Trading Update

Secure Trust Bank PLC ("STB" or the "Group"), a leading specialist lender, announces a trading update for the financial year ending 31 December 2024 (FY24) and details for the third quarter ended 30 September 2024 (Q3).

The Group delivered further growth in new business volumes in Q3, and year-on-year growth in net lending balances, with the net loan book growing by 0.5% in the quarter and continuing the journey to our £4 billion target. Following changes to our organisation design, the Group remains on track to deliver £5m of Project Fusion savings by the end of the year and a further £3m of cost savings in 2025, bringing total annualised cost savings to £8m by the end of next year, as previously communicated.

As indicated in the Group's interim results announcement on 14 August 2024, the pausing of collections activity following the FCA's Borrowers in Financial Difficulty ('BIFD') review led to a higher volume of Vehicle Finance loans reaching default status. The Group has restored collections activity to normal levels and early arrears in Vehicle Finance are at the lowest level for three years.

Activities are in progress to recover value from the excess level of defaulted balances in this financial year, although the timing of doing so is uncertain and taking longer than we expected, meaning some value recovery is now likely to extend into 2025.

As a result, the Board now expects the Group's underlying, continuing profit before tax for FY24 to fall materially below market expectations by between £10m and £15m. The reduced level of profit before tax is due to the performance of the Vehicle Finance business. The Group's other businesses are performing in line with management's expectations.

Q3 Trading Update

Net lending

The net loan book grew by 0.5% in the quarter and 7.1% compared to Q3 2023. Commercial Finance net lending grew by 3.1% in the quarter, despite evidence of some clients divesting ahead of the Government's October budget. Vehicle Finance balances increased by 7.5% in the quarter and passed £0.5 billion for the first time. Net lending in Retail Finance and Real Estate Finance were marginally lower in the quarter.

Despite continued macro-economic uncertainties, new business lending of £577 million in the quarter was at its highest for the year and broadly in line with Q3 2023.

Deposits

Customer deposits grew by 3.2% in the quarter to support our lending objectives and were 15.6% higher than compared to Q3 2023. The Group made further early repayments of TFSME funding (the Bank of England's Term Funding Scheme with additional incentives for SMEs) ahead of contractual maturity. Total early repayments to the end of Q3 totalled £105m, c27% of initial drawings. A further early repayment of £15m of TFSME funding was made in October 2024.

Legal and Regulatory Matters

Following the recent Court of Appeal's decisions, the Group paused new consumer lending in Vehicle Finance to consider the implications of the ruling and we are now commencing new business once again.

David McCreadie, Chief Executive Officer, said:

"The Group has continued to grow net lending in the quarter, albeit at a lower rate in what remained a challenging economic environment. We continued to manage lending growth prudently within our prudent risk management parameters.

The implementation of the organisation design changes required to complete delivery of the initial £5m of Project Fusion cost savings by the end of this year continued. As a result, we are on track to deliver an additional £3m of cost savings in 2025.

We are disappointed that it will take longer than expected to recover value from the excess level of defaulted Vehicle Finance balances, and the recent Court of Appeal decisions have added additional uncertainty on the benefits to be realised in 2024.

Notwithstanding the near-term impacts of the excess defaults in Vehicle Finance, we have seen arrears in Vehicle Finance fall to the lowest level since 2021, have continued to grow total net lending, continued to optimise our cost base, made good progress on early repayments of TFSME funding, and see continued growth opportunities ahead of us."