institutional presentation - secure trust bank · this presentation is only being provided in the...

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Private and confidential

Institutional presentation

Proposed Placing to raise £20 million

November 2012

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Disclaimer

This confidential presentation, prepared by Secure Trust Bank plc (the “Company”), is strictly confidential and is being provided to you solely for your information. The distribution of this presentation may

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Failure to comply with these restrictions may constitute a violation of applicable securities laws. Persons into whose possession this document comes are required to inform themselves about and to

observe any such restrictions. Neither the Company, Canaccord Genuity Hawkpoint Limited (“Hawkpoint”) nor Canaccord Genuity Limited (“Canaccord Genuity”), nor their respective directors, officers,

employees, affiliates, subsidiaries, agents or advisers, accept any liability to any person in relation to the distribution or possession of this presentation in or from any jurisdiction.

The presentation and the Information have been prepared by or on behalf of, and are the sole responsibility of, the Company. The Information is being provided to you during an oral presentation and is not

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3

Agenda

1. Introduction 4

2. Proposal Highlights 7

3. Placing and Opportunities for Growth 8

4. Conclusion 14

Appendices

I. Secure Trust Bank overview 17

II. Financial Information 21

4

22.3%

21.3%

30.2%

25.5%

Personal Retail Motor EDL Other

An introduction to Secure Trust Bank

1. INTRODUCTION

► An established and fast growing UK retail bank with a

prudent approach to capital and liquidity

► Lending into attractive segments of the market with

significant scope to expand

► Not facing the legacy issues or major challenges

experienced by many other banks

► Proven deposit raising capability

► Mix of interest and fee income through fee based current

and OneBill account facility

► Return on equity H1 2012 was 40%

Lending assets as at 30 September 2012

5

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50

100

150

200

250

300

Dec-10 Jun-11 Dec-11 Jun-12 Sep-12

£m

Delivering on our IPO promise

1. INTRODUCTION

► Strong financial performance1

– Reported PBT growth 239%2

– Underlying PBT growth 50%2

– Return on equity 40%

► A prudent approach to capital and liquidity3

– Tier 1 ratio 15%

– Loan to deposit ratio 87%

– Loans broadly matched by deposits in amounts and

maturity

► Organic growth and acquisition

– Distribution agreements signed with DFS and Shop

Direct

– Acquisition of Everyday Loans

► Launched online banking platform for current

account and online lending platform

► Customer numbers in excess of 200,000, 58%

growth since 30 June 2011

Lending assets £m (excludes acquired portfolios, but includes Everyday Loans)

CAGR 114%

Awards since IPO

► 4 star Fairbanking Mark

► Best Dealer Finance Provider of the year 2012

► Awarded Association of Cycle Traders’ Partner

of the year 2011

► Customer Service Excellence Award 2012 from

the Cabinet Office

1 H1 2012 2 See underlying growth bridge - slide 24 3 As at 30 June 2012

6

Significant scope for profitable on-going expansion

Main high street banks have de-leveraged

Market pricing has improved

--1.02.03.04.05.06.07.08.09.0

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2

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Source: Bank of England; ThomsonOne

Source: BBA

1. INTRODUCTION

UK banking market

UK STB STB share

Consumer Credit (£m)

110,562 260 0.24%

M4 Retail deposits (£m)

1,307,459 298 0.02%

Current accounts (m)

54 0.02 0.04%

Mortgage market (£m)

1,255,997 - 0.00%

Non personal

lending (sterling) (£m)

455,000 - 0.00%

STB has considerable scope for growth

Source: BOE Trends in Lending Report (July 2012); Bankstats report (Aug 2012); OFT

market study of personal current accounts in the UK

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Proposal Highlights

► Placing to fund the capital requirements of accelerating growth

– Potential acquisitions of businesses

– Further organic growth of the loan book, including distribution agreements

► Replace subordinated debt (£5m) of Secure Trust held by Arbuthnot Banking Group (“Arbuthnot”)

with Tier 1 equity capital

► The potential acquisitions and growth opportunities detailed in this presentation are all at different

stages of development and there is no certainty that any of them will come to fruition

► Capital will be selectively allocated to those opportunities that are expected to generate the highest

returns for shareholders

► The Directors consider that any of these opportunities which do proceed will at least meet the

group's target return on equity

► Placing will increase free float and should increase liquidity in Secure Trust

– Free float increased to approximately 30%

2. PROPOSAL HIGHLIGHTS

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► In exclusive discussions for a potential acquisition of an established retail point of sale finance provider

– Loan book of approximately £39m to prime customers

– Prime lending would become the largest constituent part of Secure Trust’s portfolio1; gives a number

of new retailer relationships

► In discussions for a distribution agreement with a well known retail bank to introduce new customers to

Secure Trust

– Multi-year contract being negotiated

– The Directors anticipate significant new lending in 2013, business flows anticipated to commence

Q1 2013

► In discussions to become the UK point of sale retail financier for customers of a large, well established

online retailer

► Potential acquisition of a collections business which would provide scale and increased efficiencies to

existing collections platform

► All opportunities are anticipated to meet a target level of return on equity of 30% across the full

economic cycle

3. PLACING AND OPPORTUNITIES FOR GROWTH

Potential acquisitions and other growth opportunities

Current market conditions have led to significant new growth opportunities

1 Secure Trust’s retail point of sale finance business targets lending to customers considered to be in socio-economic groups A, B and C1

9

Further organic opportunities

► Opening more Everyday Loan branches and increasing the range of lending products provided

through these

– Opened one new branch in Middlesbrough since acquisition

► Direct to market unsecured personal lending proposition

– Our online lending capabilities developed for Shop Direct allow us to target a significant gap in the

lending market1

► In discussion with Department of Work and Pensions on potential current account / budget account

solutions to address challenges arising from move to Universal Credit system

► Secured lending – second charge mortgages (max LTV 80%) and SME lending under consideration


Leveraging our IT distribution and network of 26 offices

1See slide 10 for moneysupermarket.com personal loan results

10

Significant gap in the lending market

Source: Moneysupermarket.com

► Significant gap in the interest

rate charged for a 3 year loan

of £10,000 on

Moneysupermarket.com

► Presents a significant

opportunity for Secure Trust to

widen offering to address this

underserved section of the

market


11

Issue of new shares and proposed placing

► Proposed placing, to raise £20m, to existing and new institutional investors

– The Placing is conditional on shareholder approval at a General Meeting. Arbuthnot intends to

vote its 75.5% holding in favour of the proposals at the GM

► The proceeds of the Placing will be used to finance the capital requirements of future potential

acquisitions, other growth opportunities as well as organic growth of the loan book and the

repayment of subordinated debt

► The placing includes the issue of £5m of new shares to Arbuthnot to be set off against the existing

subordinated debt owed by the Company to Arbuthnot

► The removal of the subordinated debt improves the quality of Secure Trust’s regulatory capital by

increasing Core Tier 1 Capital


The proposed capital raise should help the Company

to unlock further substantial potential

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Current Trading

► On 18 October 2012, Secure Trust released an update on third quarter trading stating that the

Company had traded well during the quarter and demand for lending and deposit products remained

strong

► Since providing this update, the Company has continued to trade in line with management’s

expectations

► The Company is also progressing an application to be included within the Funding for Lending

Scheme which, if agreed, would enable it to access the discounted funding available which will be

beneficial for its funding costs


13

Use of proceeds of the Placing

Capital required for potential acquisitions and to fund increased organic growth £15.0m

Value of new shares issued to Arbuthnot £5.0m

Total size of the Placing £20.0m


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In line with our strategy

4. CONCLUSION

Protect the reputation and sustainability of the bank via prudent balance

sheet management, investment for growth and robust risk and operational

controls 1

Maximise shareholder value by • strong organic lending growth

• promotion of existing and development of new commission based income streams

• Selective acquisitions of businesses or portfolios

2

Making Secure Trust a great place for staff to work and enjoy progressive

careers 3

All built on our philosophy of treating customers fairly and providing them with

simple straightforward banking solutions

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► Roadshow and insider marketing 14 November – 19 November

► Accelerated book build opens 20 November, 7:00am

► Book build closes, allocations and pricing 20 November

► Posting of circular 20 November

► General Meeting 6 December

► Admission to AIM 7 December

4. CONCLUSION

Timetable

► Issuer Secure Trust Bank PLC

► Capital Raising (gross) £20m

► Exchange AIM market, London Stock Exchange

► Major shareholders

– Arbuthnot will subscribe for £5m of new shares and Secure Trust will offset this against the

subordinated debt balance. The Placing will reduce their overall percentage holding as

indicated at the time of the IPO

APPENDICES

17

Our highly experienced management team

Paul Marrow Carol Sergeant Andrew Salmon

Chief Executive Officer

Paul Lynam

• 24 years banking experience

• Joined STB in Sep 2010

• Ex MD, Banking RBS / NatWest

• Holds banking and treasury qualifications

• Formerly Managing Director at Lombard

North Central PLC

Chairman

Henry Angest

• Chaired the Company for 26 years

• Extensive banking experience

• Previously at The Dow Chemical Company

and Dow Banking Corporation

Supported by experienced and qualified NEDs

Chief Finance Officer

Neeraj Kapur

• 23 years FS experience

• Various roles with RBS

and Arthur Andersen

• Qualified chartered

accountant

Chief Operating Officer

David Nield


• Senior positions with

Barclays and Iveco

Capital

Chief Risk Officer

Kevin Hayes


• Senior positions with

ABN Amro and RBS /

NatWest

• Holds BA (Oxon) and

banking qualifications

APPENDIX I

18

Retail point of sale finance (12% of revenue1) Motor finance (34% of revenue1)

Fee-based accounts (25% of revenue1) Personal unsecured lending and Everyday Loans

(24% of revenue1)

1 6 months to 30 June 2012. 5% of revenue from other income

Not just a lender An established and fast growing UK retail bank with a

prudent approach to capital and liquidity

APPENDIX I

http://www.specialistautomotivefinance.co.uk/saf/index.jsp

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0

50

100

150

200

250

300

Dec-10 Jun-11 Dec-11 Jun-12

£m

Unsecured Lending Motor Finance Retail Finance Acquired Portfolios EDL

Controlled lending strategy

• Multi channel offering

through motor dealers and

brokers

Motor finance Retail point of sale finance Unsecured lending

• Lending solutions for store

and online retailers

• e-tailer proposition

distributed through

partnership with Pay4Later

• Direct and through Affinity

partners and potential JVs1

Lending assets

1 Note: Affinity partners are defined as "business relationships entered into by the Company where both parties co-operate in the promotion of their respective businesses“

APPENDIX I

20

Proven track record of strategic developments

Acquisitions

• Acquisition of Everyday Loans in June 2012

• Loan books acquired from LV (£16.7m1) and Citi (£21.1m1) in Feb 2009

and August 2009 respectively

Strategic partnerships

and JVs

• Entered into agreement with RentSmart to expand retail point of sale

lending

• e-tailer proposition launch through Pay4Later

• Provider of bicycle finance via partnership with Association of Cycle

Traders

• Provider of musical equipment finance via partnership with Arts Council

England and Wales

• Distribution agreements signed with DFS and Shop Direct

1 Total consideration paid for portfolio

APPENDIX I

21

Headline results

STB+EDL H1 2012

STB H1 2012 H1 2011 FY 2011

PBT (£m) 12.4 4.4 3.7 7.3

Loan books (net) (£m) 260.3 189.4 123.9 154.6

Loans to deposits ratio 87% 64% 57% 57%

Deposits (£m) 297.9 297.9 217.0 272.1

Core Tier 1 ratio 15% 14% 21%

Customer numbers 198,767 173,506 125,500 139,693

Earnings per share (pence) 82.5 53.5 39.6

Shares (m) 14.2* 5.0 14.2*

* post IPO

Note: EDL refers to Everyday Loans Group acquired on the 8th June 2012

APPENDIX II

22

Summary income statement

STB+EDL H1 2012

STB H1 2012 H1 2011 £'000

Net interest income 11,426 10,346 7,998

Net fee and commission income 5,454 5,374 5,572

Impairment losses (3,070) (2,691) (1,812)

Operating expenses (9,819) (8,631) (8,094)

EDL Acquisition * 8,418 - -

Profit before tax 12,409 4,397 3,664

* Includes gain on acquisition and acquisition costs


APPENDIX II

23

Balance sheet summary

£ million Dec-10 Jun-11 Dec-11 Jun-12

Cash and Cash Equivalents 68.2 96.6 139.6 70.8

Lending Assets (net) 89.5 123.9 154.6 260.3

Fixed Assets and Investments 6.1 5.6 5.6 11.4

Other Assets 16.8 21.0 8.1 10.9

Total assets 180.6 246.9 307.8 353.4

Deposits 153.7 217.0 272.1 297.9

Other Liabilities 11.2 13.4 12.0 20.7

Total liabilities 164.9 230.4 284.0 318.6

Equity 15.8 16.5 23.8 34.8

Loans to deposits ratio 58% 57% 57% 87%


APPENDIX II

24

Underlying Growth H1 2012 vs. H1 2011

50% Increase

2,000

4,000

6,000

8,000

10,000

12,000

14,000

ReportedPBT

H1 2012£12,409k

Gain onEDL

Acquisition£(8,917)k

Fair valuewrite down

£404k

Acquisitioncosts£499k

Excessfunding for

EDLacquisition

£1600k

ShareOptions

granted atIPO

£286k

LV & CitiAcquired

portfolio's£1,143k

Grouprechargesand other

£114k

UnderlyingPBT

H1 2012£7,538k

Underlyingbusinessgrowth£2,518k

ABGReported

PBTH1 2011£5,020k

Grouprechargesand other£1,356k

ReportedPBT

H1 2011£3,664k

PB

T (£

'00

0)


APPENDIX II

25

Income bridge H1 2012 vs. H1 2011

+ £5.6m

* Includes EDL interest income, fair value write down and insurance income

15,000

16,000

17,000

18,000

19,000

20,000

21,000

22,000

H1 201115,468

Personal1,297

Motor3,506

Retail960

Acquired(1,143)

Current333

Onebill(545)

EDL *1,179

Other51

H1 201221,101

Inco

me

(£

'00

0)


APPENDIX II

26

Profit bridge H1 2012 vs. H1 2011

+ £0.7m

+ £8.1m

2,000

4,000

6,000

8,000

10,000

12,000

14,000

H1 2011£3,664k

InterestIncome£4,653k

Interestexpense

£(2,304)k

TransactionalIncome£(199)k

Impairments£(879)k

Operatingexpenses£(605)k

H1 2012 STB£4,329k

EDLoperating

incomeinc.

impairments£782k

EDL expenses£(1,120)k

EDLAcquisition

lessacquistion

costs£8,418k

H1 2012£12,409k

PB

T (£

'00

0)


APPENDIX II

27

3,917

7,610 2,562

240

1,136

4,225

1,174

239

Personal

Motor

Retail

Acquired

Current

Onebill

EDL

Other

2,621

4,120

1,602 1,383

791

4,769

188

Income analysis (£’000)

H1 2012 H1 2011

£21.1m £15.5m


APPENDIX II

28

0

60

120

180

240

300

360

Dec-10 Jun-11 Dec-11 Jun-12

£ m

illio

n

On Demand Notice Term

64.1%

62.9% 56.7%

21.4%

26.4% 30.8%

10.7% 12.5%

81.9%

14.5% 18.1%

Deposit progression facilitates the matching of asset and liability

positions in tenor and basis.

CAGR 51%

Loans advanced through 26 branches with 65% postcode coverage

Branches are a mixture of off-High Street retail premises and above ground floor, office premises in town centres. Walk-in traffic represents a very small part of our business.

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