repayment for overpaid VAT to the amount of £534,000 exclusive of statutory interest. The NEC relates to bad debt relief that was not claimed during the period from 1 April 1989 to 18 March 1997. The Bank recognised a receivable and income of £534,000 during 2020.

The VAT claim was settled in full and the Bank received £699,000 during the period. An additional recovery of £113,000 over and

above the carrying amount recognised at year end has been recognised in profit and loss.

 

22. Property, plant and equipment and right-of-use assets

Group	Buildings and Leasehold Improvements £000		IT Equipment £000		Furniture and Equipment £000		Motor Vehicles 1 £000			Right-of-use assets £000	Total £000
Cost
As at 1 January 2021		698		462		4,332		2,477		737		8,706
Revaluation		15		-		-		-		-		15
Additions		25		62		2,019		3		993		3,102
Disposals		(57)		(87)		(422)		(1,769)		(285)		(2,620)
As at 31 December 2021		681		437		5,929		711		1,445		9,203
Accumulated depreciation
As at 1 January 2021		384		343		801		804		329		2,661
Charge for year		55		61		389		277		162		944
Disposals		(12)		(91)		(381)		(890)		(285)		(1,659)
As at 31 December 2021		427		313		809		191		206		1,946
Carrying value at 31 December 2021		254		124		5,120		520		1,239		7,257
Carrying value at 31 December 2020		314		119		3,531		1,673		408		6,045

¹ Included in motor vehicles are operating leases with the Group as lessor. Depreciation on leasing assets was £269,000 (2020: £406,000).

Buildings with an original cost of £160,000 were revalued by independent valuers Vospers Limited to £175,000 on the basis of market value as at 15 September 2021. The valuation conforms to International Valuation Standards and was based on recent market transactions on arm's length terms for similar properties. The Directors consider the valuation of the Buildings as at 31 December 2021 remains £175,000.

Company	Leasehold Improvements £000		IT Equipment £000		Furniture and Equipment £000			Right-of use-assets £000		Total £000
Cost
As at 1 January 2021		234		18		17		424		693
Additions		-		-		-		-		-
Disposals		-		-		-		-		-
As at 31 December 2021		234		18		17		424		693
Accumulated depreciation
As at 1 January 2021		207		5		7		120		339
Charge for year		27		1		2		61		91
Disposals		-		-		-		-		-
As at 31 December 2021		234		6		9		181		430
Carrying value at 31 December 2021		-		12		8		243		263
Carrying value at 31 December 2020		27		13		10		304		354

23. Intangible assets

Group		Customer Contracts £000		Intellectual Property Rights £000		IT Software and Website Development £000		Total £000
Cost
As at 1 January 2021			1,920		749		2,320		4,989
Acquisition of subsidiary (see note 31)			199		-		-		199
Additions			260		-		221		481
Disposals			278		-		-		278
As at 31 December 2021			2,657		749		2,541		5,947
Accumulated amortisation
As at 1 January 2021			408		523		1,772		2,703
Charge for year			179		-		279		458
Disposals			278		-		-		278
As at 31 December 2021			865		523		2,051		3,439
Carrying value at 31 December 2021			1,792		226		490		2,508
Carrying value at 31 December 2020			1,512		226		548		2,286

24. Deposits from customers

			2021 £000		2020 £000
Retail customers: term deposits			242,788		209,235
Corporate customers: term deposits			10,671		9,050
			253,459		218,285

25. Creditors and accrued charges

	Group				Company
	2021 £000		2020 £000		2021 £000		2020 £000
Commission creditors	1,520		1,748		-		-
Other creditors and accruals	1,380		822		182		83
Lease liability	1,295		503		319		418
Taxation creditors	550		133		-		-
	4,745		3,206		501		501

26. Loan notes

		Group				Company
	Notes	2021 £000		2020 £000		2021 £000			2020 £000
Related parties
J Mellon	JM	1,750		1,750		1,750			1,750
Burnbrae Limited	BL	3,200		3,200		3,200			3,200
Southern Rock Insurance Company Limited	SR	2,097		2,097		2,097			2,097
		7,047		7,047		7,047			7,047
Unrelated parties	UP	16,625		15,175		16,625			15,175
		23,672		22,222		23,672			22,222

JM - Two loans, one of £1,250,000 maturing on 26 February 2025, paying interest of 5.4% per annum, and one of £500,000 maturing on 31 July 2022 paying interest of 5.0% per annum. Both loans are convertible at the rate of 7.5 pence and 9 pence respectively.

BL -  Three loans, one of £1,200,000 maturing on 31 July 2022, paying interest of 5.0% per annum, and one of £1,000,000 maturing 25 February 2025, paying interest of 5.4% per annum, and one of £1,000,000 maturing 28 February 2025 paying interest of 6% per annum.  Jim Mellon is the beneficial owner of BL and Denham Eke is also a director.  The £1,200,000 loan is convertible at a rate of 7.5 pence. 

SR - One loan consisting of £2,097,085 maturing on 14 April 2025, paying interest of 6.5% per annum. 

UP -  Forty-two loans (2020: Thirty-three) consisting of an average £461,806 (2020: £459,848) with an average interest payable of 5.7% (2020: 5.8%) per annum.  The earliest maturity date is 3 January 2022 and the latest maturity is 3 November 2026.

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

27. Pension liability

The Conister Trust Pension and Life Assurance Scheme ("Scheme") operated by the Bank 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 statement of financial position items as a result of the requirements of IFRIC 14 - IAS 19: The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, 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 2021 (2020: 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 triennial full actuarial valuation was carried out at 31 March 2020, which showed that the market value of the Scheme's assets was £1,432,000 representing 65.2% of the benefits that had accrued to members, after allowing for expected future increases in earnings. As required by IAS 19: Employee Benefits, this valuation has been updated by the actuary as at 31 December 2021.

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

Total underfunding in funded plans recognised as a liability			2021 £000		2020 £000
Fair value of plan assets			1,543		1,406
Present value of funded obligations			(2,230)		(2,350)
			(687)		(944)

Movement in the liability for defined benefit obligations			2021 £000		2020 £000
Opening defined benefit obligations at 1 January			2,350		2,159
Benefits paid by the plan			(74)		(76)
Interest on obligations			32		45
Actuarial (gain) / loss			(78)		222
Liability for defined benefit obligations at 31 December			2,230		2,350

Movement in plan assets			2021 £000		2020 £000
Opening fair value of plan assets at 1 January			1,406		1,471
Expected return on assets			19		30
Contribution by employer			98		-
Actuarial gain / (loss)			94		(19)
Benefits paid			(74)		(76)
Closing fair value of plan assets at 31 December			1,543		1,406

Expense recognised in income statement			2021 £000		2020 £000
Interest on obligation			32		45
Expected return on plan assets			(19)		(30)
Total included in personnel costs			13		15
Actual return on plan assets			113		11

Actuarial gain / (loss) recognised in other comprehensive income			2021 £000		2020 £000
Actuarial gain / (loss) on plan assets			94		(19)
Actuarial gain / (loss) on defined benefit obligations			78		(222)
			172		(241)

	2021		2020
Plan assets consist of the following	%		%
Equity securities	52		47
Corporate bonds	26		19
Government bonds	17		29
Cash	2		2
Other	3		3
	100		100

The actuarial assumptions used to calculate Scheme liabilities under IAS19 are as follows:	2021 %	2020 %	2019 %
Rate of increase in pension in payment:
-  Service up to 5 April 1997	-	-	-
-  Service from 6 April 1997 to 13 September 2005	3.4	2.9	3.0
-  Service from 14 September 2005	2.2	2.1	2.1
Rate of increase in deferred pensions	5.0	5.0	5.0
Discount rate applied to scheme liabilities	1.7	1.8	2.9
Inflation	3.5	3.0	3.1

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.

28. Called up share capital

Ordinary shares of no par value available for issue		Number
At 31 December 2021		200,200,000
At 31 December 2020		200,200,000

Issued and fully paid: Ordinary shares of no par value	Number	£000
At 31 December 2021	114,291,639	19,133
At 31 December 2020	114,130,077	19,121

On 7 July 2021, a Dividend was declared for £196,800 which could either be taken up in cash or Shares.  161,562 new Shares were elected to be taken as Shares and were admitted to the Alternative Investment Market ("AIM") for 7.0575 pence per Share, being a total cost of £11,402, on 10 August 2021.

On 9 April 2020, the Company and Southern Rock Insurance Company Limited ("SR") entered into a share buyback agreement ("SBA"), pursuant to which SR agreed to sell 16,966,158 Ordinary Shares for a consideration of £1,611,785. The consideration was left outstanding as a loan agreement (see note 26). The Ordinary Shares acquired were cancelled, and the Company's issued share capital reduced to 114,130,077 Ordinary Shares effective 14 April 2020.

Prior to the SBA, SR had a loan of £460,000, made to the Company, which was due to be repaid or converted into Ordinary Shares on or before 26 April 2020. Upon completion of the SBA, the Company and SR entered into an agreement varying the terms of the convertible loan such that they became subject to the terms of the SBA which contains no ability to convert the amounts outstanding into Ordinary Shares. The principal amount outstanding in respect of the convertible loan was increased by £25,300 to account for the reduction of the interest rate in transition to the SBA.

There are three convertible loans totalling £2,950,000 (2020: £2,950,000).  

On 23 June 2014, 1,750,000 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. The period of grant is for 10 years less 1 day ending 22 June 2024. Of the 1,750,000 share options issued, 1,050,000 (2020: 1,050,000) remain outstanding.

Performance and service conditions attached to share options that have not fully vested are as follows: The options granted on 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
Fair value at date of grant						£0.08
Share price at date of grant						£0.14
Exercise price						£0.14
Expected volatility						55.0%
Option life						3
Risk-free interest rate (based on government bonds)						0.5%
Forfeiture rate						33.3%

The charge for the year for share options granted was £nil (2020: £nil).

Analysis of changes in financing during the year

		2021 £000			2020 £000
Balance at 1 January		41,846			37,410
Issue of loan notes		1,450			4,640
Issue of lease liability		993			-
Issue of shares via scrip dividend		12			-
Payment of lease liabilities		(201)			(204)
Balance at 31 December		44,100			41,846

The 2021 closing balance is represented by £19,133,000 share capital (2020: £19,121,000), £23,672,000 of loan notes (2020: £22,222,000) and £1,295,000 lease liability (2020: £503,000).

29. List of associates

Set out below is a list of associates of the Group:

			Group 2021 £000		Group 2020 £000
The Business Lending Exchange ("BLX")			-		190
Payitmonthly Ltd ("PIML")			136		126
			136		316

In December 2017, 40.0% of the share capital of BLX was acquired for nil consideration. During the year, the Group obtained control of the subsidiary (see note 31). Prior to obtaining control, the share of the associate's total comprehensive income during the year was £22,000 (2020: 23,000).

In August 2018, 30% of the share capital of PIML was acquired for £90,000 consideration. The Group's resulting share of the associate's total comprehensive income during the year was £10,000 (2020: £31,000).

In April 2018, 20% of the share capital of BSL was acquired for nil consideration. During 2020, the Group obtained control of the subsidiary. Prior to obtaining control, the share of the associate's total comprehensive income during the year was £nil (2020: 10,000).

30. List of subsidiaries

Set out below is a list of subsidiaries of the Group:

Carrying value of investments	Nature of Business			31 December 2021 % Holding		Date of Incorporation			2021 £000		2020 £000
Conister Bank Limited	Asset and Personal Finance				100		05/12/1935		20,592		20,592
Edgewater Associates Limited	Wealth Management				100		24/12/1996		2,005		2,005
TranSend Holdings Limited	Holding Company				100		05/11/2007		-		-
Manx Ventures Limited (MVL)	Holding Company				100		15/05/2009		-		-
									22,597		22,597

All subsidiaries are incorporated in the Isle of Man.

31. Acquisition of subsidiary

The Business Lending Exchange ("BLX")

On 11 October 2021, the Group (through MVL) announced that it entered into an agreement to acquire 60% of the shares and voting interests in BLX. As a result, the Group's equity interest in BLX increased from 40% to 100%, thereby obtaining control of BLX.

Regulated by the FCA under Consumer Credit Authorisations, BLX primarily lends to start-up companies and small businesses which require asset backed finance. 

This acquisition strengthens the Group's strategy of developing a network of niche loan brokers within the UK.

For the 3 months ended 31 December 2021, BLX contributed revenue of £438,864 and profit of £193,395 to the Group's results. If the acquisition had occurred on 1 January 2021, management estimates that the impact on consolidated fee income would have been £1,444,137 and the impact on consolidated profit for the period would have been £642,648.

A. BLX - Consideration transferred

The following table summarises the acquisition date fair value of each major class of consideration transferred:

		£000
Cash		921
Contingent consideration		387
Settlement of pre-existing relationship		5,216
		6,524

Up to £483,663 consideration is payable to the sellers in addition to the cash consideration of £920,503. The total amount payable is contingent on the recovery of certain loans and advances found to be in default at acquisition.

B. BLX - Settlement of pre-existing relationship

The Bank and BLX were parties to a wholesale loan agreement and a Coronavirus Business Interruption Loan with the Bank as lender and BLX as borrower. This pre-existing relationship was effectively terminated when the Bank acquired BLX.

C. BLX - Acquisition-related costs

The Group incurred acquisition-related costs of £25,000 relating to external legal fees and due diligence costs. These costs have been included in 'other costs' in the consolidated statement of profit or loss and other comprehensive income.

D. BLX - Identifiable assets acquired, and liabilities assumed

The following table summarises the recognised amounts of assets acquired, and liabilities assumed at the date of acquisition:

		£000
Intangible assets - customer related		199
Cash and cash equivalents		676
Trade and other receivables		5,196
Creditors and accrued charges		(583)
Total identifiable net assets acquired		5,488

E. BLX - Measurement of fair values

The valuation techniques use for measuring the fair value of material assets acquired were as follows:

Assets acquired	Valuation technique
Intangible assets	Multi-period excess earnings method: The multi-period excess earnings method considers the present value of net cash flows expected to be generated by the customer relationships.

The trade and other receivables comprise gross contractual amounts due of £6,237,576, of which £1,042,095 was expected to be uncollectable at the date of acquisition.

F. BLX - Goodwill

The goodwill arising from the acquisition has been recognised as follows:

		£'000
Total consideration transferred		6,524
Fair value of existing interest in BLX		872
Fair value of identifiable net assets		(5,488)
Goodwill		1,908

The remeasurement to fair value of the Bank's existing 20% interest in BLX resulted in a gain of £660,000 (£872,000 less the £212,000 carrying amount of the equity accounted investee at the date of acquisition). This amount has been included separately in the statement of profit or loss and other comprehensive income.

Ninkasi Rentals & Finance Limited ("NRFL") (formerly Beer Swaps Limited ("BSL"))

On 28 February 2020, the Group (through the Bank) announced that it entered into an agreement to acquire 55% of the shares and voting interests in BSL. As a result, the Group's equity interest in BSL increased from 20% to 75%, thereby obtaining control of BSL. BSL provides equipment finance and rental products to UK based craft and micro-breweries.  This acquisition strengthens the Group's strategy of developing a network of niche loan brokers within the UK.

The consideration transferred was £2,957,000 and transaction costs of £30,000 were incurred. The net fair value of identifiable assets acquired and liabilities assumed was £2,587,000. Goodwill of £678,000 was recognised.

The remeasurement to fair value of the Bank's existing 20% interest in BSL resulted in a gain of £237,000 (£257,000 less the £20,000 carrying amount of the equity accounted investee at the date of acquisition). This amount has been included separately in the statement of profit or loss and other comprehensive income.

Blue Star Business Solutions Limited ("BBSL")

On 16 April 2019, the Group (through BBL) acquired 100% of the shares and voting interest in BBSL, obtaining control of BBSL. The Group agreed to pay the selling shareholders:

n 50% of net profits in BBSL for 3 years post completion; and

n 50% of the incremental net profit that the Group benefits from as a result of taking up BBSL loan proposals post completion up until the third anniversary.

This is to be paid on each anniversary with a final payment in year 4 for the unrealised lending profit. The total consideration is to have a cap of £4,000,000 in total. The contingent consideration is calculated by forecasting 3 years of net profits discounted using an interest rate of 14.0% per annum. The range of contingent consideration payable is £nil to £2,500,000.

See note 6 for the fair value of the Contingent Consideration at 31 December 2021.

32. Acquisition of non-controlling interest

On 14 June 2021, the Group increased its shareholding in NRFL to 90% (30 June and 31 December 2020: 75%) for a cash consideration of £310,000.

The carrying value of non-controlling interest acquired at the date of acquisition was £44,000. The consideration in excess of the carrying amount of £266,000 has been charged directly to the profit and loss account.

33. Acquisition of financial instrument

On 9 June 2021 the Group acquired 10% of the issued share capital of RFG for nil consideration. The receipt of the issued share capital is considered to be a commitment fee receivable by the Group in order to originate loan facilities in aggregate not exceeding £6,250,000 to RFG. The commitment fee is an integral part of the effective interest rate of the associated loan facilities issued to RFG.

The Group is not considered to have a significant influence over RFG as it holds less than a 20% shareholding and is not considered to participate in the policy making decisions of the entity. The 10% shareholding has thus been classified as a financial instrument.

The Group continues to obtain information necessary to measure the fair value of the shares obtained. The fair value of the financial instrument received has been determined as £68,000 at initial recognition based on the proportionate share of the net asset value of RFG. There has been no change to fair value at year-end.

As part of the transaction, the Group has been granted two warrants to acquire further shares. The first warrant is for 5% of the share capital and the second warrant is for a further 5% of the share capital.

The two warrants are exercisable dependent upon the Group's banking subsidiary, the Bank, contracting with RFG, for a larger facility. The fair value of the two warrants has been determined to be nil due to the significant uncertainty that exists at acquisition date and the period end in issuing a further debt facility.

34. Goodwill

Cash generating unit					Group 2021 £000		Group 2020 £000
EAL					1,849		1,849
BLX					1,908		-
BBSL					1,390		1,390
NRFL					678		678
Manx Collections Limited ("MCL")					454		454
Three Spires Insurance Services Limited ("Three Spires")					41		41
					6,320		4,412

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 key assumptions used in the estimation of the recoverable amount are set out in this note. The recoverable amount of the CGUs discussed in this note were each based on value in use. The values assigned to key assumptions represents management's assessment of future trends in the relevant industries and have been based on historical data from both external and internal sources.

The estimated recoverable amount in relation to the EAL CGU (including also goodwill generated on acquisition of EAL) is based on the forecasted 3 year cash flow projections, extrapolated to 10 years using a 2.0% annual increment, and then discounted using a 11.0% 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 BLX is based on forecasted 3 year interest income calculated at an average yield of 8%, with a terminal value calculated using a 3.0% growth rate of net income and then discounted using a 14.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of up to 20.0% on varying interest income growth rates.

The estimated recoverable amount in relation to the goodwill generated on the purchase of BBSL is based on forecasted 3 year interest income calculated at an average yield of 8%, with a terminal value calculated using a 3.0% growth rate of net income and then discounted using a 14.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of up to 20.0% on varying interest income growth rates.

The estimated recoverable amount in relation to the goodwill generated on the purchase of NRFL is based on a 4 year sales forecast, extrapolated to 14 years using a 1.5% annual increment, and then discounted using a 12% discount factor. The sensitivity of the analysis was tested using additional discount factors of up to 20.0% on varying sales volumes. On the basis of the above reviews no impairment to goodwill has been made in the current year.

The estimated recoverable amount in relation to the goodwill generated on the purchase of MCL is based on forecasted 3-year sales interest income calculated at 5.0% margin, extrapolated to 10 years using a 2.0% annual increment, and then discounted using a 11.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% on varying sales volumes.

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 EAL.  Based on the above reviews no impairment to goodwill has been made in the current year.

35. Investment in Group undertakings

Amounts owed to Group undertakings

Amounts owed to 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 EAL.

Creation	Maturity	Interest rate % p.a.		2021 £000		2020 £000
Conister Bank Limited
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
25 October 2013	22 October 2033	7.0		1,000		1,000
23 September 2016	23 September 2036	7.0		1,100		1,100
14 June 2017	14 June 2037	7.0		450		450
12 June 2018	12 June 2038	7.0		2,000		2,000
Edgewater Associates Limited
21 February 2017	21 February 2027	7.0		150		150
14 May 2017	14 May 2027	7.0		128		128
				7,728		7,728

36. 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 (CEO of MFG). At 31 December total deposits amounted to £507,908 (2020: £432,213), at normal commercial interest rates in accordance with the standard rates offered by the Bank. 

At 31 December, the Bank held cash on deposit on behalf of David Gibson (Non-executive Director of the Bank and MFG) of £nil (2020: £50,282).

Staff and commercial loans

Details of staff loans are given in note 20.

Commercial loans have been made to various companies connected to Jim Mellon and Denham Eke on normal commercial terms. As at 31 December 2021, £nil of capital and interest was outstanding (2020: £23,742).

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. EAL provides services to the Group in arranging its insurance and defined contribution pension arrangements.

Loan advance to EAL

On 14 December 2016, a loan advance was made to EAL by the Bank in order to provide the finance required to acquire MBL.  The advance was for £700,000 at an interest rate of 8% per annum repayable over 6 years.  A negative pledge was given by EAL to not encumber any property or assets or enter into an arrangement to borrow any further monies. The balance as at 31 December 2021 was £140,950 (2020: £273,568).

Loan advance to PIML

On 24 May 2018, a £500,000 loan facility was made available to PIML by the Bank in order to provide the finance required to expand its operations. The facility is for 12 months. Interest is charged at commercial rates. During the year, the facility was increased to £1,219,000. At 31 December 2021, £1,219,000 (2020: £685,000) had been advanced to PIML.

Subordinated loans

The Company has advanced £7,450,000 (2020: £7,450,000) of subordinated loans to the Bank and £278,000 (2020: £278,000) to EAL as at 31 December 2021. See note 33 for more details.

Loan notes

See note 26 for a list of related party loan notes as at 31 December 2021 and 2020.

Key management remuneration including Executive Directors

	2021 £000		2020 £000
Short-term employee benefits	1,098		1,120

37. Leases

A. Leases as lessee

The Group leases the head office building in the Isle of Man. The leases typically run for a period of 10 years with an option to renew the lease after that date. Lease payments are renegotiated every 10 years to reflect market rentals.

The Group leases an office unit in the United Kingdom and IT equipment with contract terms of 2 to 3 years. These leases are short-term and/or leases of low-value items. The Group has elected not to recognise right-of-use assets and lease liabilities for these leases.

Information about leases for which the Group is a lessee is presented below.

i. Right-of-use assets

Right-of-use assets related to leased properties that do not meet the definition of investment property are presented as property, plant and equipment.

		Land and Buildings		Total
Group		£000		£000
Cost
As at 1 January 2021		737		737
Additions		993		993
Disposals		(285)		(285)
As at 31 December 2021		1,445		1,445
Accumulated depreciation
As at 1 January 2021		329		329
Charge for the year		162		162
Eliminated on disposals		(285)		(285)
As at 31 December 2021		206		206
Carrying value at 31 December 2021		1,239		1,239
Carrying value at 31 December 2020		408		408

ii. Amounts recognised in profit or loss

	2021		2020
	£000		£000
Interest on lease liabilities	42		40
Depreciation expense	162		164
Expenses relating to short-term leases and low-value assets	64		97

iii. Amounts recognised in statement of cash flows

	2021		2020
	£000		£000
Total cash outflow for leases	243		244

iv. Non-cancellable operating lease rentals are payable in respect of property as follows:

	2021		2020
	£000		£000
Less than one year	64		84
Between one and five years	128		-
Over five years	-		-
Total operating lease rentals payable	192		84

38. Regulators

Certain Group subsidiaries are regulated by the FSA and the FCA as detailed below.

The Bank and EAL are regulated by the FSA under a Class 1(1) - Deposit Taking licence and Class 2 - Investment Business licence respectively. The Bank and CFL are regulated by the FCA to provide regulated products and services.

39. Contingent liabilities

The Bank is required to be a member of the Isle of Man Government Depositors' Compensation Scheme which was introduced by the Isle of Man Government under the Banking Business (Compensation of Depositors) Regulations 1991 and creates a liability on the Bank to participate in the compensation of depositors should it be activated.

40. Subsequent events

There were no subsequent events occurring after 31 December 2021.

41. Financial risk management

A. Introduction and overview

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

n credit risk;

n liquidity risk;

n market risk; and

n operational risk.

Risk management framework

The Board has overall responsibility for the establishment and oversight of the Group's risk management framework. The Board has established the ARCC, which is responsible for approving and monitoring Group risk management policies. The ARCC is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the ARCC.

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. The risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, though its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

B. Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's loans and advances to customers and investment debt securities. Credit risk includes counterparty, concentration, underwriting and credit mitigation risks.

Management of credit risk

The Bank's Board of Directors created the Credit Committee which is responsible for managing credit risk, including the following:

n Formulating credit policies in consultation with business units, covering collateral requirements, credit assessments, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements;

n Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated to in line with credit policy;

n Reviewing and assessing credit risk: The Credit Committee assesses all credit exposures in excess of designated limits, before facilities are committed to customers. Renewals and reviews of facilities are subject to the same review process.

n Limiting concentrations of exposures to counterparties, geographies and industries, by issuer, credit rating band, market liquidity and country (for debt securities);

n Developing and maintaining risk gradings to categorise exposures according to the degree of risk of default. The current risk grading consists of 3 grades reflecting varying degrees of risk of default;

n Developing and maintaining the Group's process for measuring ECL: This includes processes for:

o  initial approval, regular validation and back-testing of the models used;

o  determining and monitoring significant increase in credit risk; and

o  incorporation of forward-looking information; and

n Reviewing compliance with agreed exposure limits. Regular reports on the credit quality of portfolios are provided to the Credit Committee which may require corrective action to be taken.

C. Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises from mismatches in the timing and amounts of cash flows, which is inherent to the Group's operations and investments.

Management of liquidity risk

The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have enough liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The key elements of the Group's liquidity strategy are as follows:

n Funding base: offering six-months to five-year fixed term deposit structure with no early redemption option. This means the Bank is not subject to optionality risk where customers redeem fixed rate products where there may be a better rate available within the market;

n Funding profile: the Bank has a matched funding profile and does not engage in maturity transformation which means that on a cumulative mismatch position the Bank is forecast to be able to meet all liabilities as they fall due;

n Monitoring maturity mismatches, behavioural characteristics of the Group's financial assets and financial liabilities, and the extent to which the Group's assets are encumbered and so not available as potential collateral for obtaining funding;

n Liquidity buffer: the Bank maintains a liquidity buffer of 10.0% of its deposit liabilities, with strict short-term mismatch limits of 0.0% for sight to three months and -5.0% for sight to six months. This ensures that the Bank is able to withstand any short-term liquidity shock; and

n Interbank market: the Bank has no exposure to the interbank lending market. The Bank has no reliance on liquidity via the wholesale markets. In turn, if market conditions meant access to the wholesale funding was constrained as per the 2008 credit crisis, this would have no foreseeable effect on the Bank.

The Bank's liquidity position is monitored daily against internal and external limits agreed with the FSA and according to the Bank's Liquidity Policy. The Bank also has a Liquidity Contingency Policy and Liquidity Contingency Committee in the event of a liquidity crisis or potential liquidity disruption event occurring.

The Treasury department receives information from other business units regarding the liquidity profile of their financial assets and financial liabilities and details of other projected cash flows arising from projected future business. Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole.

Regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. The scenarios are developed considering both Group-specific events and market-related events (e.g. prolonged market illiquidity).

D. Market risk

Market risk is the risk that changes in market prices; e.g. interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor's/issuer's credit standing), will affect the Group's income or value of its holdings of financial instruments. The objective of the Group's market risk management is to manage and control market risk exposures within acceptable parameters to ensure the Group's solvency while optimising the return on risk.

Management of market risks

Overall authority for market risk is vested in the Assets and Liabilities Committee ("ALCO") which sets up limits for each type of risk. Group finance is responsible for the development of risk management policies (subject to review and approval by the ALCO) and for the day-to-day review of their implementation.

Foreign exchange risk

The Bank is not subject to foreign exchange risks and its business is conducted in pounds sterling.

Equity risk

The Group has investment in associates which are carried at cost adjusted for the Group's share of net asset value. The Bank has access to these accounts. The Bank's exposure to market risk is not considered significant given the low carrying amount of the investment.

The Group's does not hold any investments in listed equities.

Interest rate risk

The principal potential interest rate risk that the Bank is exposed to is the risk that the fixed interest rate and term profile of its deposit base differs materially from the fixed interest rate and term profile of its asset base, or basis and term structure risk.

Additional interest rate risk may arise for banks where (a) customers are able to react to market sensitivity and redeem fixed rate products and (b) where a bank has taken out interest rate derivate hedges especially against longer-term interest rate risk, where the hedge moves against the bank. However, neither of these risks apply to the Bank.

Interest rate risk for the Bank is not deemed to be currently material due to the Bank's matched funding profile. Any interest rate risk assumed by the Bank will arise from a reduction in interest rates, in a rising environment due to the nature of the Bank's products and its matched funded profile. The Bank should be able to increase its lending rate to match any corresponding rise in its cost of funds, notwithstanding its inability to vary rates on its existing loan book. The Bank attempts to efficiently match its deposit taking to its funding requirements.

E. Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks - e.g. those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.

Management of operational risk

The Group's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group's reputation with overall cost effectiveness and innovation. In all cases, Group policy requires compliance with all applicable legal and regulatory requirements.

The Group has developed standards for the management of operational risk in the following areas:

n Business continuity planning;

n Requirements for appropriate segregation of duties, including the independent authorisation of transactions;

n Requirements for the reconciliation and monitoring of transactions;

n Compliance with regulatory and other legal requirements;

n Documentation of controls and procedures;

n Periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;

n Requirements for the reporting of operational losses and proposed remedial action;

n Development of contingency plans;

n Training and professional development;

n Ethical and business standards;

n Information technology and cyber risks; and

n Risk mitigation, including insurance where this is cost-effective.

Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are reported to the ARCC.

42. Basis of measurement

The financial statements are prepared on a historical cost basis, except for the following material items:

Items	Measurement basis
FVTPL - Trading asset	Fair value
FVOCI - Debt securities	Fair value
Net defined benefit liability	Fair value of plan assets less the present value of the defined benefit obligation

43. Significant accounting policies

A number of new standards have been effective from 1 January 2021 but they do not have a material effect on the Group's financial statements.

The Group has consistently applied the following accounting policies to all periods presented in these financial statements.

Set out below is an index of the significant accounting policies, the details of which are available on the pages that follow:

Ref.	Note description	No.
A.	Basis of consolidation of subsidiaries and separate financial statements of the Company	76
B.	Interest in equity accounted investees	76
C.	Interest	76
D.	Fee and commission income	77
E.	Leases	77
F.	Income tax	78
G.	Financial assets and financial liabilities	79
H.	Cash and cash equivalents	83
I.	Loans and advances	83
J.	Property, plant and equipment	83
K.	Intangibles assets and goodwill	83
L.	Impairment of non-financial assets	84
M.	Deposits, debt securities issued and subordinated liabilities	85
N.	Employee benefits	85
O.	Share capital and reserves	85
P.	Earnings per share ("EPS")	85
Q.	Segmental reporting	86

A. Basis of consolidation of subsidiaries and separate financial statements of the Company

i. Business combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if they are related to issue of debt or equity securities.

ii. Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity if it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its control over the entity. The Group reassesses whether it has control if there are changes to one or more of the elements of control. This includes circumstances in which protective rights held (e.g. those resulting from a lending relationship) become substantive and lead to the Group having power over an investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

iii. Non-controlling interests ("NCI")

NCI are measured initially at their proportionate share of the acquiree's identifiable net assets at the date of acquisition.

Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

iv. Loss of control

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

v. Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

vi. Separate financial statements of the Company

In the separate financial statements of the Company, interests in subsidiaries, associates and joint ventures are accounted for at cost.

B. Interests in equity accounted investees

The Group's interests in equity accounted investees may comprise interests in associates and joint ventures.

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in associates and joint ventures are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the profit or loss and OCI of equity accounted investees, until the date on which significant influence or joint control ceases.

C. Interest

Interest income and expense are recognised in profit or loss using the effective interest rate method.

i. 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 gross carrying amount of the financial asset or amortised cost of the financial liability. When calculating the effective interest rate for financial assets, the Group estimates future cash flows considering all contractual terms of the financial instruments, 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.

ii. Amortised cost and gross carrying amount

The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance.

The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any expected credit loss allowance.

iii. Calculation of interest income and expense

In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortised cost of the liability.

However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.

D. Fee and commission income

The Group generates fee and commission income through provision of independent financial advice, insurance brokerage agency, introducer of foreign exchange services and commissions from brokering business finance for small and medium sized enterprises.

Independent financial advice and insurance brokerage agency

Income represents commission arising on services and premiums relating to policies and other investment products committed during the year, as well as renewal commissions having arisen on services and premiums relating to policies and other investment products committed during the year and previous years and effective at the balance sheet date. Income is recognised on the date that policies are submitted to product providers with an appropriate discount being applied for policies not completed. As a way to estimate what is due at the year-end, a "not proceeded with" rate of 10.0% for pipeline life insurance products and 0.0% for non-life insurance pipeline is assumed. Renewal commissions are estimated by taking the historical amount written pro-rata to 3 months.

Other

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 fee relates.

E. Leases

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract coveys the right to control the use of an identified asset for a period of time in exchange for consideration.

i. As a lessee

At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property the Group has elected not to separate non-lease components and as a result, accounts for the lease and non-lease components as a single lease component.

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and the type of the asset leased.

Lease payments included in the measurement of the lease liability comprise the following:

n Fixed payments, including in-substance fixed payments;

n Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

n Amounts expected to be payable under a residual value guarantee; and

n The exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Group presents right-of-use assets that do not meet the definition of investment property in 'property, plant and equipment' and lease liabilities in 'loans and borrowings' in the statement of financial position.

Short-term leases and leases of low-value assets

The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. 

ii. As a lessor

At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

When the Group acts as a lessor, it determines at lease inception whether each lease is a finance or an operating lease.

To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

Finance leases and HP contracts

When assets are subject to a finance lease or HP contract, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. 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.

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 profit or loss and other comprehensive income on a straight-line basis over the period of the lease.

F. Income tax

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 tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill and temporary differences related to investments in subsidiaries and associates to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.

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.

G. Financial assets and financial liabilities

i. Recognition and initial measurement

The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which they are originated. All other financial instruments including regular-way purchases and sales of financial assets are recognised on the trade date, which is the date on which the Group becomes party to the contractual provisions of the instrument.

A financial asset or financial liability is measured initially at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue.

ii. Classification

Financial assets

On initial recognition, a financial asset is classified as measured at amortised cost, FVOCI or FVTPL.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

n The asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and

n The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest ("SPPI").

A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as FVTPL:

n The asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

n The contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis.

All other financial assets are classified as measured at FVTPL.

In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Business model assessment

The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information provided to management.

Assessment of whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.

In assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.

Reclassifications

Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model for managing financial assets.

Financial liabilities

The Group classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortised cost.

iii. Derecognition

Financial assets

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI is recognised in profit or loss.

Financial liabilities

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.

iv. Modifications of financial assets and financial liabilities

Financial assets

If the terms of a financial asset are modified, then the Group evaluates whether the cash flows of the modified asset are substantially different.

If the cash flows are substantially different, the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value plus any eligible transaction costs.

If the cash flows are modified when the borrower is in financial difficulties, then the objective of the modification is usually to maximise recovery of the original contractual terms rather than to originate a new asset with substantially different terms. If the Group plans to modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset should be written off before the modification takes place. This approach impacts the result of the quantitative evaluation and means that the derecognition criteria are not usually met in such cases.

If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset, then the Group first recalculates the gross carrying amount of the financial asset using the original effective interest rate of the asset and recognises the resulting adjustment as a modification gain or loss in profit or loss. Any costs or fees incurred and fees received as part of the modification adjust the gross carrying amount of the modified financial asset and are amortised over the remaining term of the modified financial asset. If such modification is carried out because of financial difficulties of the borrower, then the gain or loss is presented together with impairment losses. In other cases, it is presented as interest income calculated using the effective interest rate method.

Financial liabilities

The Group derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability derecognised and consideration paid is recognised in profit or loss. Consideration paid includes non-financial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability.

If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by discounting the modified cash flows at the original effective interest rate and the resulting gain or losses recognised in profit or loss. Any costs and fee incurred are recognised as an adjustment of the carrying amount of the liability and amortised over the remaining term of the modified financial liability by re-computing the effective interest rate on the instrument.

v. Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of similar transactions such as in the Group's trading activity.

vi. Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at the date. The fair value of a liability reflects its non-performance risk.

The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.

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.

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.

vii. Impairment

A financial instrument that is not credit-impaired on initial recognition is classified in 'Stage 1' and has its credit risk continuously monitored by the Group. 

If a SICR since initial recognition is identified, the financial instrument is moved to 'Stage 2' but is not yet deemed to be credit-impaired.

n An SICR is always deemed to occur when the borrower is 30 days past due on its contractual payments.  If the Group becomes aware ahead of this time of non-compliance or financial difficulties of the borrower, such as loss of employment, avoiding contact with the Group then an SICR has also deemed to occur; and

n A receivable is always deemed to be in default and credit-impaired when the borrower is 90 days past due on its contractual payments or earlier if the Group becomes aware of severe financial difficulties such as bankruptcy, individual voluntary arragement, abscond or disappearance, fraudulent activity and other similar events.

If the financial instrument is credit-impaired, the financial instrument is then moved to 'Stage 3'. Financial instruments in Stage 3 have their ECL measured based on expected credit losses on an undiscounted lifetime basis.

The Group measures loss allowances at an amount equal to lifetime ECL, except for debt investment securities that are determined to have low credit risk at the reporting date for which they are measured as a 12-month ECL. Loss allowances for lease receivables are always measured at an amount equal to lifetime ECL.

12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Financial instruments for which a 12-month ECL is recognised are referred to as 'Stage 1 financial instruments'.

Lifetime ECL are the ECL that result from all possible default events over the expected life of a financial instrument. Financial instruments for which a lifetime ECL is recognised but which are not credit-impaired are referred to as 'Stage 2 financial instruments'.

Measurement of ECL

After a detailed review, the Group devised and implemented an impairment methodology in light of the IFRS 9 requirements outlined above noting the following:

n The ECL was derived by reviewing the Group's loss rate and loss given default over the past 9 years by product and geographical segment;

n The Group has assumed that the future economic conditions will broadly mirror the current environment and therefore the forecasted loss levels in the next 3 years will match the Group's experience in recent years;

n For portfolios where the Group has never had a default in its history or has robust credit enhancements such as credit insurance or default indemnities for the entire portfolio, then no IFRS 9 provision is made.  At 2021 year-end, 28.8% had such credit enhancements (2020: 36.6%); and

n If the Group holds objective evidence through specifically assessing a credit-impaired receivable and believes it will go on to completely recover the debt due to the collateral held and cooperation with the borrower, then no IFRS 9 provision is made.

ECL are probability-weighted estimates of credit losses. They are measured as follows:

n Financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);

n Financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows; and

n Undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI, and finance lease receivables are credit-impaired (referred to as 'Stage 3 financial assets'). A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable date:

n Significant financial difficulty of the borrower or issuer;

n A breach of contract such as a default or past due event;

n The restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;

n It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or

n The disappearance of an active market for a security because of financial difficulties.

A loan that has been renegotiated due to a deterioration in the borrower's condition is usually considered to be credit-impaired unless there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other indicators of impairment. In addition, a retail loan that is overdue for 90 days or more is considered credit-impaired even when the regulatory definition of default is different.

In making an assessment of whether an investment in sovereign debt is credit impaired, the Group considers the following factors:

n The market's assessment of creditworthiness as reflected in the bond yields;

n The rating agencies' assessments of creditworthiness;

n The country's ability to access the capital markets for new debt issuance;

n The probability of debt being restructured, resulting in holders suffering losses through voluntary or mandatory debt forgiveness; and

n The international support mechanisms in place to provide the necessary support as 'lender of last resort' to that country, as well as the intention, reflected in public statements, of governments and agencies to use those mechanisms. This includes an assessment of the depth of those mechanisms and, irrespective of the political intent, whether there is the capacity to fulfil the required criteria.

Presentation of allowance for ECL in the statement of financial position

Loss allowances for ECL are presented in the statement of financial position as follows:

n Financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;

n Loan commitments: generally, as a provision; and

n Debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair value reserve.

Write-off

Loans and debt securities are written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Group determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. This assessment is carried out at the individual asset level.

Recoveries of amounts previously written off are included in 'impairment losses on financial instruments' in the statement of profit or loss and OCI.

Financial assets that are written off could still be subject to enforcement activities in order to comply with the Group's procedures for recovery of amounts due.

H. 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.

I. Loans and advances

Loans and advances' captions in the statement of financial position include:

n Loans and advances measured at amortised cost (see note 43 (I)). They are initially measured at fair value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective interest method; and

n Finance lease receivables (see note 43 (G)).

J. Property, plant and equipment

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.

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 estimated useful lives of property, plant and equipment and intangibles are as follows:

Property, plant and equipment

Leasehold improvements  to expiration of the lease

IT equipment             4 - 5 years

Motor vehicles              2 - 5 years

Furniture and equipment  4 -10 years

Plant and machinery  5 - 20 years   

 

K. Intangible assets and goodwill

i. Goodwill

Goodwill that arises on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.

ii. Software

Software acquired by the Group is measured at cost less accumulated amortisation and any accumulated impairment losses.

Expenditure on internally developed software is recognised as an asset when the Group is able to demonstrate: that the product is technically feasible, its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and that it can reliably measure the costs to complete the development. The capitalised costs of internally developed software include all costs directly attributable to developing the software and capitalised borrowing costs, and are amortised over its useful life. Internally developed software is stated at capitalised cost less accumulated amortisation and any accumulated impairment losses.

Software is amortised on a straight-line basis in profit or loss over its estimated useful life, from the date on which it is available for use.  Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

iii. Other

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.

The useful lives of intangibles are as follows:

Customer contracts and lists  to expiration of the agreement

Business intellectual property rights                                      4 years - indefinite

Website development costs                                                    indefinite

Software         5 years

L. Impairment of non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. Goodwill is tested annually for impairment.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that is largely independent of the cash inflows of other assets or Cash Generating Units ("CGUs"). Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less cost to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.

The Group's corporate assets do not generate separate cash inflows and are used by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGUs to which the corporate assets are located.

Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

M. Deposits, debt securities issued and subordinated liabilities

Deposits, debt securities issued and subordinated liabilities are the Group's sources of debt funding.

The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments.

Deposits, debt securities issued and subordinated liabilities are initially measured at fair value minus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method.

N. Employee benefits

i. 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 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 high quality 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.

ii. 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 reporting 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 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.

O. Share capital and reserves

Share issue costs

Incremental costs that are directly attributable to the issue of an equity instrument are deducted from the initial measurement of the equity instruments.

P. Earnings per share ("EPS")

The Group presents basic and diluted EPS data for its Ordinary Shares. Basic EPS is calculated by dividing the profit or loss that is attributable to ordinary Shareholders of MFG by the weighted-average number of Ordinary Shares outstanding during the period. Diluted EPS is determined by adjusting profit or loss that is attributable to Ordinary Shareholders and the weighted-average number of Ordinary Shares outstanding for the effects of all dilutive potential Ordinary Shares, which comprise share options granted to employees.

Q. 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.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses relating to transactions with any of the Group's other components, whose operating results are regularly reviewed by the CEO who is the chief operating decision maker ("CODM") to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Segment results reported to the CEO include items that are directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Appendix - Glossary of terms

ALCO	Assets and Liabilities Committee
ARCC	Audit, Risk and Compliance Committee
BBSL	Blue Star Business Solutions Limited
BL	Burnbrae Limited
BLX	The Business Lending Exchange Limited
Bank	Conister Bank Limited
Bank's Board	The Bank's Board of Directors
BSL	Beer Swaps Limited
CEO	Chief Executive Officer
CET1	Common Equity Tier 1
CFL	Conister Finance & Leasing Ltd
CGU	Cash Generating Unit
CODM	Chief Operating Decision Maker
Company	Manx Financial Group PLC
EAL	Edgewater Associates Limited
ECF	ECF Asset finance PLC
ECL	Expected Credit Loss
ESG	Environmental, Social and Governance
EPS	Earnings Per Share
FCA	UK Financial Conduct Authority
Fraud risks	Risk of Material Misstatement Due to Fraud
FSA	Isle of Man Financial Services Authority
FVOCI	Fair Value Through Other Comprehensive Income
FVTPL	Fair Value Through Profit or Loss
Group	Comprise the Company and its subsidiaries
HP	Hire Purchase
IAS	International Accounting Standard
ICAAP	Internal Capital Adequacy Assessment Process
ICG	Individual Capital Guidance
IFA	Independent Financial Advisors
IFRIC	International Financial Reporting Interpretations Committee
IFRS	International Financial Reporting Standards
Interim financial statements	Condensed consolidated interim financial statements
IOM	Isle of Man
ISA	International Standards of Auditing
JM	Jim Mellon
LSE	London Stock Exchange
MBL	MBL Financial Limited
MCL	Manx Collections Limited
MFG	Manx Financial Group PLC
MFX	Manx FX Limited
MFX.L	Manx Financial Group PLC ticker symbol on the LSE
MVL	Manx Ventures Limited (previously Bradburn Limited)
NEC	Notice of Error Correction
NOMCO	Nomination Committee
NRFL	Ninkasi Rentals & Finance Limited (previously Beer Swaps Limited)
OCI	Other Comprehensive Income
PIML	Payitmonthly Limited
QCA	Quoted Companies Alliance
REMCO	Remuneration Committee
RFG	Rivers Finance Group Plc
RMF	Risk Management Framework
SBA	Share Buyback Agreement
Scheme	The Conister Trust Pension and Life Assurance Scheme
SICR	Significant Increase in Credit Risk
SPPI	Solely Payments of Principal and Interest
SR	Southern Rock Insurance Company Limited
Subsidiaries	MFG's subsidiaries being Bank, BBSL, BLX, CFL, ECF, EAL, MFX, MVL, NRFL
TCF	Treating Customers Fairly
Three Spires	Three Spires Insurance Services Limited
UK	United Kingdom
UP	Unrelated parties

 

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