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Overview Strategic report Corporate governance Risk management Financial statements Other information Notes to the Bank financial statements continued For the year ended 31 December 2013 All amounts are stated in £m unless otherwise indicated 41. Fair values of financial assets and liabilities continued Transferred assets include securitised gilts and loans and advances to customers that have not been derecognised by the seller. The associated liabilities include the fixed and floating rate notes, bank loans and intercompany loans that specifically relate to the funding for the assets securitised. The difference between the fair value and carrying value of the mortgages that have been securitised within Leek 17, 18 and 19 is significantly higher than the fair value to carrying value difference for the associated liabilities. This is because it is expected that the notes will be repaid at par at the call date of the Leek liabilities whereas most of the mortgages will continue to be held on the Bank’s balance sheet for a significant period after the notes have repaid and these mortgages have an interest rate which is below the equivalent market rate at the balance sheet date for loans of a similar nature. The securitisation vehicles receive cash daily in relation to the transferred loans and advances and semi-annually for the transferred gilts. These amounts are held within loans and advances to banks until the associated liabilities’ payments are due. Payments are made quarterly for all associated liabilities except for the variable funding notes associated with the transferred gilts, which are paid semi-annually. The amounts held within loans and advances to banks are not included in the table above but will be used in part to cover the repayments made on the associated liabilities. The following table provides the fair value of the transferred assets and associated liabilities for 2012 re-calculated on the basis of the new methodology applied in 2013. Carrying amount of transferred assets not derecognised Carrying amount of transferred liabilities not derecognised Fair value of transferred assets not derecognised (applying 2013 methodology) Fair value of associated liabilities Net position (applying 2013 methodology) 2012 – applying 2013 fair value methodology Leek Finance Number Seventeen plc 618.3 648.9 498.8 636.7 (137.9) Leek Finance Number Eighteen plc 735.0 794.0 598.4 770.7 (172.3) Leek Finance Number Nineteen plc 713.9 787.0 579.4 774.4 (195.0) Leek Finance Number Twenty plc 1,514.8 1,488.6 1,112.3 1,491.8 (379.5) Leek Finance Number Twenty One plc 926.1 944.0 810.5 928.3 (117.8) Leek Finance Number Twenty Two plc 394.2 411.4 305.0 406.4 (101.4) Meerbrook Finance Number Six Limited 77.3 58.3 76.8 58.3 18.5 Silk Road Finance Number One plc 1,764.4 1,778.9 1,764.4 1,788.1 (23.7) Silk Road Finance Number Two plc 697.1 675.3 696.9 681.5 15.4 Silk Road Finance Number Three plc 689.1 699.5 684.1 711.3 (27.2) Cambric Finance Number One plc 1,644.5 1,684.3 1,525.7 1,679.9 (154.2) 9,774.7 9,970.2 8,652.3 9,927.4 (1,275.1) Carrying amount of transferred assets not derecognised Carrying amount of associated liabilities Fair value of transferred assets not derecognised Fair value of associated liabilities Net position 2012 – as per published report and accounts Leek Finance Number Seventeen plc 618.3 648.9 614.6 636.8 (22.2) Leek Finance Number Eighteen plc 735.0 794.0 730.9 770.0 (39.1) Leek Finance Number Nineteen plc 713.9 787.0 708.8 774.4 (65.6) Leek Finance Number Twenty plc 1,514.8 1,488.6 1,498.4 1,491.8 6.6 Leek Finance Number Twenty One plc 926.1 944.0 916.9 928.3 (11.4) Leek Finance Number Twenty Two plc 394.2 411.4 391.5 406.4 (14.9) Meerbrook Finance Number Six Limited 77.3 58.3 76.8 58.3 18.5 Silk Road Finance Number One plc 1,764.4 1,778.9 1,764.4 1,794.2 (29.8) Silk Road Finance Number Two plc 697.1 675.3 696.9 685.2 11.7 Silk Road Finance Number Three plc 689.1 699.5 684.1 712.9 (28.8) Cambric Finance Number One plc 1,644.5 1,684.3 1,637.5 1,679.9 (42.4) 9,774.7 9,970.2 9,720.8 9,938.2 (217.4) The Co-operative Bank plc Annual report and accounts 2013 217
Overview Strategic report Corporate governance Risk management Financial statements Other information Notes to the Bank financial statements continued For the year ended 31 December 2013 All amounts are stated in £m unless otherwise indicated 41. Fair values of financial assets and liabilities continued Covered Bond Limited Liability Partnerships Moorland Covered Bonds LLP was established as a result of a £1.4bn covered bond retained issuance. Loans and advances to customers of £1.9bn were transferred to Moorland Covered Bonds LLP. The transfer was funded by a loan of £1.4bn and capital contribution of £0.5bn. During October 2011 the £1.4bn loan was repaid. Following additional capital contribution repayment and on achieving Regulated Covered Bond status there was a public issuance of notes in November 2011 totalling £0.6bn. As a result of these changes, at the year end the Bank held a loan of £0.6bn (2012: £0.6bn) and a capital contribution of £0.9bn (2012: £1.2bn) with Moorland Covered Bonds LLP. Moorland Covered Bonds LLP does not have ordinary share capital. The Bank’s interest in Moorland Covered Bonds LLP is in substance no different from a wholly owned subsidiary and consequently it is fully consolidated in the Bank accounts. The table below shows the carrying values and fair values of the assets transferred to the covered bond and their associated liabilities: Carrying amount of transferred loans and advances to customers Carrying amount of fixed and floating rate notes Fair value of transferred loans and advances to customers Fair value of fixed and floating rate notes Net position 2013 Moorland Covered Bonds LLP 1,448.8 596.1 1,417.9 628.4 789.5 The following table provides the fair value of the transferred assets and associated liabilities recalculated on the basis of the new methodology applied in 2013. Carrying amount of transferred loans and advances to customers Carrying amount of fixed and floating rate notes Fair value of transferred loans and advances to customers Fair value of fixed and floating rate notes Net position 2012 – applying 2013 fair value methodology Moorland Covered Bonds LLP 1,808.4 595.7 1,782.9 693.8 1,089.1 Carrying amount of transferred loans and advances to customers Carrying amount of fixed and floating rate notes Fair value of transferred loans and advances to customers Fair value of fixed and floating rate notes Net position 2012 – as per published report and accounts Moorland Covered Bonds LLP 1,808.4 595.7 1,835.8 693.8 1,142.0 Assets pledged Assets are pledged as collateral under repurchase agreements with other banks. These deposits are not available to finance the Bank’s day to day operations. Carrying amount of assets not derecognised Carrying amount of associated liabilities Fair value of assets not derecognised Fair value of associated liabilities Net position 2013 Investment securities sold under repurchase agreements 1,004.4 1,028.3 1,022.5 1,028.3 (5.8) Carrying amount of assets not derecognised Carrying amount of associated liabilities Fair value of assets not derecognised Fair value of associated liabilities Net position 2012 Investment securities sold under repurchase agreements 1,907.4 1,830.9 1,907.7 1,827.5 80.2 Associated liabilities are included within deposits by banks. The Bank has loans and advances to banks of £nil (2012: £250.0m) under reverse sale and repurchase agreements and against which gilts are held with a fair value of £nil (2012: £250.4m). These transactions are conducted under terms that are usual and customary to standard stock lending, securities borrowing and reverse purchase agreements. The Bank is permitted to sell or repledge the assets received as collateral in the absence of their default. The Bank is obliged to return equivalent securities. At 31 December 2013 the fair value of collateral repledged amounted to £nil (2012: £250.4m). The Bank does not adjust for the fair value of securities received under reverse sale and repurchase agreements. 218 The Co-operative Bank plc Annual report and accounts 2013
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