PCF.L Regulatory News (PCF)

26 March 2021

PCF Group plc

("PCF", the "Bank" or the "Group")

Trading Update

In advance of its Annual General Meeting which will be held later today, PCF provides a trading update for the first five months, to 28 February 2021, of the current financial year.

Highlights

· Continued focus on lending to better quality customers, with new business volumes in line with management's adjusted targets.

· New business originations in the first five months of the current financial year totalled £104 million (2020: £127million).

· This included £19 million of business placed by Azule with other lending institutions.

· Record single transaction of £6.9 million placed by Azule.

· Total loan book amounted to £440 million at 28 February 2021 (2020: £392 million).

· The number of customers in forbearance continues to reduce and their obligations currently stand at £20 million, representing less than 5% of our portfolio (30 September 2020: 10%).

· Retail deposits totalled £342 million (30 September 2020; £342 million)

· 'Feefo' Platinum Trusted Service Award won by our Savings Team.

· Operational transformation programme commenced.

Overview

We remain open for business and continue to finance consumers and SME customers across all our lending divisions.

New business volumes of £104 million are in line with management's current expectations and we continue to be cautious in our underwriting whilst the economic outlook remains uncertain.

As a result, the Group lending portfolio increased slightly from £434 million at 30 September 2020 to £440 million. Our short-term objective is to maintain the portfolio around this level until we judge that resuming stronger portfolio growth is prudent, whilst continually improving its quality as we manage risk through the credit cycle. Loan originations in our top four credit grades increased to 93% in the period (September 2020: 85%) and, in the month of February, it reached the record level of 100%.

Forborne loans, by value, currently represent less than 5% of our portfolio, compared with 38% at the height of the pandemic last May. This is a result of our prompt and supportive initial response to Covid-19 forbearance requests, the use of automation to efficiently deal with those requests and the high number of customers who sought forbearance as a precautionary measure and have since resumed making payments.

Consumer motor finance

The used motor vehicle finance market has proved resilient through the period. In January, we introduced new rate and commission charts to ensure that we complied with the most recent guidance and rules from the Financial Conduct Authority. These were well received by our introducers and we have seen increased activity in recent weeks.

New business originations in the first five months of the year have totalled £35 million, compared with £34 million in the same period last year. 100% of new business originations were written in our top four credit grades.

Our product offering and terms of business are well regarded within the sector and, as we approach the time of the year when the market typically experiences an uplift in trading, in particular for leisure vehicles, we are confident that we will see buoyant origination levels in the coming months.

As a result of the increased volumes in the last 18 months, this division is growing and now represents the largest part of our Group portfolio. At 28 February 2021, the divisional portfolio totalled £179 million, compared with £143 million last February and £168 million at 30 September 2020.

Levels of forbearance in this division continue to reduce and at 28 February 2021 totalled £3.9million, representing 2.2% of the portfolio.

We remain alert to the risks of higher unemployment levels as the Government's furlough scheme tapers off and have maintained cautious underwriting terms in respect of loan to value and quality of customer.

Business asset finance

New business originations in this division remain low, as SMEs have continued to hold back on new investment or used the Government's Coronavirus Business Interruption Loan Scheme for their working capital and asset finance requirements. However, the announcement of incentives to stimulate investment in the recent Budget should lead to increased investment in the future and we will be ready to assist our customers when they make their investment decisions. In the meantime, we remain focused on prudent underwriting on sensible terms, with 99% of new business originations written in our top four credit grades.

New business originations in the first five months of the year have totalled £21 million, compared with £56 million in the same period last year.

At 28 February 2021, the divisional portfolio totalled £173 million, compared with £204 million last February and £184 million at 30 September 2020.

Levels of forbearance in this division continue to reduce and at 28 February 2021 totalled £11.1 million, representing 6.4% of the portfolio.

Bridging property finance

This division continues to see good demand for its products and has a healthy pipeline of transactions. Again, we remain focussed on good quality transactions with prudent loan to values and clearly defined plans for repayment, with 81% of new lending in our top four credit grades.

New business originations in the first five months of the year have totalled £27 million, compared with £18 million in the same period last year.

At 28 February 2021, the divisional portfolio totalled £68 million, compared with £21 million last February and £60 million at 30 September 2020. The portfolio continues to perform well, has no cases of forbearance and has not realised any losses.

Azule finance

Our broadcast and media finance subsidiary, Azule, has been particularly affected by the lockdown with TV, film, sports and live events all severely impacted. However, in late December it completed its largest ever transaction, financing a £6.9 million LED video wall for an existing customer operating in the Disney studio at Pinewood. The transaction was placed with two other finance companies, generating substantial fee income.

As the Government's roadmap for the easing of social distancing measures progresses, we expect Azule to see increased activity in its chosen markets. In the period, Azule has focussed its broking activity on assisting customers with successful applications under the government CBILS scheme.

New business originations in the first five months of the year have totalled £21 million, compared with £19 million in the same period last year. £19 million of this business was placed with other banks and finance companies and £2 million was written on the Group balance sheet. 82% of business written on balance sheet was in our top four credit grades.

At 28 February 2021, the divisional portfolio totalled £20 million, compared with £24 million last February and £22 million at 30 September 2020.

Forbearance

The number of customers in forbearance continues to reduce and their obligations currently stand at £20 million, representing less than 5% of our portfolio.

We have continued to provide support to our customers who have required assistance as a result of the pandemic and it is pleasing to see the vast majority of the accounts on which assistance was provided have now returned to a fully performing status. Where customers require continued forbearance over a longer term, we are working with them to ensure that we provide tailored forbearance which is appropriate for their individual circumstances.

We will continue to monitor the performance of our portfolio and the status of customers in forbearance to ensure that our levels of IFRS 9 provisioning protect the balance sheet whilst economic and credit conditions remain uncertain.

Operational transformation programme

Following an internal review of our business processes, work has begun to increase our use of automation and data-led decision making across the business to ensure that our platform is scalable, enabling us to benefit from further economies of scale. These improvements will also enable us to grow in a cost-effective fashion and provide a better experience for our customers and introducers.

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 continue to have access to the Bank of England's Term Funding Scheme, which will run until 31 October 2021, and we have used this as our primary source of new funding in recent months. However, the retail deposit market has not shown any signs of stress to date and continues to be accessible for new and maturing savings products.

Our savings operation supports our four lending divisions through £342 million of retail deposits. We continue to provide our customers with high levels of service, as evidenced by our achievement of receiving the 'Feefo' Platinum Trusted Service Award, which is only available to businesses which have been awarded the Gold Trust Service Award for three successive years.

We continue to actively manage both capital and liquidity through these challenging times to maintain a surplus position ahead of our normal risk appetite.

The business continues to be cash generative and profitable.

Organisational changes and executive recruitment

Caroline Richardson joined PCF on 15 March 2021 as Group Chief Financial Officer and will be appointed to the board once regulatory approval has been received. Caroline replaces Nick Price, who had been interim CFO since September 2020.

Caroline qualified as an accountant at PricewaterhouseCoopers and has significant experience as a finance director, most recently as Chief Financial Officer and Board Member at White Oak UK, where she was responsible for the Finance and Treasury teams and helped develop their response to the pandemic.

On completing the six-month review under the operational transformation programme, Garry Stran has commenced his role as Chief Operating Officer.

After a period of 27 years with PCF and as previously announced on 4 March, Robert Murray is retiring from the business. We wish Robert all the best in his retirement and thank him for his role in the success of PCF Bank

Commenting on current trading, CEO Scott Maybury said:

"I would like to thank the PCF team for their efforts in this prolonged period of disruption. In particular, I extend my gratitude to Robert Murray, who retires from the Company after 27 years' service, for his tireless support over so many years and I look forward to working with the new executive team we now have in place.

We will continue to prioritise our customers and staff while maintaining a cautious approach to loan origination. While the outlook remains volatile and the exit route from the pandemic remains uncertain, it is essential that we focus on loan book performance and protecting the strong franchises we have in our markets. We remain confident that we are well placed to take advantage of opportunities in more prosperous times."

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For further information, please visit https://pcf.bank/ or contact:

About PCF Group plc (www.pcf.bank)

Established in 1994, PCF Group plc is the AIM-quoted parent of the specialist bank, PCF Bank Limited. Since commencing operations as a bank in 2017, the Group has increased its lending portfolio from £140 million to over £430 million. The Group continues to focus on portfolio quality and lending to the prime segments of its existing markets. The Group will continue to identify opportunities to diversify its lending products and asset classes by setting up new organic operations or through acquistion.

PCF Bank currently offers retail savings products for individuals and then deploys those funds through its four lending divisions:

• Business asset finance which provides finance for vehicles, plant and equipment to SMEs;

• Consumer motor finance which provides finance for motor vehicles to consumers;

• Azule which provides finance to the broadcast and media industry; and

• Property bridging finance which provides loans to companies and sole traders investing in residential and commercial property.

The Group has a track record of profitability and sustainability through an efficient and scalable business model. Utilising its technologically advanced platform, PCF Bank provides both depositors and borrowers with a high level of service and a straightforward, simple range of products tailored to suit their needs.

Recently recorded video profiles of PCF's Property Bridging Finance, Azule Broadcast Equipment Finance, and Savings divisions are available at the Company's profile page on the London Stock Exchange website: https://profile.lsegissuerservices.com/PCFGroup/overview.