Page 92 - CCB_Full-Annual-Report-2021

92 Notes to the Financial Statements 93

For loans in stage 1 and 2 the Bank estimates the The key estimate relates to the expected life of each type Included within interest income for the year ended 8 Auditors’ remuneration
probability of default (PD) and the loss given default of instrument and hence the expected cash flows relating 31 December 2021 is a total of £267k (2020: £176k) The profit on ordinary activities is arrived at
(LGD). The probability of default is calculated using to it. A critical estimate in determining the effective relating to interest on impaired financial assets. after charging: Contents
both quantitative and qualitative data including interest rate is the expected life to maturity of the Bank’s
Contents
character, property type and location. The LGD is commercial loans, as a change in the expected life will Management uses its judgement to estimate the £’000 2021 2020
calculated using the expected realisable collateral have an impact on the period over which the directly expected life of each type of instrument and hence
value and associated sales costs. attributable costs and fees are recognised. See Note 6 for the expected cash flows relating to it. A critical The remuneration of the Bank’s
the sensitivity analysis regarding this. estimate in determining the effective interest external auditors:
The expected credit loss (ECL) on loans in stage rate is the expected life to maturity of the Bank’s Audit services
3 are estimated on an individual basis and all 6 Interest income and expense commercial loans, as a change in the expected life Strategic Report
relevant considerations that have a bearing on In accordance with IFRS 9 interest income and expense will have an impact on the period over which the Audit of these financial 542 310
the expected future cash flows across a range are recognised in the Statement of Profit or Loss and directly attributable costs and fees are recognised. statements
of economic scenarios are taken into account. Other Comprehensive Income for all instruments Audit related assurance services
These considerations can be particularly subjective measured at amortised cost using the Effective Interest The Bank’s effective interest rate is sensitive to
and can include the business prospects for the Rate method (EIR). changes in customer redemptions and the value Amounts receivable by the
customer, the realisable value of collateral, the of new lending drawn in the year. If customer company’s auditor and its
reliability of customer information and the likely The EIR is a method of calculating the amortised cost of redemptions increase this is likely to result in associates in respect of:
cost and duration of the work-out process. The a financial asset or financial liability and of allocating the increased fee income being received in the form
level of the impairment allowance is the difference interest income or interest expense over the relevant period. of early repayment charges and the acceleration All other services 75 –
between the value of the discounted expected The EIR is the rate that exactly discounts estimated future of the recognition of arrangement fee income. Total remuneration payable to 617 310
future cash flows (discounted at the loan’s original cash flows through the expected life of the instrument, New lending values will impact the value of loan the Bank’s external auditors Corporate Governance Statement
effective interest rate), and its carrying amount. or where appropriate a shorter period, to the net carrying arrangement fees to be recognised in future periods
Furthermore, judgements change with time as amount of the financial asset or the financial liability. When as well as being a key driver of the value of fees All services undertaken by the Bank’s external
new information becomes available or as work-out calculating the EIR, the Bank considers all contractual expected to be generated in future years from auditor are subject to approval by the Bank’s Audit
strategies evolve, resulting in frequent revisions to terms of the financial instrument but does not consider subsequent early redemptions. Committee. The Bank has a non-audit services
the impairment allowance as individual decisions future credit losses. The calculation includes all fees paid or policy, which states that non-audit related services
are taken. Changes in these estimates would result received between parties to the contract that are an integral The following sensitivities have been calculated to provided by the Bank’s external auditors should not
in a change in the allowances and have a direct part of the EIR, transaction costs and all other premiums show the sensitivity of the EIR income to changes exceed 70% of the average of the fees paid in the
impact on the impairment charge. in these items: previous three consecutive financial years. The Bank
or discounts. In accordance with IFRS 9, the application of
EIR has been applied to the gross carrying amount of non- has complied with this policy during 2021 and 2020.
The Bank assesses and discusses all individual credit impaired financial assets and to the amortised cost of – If the value of Real Estate Loans that had repaid in
customer loans in arrears at the monthly Provisions credit impaired financial assets. Early Repayment Charges the past 12 months was 1% lower for each tranche 9 Administrative expenses
Committee meeting chaired by the CFO. All cases (ERC) are reported within the EIR expected cashflows and of lending, the EIR income recognised in the Bank’s
that have an existing specific provision, are in arrears reported within net interest income. profit or loss would have been £0.5m lower; £’000 2021 2020
at month-end, or are on the watch list are reviewed. – If the Bank’s new lending in 2021 had been 25% Independent Auditor’s Report
The expected credit losses across all stages are Interest income and expense presented in the Statement of lower, the effective interest rate (EIR) income Staff costs (see Note 10) 14,915 12,924
adjusted for the impact of the forward-looking Profit or Loss and Other Comprehensive Income includes: recognised in the Bank’s income statement would Other administrative 7,050 7,312
economic scenarios outlined above. See Note 28 have been £0.1m lower; and expenses
for the sensitivity analysis regarding this.
– Interest on financial assets and liabilities measured at – If the Bank’s Asset Finance & CV&S loans average Total 21,965 20,236
amortised cost calculated on an EIR basis;
Revenue recognition – effective interest rate life was 10% shorter than the contractual term,
– Interest on fair value through other comprehensive the EIR income recognised in the Bank’s income 10. Staff numbers and costs
The Bank has made a key estimate in relation to the income investment securities statement would have been £0.2m higher.
effective interest rate. The average number of persons employed by the
– Income from finance leases and instalment 7 Other income Bank (including directors) during the year was 183
credit agreements. (2020: 165). The increase in staff costs is higher than
Other income includes fees and commissions relating Financial Statements
to services provided to customers, which do not meet the increase in average staff numbers reflecting the
£’000 2021 2020 timing of the recruitment of staff as well as a higher
the criteria for inclusion within interest income. The
Interest income income is recognised as the service is provided. salary cost associated with these new starters and a
higher value variable pay award.
Loans and advances to banks 196 490
Other income also includes the fair value movement
Loans and advances to customers 55,079 50,385 in derivatives held for risk management purposes. The aggregate payroll costs of these persons,
Interest rate swaps are held to hedge against fixed including directors, were as follows, (directors’
Investment securities 60 22 remuneration is separately disclosed in Note 11):
rate savings products. The fair value movement
Total interest income 55,335 50,897 represents both hedge ineffectiveness and the receipt
of proceeds from the early settlement of derivatives £’000 2021 2020
Interest expense
during the year. Wages and salaries 12,323 10,735
Deposits from customers (10,285) (12,624) Social security costs 1,569 1,197 Notes to the Financial Statements
£’000 2021 2020
Other (123) (161) Contributions to defined 1,023 992
Fair value movement (2) 12
Total interest expense (10,408) (12,785) contribution pension plans
Other operating income 25 18
Net interest income 44,927 38,112 Total 14,915 12,924
Total other income 23 30