Secure Trust Bank : STB 2021 Pillar 3 annual return

Secure Trust Bank PLC

Pillar 3 disclosures for the year ended 31 December 2021

Secure Trust Bank PLC

Pillar 3 disclosures for the year ended 31 December 2021

Contents

• 1. Overview ......................................................................................................................................... 2

• 2. Key Prudential Metrics and Risk Weighted Assets ......................................................................... 4

• 3. Governance ..................................................................................................................................... 4

• 4. Composition of Capital .................................................................................................................. 12

• 5. Leverage Ratio ............................................................................................................................... 16

• 6. Credit Risk ..................................................................................................................................... 16

• 7. Securitisation ................................................................................................................................ 26

• 8. Market Risk ................................................................................................................................... 26

• 9. Asset Encumbrance ....................................................................................................................... 28

• 10. Liquidity and Funding Risk ............................................................................................................ 30

• 11. Remuneration ............................................................................................................................... 31

Appendix A: Countercyclical Capital Buffer .......................................................................................... 33

Appendix B: Leverage Ratio Disclosures ............................................................................................... 34

Appendix C: Main Features of Capital Instruments .............................................................................. 36

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Secure Trust Bank PLC

Pillar 3 disclosures for the year ended 31 December 2021

1. Overview

1.1 Background

This document sets out the Pillar 3 disclosures for Secure Trust Bank PLC and its subsidiaries ('the Group') as at 31 December 2021. These disclosures provide information on the capital requirements and on the management of key risks faced by the Group. These are designed to promote market discipline through the disclosure of key information about risk exposures and risk management processes, as well as remuneration.

The Basel framework consists of three pillars:

• • Pillar 1: Defines the minimum capital requirements that institutions are required to hold for credit, market and operational risks.

• • Pillar 2: This builds on Pillar 1 and incorporates the Group's own assessment of additional capital resources needed to cover specific risks that are not covered by the minimum regulatory capital resources requirement set out under Pillar 1. The amount of any additional capital requirement is also assessed by the Prudential Regulation Authority (PRA) during its

  Supervisory Review and Evaluation Process ('SREP') and is used to determine the overall capital resources required by the Group.

• • Pillar 3: Aims to improve market discipline by requiring banks to publish information on their principal risks, capital structure and risk management.

1.2 Basis of disclosures

The disclosures have been prepared for the Group and cover the applicable Pillar 3 qualitative and quantitative disclosure requirements. They have been prepared to explain the basis upon which the Group has prepared and disclosed certain capital requirements and information about the management of certain risks and for no other purpose.

Preparation is in accordance with the rules laid out in Capital Requirements Regulation ('CRR') Part Eight and the Group's policy describing internal controls and processes around preparation of this document. They do not constitute any form of the financial statements and must not be relied upon in making any judgement on the Group.

This document reflects the disclosure requirements applicable as at 31 December 2021.

The Group has six subsidiaries:

• • Debt Management (Services) Ltd ('DMS')

• • Secure Homes Services Ltd

• • STB Leasing Ltd

• • V12 Finance Group Ltd

• • V12 Retail Finance Limited

• • V12 Personal Finance Limited - dormant

Regulatory capital ratios are calculated on both a Group and an Individual Consolidated (or 'solo') basis.

The Group has been granted permission by the PRA to include all Group entities for Individual Consolidation purposes.

The basis of consolidation for the Group is the same for accounting and prudential purposes.

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Secure Trust Bank PLC

Pillar 3 disclosures for the year ended 31 December 2021

There is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities among the Group's parent undertaking or subsidiaries.

The Group adopts the standardised approach to calculate the capital requirements for credit risk, operational risk and counterparty credit risk. Throughout the document, unless otherwise specified, credit risk exposures are defined as the aggregate of drawn (on-balance sheet) balances, undrawn (off-balance sheet) commitments and contingent liabilities prior to the application of credit risk mitigation ('CRM'), and credit conversion factors ('CCF'), and after IFRS 9 provisions.

1.3 Content of Report and Frequency

The Pillar 3 report is issued annually in conjunction with the Annual Report and Accounts. Where there is a material change in any approach used for the calculation of capital, the business structure or regulatory requirements, the frequency of disclosure will be reviewed.

Where appropriate, cross references have been made to supporting disclosures that are included within the 2021 Annual Report and Accounts. As such, these disclosures should be read in conjunction with that document.

The Group does not disclose all quantitative metrics and figures relating to its risk appetite, as they are considered to be proprietary information; those that are disclosed can be viewed in the Strategic Report in the Group's 2021 Annual Report and Accounts.

1.4 Media and location

Pillar 3 disclosures are published on the Secure Trust Bank PLC corporate website(www.securetrustbank.com/investors).

1.5 Verification

The CRR requires creation of a formal policy to comply with Pillar 3 disclosure requirements and the Board has put in place such a policy. The Policy is reviewed by the Risk Committee (a committee of the Board) and approved on an annual basis by the Board.

The disclosures are subject to annual review by the Risk Committee and approval by Board.

The disclosures have not been, and are not required to be, subject to independent external audit and do not constitute any part of the Group's Annual Report and Accounts.

1.6 Changes in disclosure requirements

The reporting requirements are consistent with those in place for the prior year's report.

The CRR 'Quick Fix' measures introduced in June 2020 (Directive EU/2020/873) continued to be applied throughout 2021: enhanced IFRS 9 transitional relief, the exemption of prudently valued software from CET 1 deductions, and accelerated implementation of revised small and medium-sized enterprises (SME) supporting factors.

The 2020 comparatives have been restated to reflect a clarification issued by the IFRS Interpretations Committee in relation to the accounting treatment of Software as-a-Service arrangement. Details can be found in Note 1.3 to the financial statements in the Annual Report and Accounts.

A number of comparatives have also been restated to reflect a change in presentation for certain risk weighted asset classes. This has no impact on total risk weighted assets.

The following requirements came into force from 1 January 2022 and thus do not affect disclosures in this report:

During the year the PRA published PS22/21 'Implementation of Basel Standards: Final Rules'. The policy statement broadly aligns with the EU's Capital Requirements Regulation II and will affect the

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Secure Trust Bank PLC

Pillar 3 disclosures for the year ended 31 December 2021

Group's regulatory requirements in several areas, including amendments to the scope of Pillar 3 reporting requirements. The software deduction exemption currently applied will be withdrawn from 1 January 2022 as one of the measures implemented under this Policy Statement.

The PRA also published PS21/21 'The UK Leverage Ratio Framework' which also comes into force on

1 January 2022. The key changes include a supervisory expectation of maintaining a minimum leverage ratio of 3.25% for firms not subject to the UK Leverage Ratio Framework. Whilst the Group remains outside the scope of the full Leverage Ratio Framework, it adheres to the supervisory expectations in a similar manner to those falling within scope.

The Financial Policy Committee (FPC) announced during December 2021 that the UK Countercyclical Capital Buffer (CCyB) rate will be increased to 1% from 13 December 2022, having been reduced to 0% in March 2020 due to the COVID-19 pandemic. There is no impact on the current year disclosures.

2.

Key Prudential Metrics and Risk Weighted Assets

Including

1. Prior year figures disclosed have been restated. See Note 1.3 of the Annual Report and Accounts for further information.

The CET 1 balance has increased by £22.8 million compared to December 2020 primarily due to the Group continuing to be profitable despite the challenges posed by the evolving economic backdrop and COVID-19 pandemic. As a result, all of the Group's key capital ratios improved over the year. The 2021 profit after tax £45.6 million has been offset by the £13.0 million reduction in capital benefit associated with IFRS 9 transitional provisions and the recommencement of dividend distributions. During the year the Group paid an interim dividend of £3.7 million and declared a final 2021 dividend of £7.7 million.

3.

Governance

The Board is committed to maintaining and developing high standards of corporate governance. The Board endorses the principles of openness, integrity and accountability, which underlie good corporate governance. The Board establishes the Group's overall purpose, values and strategy and ensures the delivery of these within a robust corporate governance framework.

The Board is committed to the principles of corporate governance contained in the UK Corporate Governance Code issued by the Financial Reporting Council in July 2018. The Group is compliant on an ongoing basis with the Listing Rules and describes its compliance with the UK Corporate

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