In advance of our Preliminary Results which will be announced in early December 2020, the Group today provides a trading update for the second half of our financial year ending 30 September 2020. Our priority throughout this period has been to maintain customer service levels, ensure the well-being of our employees and manage all aspects of risk for our stakeholders.

Highlights

• PCF Bank has proved itself operationally and financially resilient and remains open for business across all lending divisions
• Increased focus on prime quality lending with new business volumes in line with management’s adjusted targets
• Short- and medium-term operating income is expected to be maintained through continued portfolio growth
• The number of customers currently in forbearance is significantly reduced from peak levels
• Strong balance sheet, diversified and secured lending portfolio and experienced management is ameliorating the impact of the Covid-19 pandemic on the Group

Trading update

We remain open for business and continue to finance consumers and SME customers across all our lending divisions. The lending portfolio has continued to grow against a backdrop of lower demand, cautious underwriting and a challenging operational environment. We have a small but increasing market share within the markets we operate in and we expect the portfolio to show growth of 30% this year (2019: 55%) and approximately 9% in H2, a period affected in its entirety by the Covid-19 pandemic. We have progressively tightened our credit risk appetite during the period, resulting in the percentage of prime lending for the year, increasing to 83% (2019: 74%).

Our considerable investment in infrastructure and technology has provided us with the resilience to operate in a controlled manner while maintaining our levels of customer service. In a difficult year, new business volumes are expected to be £260 million across the Group (2019: £276 million). The decision to focus on originating entirely prime quality lending will result in some NIM compression. However future operating income and our cost to income ratio will remain well positioned by maintaining portfolio growth.

The portfolio is likely to exceed £435 million (2019: £335 million) at year end and the level of forbearance within the portfolio has reduced considerably since the release of our Interim Results. Forborne loans, by value, currently represent 12% of our portfolio down from 32% in early June. This is as a result of our expeditious and appropriate response to the issue and our use of automation to efficiently deal with customer requests. We are extremely pleased with this progress, however, we remain ready to assist customers further should the pandemic be prolonged and the economy continue to deteriorate. Our portfolio is collateral-backed, diversified and has a low average transaction size, all of which are characteristics that help minimise impairment losses.

At the present time we feel it unwise to issue forward guidance while the events surrounding Covid-19 and economic forecasts remain highly uncertain. Although the crisis will inevitably have an impact on this year’s results, we remain both profitable and cashflow positive in this period. Over the coming weeks we will undertake further IFRS9 impairment modelling against the latest data and for various economic stress scenarios, to ensure we have prudent levels of loss provisioning to match the uncertain outlook.

Consumer motor finance

The used motor vehicle finance market has proved resilient through the period. After an initial fall in demand, new business origination picked back up in May and further increased when dealerships opened on 1 June. This is consistent with data on used car sales and used car asset values. As reported previously, a change in travel preferences by consumers away from public transport has supported this market. The leisure market has had a good summer with the demand for motorhome finance, in particular, producing strong volumes.

Levels of forbearance in this portfolio are relatively low but we are alert to the risks of higher unemployment levels and have maintained cautious underwriting terms in respect of loan to value and quality of customer.

Business asset finance

New business origination in this division has been more noticeably affected by lower demand. Understandably, in the current climate sole traders and small companies are deferring investment decisions and where working capital can be accessed from one of the government’s support schemes, at preferential terms, our asset finance products prove less competitive. We remain focused on prudent underwriting as difficult trading conditions for SMEs raises affordability and sustainability concerns.

Our broadcast and media finance subsidiary, Azule, has been particularly affected by the lockdown with TV, film, sports and live events all severely impacted. In the period the company has focussed its broking activity on assisting customers with successful applications under the government CBILS scheme. The business has seen some improvement in September as large studio productions are now back underway, however, we do not expect a recovery to 2019 levels of activity until next spring.

Forbearance levels have gradually improved in the asset finance portfolio. In many cases companies asked for assistance as a precaution rather than a necessity and the SME sector has benefited from considerable government support.

Bridging property finance

This division has seen good demand and has a healthy pipeline of transactions. We have been able to take advantage of a number of competitors in this market withdrawing due to liquidity issues. This has allowed us to build relationships with new introducers. The quality and terms of business are attractive and we are pleased with the performance of this new business line in its first full year of operation.

Appointment of Interim CFO

We are pleased to announce the appointment of Nick Price as Interim Chief Financial Officer, with immediate effect. Nick is an experienced bank and financial services professional and overseen a wide range of corporate activities. In recent years, Nick has performed several bank Interim CFO roles and during his executive career worked at Close Brothers and Goldman Sachs. Nick will be a member of the executive committee but will not become a Board director of the Group.

A search for a permanent CFO is ongoing and the Company will update the market in due course.

Balance sheet and treasury

PCF entered this crisis in a strong financial position. The Group has access to the retail deposit market, wholesale debt markets and Bank of England funding mechanisms. We are currently utilising the cheaper cost of funds provided by the Term Funding Scheme as our primary source of new funding. Group borrowings remain predominantly retail deposits with little other wholesale borrowings other than the Term Funding Scheme. The retail deposit market, to date, has not shown any signs of stress and continues to be accessible for new and maturing savings products.

The Group reported a strong capital ratio of 17% as at 31 March 2020 and continues to actively manage both capital and liquidity through these challenging times to maintain a surplus position ahead of our normal risk appetite.

Commenting on current trading, CEO Scott Maybury said:

“I would like to thank the whole PCF team for their dedication, flexibility and motivation to maintain our standards of customer service in a challenging environment.

“Our trading performance in the period exhibits an encouraging combination of operational resilience, cautious lending and continuing profitability. The near-term outlook for the economy may remain uncertain, however we have shown we have the resources and experience to steer a balanced course through the current downturn. I have confidence that this downturn will only slow our progress and we can emerge strongly to expedite growth and returns.”