Bank and Clients plc ANNUAL REPORT & ACCOUNTS 2018 Contents S trategic Report 3 Who we are and what we do 4 Annual report Highlights 4 2018 CEO’s statement 6 Strategic framework 8 Governance 11 Chairman’s letter 12 Board of Directors 13 Directors’ Report 20 Risk management 23 Overview 24 Risk ownership 24 Risk governance 25 Principal risks 31 Credit risk 37 Independent Auditor’s Report 45 Financial Statements 51 Statement of Profit or Loss and Statement of Other Comprehensive Income 52 Statement of Financial Position 53 Statement of Changes in Equity 54 Statement of Cash Flows 55 Notes to the Financial Statements 56 Company Information 85 2 BANK AND CLIENTS PLC Strategic Report STRATEGIC REPORT THIS IS B&C Who we are and what we do Inspired by the traditions of private banking, B&C focuses on excellent service to support individuals and businesses by providing tailored solutions and user friendly savings options. Driven by clients’ needs Focused on specialised products Committed with a long-term view • We work hard to truly understand We offer: • We continuously invest in our people the needs of our clients and infrastructure • Residential Mortgage products and • We use our expertise to build lending Commercial real estate loans using our • We treat our clients responsibly and solutions that help our clients reach specialist underwriting skills to build strive to develop trust and long their goals relevant solutions lasting relationships • W e operate efficiently and deliver • Corporate lending and advisory • We aim to develop a sustainable excellent service to our clients solutions helping entrepreneurs to banking business with the support of grow their businesses our shareholders • Competitive rates and clear terms on all savings products Highlights 4 Net Interest Income (£m) Tier 1 Capital (£m) Loss before tax (£’000) 16 7000 3.5 16 New Tier 1 New Tier 1 3 capital6000 injection6,992 capital injection 12 Tier5000 1 capital Tier 1 capital 5,326 2 2.3 10 4000 4,986Tier 1 capital Loss before tax £'000 8 9 3000 1 4 2000 1000 0 0.3 0 0 2016 2017 2018 2016 2017 2018 2016 2017 2018 Savings £159m Deposits (£m) Savings by products Savings Key Metrics 160 1% 2018 2017 159 1% 140 9% On demand FSCS protected accounts 83% 86% Euro 120 9% On demand 116 39% Fixed term Euro 100 Notices 94 39% Fixed term 80 51% Notices 60 51% On demand 40 Euro On demand 20 Fixed term Euro 0 Notice 2016 2017 2018 Fixed term Looking after all of our depositors is vital to the success of our during normal working hours and to assist clients as required. Bank. Notice We do not offer teaser rates or other gimmicks; we offer the Our experienced UK-based savings team adopts high levels of same products to all of our retail clients. client service to meet the needs of individuals and businesses. B&C is part of the Financial Services Compensation Scheme We don’t outsource client enquiries to third parties or overseas (FSCS) so eligible depositors savings up to £85,000 are jurisdictions and are always available to answer questions protected. 4 BANK AND CLIENTS PLC Lending £136m Total loans and advances to customers (£m) 140140 1515 CRECRE 120120 88 CorporateCorporate loans loans 100100 MoMortgagesrtgages CRE CRE 80 80 1414 Corporate Loans 60 65 113 Corporate Loans 60 65 113 Mortgages 40 Mortgages 40 7 20 7 20 16 0 162016 2017 2018 0 2016 2017 2018 Mortgages Commercial Real Estate (CRE) Corporate lending and advisory Lending £113m Lending £15m Lending £8m New lending £60m New lending £15m New lending £0.4m Mortgages by products CRE by products C2%orporate lending by sectors 2% Finance 9% Owner Residential industry 20% 9% occupier Owner occupier Retail Residential30% Finance 20% Manufacturing Commercial Commercial Hotel/ Retail industry 29% 43% 30% Retail/ Buy to let leisure Manufacturing 62% Buy to 43%let 68%Hotel/ wholesale trade 51% 31% Offices leisure 40% Retail/ Offices Owner occupier wholesale tradeResidential Retail/wholesale trade 6% 31% 68% Manufacturing Buy to let Owner occupier Retail Residential 6% Retail/wholesale trade Commercial Hotel/leisure Finance industry Buy to let Retail Manufacturing Offices New mortgage book key metrics CRE key metrics Corporate lending book keCommercialy metrics Hotel/leisure Finance industry New Book only 2018 2017 2018 2018 2017 Offices Average Loan size £476k £504k Average Loan size £2,165k Average Loan size £1,377k £2,041k Average LTV 45% 44% Average LTV 59% Advisory fees £467k - London exposure 62% 60% London exposure 27% We are willing and able to structure We provide loans of £2m to £10m B&C’s corporate lending and advisory loans that are secured against a wide to experienced commercial property strategy is driven by a traditional variety of residential property assets, investors. banking relationship spirit, and with our individually or collectively, as well as to private bank ethos. borrowers with complex incomes. The smaller size segment of the market is underserved by our competitors and B&C looks to develop a deep We judge each case on its merits and offers good diversity in terms of tenant, understanding of its clients’ business structure mortgages through dialogue property mix and region. model and trajectory as well as the with brokers. economic forces that impact them. We have seen this year that our manual All of our mortgage underwriting is underwriting approach, willingness B&C’s size and organisation allow it carried out on an individual basis by our to engage to ensure an in-depth to be both client and product focused, experienced team, enabling us to make a understanding of our customers and and to develop a dialogue at Executive comprehensive and unbiased assessment certainty of delivery is an attractive level (CEO, CFO) or with shareholders, of each mortgage application. proposition for our clients. leading to a variety of possible outcomes for the client. We believe satisfied customers result in a Our decisions are grounded in expertise lasting relationship. and knowledge of the commercial B&C will generate ideas and build property market, and backed by best in tailored solutions to address client class risk management practices. challenges. ANNUAL REPORT 2018 5 CEO’s Statement The Bank remained loss making during 2018. The loss for the year reduced by £340k to £4,986k (2017: £5,326k). This was I am pleased to report that 2018 has been a consolidating year achieved through a £1,166k increase in interest income and for Bank and Clients Plc (B&C). managing the costs base within a framework of supporting long-term growth. During the year we undertook a review Throughout 2018 B&C has continued to build on the of our cost base, which resulted in the contraction of our foundations laid in 2017, which were designed to deliver an monthly administration expenses. Concurrently a number of attractive proposition to clients across all its activities. investments were made to strengthen our risk management Loan and advances to customers increased by 70% to framework, including credit models to back our credit analysis £135.8m at year end (2017: £79.8m), leading to an increase in and quantify risk, and our IT infrastructure, including an net interest income of 50% to £3.5m (2017: £2.3m). enhanced treasury system. B&C continued to provide mortgages to borrowers requiring We recognise that our people are our strength. Our average specialist underwriting and to those whose financial number of employees is 54 (2017: 51). We endeavour to be circumstances do not easily fit with the more standardised an organisation in which our people can grow and make best offerings provided by mainstream lenders. The Bank use of their talents, for our clients’ benefit. In this context we originated £60m of new mortgage lending, while in line decided to co-locate our deposit and mortgage administration with its lending policy, maintaining the portfolio’s low LTV; services, previously based in Yeovil, to London in order to which remains below 50%. We have strengthened our valued achieve greater operational efficiency and control and to relationships with the broker community and look forward enhance our client service. to further building our reputation and position as a specialist We take pride in the diversity of our workforce. Whilst our lender providing excellent service and efficient decision Board comprises 30% women, women form 60 % of our making, grounded in knowledge and expertise. Executive committee and 50% of our staff. We are also proud During 2018 B&C launched a Commercial Real Estate to count 10 different nationalities in our London based lending proposition, applying its specialist underwriting skills team of banking professionals which makes our team truly to the commercial property market. I am pleased to report international, with a diverse knowledge of legal jurisdictions, that the Bank was able to complete 7 transactions amounting local cultures, languages and working practices. We intend to to £15.0m, with an average LTV of 59%. We seek to become a draw on this competitive advantage in the future. trusted financial partner in the commercial property industry. Our corporate culture is one that drives each of us to always We believe our willingness to understand clients’ needs and be relevant, clear, responsible and service-driven both to our ability to deliver efficient decision making creates a valuable clients and to our colleagues. We believe in the positive and differentiator. compounding effect of always trying to do the right thing, On the corporate lending and advisory side, our team in the way we organise ourselves and working for all our continued to offer support to clients wishing to grow. stakeholders.