TIDMARBB
RNS Number : 2538A
Arbuthnot Banking Group PLC
23 March 2017
23 March 2017
For immediate release
ARBUTHNOT BANKING GROUP ("Arbuthnot", "the Group" or "ABG")
Audited Final Results for the year to 31 December, 2016
Group well capitalised for next phase of growth
Arbuthnot Banking Group today announces a profit for the year of
GBP228m.
Arbuthnot Banking Group PLC is the holding company for Arbuthnot
Latham & Co., Limited and has an 18.6% shareholding in Secure
Trust Bank PLC.
FINANCIAL HIGHLIGHTS
-- Profit for the year GBP228m (2015: GBP27m)
-- Gain realised from sale of Everyday Loans and Secure Trust Bank shares of GBP228m
-- Profit before tax on continuing operations GBP0.2m (2015: Loss of GBP2.6m)
-- Underlying profit before tax GBP4m (2015: GBP3m)
-- Special dividends paid in the year 325p per share
-- Operating income increased by 20% to GBP41.5m (2015: GBP34.6m)
-- Earnings per share 1127.2p (2015: 86.3p)
-- Final dividend per share 18p (2015: 17p), an increase of 6%
-- Total dividend per share 356p (2015: 29p)
-- Underlying net assets increased by 90% to GBP234m (2015: GBP124m)
-- Net assets per share 1534p (2015: 1253p), an increase of 23%
-- Return on equity 88% (2015: 15%)
-- Underlying return on deployed equity 9.6% (2015: 9.2%)
OPERATIONAL HIGHLIGHTS
Arbuthnot Latham
-- Profit before tax GBP9.1m (2015: GBP6m) an increase of 51%
-- Net client margin steady at between 4.2% and 4.5%
-- Customer loans balances up 23% to GBP759m (2015: GBP619m)
-- Written loan volume increased 39% to GBP227m (2015: GBP164m)
-- Customer deposits approaching GBP1bn increasing 11% to GBP998m (2015: GBP897m)
-- Assets under management increased to GBP920m (2015: GBP793m)
-- Number of private bankers 36 (2015: 28)
-- Number of commercial bankers 15 (2015: 2)
-- Purchased Duncan Lawrie loan portfolio GBP45m
-- Purchased 20 King Street office building GBP53m
-- Agreed the acquisition of Renaissance Asset Finance approx. GBP55m customer loans
(with completion expected in the next few weeks)
Secure Trust Bank - Associated Undertaking
-- Shareholding reduced to 18.6%
-- Treated as an associated undertaking due to significant influence via three board members
-- Reported GBP2.1m of profit from associates from 15 June 2016
-- Underlying share of full year profit of GBP3.6m
Commenting on the results, Sir Henry Angest, Chairman and Chief
Executive of Arbuthnot, said: "This has been a momentous and highly
profitable year for Arbuthnot Banking Group. We have completed a
number of major corporate transactions which have transformed the
Group and set it on a new path of development. The capital
generated by these corporate transactions will allow Arbuthnot
Latham to develop overtime into a more significant Private and
Commercial Bank."
ENQUIRIES:
Arbuthnot Banking Group 0207 012 2400
Sir Henry Angest, Chairman
and Chief Executive
Andrew Salmon, Chief Operating
Officer
James Cobb, Group Finance
Director
Stifel Nicolaus Europe Ltd
trading as KBW (Nomad and
Joint Broker) 0207 710 7600
Robin Mann
Gareth Hunt
Stewart Wallace
Numis Securities Ltd (Joint
Broker) 0207 260 1000
Chris Wilkinson
Andrew Holloway
Bell Pottinger (Financial
PR) 0203 772 2588
Ben Woodford
Dan de Belder
Sam Cartwright
The 2016 Annual Report and Notice of Meeting will be posted and
available on the Arbuthnot Banking Group website
http://www.arbuthnotgroup.com on or before 7 April 2017. Copies may
be obtained from the Company Secretary, Arbuthnot Banking Group
PLC, Arbuthnot House, 7 Wilson Street, London, EC2M 2SN.
Consolidated statement of comprehensive income
*Re-presented
Year ended
31 December
2016 2015
Note GBP000 GBP000
-------------------------------------------- ----- --------- --------------
Interest income 8 38,071 32,801
Interest expense (7,626) (7,990)
-------------------------------------------- ----- --------- --------------
Net interest income 30,445 24,811
-------------------------------------------- ----- --------- --------------
Fee and commission income 9 11,430 9,999
Fee and commission expense (425) (206)
-------------------------------------------- ----- --------- --------------
Net fee and commission income 11,005 9,793
-------------------------------------------- ----- --------- --------------
Operating income 41,450 34,604
-------------------------------------------- ----- --------- --------------
Net impairment loss on financial assets 10 (474) (1,284)
Profit from associates 26 2,145 -
Other income 11 3,169 -
Operating expenses 12 (46,111) (35,926)
-------------------------------------------- ----- --------- --------------
Profit / (loss) before tax from continuing
operations 179 (2,606)
Income tax (expense) / credit 13 (720) 121
-------------------------------------------- ----- --------- --------------
Loss after tax from continuing operations (541) (2,485)
Profit from discontinued operations after
tax 14 228,110 29,009
-------------------------------------------- ----- --------- --------------
Profit for the year 227,569 26,524
-------------------------------------------- ----- --------- --------------
Other comprehensive income
Items that are or may be reclassified
to profit or loss
Available-for-sale reserve (2,377) 1,559
Available-for-sale reserve - Associate (389) -
Tax on other comprehensive income 456 (262)
-------------------------------------------- ----- --------- --------------
Other comprehensive income for the period,
net of tax (2,310) 1,297
-------------------------------------------- ----- --------- --------------
Total comprehensive income for the period 225,259 27,821
-------------------------------------------- ----- --------- --------------
Profit attributable to:
Equity holders of the Company 166,143 12,726
Non-controlling interests 61,426 13,798
-------------------------------------------- ----- --------- --------------
Profit for the year 227,569 26,524
-------------------------------------------- ----- --------- --------------
Total comprehensive income attributable
to:
Equity holders of the Company 164,320 14,023
Non-controlling interests 60,939 13,798
-------------------------------------------- ----- --------- --------------
Total comprehensive income for the period 225,259 27,821
-------------------------------------------- ----- --------- --------------
Earnings per share for profit attributable
to the equity holders of the Company
during the year
(expressed in pence per share):
Basic earnings per share - Continuing
operations 16 (3.7) (16.9)
Basic earnings per share - Discontinued
operations 16 1,130.9 103.2
-------------------------------------------- ----- --------- --------------
Basic earnings per share 16 1,127.2 86.3
-------------------------------------------- ----- --------- --------------
Diluted earnings per share - Continuing
operations 16 (3.7) (16.6)
Diluted earnings per share - Discontinued
operations 16 1,130.4 99.9
-------------------------------------------- ----- --------- --------------
Diluted earnings per share 16 1,126.7 83.3
-------------------------------------------- ----- --------- --------------
* Prior year numbers have been re-presented for discontinuing
operations (see note 14).
Consolidated statement of financial position
At 31 December
2016 2015
Note GBP000 GBP000
ASSETS
Cash and balances at central banks 17 195,752 368,611
Loans and advances to banks 18 36,951 28,578
Debt securities held-to-maturity 19 107,300 87,728
Assets classified as held for sale 14 - 118,456
Derivative financial instruments 20 1,516 1,490
Loans and advances to customers 21 758,799 1,579,512
Other assets 23 11,939 16,894
Financial investments 24 2,145 2,685
Deferred tax asset 25 1,665 1,784
Interests in associates 26 82,574 943
Intangible assets 27 8,522 10,874
Property, plant and equipment 28 4,782 14,004
Investment property 29 53,339 -
------------------------------------------- ----- ---------- ----------
Total assets 1,265,284 2,231,559
------------------------------------------- ----- ---------- ----------
EQUITY AND LIABILITIES
Equity attributable to owners of the
parent
Share capital 35 153 153
Retained earnings 36 235,567 123,330
Other reserves 36 (1,362) 34
------------------------------------------- ----- ---------- ----------
Non-controlling interests - 67,887
------------------------------------------- ----- ---------- ----------
Total equity 234,358 191,404
------------------------------------------- ----- ---------- ----------
LIABILITIES
Deposits from banks 30 3,200 55,305
Derivative financial instruments 20 227 135
Deposits from customers 31 997,649 1,929,838
Liabilities relating to assets classified
as held for sale 14 - 8,700
Current tax liability 147 3,366
Other liabilities 32 17,082 31,977
Debt securities in issue 33 12,621 10,834
------------------------------------------- ----- ---------- ----------
Total liabilities 1,030,926 2,040,155
------------------------------------------- ----- ---------- ----------
Total equity and liabilities 1,265,284 2,231,559
------------------------------------------- ----- ---------- ----------
Chairman's statement
I am pleased to report that 2016 for Arbuthnot Banking Group
("ABG" or "the Group") has been a momentous year. We have completed
a number of major corporate transactions that have not only
transformed the Group, but also set it on a new and exciting path
of development that I expect to be as successful in the future as
it has been in the past. I should remind the shareholders though
that we take a long term view.
The Group has made a profit for the year of GBP228m when the
impact of the sale of 30% of Secure Trust Bank ("STB") is factored
in, while the Group has reported a profit before tax of GBP0.2m on
the continuing operations.
In the past I have commented on the complexities of the ever
changing accounting conventions, so I will refrain from doing so
again, but suffice to say GBP228m of profit for a Group that
started the year with shareholder funds of GBP191m is a remarkable
result and one that I expect in time will transform the Group. Six
years ago the Group had net assets per share of GBP2.28 and this
has risen nearly 7 fold to GBP15.34 per share and that is after
paying special dividends of GBP3.25.
The sale of a substantial proportion of our stake in STB was a
decision that we considered carefully and on balance it seemed this
was the right time to allow both of the Group's banks to develop
along their own chosen paths.
STB, despite its significant history that dates back over 60
years, has been seen by the market and commentators to be in the
new category of banks collectively known as "Challenger Banks".
They have come to prominence since the financial crisis and indeed
several of them have only been created since that time. STB, along
with the other Challengers has grown quickly, promoted competition
in the market place and attracted customers with their new images
and fresh approach to banking. However, to keep taking advantage of
the opportunities that exist they need to have access to the
financial markets to supply capital to maintain the organic growth
rates and to allow corporate or inorganic deals to be done.
We had seen over time that STB had developed an exceptional list
of shareholders on its register and many of them were supportive of
Paul Lynam's (the CEO) plans, so we decided it was appropriate for
ABG to reduce its stake and for STB to seek admission to the Main
London Stock Market, which it achieved in October last year.
Needless to say, we wish them every success, not least because we
remain an 18.6 % shareholder.
The sale of the shares has led to STB being deconsolidated from
the Group and resulted in a significant increase in the capital
resources of the remaining business. This capital we plan to deploy
in diversifying Arbuthnot Latham ("AL) into the broader financial
services markets, while at the same time remaining entrepreneurial
and open to other opportunities. This development took several
steps forward during the year. The Commercial Bank that we started
to build in 2015 ended the year with 15 bankers and has now
extended coverage into the South West and North West. The division
has seen its lending balances grow to GBP76m by the year end and
also has a healthy pipeline of approved lending which should see
the business grow substantially in 2017.
In June we completed the purchase of 20 King Street, a
well-known office site in the West End. While currently occupied by
a tenant, it is our intention to create a small suite of offices
from where the Private Bankers would be able to meet clients in the
West End.
At the end of the year AL was able to announce that it had
purchased the private banking loan book from Duncan Lawrie. The
portfolio was purchased at a discount and should allow us to
attract a number of new banking clients, following the decision by
Duncan Lawrie to close its banking operations.
Finally, we reached an agreement with the shareholders of
Renaissance Asset Finance to acquire their lending business. The
business provides lending solutions mainly to high net worth
individuals and businesses seeking to purchase assets and equipment
with relatively short term financing arrangements. This will be
very complementary to our existing lending business and will open
up new distribution channels for the Group.
While these transactions should go some way to demonstrating our
ambitions to grow, Arbuthnot Latham will remain a specialist bank
for the time being, rather than a "challenger", as I fear the only
banks that they will be able to challenge will be themselves, until
the regulatory and business landscape becomes more favourable and
promotes competition among all of the banks, both big and small, on
a level playing field.
I would like to mention that while we intend to reinvest the
capital that we have created during 2016 and indeed feel confident
that over the long term we can fully deploy this capital into
businesses that can generate returns at or around 20%, we also
remain cognisant that ultimately we conduct our business on behalf
of our loyal shareholders. I am therefore pleased to report that
over and above our normal dividends we were able to pay two special
dividends during the year. The first was for 25p and the second
300p, which has allowed the shareholders directly to benefit from
the corporate transactions that we have completed in the year.
As I reflect on 2016 I cannot do so without commenting on the
result of the referendum. Being Swiss born, I believe that true
democracy can only lie in the hands of the people; their voice was
heard loudly that day. As I commented last year, I believe the City
to be a resilient and a dynamic place and both it and the rest of
the UK economy will quickly respond to the new opportunities that
will open up when Britain finally exits the European Union and
becomes an independent and sovereign state again.
Board Changes and Personnel
During the year the following changes to the ABG Board occurred.
Sir Alan Yarrow joined the Board on 10 June as an Independent Non
Executive, while on 5 May, Ruth Lea retired after 11 years of
distinguished service. She will, however, still be connected with
the Group, remaining as its Economic Advisor. On 6 May Ian
Henderson joined the Board as an Executive Director in his capacity
as the Chief Executive of Arbuthnot Latham. At the same time James
Fleming stood down from the Board to take the role of Vice Chairman
for Arbuthnot Latham. Finally, Paul Lynam became a Non-Executive
Director of the Board following the reduction in ownership of
Secure Trust Bank. I welcome the new directors and I thank the
retiring directors for their contributions.
I would like to thank my colleagues on the Board for their
generous and continued support and for the dedication they have
shown to the Group.
The performance of the Group also reflects the hard work and
commitment of the members of staff. On behalf of the Board I extend
our thanks to all of them for their dedicated efforts in 2016.
Dividend
The Board is proposing a final dividend of 18p, an increase of
1p on last year. Along with the normal interim dividend of 13p and
the two special dividends of 25p and 300p respectively, this gives
a total dividend for the year of 356p (2015: 29p). Excluding the
special dividends the annual dividends would be 31p, which is an
increase of 2p.
If approved, the dividend will be paid on 12 May 2017 to
shareholders on the register at close of business on 18 April
2017.
Outlook
The short term global economic outlook remains uncertain. The US
has a new President in the form of Donald Trump, who seems to be
taking a significantly more protectionist stance on the US economy.
On the other hand he has made encouraging noises about reduction in
taxes and regulation. However, the jury remains out for the time
being. Meanwhile, Britain will soon trigger Article 50 and begin
the process of exiting the European Union. At the same time
populist politics is beginning to spread across Europe, which
leaves the European political project exposed to the risk of being
forced into making some fundamental changes, while monetary union
appears more and more untenable.
ABG however, though not entirely immune to the global-economic
and geo political headwinds, remains well capitalised and more
importantly has become a group that can attract high quality staff,
thus we remain optimistic for our future prospects.
Strategic Report
Business Review - Private Banking - Arbuthnot
Latham
2016 2015
Operating income GBP41.8m GBP35.1m
Other income GBP4.4m GBP1.9m
Operating expenses GBP36.6m GBP29.7m
Profit before tax GBP9.1m GBP6.0m
Customer loans GBP758.8m GBP618.9m
Customer deposits GBP997.6m GBP896.8m
Total assets GBP1,199.2m GBP1,004.4m
Assets under management GBP919.8m GBP738.8m
Customer net margin 4.4% 4.3%
Loan to deposit ratio 76.0% 69.0%
Arbuthnot Latham and Co., Limited ("AL" or "the Bank") has
reported a profit before tax of GBP9.1m (2015: GBP6.0m), which is
an increase of 51% on the previous year. This confirms that the
continued investments being made in the Bank are showing returns.
However, much of the cost of the investments this year, which
totalled GBP1.4m, were covered by the gain that the Bank enjoyed
following the acquisition of Visa Europe by Visa Inc. Our share of
this transaction realised GBP1.6m. Thus, the underlying profit for
the year was GBP8.8m compared to GBP7.8m in 2015.
More importantly, the balance sheet continued to demonstrate
good growth. Customer loans increased by 23% to end the year at
GBP759m (2015: GBP619m) and deposits are rapidly approaching the
GBP1bn milestone, ending the year at GBP998m (2015: GBP897m). To
facilitate this growth, the Bank has received further capital
support totalling GBP22m from its parent Arbuthnot Banking Group
PLC ("ABG"), which has continued to invest during the year, such
that the net assets or capital of the Bank has increased by 54% to
close the year at GBP81m (2015: GBP52m).
The Bank has continued its plan to diversify into other areas of
financial services and has taken significant steps in developing
its commercial banking proposition. From a standing start in
September 2015 the Commercial Bank has now recruited 31 staff with
plans to expand this to approximately 50 staff by the end of 2017.
Initially, the coverage was aimed at London and the South East, but
this has now extended to the South West, with five staff to operate
from Exeter and Bristol and also the North West with a team of five
in Manchester. The team in Manchester has recently moved into our
new premises in the building previously occupied by the Bank of
England at 82 King Street. The teams seek to provide a "high touch
relationship service" to mainly owner managed commercial clients,
with sector coverage in Media and Real Estate and a specialist team
which looks after trading businesses in sectors such as Healthcare,
Legal Services and Private Education.
The Commercial Banking division has seen its lending balances
grow to GBP76m by the year end with corresponding deposits reaching
GBP51m. In addition, the division also has a healthy pipeline of
approved lending that should see the business grow substantially in
2017. It would appear that our new Commercial Banking proposition
resonates well in the market, with many experienced bankers joining
the team over the last 12 months, all of whom we have attracted
from larger, more well-known commercial banks. With a strong new
business pipeline, the proposition is also clearly working well
with our target client market place.
In the meantime, the Private Bank has continued to develop as
planned. The number of private bankers now stands at 36 and the
business continues to attract clients interested in our three main
product offerings. The Private Banking loan book grew to GBP683m
(2015: GBP619m) during the year and deposits were GBP947m
(2015:GBP897m), an increase of 6%. During 2016 the investment
management industry saw much volatility in all the main investment
markets, caused initially by the mining and natural resources
sectors reaching their floors. This was then followed by the Brexit
vote. Despite all of this market turmoil, the investment management
business was able to grow its assets under management ("AUMs") by
25% to close the year at GBP920m.
The office in Dubai has continued to perform well, despite the
impact that the prolonged reduction in the value of oil has had on
the region. It contributed GBP0.9m to the profits of the Bank and
has introduced GBP64m of deposits, GBP74m of loans and GBP60m of
AUMs to date.
As indicated several times in the past year and a half, the Bank
has been pursuing a strategy of diversification and this was
accelerated in 2016 by the finalisation of three transactions.
Firstly, the Bank bought the long leasehold of 20 King Street, a
prominent office building in the heart of the West End at a cost of
GBP53.3m including all associated transaction costs. This building
is currently fully occupied but in time it is expected to be partly
used as a West End office for the Bank. The remaining space will
continue to be offered as a prime office location.
Secondly, the Bank was approached by Duncan Lawrie to help it in
its plans to close its private banking business and return its
banking licence. Duncan Lawrie had identified AL as a suitable home
for its existing clients that offered a full private banking suite
and high quality of service. As part of this process we were able
to reach an agreement to purchase the existing loan portfolio for
approximately GBP45m, with certain deferred items to be factored
in. This represented a discount of 5% on the par value of the
loans. The portfolio has now been fully transferred to AL and is
expected to be a good source of new introductions to the clients of
Duncan Lawrie as they wind down their deposit portfolio.
Finally, AL reached agreement with the shareholders of
Renaissance Asset Finance ("RAF") to acquire the whole of its
lending business. RAF currently offers financing solutions mainly
to high net worth individuals and businesses seeking to purchase
high value cars and other equipment. The loan portfolio currently
stands at GBP55m and is expected to be part of the Group's balance
sheet around the end of the first quarter of 2017. This transaction
remains subject to certain completion conditions, principally the
regulatory approvals required. This business will open up new
distribution channels to the Bank and should form the base from
which the Bank can develop further lending products for the asset
backed financing markets.
The transformation of the Bank has not only been via the
corporate transactions and developing the Commercial Bank. The
operational transformation project will also reach a significant
milestone during 2017, with the implementation of the Bank's new
operating system. The Oracle platform known as "Flexcube" is
expected to go live in the second quarter of 2017 and will provide
a robust and scalable platform to support the growth of the Bank
for many years to come.
Strategic Report - Financial Review
Arbuthnot Banking Group adopts a pragmatic approach to risk
taking and seeks to maximise long term revenues and returns. Given
its relative size, it is nimble and able to remain entrepreneurial
and capable of taking advantage of favourable market opportunities
when they arise.
The Group provides a range of financial services to clients and
customers in its chosen markets of Private and Commercial Banking.
The Group's revenues are derived from a combination of net interest
income from lending, deposit taking and treasury activities, fees
for services provided and commission earned on the sale of
financial instruments and products.
Highlights
2016 2015
Summarised Income Statement GBP000 GBP000
-------------------------------------------------- --------- ---------
Net interest income 30,445 24,811
Net fee and commission income 11,005 9,793
-------------------------------------------------- --------- ---------
Operating income 41,450 34,604
Profit from associates 2,145 -
Other income 3,169 -
Operating expenses (46,111) (35,926)
Impairment losses - financial investments (47) (34)
Impairment losses - loans and advances to
customers (427) (1,250)
-------------------------------------------------- --------- ---------
Profit before tax from continuing operations 179 (2,606)
Income tax expense (720) 121
-------------------------------------------------- --------- ---------
Profit after tax from continuing operations (541) (2,485)
Profit from discontinued operations after
tax 228,110 29,009
-------------------------------------------------- --------- ---------
Profit for the year 227,569 26,524
-------------------------------------------------- --------- ---------
Basic earnings per share (pence) - Continuing
operations (3.7) (16.9)
Basic earnings per share (pence) - Discontinuing
operations 1,130.9 103.2
-------------------------------------------------- --------- ---------
Basic earnings per share (pence) 1,127.2 86.3
-------------------------------------------------- --------- ---------
Arbuthnot Retail Arbuthnot
Latham Banking Group Banking
Underlying profit reconciliation & Co. Associate Centre Group
31 December 2016 GBP000 GBP000 GBP000
-------------------------------------- ---------- ----------- --------- ----------
Profit before tax from continuing
operations 9,053 2,145 (11,019) 179
ABG Group bonuses relating to sale
of ELL - - 2,304 2,304
STB full year equivalent associate
income* - 1,732 - 1,732
AL realised profit on AFS investment
(Visa) (1,624) - - (1,624)
AL investment in operating systems 21 - - 21
AL commercial banking investment 999 - - 999
AL acquisition costs 398 - - 398
Underlying profit 8,847 3,877 (8,715) 4,009
-------------------------------------- ---------- ----------- --------- ----------
Underlying basic earnings per share
(pence) - Continuing operations 17.1
-------------------------------------- ---------- ----------- --------- ----------
Underlying basic earnings per share
(pence) 1,148.1
-------------------------------------- ---------- ----------- --------- ----------
* - STB associate income adjustment (excl. ELL & bonuses
relating to ELL sale) as if received from 1 January
2016 and not as currently included from 16 June 2016
(pro forma basis).
Arbuthnot Retail Arbuthnot
Latham Banking Group Banking
Underlying profit reconciliation & Co. Associate Centre Group
31 December 2015 GBP000 GBP000 GBP000 GBP000
------------------------------------- ---------- ----------- -------- ----------
Profit before tax from continuing
operations 5,998 - (8,604) (2,606)
STB full year equivalent associate
income* - 3,714 - 3,714
AL investment in operating systems 1,123 - - 1,123
AL commercial banking 333 - - 333
Acquisition costs 418 - - 418
------------------------------------- ---------- ----------- -------- ----------
Underlying profit 7,872 3,714 (8,604) 2,982
------------------------------------- ---------- ----------- -------- ----------
Underlying basic earnings per share
(pence) - Continuing operations 13.5
------------------------------------- ---------- ----------- -------- ----------
Underlying basic earnings per share
(pence) 116.7
------------------------------------- ---------- ----------- -------- ----------
* - STB associate income adjustment (excl. ELL) as
if received from 1 January 2015.
Once again the results of the Group are not immediately easy to
interpret from the face of the profit and loss. The profit before
tax from continuing operations for 2016 is GBP0.2m, which compares
to a loss of GBP2.6m in the prior year. However, these results have
been adjusted to exclude the consolidated results for STB, which
became an associated company on 15 June following the sale of 6m
STB shares by the Group. The profit on the sale of these shares,
the profit on the sale of Everyday Loans and the trading
performance of ELL up to 13 April and STB up to 15 June have all
been included in the discontinued operations after tax line.
Once these are included in the results, the Group has made a
profit for the year of GBP227.6m (2015: GBP26.5m), which is almost
an eight fold increase. It is also more than the net assets of the
Group at the start of 2016.
Clearly these results are significantly influenced by the
outcome of the corporate transactions, so perhaps a better
indication of the financial performance of the Group is given by
the underlying profit measure. Thus, the underlying profit of ABG
for 2016 was GBP4m compared to GBP3m in 2015, which is a 33%
increase during 2016.
The total Basic Earnings per share ("EPS") of the Group have
increased by 1206% to 1127.2p (2015: 86.3p), with an underlying
total Basic EPS increasing by 884% to 1148.1p (2015: 116.7p).
Underlying Basic EPS on continuing operations has increased by 27%
to 17.1p (2015: 13.5p).
Operating income for the year reached GBP41.5m, an increase of
20% on the prior year (2015: GBP34.6). This increase was largely as
a result of increased customer lending balances, which saw a
corresponding level of growth in the balance sheet of Arbuthnot
Latham. Net interest income now represents 73% of total operating
income compared to the prior year level of 72%.
This year's income statement includes GBP2.1m profit from
Associate. This represents the Group's share (18.6%) of the profit
after tax of Secure Trust Bank, which is now classified as an
associated undertaking. This method of accounting for the
investment that ABG retains in Secure Trust is determined by the
fact that ABG is deemed to have "significant influence" over Secure
Trust by way of three directors of Secure Trust also being
directors of Arbuthnot Banking Group. The profit from Associate is
recorded from 15 June to 31 December 2016 and a full year effect is
adjusted in the underlying profit reconciliation table, on a pro
forma basis.
The Group's expense base increased to GBP46.1m (2015: GBP35.9m),
an increase of 28%; however, this does include a number of
exceptional bonus payments that were payable in relation to the
profit generated on the sale of Everyday Loans, which was completed
in April 2016. This payment totalled GBP2.3m and when the expense
base is adjusted for these costs, the annual increase is 22%. The
Group expense base includes a significant amount of expenditure,
well in excess of GBP1m, that relates to investment in developing
the Commercial Banking business, which is expected to generate
profits in future years. Impairment losses on loans and advances to
customers declined to GBP0.4m (2015: GBP1.3m) as the business
continued to work its way out of a small number of remaining legacy
cases. The loss rate has now fallen to 7bps on the total lending
book.
Overall, the Return on Equity of the Group was 88.4% (2015:
14.6%). This result was somewhat distorted by the large
transactions which leaves the Group now in a position with
significant surplus capital, even after paying 356p per share of
dividends. It is expected that the Group will over time deploy the
surplus capital into new and existing businesses at returns greater
than 20%.
Balance Sheet Strength
2016 2015
Summarised Balance Sheet GBP000 GBP000
--------------------------------- ---------- ----------
Assets
Loans and advances to customers 758,799 1,579,512
Liquid assets 340,003 484,917
Other assets 166,482 167,130
--------------------------------- ---------- ----------
Total assets 1,265,284 2,231,559
--------------------------------- ---------- ----------
Liabilities
Customer deposits 997,649 1,929,838
Other liabilities 33,277 110,317
--------------------------------- ---------- ----------
Total liabilities 1,030,926 2,040,155
Equity 234,358 191,404
--------------------------------- ---------- ----------
Total equity and liabilities 1,265,284 2,231,559
--------------------------------- ---------- ----------
During the year total assets reduced to GBP1.3bn (2015:
GBP2.2bn), largely as a result of the removal of Secure Trust Bank
from the balance sheet, apart from the remaining value of the
investment in associate. However, the underlying growth of the
balance sheet was in excess of 20% by measuring the growth in
customer balances in Arbuthnot Latham.
Throughout the year the balance sheet remained almost entirely
funded by customer deposits. However, the Group has continued to
access other sources of liquidity as they become available. The
Group has GBP109m of assets available for use in the Funding for
Lending Scheme ("FLS") and the newly announced Term Funding Scheme
("TFS").
The net assets of the Group closed the year at GBP234m (2015:
GBP191m), which is an increase of 23%. However, this does not fully
explain the movement. Included in the prior year net assets was
GBP68m of Non-Controlling Interests, which related to the minority
shareholders of Secure Trust. This element was removed when STB was
deconsolidated. So, on an adjusted basis, the net assets related to
the shareholders of ABG have increased by GBP111m, an increase of
90%. This is also after payments of GBP52m in dividends during the
year.
The net assets now stand at approximately GBP15.34 per
share.
Segmental Analysis
The segmental analysis is shown in more detail in Note 42. The
operating segments are Arbuthnot Latham and Co., Limited and Retail
Banking Associate (being the Group's 18.6% investment in Secure
Trust Bank). Group costs and intercompany elimination journals are
shown separately to reconcile back to Group consolidated
results.
The analysis presented below, and in the business review, is
before any consolidation adjustments to reverse the impact of the
intergroup operating activities and also intergroup recharges and
is a fair reflection of the way the Directors manage the Group.
Arbuthnot Latham
2016 2015
Summarised Income Statement GBP000 GBP000
------------------------------------------- --------- ---------
Net interest income 30,771 25,283
Net fee and commission income 11,005 9,793
------------------------------------------- --------- ---------
Operating income 41,776 35,076
Other income 4,353 1,894
Operating expenses (36,602) (29,722)
Impairment losses - financial investments (47) -
Impairment losses - loans and advances to
customers (427) (1,250)
------------------------------------------- --------- ---------
Profit before tax 9,053 5,998
------------------------------------------- --------- ---------
The profit before tax for the year was reported as GBP9.1m
(2015: GBP6.0m). This was an increase of 51%. The one off gain
received from the sale of Visa shares of GBP1.6m was largely offset
by continued investment in the development of the Commercial
Bank.
The operating income of the Bank increased by 19% largely due to
the increase in customer loan balances, as the Bank becomes more
led by its lending proposition, rather than fee based revenue
streams.
During the year the monthly net client margin ranged between
4.2% and 4.5%, which was in line with the prior year.
Operating expenses have increased during the year by 23% to
reach GBP36.6m (2015: GBP29.7m). This was largely as a result of
additional hiring, mainly within the Commercial Bank and also some
additional private bankers.
Impairment losses on loans declined from GBP1.3m to GBP0.4m, as
the legacy book continues to be resolved.
2016 2015
Summarised Balance Sheet GBP000 GBP000
---------------------------------------------- ---------- ----------
Assets
Loans and advances to customers 758,799 618,902
Liquid assets 339,989 344,856
Other assets (including Group balances) 100,374 40,691
---------------------------------------------- ---------- ----------
Total assets 1,199,162 1,004,449
---------------------------------------------- ---------- ----------
Liabilities
Customer deposits 997,649 896,766
Other liabilities (including Group balances) 120,815 55,330
---------------------------------------------- ---------- ----------
Total liabilities 1,118,464 952,096
Equity 80,698 52,353
---------------------------------------------- ---------- ----------
Total equity and liabilities 1,199,162 1,004,449
---------------------------------------------- ---------- ----------
Total customer assets increased by 23% to close the year at
GBP759m (2015: GBP619m). However, total volume of loans written in
the year increased to GBP227m, which was an increase of 39% on the
prior year (this excludes the purchase of the Duncan Lawrie loan
portfolio of GBP43m). Despite this significant increase, the
business did experience a lengthening of time between the approval
of the loans in principle and the final drawdown of the loan. This
may be due to a number of factors, but the most significant is the
impact of the increase in stamp duty changes on expensive
properties.
The business also has a healthy pipeline of approved lending
which should see the business grow substantially in 2017.
Overall, the loan book remains well secured with an average LTV
of 45% (2015: 46%). Other assets increased by approximately GBP60m
due to the purchase of the property at 20 King Street in the West
End. The deposits of the Bank almost reached GBP1bn for the first
time in the Bank's history, closing the year at GBP998m (2015:
GBP897m), an increase of 11%.
The net assets of the Bank now stand at GBP81m (2015: GBP52m),
an increase of 54%, as the Parent made further capital
contributions of GBP22m to facilitate additional growth. This was
also supplemented by the organically generated retained reserves
that arise from the net earnings in the year. As a result,
Arbuthnot Latham had a total capital ratio of 12.3% (2015: 10.4%)
and a core tier 1 ratio of 12.3% (2015: 10.4%).
The investment management business was able to grow its assets
under management by 25% from GBP739m to close the year at
GBP920m.
Group & Other Costs
2016 2015
Summarised Income Statement GBP000 GBP000
------------------------------------------ --------- --------
Net interest income 26 (148)
Subordinated loan stock interest (352) (324)
------------------------------------------ --------- --------
Operating income (326) (472)
Other income 120 -
Operating expenses (10,813) (8,098)
Impairment loss on financial investments - (34)
------------------------------------------ --------- --------
Profit after tax (11,019) (8,604)
------------------------------------------ --------- --------
Total Group costs increased from GBP8.6m to GBP11m as a result
of the payment of exceptional bonuses related to the gain (GBP117m)
generated by the successful completion of the disposal of Everyday
Loans. The bonuses totalled GBP2.3m. The Group centre continues to
oversee the Group operations, in particular the remaining
investment in Secure Trust.
Capital
The Group's capital management policy is focused on optimising
shareholder value over the long term. There is a clear focus on
delivering organic growth and ensuring capital resources are
sufficient to support planned levels of growth. The Board regularly
reviews the capital position.
The Group's lead regulator, the Prudential Regulation Authority
("PRA"), sets and monitors capital requirements for the Group as a
whole and for the individual banking operations. The lead regulator
adopted the Basel III capital requirements with effect from 1
January 2014. As a result, the Group's regulatory capital
requirements have been based on Basel III since 2014.
In accordance with the EU's Capital Requirements Directive
("CRD") and the required parameters set out in the PRA Handbook
(BIPRU 2.2), the Individual Capital Adequacy Assessment Process
("ICAAP") is embedded in the risk management framework of the Group
and is subject to ongoing updates and revisions when necessary.
However, at a minimum, the ICAAP is updated annually as part of the
business planning process. The ICAAP is a process that brings
together the management framework (i.e. the policies, procedures,
strategies, and systems that the Group has implemented to identify,
manage and mitigate its risks) and the financial disciplines of
business planning and capital management. The Group's regulated
entities are also the principal trading subsidiaries as detailed in
Note 41.
Not all material risks can be mitigated by capital, but where
capital is appropriate the Board has adopted a "Pillar 1 plus"
approach to determine the level of capital the Group needs to hold.
This method takes the Pillar I capital formula calculations
(standardised approach for credit, market and operational risk) as
a starting point, and then considers whether each of the
calculations deliver a sufficient capital sum adequate to cover
management's anticipated risks. Where the Board considers that the
Pillar 1 calculations do not reflect the risk, an additional
capital add-on in Pillar 2 is applied, as per the Individual
Capital Guidance ("ICG") issued by the PRA.
The Group's regulatory capital is divided into two tiers:
-- Tier 1 comprises mainly shareholders' funds and revaluation
reserves, after deducting goodwill, other intangible assets and
the
deduction for a significant investment in a financial
institution (STB). The portion of the investment up to 10% of ABG's
Tier 1
is added back to capital resources and then risk weighted at
250%.
-- Lower Tier 2 comprises qualifying subordinated loan capital
and collective provisions. Lower Tier 2 capital cannot exceed
50%
of Tier 1 capital.
The ICAAP includes a summary of the capital required to mitigate
the identified risks in its regulated entities and the amount of
capital that the Group has available. All regulated trading
entities have complied with all of the externally imposed capital
requirements to which they are subject.
2016 2015
Capital ratios GBP000 GBP000
---------------------------------------------- --------- ---------
Core Tier 1 capital 234,087 191,404
Deductions (67,639) (33,921)
---------------------------------------------- --------- ---------
Tier 1 capital after deductions 166,448 157,483
Tier 2 capital 12,621 12,865
---------------------------------------------- --------- ---------
Total capital 179,069 170,348
---------------------------------------------- --------- ---------
Core Tier 1 capital ratio (Net Core Tier
1 capital/Basel III Total Risk Exposure) 28.0% 11.7%
---------------------------------------------- --------- ---------
Total Capital Ratio (Capital/Basel III Total
Risk Exposure) 30.1% 12.6%
---------------------------------------------- --------- ---------
Risks and Uncertainties
The Group regards the monitoring and controlling of risks and
uncertainties as a fundamental part of the management process.
Consequently, senior management are involved in the development of
risk management policies and in monitoring their application. A
detailed description of risk management and the associated policies
is set out in note 6 to the financial statements.
The principal risks inherent in the Group's business are
strategic, credit, market, liquidity, operational, cyber, conduct
and regulatory.
Strategic risk
Strategic risk is the risk that may affect the Group's ability
to achieve its corporate and strategic objectives. This risk is
important to the Group as it continues its growth strategy.
However, the Group seeks to mitigate strategic risk by focusing on
a sustainable business model which is aligned to the Group's
business strategy. Also, the Board of Directors meets once a year
to hold a two day board meeting to ensure that the Group's strategy
is appropriate for the market and economy.
Credit risk
Credit risk is the risk that a counterparty will be unable to
pay amounts in full when due. This risk exists in Arbuthnot Latham
& Co., Limited, which currently has a loan book of GBP759m. The
lending portfolio in Arbuthnot Latham is extended to private
banking clients and the majority is secured against cash, property
or other assets. Credit risk is managed through the Credit
Committee of Arbuthnot Latham.
Market risk
Market risk arises in relation to movements in interest rates,
currencies and equity markets. The Group's treasury function
operates mainly to provide a service to clients and does not take
significant unmatched positions in any market for its own account.
As a result, the Group's exposure to adverse movements in interest
rates and currencies is limited to interest earnings on its free
cash and interest rate re-pricing mismatches. The Group also has an
18.6% interest in Secure Trust Bank PLC. There is currently the
risk that a permanent or prolonged reduction in the share price
could lead to an impairment of the interest in associate currently
carried at GBP81.7m. Going forward if the Group was considered to
no longer have significant influence it would lead to the
investment being accounted for as an available-for-sale financial
investment. The value would then be marked to market with changes
in the share price giving rise to gains or losses being recorded in
Other Comprehensive Income or Profit or Loss (see note 3.8 (d),
note 3.10 (b) and note 4.1 (d)).
The Group is exposed to changes in the market value of
commercial properties to the extent that the Group holds Investment
Property carried at fair value. The current carrying value of
Investment Property is GBP53.3m. Any changes in the market value of
the commercial property will be accounted for in Profit or Loss and
as such could have a material impact on the Profit or Loss of the
Group.
Liquidity risk
Liquidity risk is the risk that the Group cannot meet its
obligations as they fall due. The Group takes a conservative
approach to managing its liquidity profile. It has placed no
reliance on the wholesale lending markets and is almost entirely
funded by retail customer deposits. The loan to deposit ratios are
maintained at prudent levels. Following introduction of the new
liquidity regime (Liquidity Coverage Ratio), which came into force
on 1 October 2010, the Group maintains liquidity asset buffers
which comprise high quality, unencumbered assets such as Government
Securities, which can be called upon to meet the Group's
liabilities.
Operational risk
Operational risk is the risk that the Group may be exposed to
financial losses from conducting its business. The Group is exposed
to operational risks from its Information Technology and Operations
platforms. There are additional internal controls in these
processes that are designed to protect the Group from these risks.
The Group's overall approach to managing internal control and
financial reporting is described in the Corporate Governance
section of the Annual Report.
Cyber risk
An increasing risk that the Group is subject to within its
operational processes is cyber risk. This is the risk that the
businesses within the Group are subject to some form of disruption
arising from an interruption to its IT and data infrastructure.
Conduct risk
As a financial services provider we face conduct risk, including
selling products to customers which do not meet their needs;
failing to deal with customers' complaints effectively; not meeting
customers' expectations; and exhibiting behaviours which do not
meet market or regulatory standards.
The Group adopts a zero risk appetite for any unfair customer
outcomes. It maintains clear compliance guidelines and provides
ongoing training to all staff. Periodic spot checks and internal
audits are performed to ensure these guidelines are being
maintained. The Group also has insurance policies in place to cover
any claims that may arise.
Regulatory risk
Regulatory compliance risk is the risk that the Group will have
insufficient capital resources to support the business or does not
comply with regulatory requirements. The Group adopts a
conservative approach to managing the capital of the Group. The
principal regulated entity maintains capital ratios in excess of
the minimum level set by the regulator. Capital requirements are
forecast as part of the annual budgeting process and these are
regularly monitored. Annually, the Group Board assesses the
robustness of the capital requirements as part of the ICAAP, where
stringent stress tests are performed to ensure that capital
resources are adequate over a three year horizon.
Regulatory change also exists as a risk to the Group's business.
Notwithstanding the assessments carried out by the Group to manage
regulatory risk, it is not possible to predict how regulatory and
legislative changes may alter and impact the business. Significant
and unforeseen regulatory changes may reduce the Group's
competitive situation and lower its profitability.
Macroeconomic and competitive environment
The Group is also exposed to indirect risks that may arise from
the macroeconomic and competitive environment. The economic
environment is relatively stable in the UK. However, the
international landscape is increasingly uncertain. The declining
performance of the economies in the EU and the increasingly
protectionist stance being taken by other major economies may have
an adverse affect on the UK. In particular, this may cause a
softening of central London property prices, which may spread out
further to the South East.
The Group monitors its exposure to future interest rate rises
and currently has minimal lending to customers in products that
would be directly sensitive to interest rate rises. However, at the
current levels of interest rates, the affordability enjoyed by the
Group's customers is beneficial.
Brexit
It is currently difficult to analyse the impacts that Brexit may
have on Arbuthnot Banking Group. However, our only overseas
operation is in Dubai, so the vast majority of the Group's income
and expenditure is based in the UK. It is therefore anticipated
that the financial impact would be minimal assuming there were to
be no significant macro economic shock on the UK.
Group Directors' Report
The Directors submit their annual report and the audited
consolidated financial statements for the year ended 31 December
2016.
Principal Activities and Review
The principal activities of the Group are banking and financial
services. A strategic review in accordance with Section 414 C of
the Companies Act 2006 forming part of this report is set out on
pages 4 to 12.
Results and Dividends
The results for the year are shown on page 1. The profit after
tax for the year of GBP227.6m (2015: GBP26.5m) is included in
reserves.
The Directors recommend the payment of a final dividend of 18p
on the ordinary shares which, together with the interim dividend of
13p paid on 30 September 2016, special dividend of 25p paid on 27
July and special dividend of 300p paid on 18 November 2016,
represents total dividends for the year of 356p (2015: 29p). The
final dividend, if approved by members at the Annual General
Meeting, will be paid on 12 May 2017 to shareholders on the
register at close of business on 18 April 2017.
Going Concern
After making appropriate enquiries which assessed strategy,
profitability, funding, risk management (see note 6) and capital
resources (see note 7), the directors are satisfied that the
Company and the Group have adequate resources to continue in
operation for the foreseeable future. The financial statements are
therefore prepared on the going concern basis.
Share Capital
Shareholders will be asked to approve Ordinary and Special
Resolutions regarding the creation of a number of new shares, which
may be non-voting shares, not exceeding 5% of the existing issued
share capital, with authority given to the directors to allot such
shares. Directors would use the authority to generate additional
capital from institutional shareholders.
Shareholders will also be asked to approve a Special Resolution
renewing the authority of the Directors to make market purchases of
shares not exceeding 10% of the existing issued share capital. The
Directors will keep the position under review in order to maximise
the Company's resources in the best interests of shareholders.
Secure Trust Bank PLC
Following approval given by shareholders on 14 June 2016, the
Company completed the sale of 6,000,000 ordinary shares in Secure
Trust Bank PLC at a price of GBP25 per share. This reduced the
Company shareholding in Secure Trust Bank PLC from 51.9 per cent to
18.9 per cent. Subsequently the shareholding has reduced to 18.6
per cent following the issue of further shares by Secure Trust Bank
PLC to participants in its share option scheme.
Financial Risk Management
Details of how the Group manages risk are set out in in the
Strategic Report and in note 6.
Substantial Shareholders
The Company was aware at 21 March 2017 of the following
substantial holdings in the ordinary shares of the Company, other
than those held by one director shown below:
Ordinary
Holder Shares %
---------------------- ------------- ----
Liontrust UK Smaller
Companies Fund 1,119,607 7.3
Prudential plc 608,890 4.0
Mr. R Paston 529,130 3.5
Directors
Sir Henry Angest Chairman & CEO
J R Cobb Finance Director
I A Dewar
J W Fleming (to
14/04/2016)
I A Henderson (from
06/05/2016)
Ms R J Lea (to
05/05/2016)
P A Lynam
Sir Christopher
Meyer
Chief Operating
A A Salmon Officer
Sir Alan Yarrow
(from 10/06/2016)
All those who are currently directors served throughout the year
except for Mr. I.A. Henderson who was appointed on 6 May 2016 and
Sir Alan Yarrow who was appointed on 10 June 2016. Mr. J.W. Fleming
served as a director until 14 April 2016. Ms R.J Lea retired from
the Board at the Annual General Meeting on 5 May 2016.
Mr. Henderson, who succeeded Mr Fleming as chief executive of
Arbuthnot Latham & Co., Limited, and Sir Alan Yarrow offer
themselves for election under Article 75 of the Articles of
Association. Mr. Henderson has a service agreement terminable on
twelve months' notice. Sir Alan Yarrow's letter of appointment is
terminable on three months' notice.
Mr. Salmon and Mr. Lynam retire under Article 78 of the Articles
of Association and, being eligible, offer themselves for
re-election. Mr. Salmon has a service agreement terminable on
twelve months' notice. Mr. Lynam, a non-executive director who
remains chief executive of Secure Trust Bank PLC, has a letter of
appointment terminable on three months' notice.
According to the information kept under Section 3 of the
Disclosure and Transparency Rules 2006 and the Market Abuse
Regulation 2016, the interests of directors and their families in
the ordinary 1p shares of the Company at the dates shown were, and
the percentage of the current issued share capital held is, as
follows:
Beneficial 1 January 31 December 21 March
Interests 2016 2016 2017 %
------------- ---------- ------------ ---------- -----
Sir Henry
Angest 8,200,901 8,200,901 8,200,901 53.7
J.R. Cobb - 5,000 6,000 -
P.A. Lynam 10,000 10,000 10,000 0.1
A.A. Salmon 51,699 51,699 51,699 0.3
At the yearend, Mr. Lynam held 9,110 and Mr. Salmon held 7,500
ordinary 40p shares in Secure Trust Bank PLC, an associate company
of the Group.
On 16 April 2013 Mr. Salmon and Mr. Cobb were granted options
under the Company's Unapproved Executive Share Option Scheme to
subscribe between April 2016 and April 2021 for 100,000 and 50,000
ordinary 1p shares respectively in the Company at 930p. The fair
value of the options at grant date was GBP125,000. On 14 June 2016
Mr. Salmon and Mr. Cobb each exercised all their respective options
granted on 16 April 2013. The exercise price was 1591p and the
Board agreed to make a cash settlement rather than allot new
shares.
On 1 April 2014 Mr. Fleming was granted an option to subscribe
between April 2017 and April 2022 for 50,000 ordinary 1p shares in
the Company at 1185p. The fair value of the options at the grant
date was GBP53,000.
At the date of this remuneration report, the only outstanding
options to directors under the Unapproved Executive Share Option
Scheme are those in relation to 50,000 shares for James
Fleming.
On 14 June 2016 Mr. Salmon, Mr. Cobb and Mr. Henderson were
granted phantom options to subscribe for 200,000, 100,000 and
100,000 ordinary 1p shares respectively in the Company at 1591p.
50% of each director's individual holding of phantom options is
exercisable at any time after 15 June 2019 and the other 50% is
exercisable at any time after 15 June 2021. These options replaced
options for Mr. Salmon to subscribe for 100,000 ordinary 1p shares
and Mr. Cobb to subscribe for 50,000 ordinary 1p shares granted on
16 April 2013 subject to a cash payment reflecting the difference
between 930p and 1591p per share. The fair value of the option at
the grant date was GBP1.3m.
Mr. Lynam continues to hold options granted to him on 2 November
2011 to subscribe for 141,667 ordinary 40p shares in Secure Trust
Bank PLC (an associate company of the Group), under the Unapproved
Executive Share Option Scheme established in November 2011, at 720p
between 2 November 2016 and 2 November 2021. The fair value of the
options at grant date was GBP0.3m. On 7 November 2016 Mr. Salmon
exercised options granted to him on 2 November 2011 to subscribe
for 141,667 ordinary 40p shares in Secure Trust Bank PLC at 720p
and sold the shares at a price of 2200p.
On 23 March 2015 Mr. Lynam was granted phantom options to
acquire 187,500 ordinary 40p shares in Secure Trust Bank PLC at
2500p exercisable on or after 3 November 2018 when a cash payment
would be made equal to any increase in value.
Apart from the interests disclosed above, no director was
interested at any time in the year in the share capital of Group
companies.
No director, either during or at the end of the financial year,
was materially interested in any contract with the Company or any
of its subsidiaries or associated companies, which was significant
in relation to the Group's business. At 31 December 2016 two
directors had loans from Arbuthnot Latham & Co., Limited
amounting to GBP1,361,000 and one director had a loan from Secure
Trust Bank PLC amounting to GBP404,000, on normal commercial terms
as disclosed in note 40 to the financial statements. At 31 December
2016 five directors had deposits with Arbuthnot Latham & Co.,
Limited amounting to GBP3,398,000 and two directors had deposits
with Secure Trust Bank PLC amounting to GBP318,000, all on normal
commercial terms as disclosed in note 40 to the financial
statements.
Shareholders will be asked to approve a Special Resolution
removing the limit on the amount of fees payable to non-executive
directors, currently GBP400,000. The corresponding Article
regarding the remuneration of executive directors contains no such
limit. Responsibilities of non-executive directors have increased
significantly in recent years with further obligations falling on
those who serve on board committees. Removal of the limit would
increase the flexibility of the Board, not least if it is felt
appropriate to make any additional appointment between Annual
General Meetings.
Shareholders will also be asked to approve a Special Resolution
amending the Articles relating to the function of the President, to
widen the role, with the objective of safeguarding the long term
prosperity and well being of the Company.
The Company maintains insurance to provide liability cover for
directors and officers of the Company.
Board Committees
The report of the Remuneration Committee on pages 21 to 22 will
be the subject of an Ordinary Resolution at the Annual General
Meeting.
Information on the Audit, Nomination, Risk and Political
Donations Committees is included in the Corporate Governance
section of the Annual Report on pages 17 to 20.
As explained in the Corporate Governance section of the Annual
Report, the Board now maintains direct responsibility for issues of
risk, as responsibility for large lending proposals has become a
direct responsibility of its subsidiary, Arbuthnot Latham &
Co., Limited.
Employees
The Company gives due consideration to the employment of
disabled persons and is an equal opportunities employer. It also
regularly provides employees with information on matters of concern
to them, consults on decisions likely to affect their interests and
encourages their involvement in the performance of the Company
through share participation and in other ways.
Political Donations
The Company made political donations of GBP67,000 to the
Conservative Party during the year (2015: GBP68,000).
The Board proposes to update the authority granted by
shareholders at the 2015 Annual General Meeting to make donations
to political parties and organisations or incur political
expenditure within the meaning of Sections 363 to 365 of the
Companies Act 2006 for a further four years limited to GBP250,000
in aggregate.
Branches outside of the UK
During the year Arbuthnot Latham & Co., Ltd operated a
branch in Dubai which is regulated by the Dubai Financial Services
Authority.
Events after the balance sheet date
There were no material post balance sheet events to report.
Auditor
A resolution for the re-appointment of KPMG LLP as auditor will
be proposed at the forthcoming Annual General Meeting at a fee to
be agreed in due course by the directors.
Statement of Disclosure of Information to Auditors
The Directors confirm that:
-- so far as each director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
-- the Directors have taken all the steps they ought to have
taken as directors to make themselves aware of any relevant
audit
information and to establish that the Company's auditor is aware
of that information.
This confirmation is given and shall be interpreted in
accordance with the provisions of section 418 of the Companies Act
2006.
Corporate Governance
Introduction and Overview
Arbuthnot Banking Group has a strong and effective Corporate
Governance framework. This section of the Report and Accounts
summarises key elements of the governance arrangements applicable
to the Company and the Company's compliance with the UK Corporate
Governance Code.
As an AIM company, the Group is not bound by the UK Corporate
Governance Code; however, the Board endorses the principles of
openness, integrity and accountability, which underlie good
corporate governance and takes into account the provisions of the
UK Corporate Governance Code in so far as they are considered
appropriate to the Group's size and circumstances. Moreover, the
Group contains subsidiaries authorised to undertake regulated
business under the Financial Services and Markets Act 2000, which
are regulated by the Prudential Regulatory Authority and the
Financial Conduct Authority, one of which is an authorised
deposit-taking business. Accordingly, the Group operates to the
high standards of corporate accountability and regulatory
compliance appropriate for such businesses.
The Group is led by an effective Board which comprises four
executive directors, three independent non-executive directors and
one additional non-executive director.
Sir Henry Angest is the Chairman of the Group. The Chairman sets
the culture of the Group and his role is to ensure good corporate
governance. His responsibilities include leading the Board,
ensuring the effectiveness of the Board in all aspects of its role,
ensuring effective communication with shareholders, setting the
Board's agenda and ensuring that all Directors are encouraged to
participate fully in the activities and decision-making process of
the Board.
Ruth Lea retired from the Board on 5 May 2016. Sir Alan Yarrow
was appointed on 10 June 2016 as an independent non-executive
director of the Company. Sir Alan has joined the Audit, Nomination
and Remuneration Committees. Paul Lynam was appointed to the Board
when Secure Trust Bank PLC ("STB") was a subsidiary of the Group,
and remains a director of the Group, in a non-executive role, as
well as Chief Executive of STB, following the reduction in the
Group's holding in STB to 18.9%.
Ian Henderson succeeded James Fleming as Chief Executive of
Arbuthnot Latham & Co., Limited and joined the Board on 6 May
2016. James Fleming retired from the Board on 14 April 2016.
The directors seeking re-election are Andrew Salmon and Paul
Lynam, who have served on the Board for 13 years and 6 years
respectively. The contribution of Andrew Salmon as Chief Operating
Officer has been invaluable in the successful development of the
Company. Paul Lynam provides an important independent measure of
challenge to executive management. Accordingly, the Board fully
supports the resolutions for their reappointment.
In 2016, the Board commissioned KPMG to carry out an independent
Board Effectiveness Review. The Directors were satisfied with the
conduct and outcome of the review, which was completed at the end
of April and have taken steps to implement its recommendations.
The Board
At the year end the Board comprised Sir Henry Angest, Andrew
Salmon, James Cobb, Ian Henderson and four non-executive
directors.
The Board meets regularly throughout the year, holding six
formal meetings during the year as well as a two day strategy
meeting. Substantive agenda items have briefing papers, which are
circulated in a timely manner before each meeting. The Board
ensures that it is supplied with all the information that it
requires and requests, in a form and of a quality to fulfil its
duties.
In addition to determining and overseeing the implementation of
the strategy and management of the Company and of the Group, the
Board has determined certain items which are reserved for decision
by itself. These matters include the acquisition and disposal of
other than minor businesses, the issue of capital by any Group
company, monitoring overall regulatory requirements of its
subsidiary companies, and their adherence thereto, and any
transaction by a subsidiary company that cannot be made within its
own resources or that is not in the normal course of its
business.
The Company Secretary is responsible for ensuring that the Board
processes and procedures are appropriately followed and support
effective decision making. All directors have access to the Company
Secretary's advice and services. There is an agreed procedure for
directors to obtain independent professional advice in the course
of their duties, if necessary, at the Company's expense.
All directors receive induction training upon joining the Board,
with individual AIM training provided by the Company's Nominated
Adviser and regulatory and compliance training provided by the
Group Head of Compliance.
Board Committees
The Board has established Audit, Nomination and Remuneration
Committees, each with formally delegated duties and
responsibilities and with written terms of reference, which require
consideration of the committee's effectiveness. The Board keeps the
governance arrangements under review. Further information in
relation to these committees is set out below. The Board now
maintains direct responsibility for issues of Risk without the need
for its own Risk Committee, since responsibility for large lending
proposals became a direct responsibility of its subsidiary,
Arbuthnot Latham & Co., Limited.
Audit Committee
Membership and meetings
The Audit Committee assists the Board in, inter alia,
discharging its responsibilities with regard to financial
reporting, external and internal audits and controls, including
reviewing the Company's annual financial statements, reviewing and
monitoring the extent of the non-audit work undertaken by external
auditors, advising on the appointment, reappointment, removal and
independence of external auditors and reviewing the effectiveness
of the Company's internal audit activities, internal controls,
whistleblowing procedures and the process for evaluating and
monitoring risk. The ultimate responsibility for reviewing and
approving the annual report and accounts and the half-yearly
reports remains with the Board.
Membership of the Audit Committee is restricted to non-executive
directors and comprises Ian Dewar (as Chairman), Sir Christopher
Meyer and Sir Alan Yarrow. The Committee met four times during the
year.
The present auditors have held office since 2009, but the senior
statutory auditor changed in 2013. The Board is satisfied with the
effectiveness of their audit. The Committee received a report
showing the level of non-audit services provided by the external
auditors during the year and members were satisfied that this did
not infringe auditor independence.
Activity in 2016
Further information in relation to this is set out in the
Internal Control and Financial Reporting section at page 19.
Nomination Committee
Membership and meetings
The Nomination Committee assists the Board in discharging its
responsibilities relating to the composition of the Board. The
Nomination Committee is responsible for, inter alia, evaluating the
balance of skills, experience, independence and knowledge on the
Board, the size, structure and composition of the Board,
retirements and appointments of additional and replacement
directors and will make appropriate recommendations to the Board on
such matters. The Nomination Committee also considers succession
planning, taking into account the skills and expertise that will be
needed on and beneficial to the Board in the future.
The Nomination Committee is chaired by Sir Henry Angest and its
other members are Sir Christopher Meyer and Sir Alan Yarrow. The
Committee met twice during the year. It is required to meet
formally at least once per year and otherwise as required.
Activity in 2016
During the year, the Nomination Committee was involved in the
identification, assessment and appointment of an additional
independent Non-Executive Director. This culminated in the
recommendation of the Nomination Committee that Sir Alan Yarrow be
appointed as a director of the Company. It also reviewed the terms
of service of the Group Finance Director. It has recently reviewed
and reconfirmed Sir Christopher Meyer's independence.
Remuneration Committee
Membership and meetings
The Remuneration Committee assists the Board in determining its
responsibilities in relation to remuneration including, inter alia,
in relation to the Company's policy on executive remuneration
determining the individual remuneration and benefits package of
each of the Executive Directors, and the fees for Non-Executive
Directors.
The Committee also deals with remuneration-related issues under
the Prudential Regulation Authority's Remuneration Code applicable
to the Company.
The Remuneration Committee meets formally at least once per year
and otherwise as required.
Information on the Remuneration Committee and details of the
Directors' remuneration are set out in the separate Remuneration
Report.
Donations Committee
Membership and meetings
The Donations Committee is chaired by Sir Henry Angest and its
other members are Sir Christopher Meyer and Sir Alan Yarrow. The
Committee met once during the year. The Committee considers any
political donation or expenditure as defined within sections 366
and 367 of the Companies Act 2006.
Shareholder Communications
The Company maintains ongoing communications with its major
shareholders and makes full use of the Annual General Meeting and
other General Meetings (when held) to communicate with investors.
The Company aims to present a balanced and understandable
assessment in all its reports to shareholders, its regulators,
other stakeholders and the wider public. Key announcements and
other information can be found at www.arbuthnotgroup.com.
Internal Control and Financial Reporting
The Board of directors has overall responsibility for the
Group's system of internal control and for reviewing its
effectiveness. Such a system is designed to manage rather than
eliminate risk of failure to achieve business objectives and can
only provide reasonable but not absolute assurance against the risk
of material misstatement or loss.
The Directors and senior management of the Group have formally
adopted a Group Risk and Controls Policy which sets out the Board's
attitude to risk and internal control. Key risks identified by the
Directors are formally reviewed and assessed at least once a year
by the Board. In addition, key business risks are identified,
evaluated and managed by operating management on an ongoing basis
by means of procedures such as physical controls, credit and other
authorisation limits and segregation of duties. The Board also
receives regular reports on any risk matters that need to be
brought to its attention.
Significant risks identified in connection with the development
of new activities are subject to consideration by the Board. There
are well-established budgeting procedures in place and reports are
presented regularly to the Board detailing the results, in relation
to Arbuthnot Latham & Co., Limited, of each principal business
unit, variances against budget and prior year, and other
performance data.
The effectiveness of the internal control system is reviewed
regularly by the Board and the Audit Committee, which also receives
reports of reviews undertaken by the internal audit function, which
was carried out internally during 2016. Internal Audit provides the
Audit Committee and the Board with detailed independent and
objective assurance on the effectiveness of governance, operational
risk management and internal controls. Since Arbuthnot Latham &
Co., Limited established its own Audit Committee, the role of the
Group Audit Committee has been mainly supervisory in relation to
internal audit matters.
The Audit Committee also receives reports from the external
auditors, KPMG LLP, which include details of internal control
matters that they have identified as part of the annual statutory
Financial Statement audit. The ICAAP and ILAAP are considered key
issues and are reviewed in detail by the Arbuthnot Latham &
Co., Limited Board and its Risk Committee. The Board receives
reports on these by exception. Certain aspects of the system of
internal control are also subject to regulatory supervision, the
results of which are monitored closely by the Board.
Statement of Directors' Responsibilities in Respect of the
Strategic Report and the Directors' Report and the Financial
Statements
The Directors are responsible for preparing the Strategic
Report, the Directors' Report and the financial statements in
accordance with applicable law and regulations. Company law
requires the Directors to prepare Group and Parent Company
financial statements for each financial year. As required by the
AIM Rules of the London Stock Exchange they are required to prepare
the Group financial statements in accordance with IFRSs as adopted
by the EU and applicable law and have elected to prepare the Parent
Company financial statements on the same basis.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of
their profit or loss for that period. In preparing each of the
Group and Parent Company financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgments and estimates that are reasonable and
prudent;
-- state whether they have been prepared in accordance with
IFRSs as adopted by the EU; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Parent
Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Parent Company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Remuneration Report
Remuneration Committee
Membership of the Remuneration Committee is limited to
non-executive directors together with Sir Henry Angest as Chairman.
The present members of the Committee are Sir Henry Angest, Sir
Christopher Meyer and Sir Alan Yarrow. The Committee met twice
during the year.
The Committee has responsibility for producing recommendations
on the overall remuneration policy for directors for review by the
Board and for setting the remuneration of individual directors.
Members of the Committee do not vote on their own remuneration.
Remuneration Policy
The Remuneration Committee determines the remuneration of
individual directors having regard to the size and nature of the
business; the importance of attracting, retaining and motivating
management of the appropriate calibre without paying more than is
necessary for this purpose; remuneration data for comparable
positions, in particular the rising remuneration packages at the
challenger banks; the need to align the interests of executives
with those of shareholders; and an appropriate balance between
current remuneration and longer-term performance-related rewards.
The remuneration package can comprise a combination of basic annual
salary and benefits (including pension), a discretionary annual
bonus award related to the Committee's assessment of the
contribution made by the executive during the year and longer-term
incentives, including executive and phantom share options. Pension
benefits take the form of annual contributions paid by the Company
to individual money purchase schemes. The Remuneration Committee
reviews salary levels each year based on the performance of the
Group during the preceding financial period. This review does not
necessarily lead to increases in salary levels. For the purposes of
the FCA Remuneration Code, all applicable provisions of which have
been implemented, the Group and its subsidiary are considered to be
Tier 3 institutions.
Directors' Service Contracts
Sir Henry Angest, Andrew Salmon, James Cobb and Ian Henderson
each have service contracts terminable at any time on 12 months'
notice in writing by either party.
Long Term Incentive Schemes
This part of the remuneration report is audited information.
At the Annual General Meeting in May 2015, shareholders voted by
Ordinary Resolution to extend the Company's Unapproved Executive
Share Option Scheme for a further period of 10 years.
On 14 June 2016, the Company announced a phantom share option
scheme, intended to replace the Unapproved Executive Share Option
Scheme. The value of each phantom option is related to the market
price of an ordinary share of 1p in the Company. An increase in the
market value of an ordinary share of 1p in the Company over the
market value per share at the date of grant of the phantom option
will give rise to an entitlement to a cash payment by the Company
on the exercise of a phantom option ('Phantom Option Scheme').
The Company has an ESOP ('the Arbuthnot ESOP Trust') under which
trustees may purchase shares in the Company to satisfy the exercise
of share options by employees, including executive directors.
150,500 shares are held in the Arbuthnot ESOP Trust.
On 16 April 2013 Mr. Salmon and Mr. Cobb were granted options
under the Company's Unapproved Executive Share Option Scheme to
subscribe between April 2016 and April 2021 for 100,000 and 50,000
ordinary 1p shares respectively in the Company at 930p. The fair
value of the options at grant date was GBP125,000. On 14 June 2016
Mr. Salmon and Mr. Cobb each exercised all their respective options
granted on 16 April 2013. The exercise price was 1591p and the
Board agreed to make a cash settlement rather than allot new
shares.
On 1 April 2014 Mr. Fleming was granted an option to subscribe
between April 2017 and April 2022 for 50,000 ordinary 1p shares in
the Company at 1185p. The fair value of the options at the grant
date was GBP53,000.
At the date of this remuneration report, the only outstanding
options to directors under the Unapproved Executive Share Option
Scheme are those in relation to 50,000 shares for James
Fleming.
On 14 June 2016 Mr. Salmon was granted phantom options pursuant
to the Phantom Option Scheme to acquire 200,000 ordinary 1p shares
in the Company at 1591p exercisable in respect of 50% on or after
15 June 2019 and in respect of the remaining 50% on or after 15
June 2021 when a cash payment would be made equal to any increase
in market value. On 14 June 2016 Mr. Cobb and Mr. Henderson were
each granted phantom options pursuant to the Phantom Option Scheme
to acquire 100,000 ordinary 1p shares in the Company at 1591p
exercisable in respect of 50% on or after 15 June 2019 and in
respect of the remaining 50% on or after 15 June 2021 when a cash
payment would be made equal to any increase in market value. The
fair value of the options at the grant date was GBP1.3m
On 7 November 2016 Mr. Salmon exercised options granted to him
on 2 November 2011 to subscribe for 141,667 ordinary 40p shares in
Secure Trust Bank PLC at 720p (an associate company of the Group)
and sold the shares at a price of 2200p.
Directors' Emoluments
This part of the remuneration report is audited information.
2016 2015
GBP000 GBP000
------------------------------------------------ ------- -------
Fees (including benefits in kind) 215 70
Salary payments (including benefits in kind) 7,731 5,165
Pension contributions 119 140
Long term incentive 992 5,030
------------------------------------------------ ------- -------
9,057 10,405
------------------------------------------------ ------- -------
Long
term Total Total
Salary Bonus Benefits Pension Fees incentive 2016 2015
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------- ------- --------- -------- ------- ---------- ------- -------
Sir Henry Angest 1,200 - 60 - - - 1,260 987
JR Cobb 550 650 17 35 - 331 1,583 701
IA Dewar - - - - 75 - 75 29
JW Fleming (to
14/04/2016) 130 - 5 10 - - 145 601
IA Henderson (from
06/05/2016) 297 215 8 23 - - 543 -
Ms RJ Lea (to 05/05/2016) - - - - 45 - 45 130
PA Lynam 550 917 10 16 - - 1,493 1,456
Sir Christopher
Meyer - - - - 60 - 60 55
AA Salmon 1,200 1,900 22 35 - 661 3,818 1,356
RJJ Wickham (to
31/12/2015) - - - - - - - 60
Sir Alan Yarrow
(from 10/06/2016) - - - - 35 - 35 -
3,927 3,682 122 119 215 992 9,057 5,375
--------------------------- ------- ------- --------- -------- ------- ---------- ------- -------
Details of any shares or options held by directors are presented
on page 14.
The emoluments of the Chairman were GBP1,260,000 (2015:
GBP987,000). The emoluments of the highest paid director were
GBP3,818,000 (2015: GBP1,456,000) including pension contributions
of GBP35,000 (2015: GBP35,000).
On 15 June 2016 Secure Trust Bank PLC ceased to be a subsidiary
company so the salary of Mr. Lynam as its chief executive is only
shown up to that date. Mr. Lynam then became a non-executive
director of the Company, for which Secure Trust Bank received a
fee. On 7 November 2016 Mr Salmon exercised 141,667 share options
in Secure Trust Bank (currently treated as an associate company of
the Group) at GBP7.20 and sold the shares on the same day at a
price of GBP22, realising GBP2,097,000. This is also not included
in the table above.
Retirement benefits are accruing under money purchase schemes
for five directors who served during 2016 (2015: five
directors).
Independent Auditor's Report
We have audited the financial statements of Arbuthnot Banking
Group PLC for the year ended 31 December 2016 set out on pages 25
to 105. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the EU and, as regards
the Parent Company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members, as a body,
for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors' Responsibilities
Statement set out on page 19, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to
audit, and express an opinion on, the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board's Ethical Standards for
Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements
is provided on the Financial Reporting Council's website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
-- the financial statements give a true and fair view of the
state of the Group's and of the Parent Company's affairs as at
31
December 2016 and of the Group's profit for the year then
ended;
-- the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the EU;
-- the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU and as
applied in accordance with the provisions of the Companies Act
2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act
2006
In our opinion the information given in the Strategic Report and
the Directors' Report for the financial year is consistent with the
financial statements.
Based solely on the work required to be undertaken in the course
of the audit of the financial statements and from reading the
Strategic report and the Director' report:
-- we have not identified material misstatements in these
reports; and
-- in our opinion, these reports have been prepared in
accordance with the Companies Act 2006.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the Parent Company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by
law are not made; or
-- we have not received all the information and explanations we
require for our audit.
Richard Gabbertas (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
22 March 2017
Company statement of financial position
At 31 December
2016 2015
Note GBP000 GBP000
------------------------------------ ------ --------- ---------
ASSETS
Loans and advances to banks 18 89,072 12,444
Financial investments 24 121 125
Deferred tax asset 25 397 418
Property, plant and equipment 28 183 204
Other assets 23 887 991
Interests in associates 26 5,056 -
Interests in subsidiaries 41 54,602 46,466
------------------------------------ ------ --------- ---------
Total assets 150,318 60,648
------------------------------------ ------ --------- ---------
EQUITY AND LIABILITIES
Equity
Share capital 35 153 153
Other reserves 36 (1,111) (1,111)
Retained earnings 36 133,847 46,537
------------------------------------ ------ --------- ---------
Total equity 132,889 45,579
------------------------------------ ------ --------- ---------
LIABILITIES
Other liabilities 32 4,808 4,235
Debt securities in issue 33 12,621 10,834
------------------------------------ ------ --------- ---------
Total liabilities 17,429 15,069
------------------------------------ ------ --------- ---------
Total equity and liabilities 150,318 60,648
------------------------------------ ------ --------- ---------
The Company has elected to take the exemption under
section 408 of the Companies Act 2006 not to present
the Parent Company
profit and loss account. The profit for the Parent Company
for the year is presented in the Statement of Changes
in Equity.
Consolidated statement of changes in equity
Attributable to equity
holders of the Group
-------------------------------------------------------------------------------
Capital
Share Revaluation redemption Available-for-sale Treasury Retained Non-controlling
capital reserve reserve reserve shares earnings interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- ----------
Balance at 1
January
2016 153 98 20 1,047 (1,131) 123,330 67,887 191,404
Total comprehensive
income
for the period
Profit for 2016 - - - - - 166,143 61,426 227,569
Other comprehensive
income,
net of tax
Available-for-sale
reserve
- net change in
fair
value - - - (1,890) - - (487) (2,377)
Available-for-sale
reserve
- Associate - net
change
in fair value - - - (389) - - - (389)
Tax on other
comprehensive
income - - - 456 - - - 456
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- ----------
Total other
comprehensive
income - - - (1,823) - - (487) (2,310)
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- ----------
Total comprehensive
income
for the period - - - (1,823) - 166,143 60,939 225,259
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- ----------
Transactions with
owners,
recorded directly
in
equity
Contributions by
and
distributions to
owners
Equity settled
share
based payment
transactions - - - - - (1,074) 31 (1,043)
Secure Trust Bank
loss
of control - (98) - 525 - (427) (124,046) (124,046)
Final dividend
relating
to 2015 - - - - - (2,531) (4,811) (7,342)
Special Interim
dividend
relating to 2016 - - - - - (3,722) - (3,722)
Interim dividend
relating
to 2016 - - - - - (1,936) - (1,936)
Special Interim
dividend
relating to 2016 - - - - - (44,216) - (44,216)
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- ----------
Total contributions
by
and distributions
to
owners - (98) - 525 - (53,906) (128,826) (182,305)
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- ----------
Balance at 31
December
2016 153 - 20 (251) (1,131) 235,567 - 234,358
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- ----------
Attributable to equity
holders of the Group
-------------------------------------------------------------------------------
Capital
Share Revaluation redemption Available-for-sale Treasury Retained Non-controlling
capital reserve reserve reserve shares earnings interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- --------
Balance at 1
January
2015 153 98 20 (250) (1,131) 114,641 60,038 173,569
Total comprehensive
income
for the period
Profit for 2015 - - - - - 12,726 13,798 26,524
Other comprehensive
income,
net of tax
Available-for-sale
reserve
- net change in
fair
value - - - 1,297 - - - 1,297
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- --------
Total other
comprehensive
income - - - 1,297 - - - 1,297
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- --------
Total comprehensive
income
for the period - - - 1,297 - 12,726 13,798 27,821
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- --------
Transactions with
owners,
recorded directly
in
equity
Contributions by
and
distributions to
owners
Equity settled
share
based payment
transactions - - - - - 132 87 219
Final dividend
relating
to 2014 - - - - - (2,382) (4,549) (6,931)
Interim dividend
relating
to 2015 - - - - - (1,787) (1,487) (3,274)
Total contributions
by
and distributions
to
owners - - - - - (4,037) (5,949) (9,986)
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- --------
Balance at 31
December
2015 153 98 20 1,047 (1,131) 123,330 67,887 191,404
-------------------- -------- ------------ ----------- ------------------- --------- ---------- ---------------- --------
Company statement of changes in equity
Attributable to equity
holders of the Company
----------------------------------------------
Capital
Share redemption Treasury Retained
capital reserve shares earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------------ --------- ------------ --------- ---------- ---------
Balance at 1 January 2015 153 20 (1,131) 50,755 49,797
Total comprehensive income for
the period
Profit for 2015 - - - (87) (87)
Other comprehensive income, net
of income tax - - - - -
Total comprehensive income for
the period - - - (87) (87)
------------------------------------------ --------- ------------ --------- ---------- ---------
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Equity settled share based payment
transactions - - - 38 38
Final dividend relating to 2014 - - - (2,382) (2,382)
Interim dividend relating to
2015 - - - (1,787) (1,787)
Total contributions by and distributions
to owners - - - (4,131) (4,131)
------------------------------------------ --------- ------------ --------- ---------- ---------
Balance at 31 December 2015 153 20 (1,131) 46,537 45,579
------------------------------------------ --------- ------------ --------- ---------- ---------
Total comprehensive income for
the period
Profit for 2016 - - - 140,826 140,826
Other comprehensive income, net
of income tax - - - - -
Total comprehensive income for
the period - - - 140,826 140,826
------------------------------------------ --------- ------------ --------- ---------- ---------
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Equity settled share based payment
transactions - - - (1,111) (1,111)
Final dividend relating to 2015 - - - (2,531) (2,531)
Special dividend relating to
2016 - - - (3,722) (3,722)
Interim dividend relating to
2016 - - - (1,936) (1,936)
Special dividend relating to
2016 - - - (44,216) (44,216)
------------------------------------------ --------- ------------ --------- ---------- ---------
Total contributions by and distributions
to owners - - - (53,516) (53,516)
------------------------------------------ --------- ------------ --------- ---------- ---------
Balance at 31 December 2016 153 20 (1,131) 133,847 132,889
------------------------------------------ --------- ------------ --------- ---------- ---------
Consolidated statement of cash flows
Year Year
ended ended
31 December 31 December
2016 2015
Note GBP000 GBP000
------------------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Interest received 109,311 171,956
Interest paid (19,372) (35,040)
Fees and commissions received 37,511 15,615
Cash payments to employees and suppliers (99,130) (115,463)
Taxation paid (3,020) (7,409)
------------------------------------------------- ----- ------------- -------------
Cash flows from operating profits before
changes in operating assets and liabilities 25,300 29,659
Changes in operating assets and liabilities:
- net decrease in derivative financial
instruments 66 285
- net decrease/(increase) in loans and
advances to customers 855,436 (417,814)
- net decrease/(increase) in other assets 41,780 (118,484)
- net (decrease)/increase in amounts
due to customers (932,189) 735,553
- net (decrease)/increase in other liabilities (23,595) 5,693
------------------------------------------------- ----- ------------- -------------
Net cash (outflow)/inflow from operating
activities (33,202) 234,892
------------------------------------------------- ----- ------------- -------------
Cash flows from investing activities
Disposal of financial investments 1,078 44
Purchase of computer software 27 (5,155) (3,532)
Purchase of property, plant and equipment 28 (354) (3,395)
Purchase of investment property (53,339) -
Proceeds from sale of Everyday Loans
Group, net of cash and cash equivalents
disposed 101,723 -
Proceeds from sale of Secure Trust Bank
shares 147,999 -
Reduction in cash balance with deconsolidation
of Secure Trust Bank (194,344) -
Purchases of debt securities (89,384) (145,880)
Proceeds from redemption of debt securities 69,812 149,835
------------------------------------------------- ----- ------------- -------------
Net cash outflow from investing activities (21,964) (2,928)
------------------------------------------------- ----- ------------- -------------
Cash flows from financing activities
(Decrease)/Increase in borrowings (52,105) 27,648
Dividends paid (57,215) (10,205)
------------------------------------------------- ----- ------------- -------------
Net cash (outflow)/inflow from financing
activities (109,320) 17,443
------------------------------------------------- ----- ------------- -------------
Net (decrease)/increase in cash and cash
equivalents (164,486) 249,407
Cash and cash equivalents at 1 January 397,189 147,782
------------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at 31 December 39 232,703 397,189
------------------------------------------------- ----- ------------- -------------
Company statement of cash flows
Year Year
ended ended
31 December 31 December
2016 2015
Note GBP000 GBP000
---------------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Dividends received from subsidiaries 11,468 6,648
Interest received 283 120
Interest paid (611) (599)
Net trading and other income 1,816 1,833
Cash payments to employees and suppliers (10,107) (8,718)
Taxation paid (488) -
---------------------------------------------- ----- ------------- -------------
Cash flows from operating profits/(losses)
before changes in operating assets and
liabilities 2,361 (716)
Changes in operating assets and liabilities:
- net decrease/(increase) in group company
balances 526 (66)
- net decrease in other assets 104 7
- net increase in other liabilities 48 144
---------------------------------------------- ----- ------------- -------------
Net cash inflow/(outflow) from operating
activities 3,039 (631)
---------------------------------------------- ----- ------------- -------------
Cash flows from investing activities
Repayment of loans to subsidiary companies - 4,500
Increase investment in subsidiary 41 (22,000) (6,500)
Disposal of share in subsidiaries 41 147,999 -
Purchase of property, plant and equipment 28 (5) -
---------------------------------------------- ----- ------------- -------------
Net cash inflow/(outflow) from investing
activities 125,994 (2,000)
---------------------------------------------- ----- ------------- -------------
Cash flows from financing activities
Dividends paid (52,405) (4,169)
Net cash used in financing activities (52,405) (4,169)
---------------------------------------------- ----- ------------- -------------
Net increase/(decrease) in cash and cash
equivalents 76,628 (6,800)
Cash and cash equivalents at 1 January 12,444 19,244
---------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at 31 December 39 89,072 12,444
---------------------------------------------- ----- ------------- -------------
Notes to the Consolidated Financial Statements
1. Reporting entity
Arbuthnot Banking Group PLC is a company domiciled in the United
Kingdom. The registered address of the Arbuthnot Banking Group PLC
is 7 Wilson Street, London, EC2M 2SN. The consolidated financial
statements of the Arbuthnot Banking Group PLC as at and for the
year ended 31 December 2016 comprise the Arbuthnot Banking Group
PLC and its subsidiaries (together referred to as the "Group" and
individually as "subsidiaries"). The Company is primarily involved
in banking and financial services.
2. Basis of presentation
(a) Statement of compliance
The Group's consolidated financial statements and the Company's
financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs as adopted and
endorsed by the EU) and the Companies Act 2006 applicable to
companies reporting under IFRS.
The consolidated financial statements were authorised for issue
by the Board of Directors on 22 March 2017.
(b) Basis of measurement
The consolidated and company financial statements have been
prepared under the historical cost convention, as modified by the
revaluation of land and buildings, investment property,
available-for-sale financial assets, financial assets and financial
liabilities at fair value through profit or loss, and derivatives
assets and liabilities.
(c) Functional and presentational currency
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates ('the functional
currency'). The consolidated financial statements are presented in
Pound Sterling, which is the Company's functional and the Group's
presentational currency.
(d) Use of estimates and judgements
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed in Note 4.
(e) Accounting developments
The accounting policies adopted are consistent with those of the
previous financial year. There were no new or amended standards or
interpretations that resulted in a change in accounting policy.
(f) Going concern
The financial statements have been prepared on the 'going
concern' basis as disclosed in the Directors' Report.
3. Significant accounting policies
The accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies
have been consistently applied to all the years presented, unless
otherwise stated.
3.1. Consolidation
(a) Subsidiaries
Subsidiaries are all investees (including special purpose
entities) controlled by the Group. The Group controls an investee
when it is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those
returns through its power over the investee. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are de-consolidated from the date that control
ceases.
The acquisition method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired, liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interest. The
excess of the cost of acquisition over the fair value of the
Group's shares of the identifiable net assets acquired is recorded
as goodwill. If the cost of acquisition is less than the fair value
of the net assets of the subsidiary acquired, the difference is
recognised directly in the Statement of Comprehensive Income as a
gain on bargain purchase.
The Parent's investments in subsidiaries are recorded at cost
less, where appropriate, provisions for impairment in value.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the
policies adopted by the Group.
(b) Changes in ownership and non-controlling interests
Changes in ownership interest in a subsidiary that do not result
in the loss of control are accounted for as equity transactions and
no gain or loss is recognised. Adjustments to non-controlling
interests are based on a proportionate amount of the net assets of
the subsidiary.
When control of a subsidiary is lost, the Group derecognises the
assets, liabilities, non-controlling interest and all other
components of equity relating to the former subsidiary from the
consolidated statement of financial position. Any resulting gain or
loss is recognised in profit or loss. Any investment retained in
the former subsidiary is recognised at its fair value at the date
when control is lost.
(c) Special purpose entities
Special purpose entities ("SPEs") are entities that are created
to accomplish a narrow and well-defined objective such as the
securitisation of particular assets or the execution of a specific
borrowing or lending transaction. SPEs are consolidated when the
investor controls the investee. The investor would only control the
investee if it had all of the following:
-- power over the investee;
-- exposure, or rights, to variable returns from its involvement
with the investee; and
-- the ability to use its power over the investee to affect the
amount of the investor's returns.
The assessment of whether the Group has control over an SPE is
carried out at inception and the initial assessment is only
reconsidered at a later date if there were any changes to the
structure or terms of the SPE, or there were additional
transactions between the Group and the SPE.
(d) Associates
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating
policies. Significant influence is presumed to exist when the Group
holds between 20 and 50 percent of the voting power of another
entity. Associates are accounted for using the equity method and
are initially recognised at cost. The Group's investment includes
goodwill identified on acquisition, net of any accumulated
impairment losses. The consolidated financial statements include
the Group's share of the total comprehensive income and equity
movements of equity accounted investees, from the date that
significant influence commences until the date that significant
influence ceases. When the Group's share of losses exceeds its
interest in an equity accounted investee, the Group's carrying
amount is reduced to nil and recognition of further losses is
discontinued except to the extent that the Group has incurred legal
or constructive obligations or made payments on behalf of the
investee.
3.2. Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the Group Board. The Group Board,
which is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the
chief operating decision maker. All transactions between segments
are conducted on an arm's length basis. Income and expenses
directly associated with each segment are included in determining
segment performance. There are three main operating segments:
-- Retail Banking
-- Private Banking
-- Group Centre
3.3. Foreign currency translation
Foreign currency transactions are translated into the functional
currency using the spot exchange rates prevailing at the dates of
the transactions or valuation where items are remeasured. Foreign
exchange gains and losses resulting from the settlement of such
transactions and from the translation at yearend exchange rates of
monetary assets and liabilities denominated in foreign currencies
are recognised in the Statement of Comprehensive Income. Foreign
exchange differences arising from translation of available-for-sale
equity instruments are recognised in Other Comprehensive
Income.
3.4. Interest income and expense
Interest income and expense are recognised in the Statement of
Comprehensive Income for all instruments measured at amortised cost
using the effective interest method.
The effective interest rate is the rate that discounts estimated
future cash payments or receipts through the expected life of the
financial instrument or, when appropriate, a shorter period to the
net carrying amount of the financial asset or financial liability.
When calculating the effective interest rate, the Group takes into
account all contractual terms of the financial instrument but does
not consider future credit losses. The calculation includes all
fees paid or received between parties to the contract that are an
integral part of the effective interest rate, transaction costs and
all other premiums or discounts. The carrying amount of the
financial asset or financial liability is adjusted if the Group
revises its estimates of payments or receipts. The adjusted
carrying amount is calculated based on the original effective
interest rate and the change in carrying amount is recorded as
interest income or expense.
Once a financial asset or a group of similar financial assets
has been written down as a result of an impairment loss, interest
income continues to be recognised using the original effective
interest rate applied to the impaired carrying amount.
3.5. Fee and commission income
Fees and commissions which are not considered integral to the
effective interest rate are generally recognised on an accrual
basis when the service has been provided.
Commission and fees arising from negotiating, or participating
in the negotiation of, a transaction for a third party - such as
the issue or the acquisition of shares or other securities or the
purchase or sale of businesses - are recognised on completion of
the underlying transaction. Asset and other management, advisory
and service fees are recognised on an accruals basis as the related
services are performed. The same principle is applied for financial
planning and insurance services that are continuously provided over
an extended period of time.
3.6. Rental income
Rental income is recognised on a straight line basis over the
term of the lease. Lease incentives granted are recognised as an
integral part of the total rental income over the term of the
lease.
3.7. Discontinued operations
A discontinued operation is a component of the Group's business,
the operations and cash flows of which can be clearly distinguished
from the rest of the Group and which:
-- represents a separate major line of business or geographical
area of operations;
-- is part of a single co-ordinated plan to dispose of a
separate major line of business or geographical area of operations;
or
-- is a subsidiary acquired exclusively with a view to
re-sale.
Classification as a discontinued operation occurs on disposal or
when the operation meets the criteria to be classified as held for
sale (see note 3.14), if earlier. When an operation is classified
as a discontinued operation, the comparative Statement of
Comprehensive Income is re-presented as if the operation had been
discontinued from the start of the comparative year.
3.8. Financial assets and financial liabilities
The Group classifies financial assets and financial liabilities
in the following categories: financial assets and financial
liabilities at fair value through profit or loss; loans and
receivables; held-to-maturity investments; available-for-sale
financial assets and other financial liabilities. Management
determines the classification of its investments at acquisition. A
financial asset or financial liability is measured initially at
fair value plus, for an item not at fair value through profit or
loss, transaction costs that are directly attributable to its
acquisition or issue.
(a) Financial assets and financial liabilities at fair value
through profit or loss
This category comprises listed securities and derivative
financial instruments. Derivative financial instruments utilised by
the Group include embedded derivatives and derivatives used for
hedging purposes. Financial assets and liabilities at fair value
through profit or loss are initially recognised on the date from
which the Group becomes a party to the contractual provisions of
the instrument. Subsequent measurement of financial assets and
financial liabilities held in this category are carried at fair
value through profit or loss.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They arise when the Group provides money, goods or services
directly to a debtor with no intention of trading the receivable.
Loans are recognised when cash is advanced to the borrowers. Loans
and receivables are carried at amortised cost using the effective
interest method.
(c) Held-to-maturity
Held-to-maturity investments are non-derivative financial assets
with fixed or determinable payments and fixed maturities that the
Group has the positive intent and ability to hold to maturity and
that has not been designated at fair value through profit or loss
or as available-for-sale investments. Held-to-maturity investments
are carried at amortised cost using the effective interest method,
less any impairment loss.
(d) Available-for-sale
Available-for-sale ('AFS') investments are those not classified
as another category of financial assets. These include investments
in special purpose vehicles and equity investments in unquoted
vehicles. They may be sold in response to liquidity requirements,
interest rate, exchange rate or equity price movements. AFS
investments are initially recognised at cost, which is considered
as the fair value of the investment including any acquisition
costs. AFS securities are subsequently measured at fair value in
the statement of financial position. Fair value changes on the AFS
securities are recognised directly in equity (AFS reserve) until
the investment is sold or impaired. Once sold or impaired, the
cumulative gains or losses previously recognised in the AFS reserve
are recycled to the profit or loss.
(e) Other financial liabilities
Other financial liabilities are non-derivative financial
liabilities with fixed or determinable payments. Other financial
liabilities are recognised when cash is received from the
depositors. Other financial liabilities are carried at amortised
cost using the effective interest method. The fair value of other
liabilities repayable on demand is assumed to be the amount payable
on demand at the Statement of Financial Position date.
Amortised cost measurement
The amortised cost of a financial asset or financial liability
is the amount at which the financial asset or financial liability
is measured at initial recognition, minus principal payments, plus
or minus the cumulative amortisation using the effective interest
method of any difference between the initial amount recognised and
the maturity amount, less any reduction for impairment.
Fair value measurement
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
When available, the Group measures the fair value of an
instrument using quoted prices in an active market for that
instrument. A market is regarded as active if quoted prices are
readily and regularly available and represent actual and regularly
occurring market transactions on an arm's length basis.
If a market for a financial instrument is not active, the Group
establishes fair value using a valuation technique. These include
the use of recent arm's length transactions, reference to other
instruments that are substantially the same for which market
observable prices exist, net present value and discounted cash flow
analysis. In the instance that fair values of assets and
liabilities cannot be reliably measured, they are carried at
cost.
For measuring derivatives that might change classification from
being an asset to a liability or vice versa such as interest rate
swaps, fair values take into account both credit valuation
adjustment (CVA) and debit valuation adjustment (DVA) when market
participants take this into consideration in pricing the
derivatives.
Derecognition
Financial assets are derecognised when the rights to receive
cash flows from the financial assets have expired or where the
Group has transferred substantially all risks and rewards of
ownership. Any interest in transferred financial assets that
qualify for derecognition that is created or retained by the Group
is recognised as a separate asset or liability in the Statement of
Financial Position. In transactions in which the Group neither
retains nor transfers substantially all the risks and rewards of
ownership of a financial asset and it retains control over the
asset, the Group continues to recognise the asset to the extent of
its continuing involvement, determined by the extent to which it is
exposed to changes in the value of the transferred asset. There
have not been any instances where assets have only been partially
derecognised.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled, expire, are
modified or exchanged.
3.9. Derivative financial instruments and hedge accounting
All derivatives are recognised at their fair value. Fair values
are obtained from quoted market prices in active markets, including
recent arm's length transactions or using valuation techniques such
as discounted cash flow models. Derivatives are shown in the
Statement of Financial Position as assets when their fair value is
positive and as liabilities when their fair value is negative.
Embedded derivatives
Embedded derivatives arise from contracts ('hybrid contracts')
containing both a derivative (the 'embedded derivative') and a
non-derivative (the 'host contract'). Where the economic
characteristics and risks of the embedded derivatives are not
closely related to those of the host contract, and the host
contract is not at fair value through profit or loss, the embedded
derivative is bifurcated and reported at fair value and gains or
losses are recognised in the Statement of Comprehensive Income.
3.10. Impairment of financial assets
(a) Assets carried at amortised cost
On an ongoing basis the Group assesses whether there is
objective evidence that a financial asset or group of financial
assets is impaired. Objective evidence is the occurrence of a loss
event, after the initial recognition of the asset, that impact on
the estimated contractual future cash flows of the financial asset
or group of financial assets, and can be reliably estimated.
The criteria that the Group uses to determine that there is
objective evidence of an impairment loss include, but are not
limited to, the following:
-- Delinquency in contractual payments of principal or
interest;
-- Cash flow difficulties experienced by the borrower;
-- Initiation of bankruptcy proceedings;
-- Deterioration in the value of collateral;
-- Deterioration of the borrower's competitive position;
If there is objective evidence that an impairment loss on loans
and receivables or held-to-maturity investments carried at
amortised cost has been incurred, the amount of the loss is
measured as the difference between the asset's carrying amount and
the present value of estimated future cash flows discounted at the
financial asset's original effective interest rate. The carrying
amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognised in the Statement
of Comprehensive Income. If a loan or held-to-maturity investment
has a variable interest rate, the discount rate for measuring any
impairment loss is the current effective interest rate determined
under the contract.
The Group considers evidence of impairment for loans and
advances at both a specific asset and collective level. All
individually significant loans and advances are assessed for
specific impairment. Those found not to be specifically impaired
are then collectively assessed for any impairment that has been
incurred but not yet identified. In assessing collective impairment
the Group uses historical trends of the probability of default,
emergence period, the timing of recoveries and the amount of loss
incurred, adjusted for management's judgement as to whether current
economic and credit conditions are such that the actual losses are
likely to be significantly different to historic trends.
When a loan is uncollectible, it is written off against the
related provision for loan impairment. Such loans are written off
after all the necessary procedures have been completed and the
amount of the loss has been determined. Subsequent recoveries of
amounts previously written off decrease the amount of the provision
for loan impairment in the Statement of Comprehensive Income.
A customer's account may be modified to assist customers who are
in or have recently overcome financial difficulties and have
demonstrated both the ability and willingness to meet the current
or modified loan contractual payments. Loans that have renegotiated
or deferred terms, resulting in a substantial modification to the
cash flows, are no longer considered to be past due but are treated
as new loans recognised at fair value, provided the customers
comply with the renegotiated or deferred terms.
(b) Assets classified as available-for-sale
The Group assesses at each Statement of Financial Position date
whether there is objective evidence that a financial asset or a
group of financial assets is impaired. In the case of equity
investments classified as available-for-sale, a significant or
prolonged decline in the fair value of the security below its cost
is considered as an indicator that the securities are impaired. If
any such evidence exists for available-for-sale financial assets,
the cumulative loss - measured as the difference between the
acquisition cost and the current fair value, less any impairment
loss on that financial asset previously recognised in profit or
loss - is removed from equity and recognised in the profit or loss.
Impairment losses recognised in the profit or loss on equity
instruments are reversed through other comprehensive income.
(c) Renegotiated loans
Loans that are neither subject to collective impairment
assessment or individually significant and whose terms have been
renegotiated are no longer considered to be past due but are
treated as new loans.
(d) Forbearance
Under certain circumstances, the Group may use forbearance
measures to assist borrowers who are experiencing significant
financial hardship. Any forbearance support is assessed on a case
by case basis in line with best practice and subject to regular
monitoring and review. The Group seeks to ensure that any
forbearance results in a fair outcome for both the customer and the
Group.
3.11. Impairment of non-financial assets
The carrying amounts of the Group's non-financial assets, other
than inventories and deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the asset's
recoverable amount is estimated. Impairment for goodwill is
discussed in more detail under note 3.15.
3.12. Funding for Lending Scheme
Under the applicable International Accounting Standard, IAS 39,
if a security is lent under an agreement to return it to the
transferor, as is the case for eligible securities lent by
institutions to the Bank of England under the FLS, then the
security is not derecognised because the transferor retains all the
risks and rewards of ownership. The UK Treasury Bills borrowed from
the Bank of England under the FLS are not recognised on the
Statement of Financial Position of the institution until such time
as they are subject to a repurchase agreement with a third party,
as they will not meet the criteria for derecognition by the Bank of
England. When the UK Treasury Bills are pledged as part of a sale
and repurchase agreement with a third party, amounts borrowed from
the third party are recognised on the Statement of Financial
Position.
3.13. Inventory
Land acquired through repossession of collateral which is
subsequently held in the ordinary course of business with a view to
develop and sell is accounted for as inventory.
Inventory is measured at the lower of cost or net realisable
value. The cost of inventories comprises all costs of purchase,
costs of conversion and other costs incurred in bringing the
inventories to their present location and condition. Net realisable
value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated
costs necessary to make the sale.
3.14. Assets classified as held for sale
Non-current assets, or disposal groups comprising assets and
liabilities, that are expected to be recovered primarily through
sale rather than through continuing use, are classified as held for
sale. These assets and liabilities are subsequently measured at the
lower of its carrying amount and fair value less costs to sell.
Once classified as held for sale, intangible assets and property,
plant and equipment are no longer amortised or depreciated.
3.15. Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Group's share of the net identifiable
assets of the acquired subsidiary or associate at the date of
acquisition. Goodwill on acquisitions of subsidiaries or associates
is included in 'intangible assets'. Gains and losses on the
disposal of an entity include the carrying amount of goodwill
relating to the entity sold.
The Group reviews the goodwill for impairment at least annually
or more frequently when events or changes in economic circumstances
indicate that impairment may have taken place and carry goodwill at
cost less accumulated impairment losses. Assets are grouped
together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the
"cash-generating unit" or "CGU"). For impairment testing purposes
goodwill cannot be allocated to a CGU that is greater than a
reported operating segment. CGUs to which goodwill has been
allocated are aggregated so that the level at which impairment is
tested reflects the lowest level at which goodwill is monitored for
internal reporting purposes. Goodwill acquired in a business
combination is allocated to groups of CGUs that are expected to
benefit from the synergies of the combination. The test for
impairment involves comparing the carrying value of goodwill with
the present value of pre-tax cash flows, discounted at a rate of
interest that reflects the inherent risks of the CGU to which the
goodwill relates, or the CGU's fair value if this is higher.
(b) Computer software
Acquired computer software licences are capitalised on the basis
of the costs incurred to acquire and bring to use the specific
software. These costs are amortised on the basis of the expected
useful lives (three to ten years).
Costs associated with maintaining computer software programs are
recognised as an expense as incurred.
Costs associated with developing computer software which are
assets in the course of construction, which management has assessed
to not be available for use, are not amortised.
(c) Other intangibles
Other intangibles include trademarks, customer relationships,
broker relationships, technology and banking licences acquired.
These costs are amortised on the basis of the expected useful lives
(three to ten years).
3.16. Property, plant and equipment
Land and buildings comprise mainly branches and offices and are
stated at the latest valuation with subsequent additions at cost
less depreciation. Plant and equipment is stated at historical cost
less depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Land is not depreciated. Depreciation on other assets is
calculated using the straight-line method to allocate their cost to
their residual values over their estimated useful lives, applying
the following annual rates, which are subject to regular
review:
Freehold 50 years
buildings
Office equipment 6 to 10
years
Computer 3 to 5
equipment years
Motor vehicles 4 years
Leasehold improvements are depreciated over the term of the
lease (until the first break clause). Gains and losses on disposals
are determined by deducting carrying amount from proceeds. These
are included in the Statement of Comprehensive Income. Depreciation
on revalued freehold buildings is calculated using the
straight-line method over the remaining useful life. Revaluation of
assets and any subsequent disposals are addressed through the
revaluation reserve and any changes are transferred to retained
earnings.
3.17. Investment property
Investment property is initially measured at cost. Transaction
costs are included in the initial measurement. Subsequently,
investment property is measured at fair value, with any change
therein recognised in profit and loss within other income.
If a change in use occurs and investment property is transferred
to owner-occupied property, the property's deemed cost for
subsequent reporting is its fair value at the date of change in
use.
3.18. Leases
(a) As a lessor
Assets leased to customers under agreements which transfer
substantially all the risks and rewards of ownership, with or
without ultimate legal title, are classified as finance leases.
When assets are held subject to finance leases, the present value
of the lease payments is recognised as a receivable. The difference
between the gross receivable and the present value of the
receivable is recognised as unearned finance income. Lease income
is recognised over the term of the lease using the net investment
method, which reflects a constant periodic rate of return.
Assets leased to customers under agreements which do not
transfer substantially all the risks and rewards of ownership are
classified as operating leases. When assets are held subject to
operating leases, the underlying assets are held at cost less
accumulated depreciation, The assets are depreciated down to their
estimated residual values on a straight-line basis over the lease
term. Lease rental income is recognised on a straight line basis
over the lease term.
(b) As a lessee
Rentals made under operating leases are recognised in the
Statement of Comprehensive Income on a straight-line basis over the
term of the lease.
Leases in which the Group assumes substantially all the risks
and rewards of ownership of the leased asset are classified as
finance leases. Leased assets by way of finance leases are stated
at an amount equal to the lower of their fair value and the present
value of the minimum lease payments at inception of the lease, less
accumulated depreciation. Minimum lease payments are apportioned
between the finance charge and the reduction of the outstanding
liability. The finance charge is allocated to each period during
the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
3.19. Cash and cash equivalents
For the purposes of the Statement of Cash Flows, cash and cash
equivalents comprises cash on hand and demand deposits, and cash
equivalents are deemed highly liquid investments that are
convertible into cash with an insignificant risk of changes in
value with a maturity of three months or less at the date of
acquisition.
3.20. Employee benefits
(a) Post-retirement obligations
The Group contributes to a defined contribution scheme and to
individual defined contribution schemes for the benefit of certain
employees. The schemes are funded through payments to insurance
companies or trustee-administered funds at the contribution rates
agreed with individual employees.
The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised as
an employee benefit expense when they are due. Prepaid
contributions are recognised as an asset to the extent that a cash
refund or a reduction in the future payments is available.
There are no post-retirement benefits other than pensions.
(b) Share-based compensation
The fair value of equity settled share-based payment awards are
calculated at grant date and recognised over the period in which
the employees become unconditionally entitled to the awards (the
vesting period). The amount is recognised as personnel expenses in
the profit and loss, with a corresponding increase in equity. The
Group adopts a Black-Scholes valuation model in calculating the
fair value of the share options as adjusted for an attrition rate
of members of the scheme and a probability of pay-out reflecting
the risk of not meeting the terms of the scheme over the vesting
period. The number of share options that are expected to vest are
reviewed at least annually.
The fair value of cash settled share-based payments is
recognised as personnel expenses in the profit or loss with a
corresponding increase in liabilities over the vesting period. The
liability is remeasured at each reporting date and at settlement
date based on the fair value of the options granted, with a
corresponding adjustment to personnel expenses.
When share-based payments are changed from equity settled to
cash settled and there is no change in the fair value of the
replacement award, it is seen as a modification to the terms and
conditions on which the equity instruments were granted and is not
seen as the settlement and replacement of the instruments.
Accordingly, on the date of modification, the Group recognises the
entire liability as a reclassification from equity and does not
recognise any profit or loss in the Statement of Comprehensive
Income.
3.21. Taxation
Current income tax which is payable on taxable profits is
recognised as an expense in the period in which the profits arise.
Income tax recoverable on tax allowable losses is recognised as an
asset only to the extent that it is regarded as recoverable by
offset against current or future taxable profits.
Deferred tax is provided in full on temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However,
deferred tax is not accounted for if it arises from the initial
recognition of goodwill, the initial recognition of an asset or
liability in a transaction other than a business combination that
at the time of the transaction affects neither accounting nor
taxable profit or loss, and differences relating to investments in
subsidiaries to the extent that they probably will not reverse in
the foreseeable future. Deferred tax is determined using tax rates
(and laws) that have been enacted or substantively enacted by the
Statement of Financial Position date and are expected to apply when
the related deferred tax asset is realised or the deferred tax
liability is settled.
Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and
assets, and they relate to taxes levied by the same tax authority
on the same taxable entity, or on different tax entities, when they
intend to settle current tax liabilities and assets on a net basis
or their tax assets and liabilities will be realised
simultaneously.
Deferred tax assets are recognised where it is probable that
future taxable profits will be available against which the
temporary differences can be utilised.
3.22. Issued debt and equity securities
Issued financial instruments or their components are classified
as liabilities where the contractual arrangement results in the
Group having a present obligation to either deliver cash or another
financial asset to the holder, to exchange financial instruments on
terms that are potentially unfavourable. Issued financial
instruments, or their components, are classified as equity where
they meet the definition of equity and confer on the holder a
residual interest in the assets of the Company. The components of
issued financial instruments that contain both liability and equity
elements are accounted for separately with the equity component
being assigned the residual amount after deducting from the
instrument as a whole the amount separately determined as the fair
value of the liability component.
Financial liabilities, other than trading liabilities at fair
value, are carried at amortised cost using the effective interest
method as set out in policy 3.4. Equity instruments, including
share capital, are initially recognised as net proceeds, after
deducting transaction costs and any related income tax. Dividend
and other payments to equity holders are deducted from equity, net
of any related tax.
3.23. Share capital
(a) Share issue costs
Incremental costs directly attributable to the issue of new
shares or options or the acquisition of a business by Arbuthnot
Banking Group or its subsidiaries, are shown in equity as a
deduction, net of tax, from the proceeds.
(b) Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the
period in which they are approved.
(c) Share buybacks
Where any Group company purchases the Company's equity share
capital (treasury shares), the consideration paid, including any
directly attributable incremental costs (net of income taxes) is
deducted from equity attributable to the Company's equity holders
until the shares are cancelled or reissued.
3.24. Financial guarantee and loan commitments
Financial guarantees represent undertakings that the Group will
meet a customer's obligation to third parties if the customer fails
to do so. Commitments to extend credit represent unused portions of
authorisations to extend credit in the form of loans, guarantees or
letters of credit. The Group is theoretically exposed to loss in an
amount equal to the total guarantees or unused commitments,
however, the likely amount of loss is expected to be significantly
less; most commitments to extend credit are contingent upon
customers maintaining specific credit standards. Liabilities under
financial guarantee contracts are initially recorded at their fair
value, and the initial fair value is amortised over the life of the
financial guarantee. Subsequently, the financial guarantee
liabilities are measured at the higher of the initial fair value,
less cumulative amortisation, and the best estimate of the
expenditure to settle obligations.
3.25. Fiduciary activities
The Group commonly acts as trustees and in other fiduciary
capacities that result in the holding or placing of assets on
behalf of individuals, trusts, retirement benefit plans and other
institutions. These assets and income arising thereon are excluded
from these financial statements, as they are not assets of the
Group.
3.26. New standards and interpretations not yet adopted
The following standards, interpretations and amendments to
existing standards have been published and are mandatory for the
Group's accounting periods beginning on or after 1 January 2017 or
later periods, but the Group has not early adopted them:
-- IFRS 9, 'Financial instruments' (effective from 1 January
2018). This standard deals with the classification and measurement
of financial assets and will replace IAS 39. Phase one of this
standard deals with the classification and measurement of financial
assets and represents a significant change from the existing
requirements in IAS 39. The standard contains three primary
measurement categories for financial assets: 'amortised cost',
'fair value through other comprehensive income' and 'fair value
through profit or loss' and eliminates the existing categories of
'held to maturity', 'available for sale' and 'loans and
receivables'. Phase two of the standard covers impairment, with a
new expected loss impairment model that will require expected
credit losses to be accounted for from when financial instruments
are first recognised and lowers the threshold for the recognition
of full lifetime expected losses. Phase three covers general hedge
accounting and introduces a substantially reformed model for hedge
accounting with enhanced disclosure about risk management activity.
The new model aligns the accounting treatment with risk management
activities.
-- IFRS 15, 'Revenue from contracts with customers' (effective 1
January 2017). This standard establish the principles that an
entity shall apply to report useful information to users of
financial statements about the nature, amount, timing, and
uncertainty of revenue and cash flows arising from a contract with
a customer. This standard is unlikely to have a material impact on
the Group. (This standard has not yet been endorsed by the EU.)
-- IFRS 16, 'Leases' (effective from 1 January 2019). The
standard sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a
contract i.e. the customer ('lessee') and the supplier ('lessor').
IFRS 16 replaces the previous leases Standards, IAS 17 Leases, and
related Interpretations. IFRS 16 eliminates the classification of
leases as either operating leases or finance leases for a lessee.
Instead all leases are treated in a similar way to finance leases
applying IAS 17. Leases are 'capitalised' by recognising the
present value of the lease payments and showing them either as
lease assets (right-of-use assets) or together with property, plant
and equipment. If lease payments are made over time, a company also
recognises a financial liability representing its obligation to
make future lease payments. The most significant effect of the new
requirements in IFRS 16 will be an increase in lease assets and
financial liabilities. Accordingly, for companies with material off
balance sheet leases, there will be a change to key financial
metrics derived from the company's assets and liabilities (for
example, leverage ratios).
4. Critical accounting estimates and judgements in applying
accounting policies
The Group makes estimates and assumptions that affect the
reported amounts of assets and liabilities within the next
financial year. Estimates and judgements are continually evaluated
and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances.
4.1 Estimation uncertainty
(a) Credit losses
The Group reviews its loan portfolios and held-to-maturity
investments to assess impairment at least on a quarterly basis. The
basis for evaluating impairment losses is described in accounting
policy 3.10. Where financial assets are individually evaluated for
impairment, management uses their best estimates in calculating the
net present value of future cash flows. Management has to make
judgements on the financial position of the counterparty and the
net realisable value of collateral (where held), in determining the
expected future cash flows.
The discounted recoverable amount is typically dependent on the
sale of a property. The amount recoverable is determined with
reference to:
-- The property valuation, which is typically updated every 12
months.
-- The time taken to realise the sale proceeds (UK property is
assumed to take 12 months and Non-UK property 18 months).
-- The property marketing costs (UK property is assumed to be at
3% of property value and Non-UK at 7%).
-- The legal costs of sale (UK legal sales costs are assumed to
be GBP5k, whilst Non-UK are assumed to be EUR10k).
Any change in timing of estimated future cash flows (other than
impairment) will adjust carrying value with gain or loss in profit
or loss. The revised carrying amount will be recalculated by
discounting the revised estimated future cash flows at the
portfolios original effective interest rate.
In determining whether an impairment loss should be recorded in
the Statement of Comprehensive Income, the Group makes judgements
as to whether there is any observable data indicating that there is
a measurable decrease in the estimated future cash flows from a
portfolio of loans or held-to-maturity investments with similar
credit characteristics, before the decrease can be identified with
an individual loan in that portfolio. This evidence may include
observable data indicating that there has been an adverse change in
the payment status of borrowers in a group, or national or local
economic conditions that correlate with defaults on assets in the
Group. Management uses estimates based on historical loss
experience for assets with credit risk characteristics and
objective evidence of impairment similar to those in the portfolio
when scheduling its future cash flows. The methodology and
assumptions used for estimating both the amount and timing of
future cash flows are reviewed regularly to reduce any differences
between loss estimates and actual loss experience.
In assessing collective impairment the Group uses historical
trends of the probability of default, the timing of recoveries and
the amount of loss incurred, adjusted for management's judgement as
to whether current economic and credit conditions are such that the
actual losses are likely to be significantly different to historic
trends. Default rates, loss rates and the expected timing of future
recoveries are regularly benchmarked against actual outcomes to
ensure that they remain appropriate.
(b) Deferred tax on carried forward losses
The Group is subject to direct and indirect taxation in a number
of jurisdictions. There may be some transactions and calculations
for which the ultimate tax determination has an element of
uncertainty during the ordinary course of business. The Group
recognises liabilities based on estimates of the quantum of taxes
that may be due. Deferred tax assets on carried forward losses are
recognised where it is probable that future taxable profits will be
available to utilise it. Where the final tax determination is
different from the amounts that were initially recorded, such
differences will impact the income tax and deferred tax expense in
the year in which the determination is made.
(c) Effective Interest Rate
Acquired loan books are initially recognised at fair value.
Subsequently they are measured under the effective interest rate
method, based on cash flow models which require significant
judgement assumptions on the interest rates, prepayment rates, the
probability and timing of defaults and the amount of incurred
losses. Management review the expected cash flows against actual
cash flows to ensure future assumptions on customer behaviour and
future cash flows remain valid. If the estimates of future cash
flows are revised, the adjustment to the carrying value of the loan
book is recognised in the Statement of Comprehensive Income.
IAS 39 requires interest earned from lending to be measured
under the effective interest rate method. The effective interest
rate is the rate that exactly discounts estimated future cash
receipts or payments through the expected life of the financial
instrument or, when appropriate, a shorter period to the net
carrying amount of the financial asset.
Management must therefore use judgement to estimate the expected
life of each instrument and hence the expected cash flows relating
to it. The accuracy of the effective interest rate would therefore
be affected by unexpected market movements resulting in altered
customer behaviour, inaccuracies in the models used compared to
actual outcomes and incorrect assumptions.
(d) Impairment of equity securities
A significant or prolonged decline in the fair value of an
equity security is objective evidence of impairment. The Group
regards a decline of more than 20 percent in fair value as
"significant" and a decline in the quoted market price that
persists for nine months or longer as "prolonged".
(e) Investment property
The valuation that the Group places on its investment property
is subject to a degree of uncertainty and is made on the basis of
assumptions in relation to prevailing market rents and effective
yields. These assumptions may not prove to be accurate,
particularly in periods of market volatility. The main lease ends
in 2019. The offices will be refurbished and re-let at prevailing
market rents.
The valuation model considers the net present value of net cash
flows to be generated from the property, taking into account
expected rental growth rate, void periods, occupancy rate, lease
incentive costs such as rent-free periods and other costs not paid
by tenants. The expected net cash flows are discounted using
risk-adjusted discount rates. Among other factors, the discount
rate estimation considers the quality of a building and its
location, tenant quality and lease terms. Due to the current
sub-market rental achieved and the fact that the future
refurbishment works will improve the quality of the building (in a
desirable location), it is expected that the risk-adjusted discount
rate will decrease. Management judgement is required for
significant unobservable inputs used in the discounted cash flow
model, which have been assessed as follows:
-- refurbishment period: 6 months
-- void period after refurbishment: 6 months
-- rent free period: 6 months
-- estimated refurbishment costs: GBP2.4m
-- risk adjusted discount rate: 3.75%
-- expected rental uplift following re-let: 22%
-- occupancy rates: 95%
(f) Share option scheme valuation
The valuation of the cash settled Share Option Scheme was
determined at 31 December 2016 using a Black-Scholes valuation
model. In the opinion of the directors the terms of the scheme are
such that there remain a number of key uncertainties to be
considered when calculating the probability of pay-out, which are
set out below. The Directors also considered the probability of
option holder attrition prior to the vesting dates, details of
which are also set out below.
Uncertainties in the regulatory environment continue. Any
tightening of capital requirements will impact on the ability of
the Company to exploit future market opportunities and furthermore
may inhibit its ability to maintain the required growth in
distributions. Taking these into account, the probability of
pay-out has been judged as 100%.
The Directors consider that there is some uncertainty
surrounding whether the participants will all still be in situ and
eligible at the vesting date. Therefore the directors have assumed
a 91% attrition rate for the share options vesting in June 2019 and
85% attrition rate for the share options vesting in June 2021.
4.2 Judgements
(a) Valuation of financial instruments
The Group measures the fair value of an instrument using quoted
prices in an active market for that instrument. A market is
regarded as active if quoted prices are readily and regularly
available and represent actual and regularly occurring market
transactions. If a market for a financial instrument is not active,
the Group establishes fair value using a valuation technique. These
include the use of recent arm's length transactions, reference to
other instruments that are substantially the same for which market
observable prices exist, net present value and discounted cash flow
analysis. The objective of valuation techniques is to determine the
fair value of the financial instrument at the reporting date as the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants. In
the instance that fair values of assets and liabilities cannot be
reliably measured, they are carried at cost.
The Group measures fair value using the following fair value
hierarchy that reflects the significance of the inputs used in
making measurements:
-- Level 1: Quoted prices in active markets for identical assets
or liabilities.
-- Level 2: Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e.
as prices) or indirectly (i.e. derived from prices). This
category includes instruments valued using: quoted market prices in
active
markets for similar instruments; quoted prices for identical or
similar instruments in markets that are considered less than
active;
or other valuation techniques in which all significant inputs
are directly or indirectly observable from market data.
-- Level 3: Inputs that are unobservable. This category includes
all instruments for which the valuation technique includes
inputs
not based on observable data and the unobservable inputs have a
significant effect on the instrument's valuation. This category
includes instruments that are valued based on quoted prices for
similar instruments for which significant unobservable
adjustments or assumptions are required to reflect differences
between the instruments.
The consideration of factors such as the magnitude and frequency
of trading activity, the availability of prices and the size of
bid/offer spreads, assist in the judgement as to whether a market
is active. If in the opinion of management, a significant
proportion of the instrument's carrying amount is driven by
unobservable inputs, the instrument in its entirety is classified
as valued using significant unobservable inputs. 'Unobservable' in
this context means that there is little or no current market data
available from which to determine the level at which an arm's
length transaction would be likely to occur. It generally does not
mean that there is no market data available at all upon which to
base a determination of fair value (consensus pricing data may, for
example, be used).
The tables below analyse financial instruments measured at fair
value by the level in the fair value hierarchy into which the
measurement is categorised:
Level Level Level
1 2 3 Total
At 31 December 2016 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------- ------- ------- -------
ASSETS
Derivative financial instruments - 1,516 - 1,516
Financial investments 133 - 2,012 2,145
---------------------------------- ------- ------- ------- -------
Asset 133 1,516 2,012 3,661
---------------------------------- ------- ------- ------- -------
LIABILITIES
Derivative financial instruments - 227 - 227
---------------------------------- ------- ------- ------- -------
Liability - 227 - 227
---------------------------------- ------- ------- ------- -------
Level Level Level
1 2 3 Total
At 31 December 2015 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------- ------- ------- -------
ASSETS
Derivative financial instruments - 1,490 - 1,490
Financial investments 137 - 2,548 2,685
---------------------------------- ------- ------- ------- -------
Asset 137 1,490 2,548 4,175
---------------------------------- ------- ------- ------- -------
LIABILITIES
Derivative financial instruments - 135 - 135
---------------------------------- ------- ------- ------- -------
Liability - 135 - 135
---------------------------------- ------- ------- ------- -------
There were no transfers between level 1 and
level 2 during the year.
The following table reconciles the movement in level
3 financial instruments measured at fair value (financial
investments) during the year:
2016 2015
Movement in level 3 GBP000 GBP000
--------------------------------------------- -------- -------
At 1 January 2,548 1,106
Consideration received 494 -
Disposals (1,310) (44)
Movements recognised in Other
Comprehensive Income 75 1,559
Movements recognised in the Income
Statement 205 (73)
----------------------------------------------- -------- -------
At 31 December 2,012 2,548
----------------------------------------------- -------- -------
Visa Inc. investment
On 21 June 2016, Visa Inc. announced that it had completed the
acquisition of Visa Europe Limited. This resulted in the gain which
the Group had previously recognised in Other Comprehensive Income
being recycled to the Income Statement. As part of the transaction
the Group received preference shares in Visa Inc. These shares have
been valued at their future conversion value into Visa Inc. common
stock. The valuation includes a 31 % haircut. This comprises a 25%
haircut due to a contingent liability disclosed in Visa Europe's
accounts in relation to litigation, and a 6% haircut based on a
liquidity discount.
Investment in overseas property company
For those financial investments measured at fair value, the
Group uses proprietary valuation models which are developed from
recognised valuation techniques. Some or all of the significant
inputs into these models may not be observable in the market.
Valuation models that employ significant unobservable inputs
require a higher degree of management judgement and estimation in
the determination of fair value.
The Group has established a valuation methodology for measuring
level 3 financial investments which are categorised as available
for sale. Unobservable inputs used include: yield of 4.90% (2015:
5.75%) and occupancy rates of 95.3% (2015: 94.2%). These inputs are
taken from online real estate reports available from BNP Paribas.
The inputs are stressed to ensure that the fair value is robust.
Significant increases in the yield or decreases in annual rental
value or occupancy rate would result in lower fair values.
Management analyse and investigate any significant movements in the
unobservable inputs which impact the valuation of level 3
instruments.
The tables below analyses financial instruments not measured at
fair value by the level in the fair value hierarchy into which the
measurement is categorised:
Level Level Level
1 2 3 Total
At 31 December 2016 GBP000 GBP000 GBP000 GBP000
------------------------------------ -------- -------- ---------- ----------
ASSETS
Cash and balances at central banks - 195,752 - 195,752
Loans and advances to banks - 36,951 - 36,951
Debt securities held-to-maturity - 107,300 - 107,300
Loans and advances to customers - 42,691 716,108 758,799
Other assets - - 1,197 1,197
------------------------------------ -------- -------- ---------- ----------
Asset - 382,694 717,305 1,099,999
------------------------------------ -------- -------- ---------- ----------
LIABILITIES
Deposits from banks - 3,200 - 3,200
Deposits from customers - - 997,649 997,649
Other liabilities - - 1,812 1,812
Debt securities in issue - - 12,621 12,621
------------------------------------ -------- -------- ---------- ----------
Liability - 3,200 1,012,082 1,015,282
------------------------------------ -------- -------- ---------- ----------
Level Level Level
1 2 3 Total
At 31 December 2015 GBP000 GBP000 GBP000 GBP000
------------------------------------ -------- -------- ---------- ----------
ASSETS
Cash and balances at central banks - 368,611 - 368,611
Loans and advances to banks - 28,578 - 28,578
Debt securities held-to-maturity - 87,728 - 87,728
Assets classified as held for
sale - - 118,456 118,456
Loans and advances to customers - - 1,579,512 1,579,512
Other assets - - 2,625 2,625
------------------------------------ -------- -------- ---------- ----------
Asset - 484,917 1,700,593 2,185,510
------------------------------------ -------- -------- ---------- ----------
LIABILITIES
Deposits from banks - 55,305 - 55,305
Deposits from customers - - 1,929,838 1,929,838
Liabilities relating to assets
classified as held for sale - - 8,700 8,700
Other liabilities - - 14,581 14,581
Debt securities in issue - - 10,834 10,834
------------------------------------ -------- -------- ---------- ----------
Liability - 55,305 1,963,953 2,019,258
------------------------------------ -------- -------- ---------- ----------
(b) Associate accounting
An associate is an entity over which the investor has
significant influence and that is neither a subsidiary nor an
interest in a joint venture. It is presumed that the investor does
not have significant influence if it has less than 20% of the
voting power of the investee, unless proven otherwise. ABG holds
18.64% of the voting power of STB, but has retained Board
representation and as a result the Board believes ABG has
significant influence. The interest in STB is therefore accounted
for as an associate.
If significant influence is lost, the shareholding will be
accounted for as an available-for-sale financial investment.
5. Maturity analysis of assets and liabilities
The table below shows the maturity analysis of assets
and liabilities of the Group as at 31 December 2016:
Due
after
Due more
within than
one one
year year Total
At 31 December 2016 GBP000 GBP000 GBP000
------------------------------------------------ -------- -------- ----------
ASSETS
Cash 195,752 - 195,752
Loans and advances to banks 36,951 - 36,951
Debt securities held-to-maturity 85,782 21,518 107,300
Derivative financial instruments 85 1,431 1,516
Loans and advances to customers 337,376 421,423 758,799
Other assets 7,708 4,231 11,939
Financial investments - 2,145 2,145
Deferred tax asset - 1,665 1,665
Interests in associates 900 81,674 82,574
Intangible assets - 8,522 8,522
Property, plant and equipment - 4,782 4,782
Investment property - 53,339 53,339
------------------------------------------------ -------- -------- ----------
Total assets 664,554 600,730 1,265,284
------------------------------------------------ -------- -------- ----------
LIABILITIES
Deposits from banks 3,200 - 3,200
Derivative financial instruments 227 - 227
Deposits from customers 906,083 91,566 997,649
Current tax liability 147 - 147
Other liabilities 17,082 - 17,082
Debt securities in issue - 12,621 12,621
------------------------------------------------ -------- -------- ----------
Total liabilities 926,739 104,187 1,030,926
------------------------------------------------ -------- -------- ----------
The table below shows the maturity analysis of assets
and liabilities of the Group as at 31 December 2015:
Due
after
Due more
within than
one one
year year Total
At 31 December 2015 GBP000 GBP000 GBP000
----------------------------------------- ---------- -------- ----------
ASSETS
Cash 368,611 - 368,611
Loans and advances to banks 28,578 - 28,578
Debt securities held-to-maturity 56,145 31,583 87,728
Assets classified as held for sale 118,456 - 118,456
Derivative financial instruments 59 1,431 1,490
Loans and advances to customers 691,315 888,197 1,579,512
Other assets 16,544 350 16,894
Financial investments - 2,685 2,685
Deferred tax asset - 1,784 1,784
Investment in associate - 943 943
Intangible assets - 10,874 10,874
Property, plant and equipment - 14,004 14,004
----------------------------------------- ---------- -------- ----------
Total assets 1,279,708 951,851 2,231,559
----------------------------------------- ---------- -------- ----------
LIABILITIES
Deposits from banks 55,305 - 55,305
Derivative financial instruments 135 - 135
Deposits from customers 1,373,297 556,541 1,929,838
Liabilities classified as held for sale 8,700 - 8,700
Current tax liability 3,366 - 3,366
Other liabilities 28,319 3,658 31,977
Debt securities in issue - 10,834 10,834
----------------------------------------- ---------- -------- ----------
Total liabilities 1,469,122 571,033 2,040,155
----------------------------------------- ---------- -------- ----------
The table below shows the maturity analysis of assets
and liabilities of the Company as at 31 December 2016:
Due
after
Due more
within than
one one
year year Total
At 31 December 2016 GBP000 GBP000 GBP000
---------------------------------------- -------- ------- --------
ASSETS
Loans and advances to banks 6 - 6
Loans and advances to banks - due from
subsidiary undertakings 89,066 - 89,066
Financial investments - 121 121
Deferred tax asset - 397 397
Property, plant and equipment - 183 183
Other assets 254 633 887
Interests in associates - 5,056 5,056
Interests in subsidiaries 54,602 54,602
---------------------------------------- -------- ------- --------
Total assets 89,326 60,992 150,318
---------------------------------------- -------- ------- --------
LIABILITIES
Other liabilities 4,808 - 4,808
Debt securities in issue - 12,621 12,621
---------------------------------------- -------- ------- --------
Total liabilities 4,808 12,621 17,429
---------------------------------------- -------- ------- --------
The table below shows the maturity analysis of assets
and liabilities of the Company as at 31 December 2015:
Due
after
Due more
within than
one one
year year Total
At 31 December 2015 GBP000 GBP000 GBP000
---------------------------------------- -------- ------- --------
ASSETS
Loans and advances to banks - due from
subsidiary undertakings 12,444 - 12,444
Financial investments - 125 125
Deferred tax asset - 418 418
Property, plant and equipment - 204 204
Other assets 641 350 991
Interests in subsidiaries - 46,466 46,466
---------------------------------------- -------- ------- --------
Total assets 13,085 47,563 60,648
---------------------------------------- -------- ------- --------
LIABILITIES
Other liabilities 4,235 - 4,235
Debt securities in issue - 10,834 10,834
---------------------------------------- -------- ------- --------
Total liabilities 4,235 10,834 15,069
---------------------------------------- -------- ------- --------
6. Financial risk management
Strategy
By their nature, the Group's activities are principally related
to the use of financial instruments. The Directors and senior
management of the Group have formally adopted a Group Risk and
Controls Policy which sets out the Board's attitude to risk and
internal controls. Key risks identified by the Directors are
formally reviewed and assessed at least once a year by the Board,
in addition to which key business risks are identified, evaluated
and managed by operating management on an ongoing basis by means of
procedures such as physical controls, credit and other
authorisation limits and segregation of duties. The Board also
receives regular reports on any risk matters that need to be
brought to its attention. Significant risks identified in
connection with the development of new activities are subject to
consideration by the Board. There are budgeting procedures in place
and reports are presented regularly to the Board detailing the
results of each principal business unit, variances against budget
and prior year, and other performance data.
The principal non-operational risks inherent in the Group's
business are credit, market and liquidity risks.
(a) Credit risk
The Company and Group take on exposure to credit risk, which is
the risk that a counterparty will be unable to pay amounts in full
when due. Impairment provisions are provided for losses that have
been incurred at the balance sheet date. Significant changes in the
economy, or in the health of a particular industry segment that
represents a concentration in the Company and Group's portfolio,
could result in losses that are different from those provided for
at the balance sheet date. Credit risk is managed through the
Credit Committees of the banking subsidiaries, with significant
exposures also being approved by the Group Risk Committee.
The Company and Group structure the levels of credit risk it
undertakes by placing limits on the amount of risk accepted in
relation to one borrower or groups of borrowers. Such risks are
monitored on a revolving basis and subject to an annual or more
frequent review. The limits are approved periodically by the Board
of Directors and actual exposures against limits are monitored
daily.
Exposure to credit risk is managed through regular analysis of
the ability of borrowers and potential borrowers to meet interest
and capital repayment obligations and by changing these lending
limits where appropriate. Exposure to credit risk is also managed
in part by obtaining collateral and corporate and personal
guarantees.
The Group employs a range of policies and practices to mitigate
credit risk. The most traditional of these is the taking of
collateral to secure advances, which is common practice. The
principal collateral types for loans and advances include, but are
not limited to:
-- Charges over residential and commercial properties;
-- Charges over business assets such as premises, inventory and
accounts receivable;
-- Charges over financial instruments such as debt securities
and equities;
-- Personal guarantees; and
-- Charges over other chattels
Upon initial recognition of loans and advances, the fair value
of collateral is based on valuation techniques commonly used for
the corresponding assets. In order to minimise any potential credit
loss the Group will seek additional collateral from the
counterparty as soon as impairment indicators are noticed for the
relevant individual loans and advances. Repossessed collateral, not
readily convertible into cash, is made available for sale in an
orderly fashion, with the proceeds used to reduce or repay the
outstanding indebtedness, or held as inventory where the Group
intends to develop and sell in the future. Where excess funds are
available after the debt has been repaid, they are available either
for other secured lenders with lower priority or are returned to
the customer.
Commitments to extend credit represent unused portions of
authorisations to extend credit in the form of loans, guarantees or
letters of credit. With respect to credit risk on commitments to
extend credit, the Group is potentially exposed to loss in an
amount equal to the total unused commitments. However, the likely
amount of loss is less than the total unused commitments, as most
commitments to extend credit are contingent upon customers
maintaining specific credit standards.
The Group's maximum exposure to credit risk before collateral
held or other credit enhancements is as follows:
2016 2015
GBP000 GBP000
----------------------------------------------- ---------- ----------
Credit risk exposures relating to on-balance
sheet assets are as follows:
Cash and balances at central banks 195,752 368,611
Loans and advances to banks 36,951 28,578
Debt securities held-to-maturity 107,300 87,728
Assets classified as held for sale - 118,456
Derivative financial instruments 1,516 1,490
Loans and advances to customers - Arbuthnot
Latham 758,799 618,902
Loan and advances to customers - Secure Trust
Bank - 960,610
Other assets 1,197 2,625
Financial investments 2,145 2,685
Credit risk exposures relating to off-balance
sheet assets are as follows:
Guarantees 274 56
Loan commitments and other credit related
liabilities 35,581 178,863
----------------------------------------------- ---------- ----------
At 31 December 1,139,515 2,368,604
----------------------------------------------- ---------- ----------
The Company's maximum exposure to credit risk before
collateral held or other credit enhancements is
as follows:
2016 2015
GBP000 GBP000
----------------------------------------------- ------- -------
Credit risk exposures relating to on-balance
sheet assets are as follows:
Loans and advances to banks 89,072 12,444
Financial investments 121 125
Other assets 791 891
----------------------------------------------- ------- -------
At 31 December 89,984 13,460
----------------------------------------------- ------- -------
The above tables represent the maximum credit risk exposure (net
of impairment) to the Group and Company at 31 December 2016 and
2015 without taking account of any collateral held or other credit
enhancements attached. For on-balance-sheet assets, the exposures
are based on the net carrying amounts as reported in the Statement
of Financial Position.
The table below represents an analysis of the loan to
values of the property book for the Group:
31 December 31 December
2016 2015
Loan Loan
Balance Collateral Balance Collateral
Loan to value GBP000 GBP000 GBP000 GBP000
------------------ --------- ----------- --------- -----------
Less than 60% 438,076 1,219,532 486,256 1,256,642
60% - 80% 167,765 253,550 340,781 507,852
80% - 100% 76,289 88,598 80,762 98,792
Greater than 100% 32,022 21,387 36,486 25,738
------------------ --------- ----------- --------- -----------
Total 714,152 1,583,067 944,285 1,889,024
------------------ --------- ----------- --------- -----------
The table below represents an analysis of the loan commitments
compared to the values of the properties for the Group:
31 December 31 December
2016 2015
Committed Collateral Committed Collateral
Loan commitments and other credit
related liabilities GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------- ----------- ---------- -----------
Less than 60% 26,988 73,659 74,576 171,108
60% - 80% 23,940 42,102 56,702 81,765
80% - 100% - - 2,278 2,848
Total 50,928 115,761 133,556 255,721
---------------------------------- ---------- ----------- ---------- -----------
Renegotiated loans and forbearance
The contractual terms of a loan may be modified due to factors
that are not related to the current or potential credit
deterioration of the customer (changing market conditions, customer
retention, etc.). In such cases, the modified loan may be
derecognised and the renegotiated loan recognised as a new loan at
fair value.
As at 31 December 2016, loans for which forbearance measures
were undertaken totalled 0.12% (2015: 0.14%) of total loans to
customers for the Bank. All forbearance measures undertaken in the
year were within the UK mortgage portfolio. These are set out in
the following table:
2016 2015
Loan Loan
Number Balance Number Balance
GBP000 GBP000
---------------------------------- ------- --------- ------- ---------
Transfer to interest only 3 115 6 764
Move historic arrears to capital - - 1 147
Interest temporarily not being
charged 1 3,607 - -
Payment holiday 1 78 - -
---------------------------------- ------- --------- ------- ---------
Total forbearance 5 3,800 7 911
---------------------------------- ------- --------- ------- ---------
Concentration risk
The Group is well diversified in the UK, being exposed to retail
banking and private banking. Management assesses the potential
concentration risk from a number of areas including:
-- product concentration
-- geographical concentration; and
-- high value residential properties
Due to the well diversified nature of the Group and the
significant collateral held against the loan book, the Directors do
not consider there to be a potential material exposure arising from
concentration risk. The table below show the concentration in the
loan book.
Loans and
advances
to customers Loan Commitments
2016 2015 2016 2015
GBP000 GBP000 GBP000 GBP000
------------------------------ -------- ---------- -------- ---------
Concentration by product
Cash collateralised 5,245 15,987 - -
Commercial Lending
Real estate finance - 367,999 - 109,033
Asset finance - 70,685 35,581 20,081
Commercial finance 71,674 52,222 - 9,277
Residential mortgages 626,751 538,701 - 40,230
Investment portfolio secured 34,014 30,284 - -
Non-Performing 15,953 9,839 - -
Other Collateral 2,103 7,482 - -
Motor - 165,697 - 242
Unsecured
Personal lending 3,059 79,706 - -
Retail - 220,418 - -
Other - 20,492 - -
------------------------------ -------- ---------- -------- ---------
At 31 December 758,799 1,579,512 35,581 178,863
------------------------------ -------- ---------- -------- ---------
Concentration by location
East Anglia 2,714 99,340 - 28,091
East Midlands 7,245 49,222 - 1,088
London 422,901 600,254 21,691 79,523
Midlands 3,800 7,811 - -
North East 2,100 29,239 - 564
North West 14,288 90,496 4,541 4,863
Northern Ireland - 8,301 - -
Scotland 13,410 74,635 - 2,000
South East 117,805 245,647 5,597 40,738
South West 89,018 87,429 738 6,204
Wales 7,460 42,436 - 1,427
West Midlands 14,436 69,162 108 4,787
Yorkshire & Humber 6,398 59,210 - 3,033
Overseas 20,136 74,627 - 5,667
Other 37,088 41,703 2,906 878
------------------------------ -------- ---------- -------- ---------
At 31 December 758,799 1,579,512 35,581 178,863
------------------------------ -------- ---------- -------- ---------
For unsecured lending, concentration by location is based on the
customer's country of domicile and for lending secured by property
it is based on the location of the collateral.
(b) Operational risk (unaudited)
The Group's objective is to manage operational risk so as to
balance the avoidance of financial losses and damage to the Group's
reputation with overall cost effectiveness and to avoid control
procedures that restrict initiatives and creativity. Operational
risk arises from all of the Group's operations.
The primary responsibility for the development and
implementation of controls to address operational risk is assigned
to the senior management within each subsidiary.
Compliance with Group standards is supported by a programme of
periodic reviews undertaken by Internal Audit. The results of the
Internal Audit reviews are discussed with senior management, with
summaries submitted to the Arbuthnot Banking Group Audit
Committee.
(c) Market risk
Price risk
The Company and Group is exposed to equity securities price risk
because of investments held by the Group and classified in the
Consolidated Statement of Financial Position either as
available-for-sale or at fair value through the profit and loss.
The Group is not exposed to commodity price risk. To manage its
price risk arising from investments in equity securities, the Group
diversifies its portfolio. Diversification of the portfolio is done
in accordance with the limits set by the Group.
Based upon the financial investment exposure in Note 24, a
stress test scenario of a 10% (2015: 10%) decline in market prices,
with all other things being equal, would result in a GBP11,000
(2015: GBP11,000) decrease in the Group's income and a decrease of
GBP172,000 (2015: GBP215,000) in the Group's equity. The Group
consider a 10% stress test scenario appropriate after taking the
current values and historic data into account.
Based upon the financial investment exposure given in Note 24, a
stress test scenario of a 10% (2015: 10%) decline in market prices,
with all other things being equal, would result in a GBP11,000
(2015: GBP11,000) decrease in the Company's income and a decrease
of GBP10,000 (2015: GBP10,000) in the Company's equity.
Currency risk
The Company and Group take on exposure to the effects of
fluctuations in the prevailing foreign currency exchange rates on
its financial position and cash flows. The Board sets limits on the
level of exposure for both overnight and intra-day positions, which
are monitored daily. The table below summarises the Group's
exposure to foreign currency exchange rate risk at 31 December
2016. Included in the table below are the Group's assets and
liabilities at carrying amounts, categorised by currency.
GBP USD Euro
(GBP) ($) (EUR) Other Total
At 31 December 2016 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- -------- ------- ------- ------- ----------
ASSETS
Cash and balances at central
banks 195,669 35 40 8 195,752
Loans and advances to banks 2,197 24,494 5,062 5,198 36,951
Debt securities held-to-maturity 94,299 13,001 - - 107,300
Derivative financial instruments 1,516 - - - 1,516
Loans and advances to customers 701,165 21,927 35,707 - 758,799
Other assets 1,197 - - - 1,197
Financial investments 120 569 1,456 - 2,145
---------------------------------- -------- ------- ------- ------- ----------
996,163 60,026 42,265 5,206 1,103,660
---------------------------------- -------- ------- ------- ------- ----------
LIABILITIES
Deposits from banks 3,198 - - 2 3,200
Derivative financial instruments 227 - - - 227
Deposits from customers 903,687 59,916 28,535 5,511 997,649
Other liabilities 1,812 - - - 1,812
Debt securities in issue - - 12,621 - 12,621
---------------------------------- -------- ------- ------- ------- ----------
908,924 59,916 41,156 5,513 1,015,509
---------------------------------- -------- ------- ------- ------- ----------
Net on-balance sheet position 87,239 110 1,109 (307) 88,151
---------------------------------- -------- ------- ------- ------- ----------
Credit commitments 54,934 - - - 54,934
---------------------------------- -------- ------- ------- ------- ----------
The table below summarises the Group's exposure to foreign
currency exchange risk at 31 December 2015:
GBP USD Euro
(GBP) ($) (EUR) Other Total
At 31 December 2015 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------- ------- ------- ------- ----------
ASSETS
Cash and balances at central
banks 365,165 3,405 35 6 368,611
Loans and advances to banks 10,045 14,527 1,925 2,081 28,578
Debt securities held-to-maturity 80,952 6,776 - - 87,728
Assets classified as held for
sale 118,456 - - - 118,456
Derivative financial instruments 1,490 - - - 1,490
Loans and advances to customers 1,522,893 17,231 39,344 44 1,579,512
Other assets 2,625 - - - 2,625
Financial investments 172 - 2,513 - 2,685
---------------------------------- ---------- ------- ------- ------- ----------
2,101,798 41,939 43,817 2,131 2,189,685
---------------------------------- ---------- ------- ------- ------- ----------
LIABILITIES
Deposits from banks 54,963 - 342 - 55,305
Derivative financial instruments 135 - - - 135
Deposits from customers 1,865,078 39,220 23,255 2,285 1,929,838
Liabilities relating to assets
classified as held for sale 8,700 - - - 8,700
Other liabilities 14,581 - - - 14,581
Debt securities in issue - - 10,834 - 10,834
---------------------------------- ---------- ------- ------- ------- ----------
1,943,457 39,220 34,431 2,285 2,019,393
---------------------------------- ---------- ------- ------- ------- ----------
Net on-balance sheet position 158,341 2,719 9,386 (154) 170,292
---------------------------------- ---------- ------- ------- ------- ----------
Credit commitments 178,919 - - - 178,919
---------------------------------- ---------- ------- ------- ------- ----------
A 10% strengthening of the pound against the US dollar would
lead to a GBP3,000 increase (2015: GBP3,000 decrease) in Group
profits and equity, while a 10% weakening of the pound against the
US dollar would lead to the same decrease in Group profits and
equity. Similarly a 10% strengthening of the pound against the Euro
would lead to a GBP6,000 (2015: GBP52,000) increase in Group
profits and equity, while a 10% weakening of the pound against the
Euro would lead to the same increase in Group profits and equity.
The above results are after taking into account the effect of
derivative financial instruments (see note 20), which cover most of
the net exposure in each currency.
The table below summarises the Company's exposure
to foreign currency exchange rate risk at 31 December
2016:
GBP Euro
(GBP) (EUR) Total
At 31 December 2016 GBP000 GBP000 GBP000
--------------------------------------- --------- -------- -------
ASSETS
Loans and advances to banks 76,037 13,035 89,072
Financial investments 121 - 121
Other assets 791 - 791
--------------------------------------- --------- -------- -------
76,949 13,035 89,984
--------------------------------------- --------- -------- -------
LIABILITIES
Other liabilities 3,624 - 3,624
Debt securities in issue - 12,621 12,621
--------------------------------------- --------- -------- -------
3,624 12,621 16,245
--------------------------------------- --------- -------- -------
Net on-balance sheet position 73,325 414 73,739
--------------------------------------- --------- -------- -------
The table below summarises the Company's exposure
to foreign currency exchange rate risk at 31 December
2015:
GBP Euro
(GBP) (EUR) Total
At 31 December 2015 GBP000 GBP000 GBP000
--------------------------------------- --------- -------- -------
ASSETS
Loans and advances to banks 1,087 11,357 12,444
Financial investments 125 - 125
Other assets 894 - 894
--------------------------------------- --------- -------- -------
2,106 11,357 13,463
--------------------------------------- --------- -------- -------
LIABILITIES
Other liabilities 2,832 - 2,832
Debt securities in issue - 10,834 10,834
--------------------------------------- --------- -------- -------
2,832 10,834 13,666
--------------------------------------- --------- -------- -------
Net on-balance sheet position (726) 523 (203)
--------------------------------------- --------- -------- -------
A 10% strengthening of the pound against the Euro would lead to
GBP41,000 (2015: GBP52,000) decrease in the Company profits and
equity, conversely a 10% weakening of the pound against the Euro
would lead to the same increase in the Company profits and
equity.
Interest rate risk
Interest rate risk is the potential adverse impact on the
Company and Group's future cash flows from changes in interest
rates; and arises from the differing interest rate risk
characteristics of the Company and Group's assets and liabilities.
In particular, fixed rate savings and borrowing products expose the
Group to the risk that a change in interest rates could cause
either a reduction in interest income or an increase in interest
expense relative to variable rate interest flows. The Group seeks
to "match" interest rate risk on either side of the Statement of
Financial Position. However, this is not a perfect match and
interest rate risk is present on: Money market transactions of a
fixed rate nature, fixed rate loans and fixed rate savings
accounts. There is interest rate mismatch in Arbuthnot Latham and
Secure Trust Bank. This is monitored on a daily basis in
conjunction with liquidity and capital. The interest rate mismatch
is daily monitored, throughout the maturity bandings of the book,
on a parallel shift scenario for 50, 100 and 200 basis points
movement. The Group consider the 50, 100 and 200 basis points
movement to be appropriate for scenario testing given the
current economic outlook and industry expectations. This typically
results in a pre-tax mismatch of GBP0.5m to GBP2.0m (2015: GBP0.4m
to GBP1.8m) for the Group, with the same impact to equity pre-tax.
The Company has no fixed rate exposures, but a upward change of 50
basis points on variable rates would increase pre-tax profits and
equity by GBP7,000 (2015: increase pre-tax profits and equity by
GBP7,000).
The following tables summarise the re-pricing periods for the
assets and liabilities in the Company and Group, including
derivative financial instruments which are principally used to
reduce exposure to interest rate risk. Items are allocated to time
bands by reference to the earlier of the next contractual interest
rate re-price and the maturity date.
More More More
than than than
3 months 6 months 1 year
but but but
less less less More Non
Within than than than than interest
Group 3 months 6 months 1 year 5 years 5 years bearing Total
As at 31 December 2016 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
ASSETS
Cash and balances at
central banks 195,752 - - - - - 195,752
Loans and advances
to banks 36,951 - - - - - 36,951
Debt securities held-to-maturity 78,994 6,813 21,493 - - - 107,300
Derivative financial
instruments 85 - - 1,431 - - 1,516
Loans and advances
to customers 624,468 120,311 8,755 5,265 - - 758,799
Other assets - - - - - 162,821 162,821
Financial investments - - - - - 2,145 2,145
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Total assets 936,250 127,124 30,248 6,696 - 164,966 1,265,284
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
LIABILITIES
Deposits from banks 3,200 - - - - - 3,200
Derivative financial
instruments 227 - - - - - 227
Deposits from customers 813,047 61,519 84,480 38,603 - - 997,649
Other liabilities - - - - - 17,229 17,229
Debt securities in
issue 12,621 - - - - - 12,621
Equity - - - - - 234,358 234,358
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Total liabilities 829,095 61,519 84,480 38,603 - 251,587 1,265,284
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Impact of derivative
instruments 3,800 (3,800) - - - -
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
Interest rate sensitivity
gap 110,955 61,805 (54,232) (31,907) - (86,621)
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
Cumulative gap 110,955 172,760 118,528 86,621 86,621 -
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
More More More
than than than
3 months 6 months 1 year
but but but
less less less More Non
Within than than than than interest
Group 3 months 6 months 1 year 5 years 5 years bearing Total
As at 31 December 2015 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
ASSETS
Cash and balances at
central banks 368,611 - - - - - 368,611
Loans and advances
to banks 28,578 - - - - - 28,578
Assets classified as
held for sale - - - - - 118,456 118,456
Debt securities held-to-maturity 54,472 14,481 18,775 - - - 87,728
Derivative financial
instruments - - - - 1,490 - 1,490
Loans and advances
to customers 637,301 267,464 176,227 534,201 15 (35,696) 1,579,512
Other assets - - - - - 44,499 44,499
Financial investments - - - - - 2,685 2,685
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Total assets 1,088,962 281,945 195,002 534,201 1,505 129,944 2,231,559
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
LIABILITIES
Deposits from banks 387 35,000 19,918 - - - 55,305
Derivative financial
instruments 135 - - - - - 135
Deposits from customers 675,327 534,562 184,758 497,416 37,775 - 1,929,838
Liabilities classified
as held for sale - - - - - 8,700 8,700
Other liabilities - - - - - 35,343 35,343
Debt securities in
issue 10,834 - - - - - 10,834
Equity - - - - - 191,404 191,404
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Total liabilities 686,683 569,562 204,676 497,416 37,775 235,447 2,231,559
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Impact of derivative
instruments 3,800 - - (3,800) - -
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
Interest rate sensitivity
gap 406,079 (287,617) (9,674) 32,985 (36,270) (105,503)
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
Cumulative gap 406,079 118,462 108,788 141,773 105,503 -
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
More More More
than than than
3 months 6 months 1 year
but but but
less less less More Non
Within than than than than interest
Company 3 months 6 months 1 year 5 years 5 years bearing Total
As at 31 December 2016 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ---------- ---------- ---------- --------- --------- ---------- --------
ASSETS
Loans and advances to
banks 88,914 - - - - 158 89,072
Other assets - - - - - 61,125 61,125
Financial investments - - - - - 121 121
--------------------------- ---------- ---------- ---------- --------- --------- ---------- --------
Total assets 88,914 - - - - 61,404 150,318
--------------------------- ---------- ---------- ---------- --------- --------- ---------- --------
LIABILITIES
Other liabilities - - - - - 4,808 4,808
Debt securities in issue 12,621 - - - - - 12,621
Equity - - - - - 132,889 132,889
--------------------------- ---------- ---------- ---------- --------- --------- ---------- --------
Total liabilities 12,621 - - - - 137,697 150,318
--------------------------- ---------- ---------- ---------- --------- --------- ---------- --------
Interest rate sensitivity
gap 76,293 - - - - (76,293)
--------------------------- ---------- ---------- ---------- --------- --------- ----------
Cumulative gap 76,293 76,293 76,293 76,293 76,293 -
--------------------------- ---------- ---------- ---------- --------- --------- ----------
More More More
than than than
3 months 6 months 1 year
but but but
less less less More Non
Within than than than than interest
Company 3 months 6 months 1 year 5 years 5 years bearing Total
As at 31 December 2015 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ---------- ---------- ---------- --------- --------- ---------- --------
ASSETS
Loans and advances to
banks 12,444 - - - - - 12,444
Other assets - - - - - 48,079 48,079
Financial investments - - - - - 125 125
--------------------------- ---------- ---------- ---------- --------- --------- ---------- --------
Total assets 12,444 - - - - 48,204 60,648
--------------------------- ---------- ---------- ---------- --------- --------- ---------- --------
LIABILITIES
Other liabilities - - - - - 4,235 4,235
Debt securities in issue 10,834 - - - - - 10,834
Equity - - - - - 45,579 45,579
--------------------------- ---------- ---------- ---------- --------- --------- ---------- --------
Total liabilities 10,834 - - - - 49,814 60,648
--------------------------- ---------- ---------- ---------- --------- --------- ---------- --------
Interest rate sensitivity
gap 1,610 - - - - (1,610)
--------------------------- ---------- ---------- ---------- --------- --------- ----------
Cumulative gap 1,610 1,610 1,610 1,610 1,610 -
--------------------------- ---------- ---------- ---------- --------- --------- ----------
(d) Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset.
The Group's approach to managing liquidity is to ensure, as far
as possible, that it will always have sufficient liquidity to meet
its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage
to the Group's reputation. The liquidity requirements of the Group
are met through withdrawing funds from its Bank of England Reserve
Account to cover any short-term fluctuations and, longer term
funding to address any structural liquidity requirements.
The Group has formal governance structures in place to manage
and mitigate liquidity risk on a day to day basis. The Board of
each bank sets and approves the liquidity risk management strategy
for each subsidiary. The Assets and Liabilities Committee ("ALCO"),
comprising senior executives of each Company, monitors liquidity
risk. Key liquidity risk management information is reported by the
finance teams and monitored by the Chief Executive Officer and
Chief Financial Officer on a daily basis. The ALCO meets monthly to
review liquidity risk against set thresholds and risk indicators
including early warning indicators, liquidity risk tolerance levels
and Individual Liquidity Adequacy Assessment Process ("ILAAP")
metrics.
The PRA requires a firm to maintain at all times liquidity
resources which are adequate, both as to amount and quality, to
ensure that there is no significant risk that its liabilities
cannot be met as they fall due. There is also a requirement that a
firm ensures its liquidity resources contain an adequate buffer of
high quality, unencumbered assets (i.e. Government Securities in
the liquidity asset buffer); and it maintains a prudent funding
profile. The liquidity assets buffer is a pool of highly liquid
assets that can be called upon to create sufficient liquidity to
meet liabilities on demand, particularly in a period of liquidity
stress. The liquidity resources outside the buffer must either be
marketable assets with a demonstrable secondary market that the
firm can access, or a credit facility that can be activated in
times of stress.
Arbuthnot Latham & Co., Limited ("AL") has a Board approved
ILAAP. The liquidity buffer required by the ILAAP has been put in
place and maintained since that time. Liquidity resources outside
of the buffer are made up of deposits placed at the Bank of
England. The ILAAP is updated annually.
The Liquidity Coverage Ratio ("LCR") regime has applied to the
Group from 1 October 2015, requiring management of net 30 day cash
outflows as a proportion of high quality liquid assets. The actual
LCR has significantly exceeded the regulatory minimum throughout
the year.
The Group is exposed to daily calls on its available cash
resources from current accounts, maturing deposits and loan
draw-downs. The Group maintains significant cash resources to meet
all of these needs as they fall due. The matching and controlled
mismatching of the maturities and interest rates of assets and
liabilities is fundamental to the management of the Group. It is
unusual for banks to be completely matched, as transacted business
is often of uncertain term and of different types.
The maturities of assets and liabilities and the ability to
replace, at an acceptable cost, interest bearing liabilities as
they mature are important factors in assessing the liquidity of the
Group and its exposure to changes in interest rates.
The tables below show the undiscounted contractual maturity
analysis of the Group's financial liabilities and assets
as at 31 December 2016:
More More
than than
3 months 1 year
Gross Not but but
nominal more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2016 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------- ------------ ---------- ---------- --------- ---------
Financial liability by type
Non-derivative liabilities
Deposits from banks 3,200 (3,200) (3,200) - - -
Deposits from customers 997,649 (1,000,384) (716,285) (243,247) (40,852) -
Other liabilities 1,812 (1,812) (223) - - (1,589)
Debt securities in issue 12,621 (14,345) (86) (259) (1,379) (12,621)
Issued financial guarantee
contracts - (274) (274) - - -
Unrecognised loan commitments - (35,581) (35,581) - - -
---------------------------------- ---------- ------------ ---------- ---------- --------- ---------
1,015,282 (1,055,596) (755,649) (243,506) (42,231) (14,210)
---------------------------------- ---------- ------------ ---------- ---------- --------- ---------
Derivative liabilities
Risk management:
- Outflows - (227) (227) - - -
---------------------------------- ---------- ------------ ---------- ---------- --------- ---------
- (227) (227) - - -
---------------------------------- ---------- ------------ ---------- ---------- --------- ---------
More More
than than
3 months 1 year
Gross Not but but
nominal more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2016 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------- ------------ ---------- ---------- --------- ---------
Financial asset by type
Non-derivative assets
Cash and balances at central
banks 195,752 195,752 195,752 - - -
Loans and advances to banks 36,951 36,951 36,951 - - -
Debt securities held-to-maturity 107,300 130,360 70,082 41,334 18,944 -
Loans and advances to customers 758,799 841,283 218,427 130,870 447,253 44,733
Other assets 1,197 1,197 1,197 - - -
Financial investments 2,145 2,145 2,025 - 120 -
---------------------------------- ---------- ------------ ---------- ---------- --------- ---------
1,102,144 1,207,688 524,434 172,204 466,317 44,733
---------------------------------- ---------- ------------ ---------- ---------- --------- ---------
Derivative assets
Risk management:
- Inflows - 1,516 85 - - 1,431
- 1,516 85 - - 1,431
---------------------------------- ---------- ------------ ---------- ---------- --------- ---------
The tables below show the undiscounted contractual maturity
analysis of the Group's financial liabilities and assets
as at 31 December 2015:
More More
than than
3 months 1 year
Gross Not but but
nominal more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2015 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------- ------------ ------------ ---------- ---------- ---------
Financial liability by type
Non-derivative liabilities
Deposits from banks 55,305 (55,305) (35,387) (19,918) - -
Deposits from customers 1,929,838 (2,059,721) (1,099,222) (376,705) (540,890) (42,904)
Other liabilities 14,581 (14,581) (12,992) (125) - (1,464)
Debt securities in issue 10,834 (12,442) (80) (241) (1,287) (10,834)
Liabilities relating to
assets classified as held
for sale 8,700 (8,700) (8,700) - - -
Issued financial guarantee
contracts - (56) (56) - - -
Unrecognised loan commitments - (178,863) (178,863) - - -
---------------------------------- ---------- ------------ ------------ ---------- ---------- ---------
2,019,258 (2,329,668) (1,335,300) (396,989) (542,177) (55,202)
---------------------------------- ---------- ------------ ------------ ---------- ---------- ---------
Derivative liabilities
Risk management:
- Inflows 135 - - - - -
- Outflows - (135) (135) - - -
---------------------------------- ---------- ------------ ------------ ---------- ---------- ---------
135 (135) (135) - - -
---------------------------------- ---------- ------------ ------------ ---------- ---------- ---------
More More
than than
3 months 1 year
Gross Not but but
nominal more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2015 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------- ------------ ------------ ---------- ---------- ---------
Financial asset by type
Non-derivative assets
Cash and balances at central
banks 368,611 368,611 368,611 - - -
Loans and advances to banks 28,578 28,578 28,578 - - -
Debt securities held-to-maturity 87,728 88,887 29,333 27,302 32,252 -
Assets classified as held
for sale 118,456 (118,456) (118,456) - - -
Loans and advances to customers 1,579,512 1,913,124 245,450 506,808 1,093,755 67,111
Other assets 2,625 2,625 2,625 - - -
Financial investments 2,685 2,685 2,561 - 124 -
---------------------------------- ---------- ------------ ------------ ---------- ---------- ---------
2,188,195 2,286,054 558,702 534,110 1,126,131 67,111
---------------------------------- ---------- ------------ ------------ ---------- ---------- ---------
Derivative assets
Risk management:
- Inflows 1,490 1,490 59 - - 1,431
1,490 1,490 59 - - 1,431
---------------------------------- ---------- ------------ ------------ ---------- ---------- ---------
The table below sets out the components of the Group's
liquidity reserves:
31 December 31 December
2016 2015
Fair Fair
Amount value Amount value
Liquidity reserves GBP000 GBP000 GBP000 GBP000
---------------------------------- --------- --------- --------- ---------
Cash and balances at central
banks 195,752 195,752 368,611 368,611
Loans and advances to banks 36,943 36,943 28,578 28,578
Debt securities held-to-maturity 107,300 108,757 87,728 87,594
Undrawn credit lines 12,500 12,500 38,500 38,500
------------------------------------ --------- --------- --------- ---------
352,495 353,952 523,417 523,283
---------------------------------- --------- --------- --------- ---------
Assets pledged as collateral or encumbered
The total financial assets recognised in the statement of
financial position that had been pledged as collateral for
liabilities at 31 December 2016 were GBP112.0m (2015:
GBP226.2m).
Financial assets are pledged as collateral as part of sales and
repurchases, securities borrowing and securitisation transactions
under terms that are usual and customary for such activities. In
addition, as part of these transactions, the Group has received
collateral that is permitted to sell or repledge in the absence of
default.
The table below analyses the contractual maturity analysis
of the Company's financial liabilities and assets as
at 31 December 2016:
More More
than than
3 months 1 year
Gross Not but but
nominal more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2016 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- --------- ----------- ---------- ---------- --------- ---------
Financial liability by type
Non-derivative liabilities
Other liabilities 3,624 (3,624) (2,035) - - (1,589)
Issued financial guarantee
contracts 12,621 (14,345) (86) (259) (1,379) (12,621)
----------------------------- --------- ----------- ---------- ---------- --------- ---------
16,245 (17,969) (2,121) (259) (1,379) (14,210)
----------------------------- --------- ----------- ---------- ---------- --------- ---------
More More
than than
3 months 1 year
Gross Not but but
nominal more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2016 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- --------- ----------- ---------- ---------- --------- ---------
Financial asset by type
Non-derivative assets
Loans and advances to banks 89,072 89,072 89,072 - - -
Financial investments 121 121 - - 121 -
Other assets 791 791 791 - - -
----------------------------- --------- ----------- ---------- ---------- --------- ---------
89,984 89,984 89,863 - 121 -
----------------------------- --------- ----------- ---------- ---------- --------- ---------
The table below analyses the contractual maturity analysis
of the Company's financial liabilities and assets as
at 31 December 2015:
More More
than than
3 months 1 year
Gross Not but but
nominal more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2015 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- --------- ----------- ---------- ---------- --------- ---------
Financial liability by type
Non-derivative liabilities
Other liabilities 3,068 (3,068) (1,479) (125) - (1,464)
Debt securities in issue 10,834 (12,442) (80) (241) (1,287) (10,834)
13,902 (15,510) (1,559) (366) (1,287) (12,298)
----------------------------- --------- ----------- ---------- ---------- --------- ---------
More More
than than
3 months 1 year
Gross Not but but
nominal more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2015 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- --------- ----------- ---------- ---------- --------- ---------
Financial asset by type
Non-derivative assets
Loans and advances to banks 12,444 12,444 11,965 - - 479
Financial investments 125 125 - - 125 -
Other assets 891 891 891 - - -
----------------------------- --------- ----------- ---------- ---------- --------- ---------
13,460 13,460 12,856 - 125 479
----------------------------- --------- ----------- ---------- ---------- --------- ---------
The maturities of assets and liabilities and the ability to
replace, at an acceptable cost, interest-bearing liabilities as
they mature
are important factors in assessing the liquidity of the Group
and its exposure to changes in interest rates and exchange
rates.
Fiduciary activities
The Group provides investment management and advisory services
to third parties, which involve the Group making allocation and
purchase and sale decisions in relation to a wide range of
financial instruments. Those assets that are held in a fiduciary
capacity are not included in these financial statements. These
services give rise to the risk that the Group may be accused of
maladministration or underperformance. At the balance sheet date,
the Group had investment management accounts amounting to
approximately GBP920m (2015: GBP739m). Additionally, the Group
provides investment advisory services.
(e) Financial
assets
and liabilities
The tables below set out the Group's financial assets
and financial liabilities into the respective classifications:
Fair
value
through
profit Loans Other Total
or and amortised carrying Fair
loss Held-to-maturity receivables Available-for-sale cost amount value
At 31 December
2016 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
ASSETS
Cash and balances
at central banks - - 195,752 - - 195,752 195,752
Loans and advances
to banks - - 36,951 - - 36,951 36,951
Debt securities
held-to-maturity - 107,300 - - - 107,300 108,757
Derivative
financial
instruments 1,516 - - - - 1,516 1,516
Loans and advances
to customers - - 758,799 - - 758,799 742,894
Other assets - - 1,197 - - 1,197 1,197
Financial
investments - - - 2,145 - 2,145 2,145
-------------------- -------- ----------------- ------------ ------------------- ---------- ---------- ----------
1,516 107,300 992,699 2,145 - 1,103,660 1,089,212
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
LIABILITIES
Deposits from banks - - - - 3,200 3,200 3,200
Derivative
financial
instruments 227 - - - - 227 227
Deposits from
customers - - - - 997,649 997,649 997,649
Other liabilities - - 1,812 - - 1,812 1,812
Debt securities
in issue - - - - 12,621 12,621 12,621
-------------------- -------- ----------------- ------------ ------------------- ---------- ---------- ----------
227 - 1,812 - 1,013,470 1,015,509 1,015,509
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
Fair
value
through
profit Loans Other Total
or and amortised carrying Fair
loss Held-to-maturity receivables Available-for-sale cost amount value
At 31 December
2015 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
ASSETS
Cash and balances
at central banks - - 368,611 - - 368,611 368,611
Loans and advances
to banks - - 28,578 - - 28,578 28,578
Debt securities
held-to-maturity - 87,728 - - - 87,728 87,594
Assets classified
as held for sale - - - 118,456 - 118,456 118,456
Derivative
financial
instruments 1,490 - - - - 1,490 1,490
Loans and advances
to customers - - 1,579,512 - - 1,579,512 1,570,932
Other assets - - 2,625 - - 2,625 2,625
Financial
investments - - - 2,685 - 2,685 2,685
-------------------- -------- ----------------- ------------ ------------------- ---------- ---------- ----------
1,490 87,728 1,979,326 121,141 - 2,189,685 2,180,971
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
LIABILITIES
Deposits from banks - - - - 55,305 55,305 55,305
Derivative
financial
instruments 135 - - - - 135 135
Deposits from
customers - - - - 1,929,838 1,929,838 1,929,838
Liabilities
relating
to assets
classified
as held for sale - - - 8,700 - 8,700 8,700
Other liabilities - - 14,581 - - 14,581 14,581
Debt securities
in issue - - - - 10,834 10,834 10,834
-------------------- -------- ----------------- ------------ ------------------- ---------- ---------- ----------
135 - 14,581 8,700 1,995,977 2,019,393 2,019,393
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
Cash, loans and advances to banks, debt securities
held-to-maturity, deposits from banks and deposits from customers
are classified as level 2 financial instruments, on the basis that
they are liquid but not traded in an active market. Loans and
advances to customers and debt securities in issue are classified
as level 3 as there is no observable market data for these
instruments.
7. Capital management
The Group's capital management policy is focused on optimising
shareholder value. There is a clear focus on delivering organic
growth and ensuring capital resources are sufficient to support
planned levels of growth. The Board regularly reviews the capital
position.
The Group's lead regulator, the Prudential Regulatory Authority
('PRA'), sets and monitors capital requirements for the Group as a
whole and for the individual banking operations. The lead regulator
adopted the Basel III capital requirements with effect from 1
January 2014. As a result, the Group's regulatory capital
requirements were based on Basel III in 2014.
In accordance with the EU's Capital Requirements Directive (CRD)
and the required parameters set out in the Prudential Regulation
Authority ('PRA') Handbook (BIPRU 2.2), the Individual Capital
Adequacy Assessment Process (ICAAP) is embedded in the risk
management framework of the Group and is subject to ongoing updates
and revisions when necessary. However, at a minimum, the ICAAP is
updated annually as part of the business planning process. The
ICAAP is a process that brings together management framework (i.e.
the policies, procedures, strategies, and systems that the Group
has implemented to identify, manage and mitigate its risks) and the
financial disciplines of business planning and capital management.
The Group's regulated entities are also the principal trading
subsidiaries as detailed in Note 41.
Not all material risks can be mitigated by capital, but where
capital is appropriate the Board has adopted a "Pillar 1 plus"
approach to determine the level of capital the Group needs to hold.
This method takes the Pillar 1 capital formula calculations
(standardised approach for credit, market and operational risk) as
a starting point, and then considers whether each of the
calculations delivers a sufficient capital sum adequately to cover
management's anticipated risks. Where the Board considered that the
Pillar 1 calculations did not reflect the risk, an additional
capital add-on in Pillar 2 is applied, as per the Individual
Capital Guidance (ICG) issued by the PRA.
The Group's regulatory capital is divided into two tiers:
-- Tier 1 comprises mainly shareholders' funds and revaluation
reserves, after deducting goodwill, other intangible assets and
the
deduction for a significant investment in a financial
institution (STB). The portion of the investment up to 10% of ABG's
Tier 1
is added back to capital resources and then risk weighted at
250%.
-- Lower Tier 2 comprises qualifying subordinated loan capital
and collective provisions. Lower Tier 2 capital cannot exceed
50%
of Tier 1 capital.
The following table shows the regulatory
capital resources as managed by the Group:
2016 2015
GBP000 GBP000
---------------------------------------------- --------- ---------
Tier 1
Share capital 153 153
Retained earnings 235,567 123,330
Deduction for significant investment (81,674) -
Add back 10% of CET1 (risk weighted at 250%) 22,557 -
Other reserves (1,362) (1,111)
Non-controlling interests - 67,887
Deduction for non-controlling interests - (23,047)
Goodwill (1,682) (2,695)
Deductions for other intangibles (6,840) (8,179)
Revaluation reserve (271) 1,145
---------------------------------------------- --------- ---------
Total tier 1 capital resources 166,448 157,483
---------------------------------------------- --------- ---------
Tier 2
Collective provisions - 2,031
Debt securities in issue 12,621 10,834
---------------------------------------------- --------- ---------
Total tier 2 capital resources 12,621 12,865
---------------------------------------------- --------- ---------
Total tier 1 & tier 2 capital resources 179,069 170,348
---------------------------------------------- --------- ---------
The ICAAP includes a summary of the capital required to mitigate
the identified risks in its regulated entities and the amount of
capital that the Group has available. The PRA sets ICG for each UK
bank calibrated by reference to its Capital Resources Requirement,
broadly equivalent to 8 percent of risk weighted assets and thus
representing the capital required under Pillar 1 of the Basel III
framework. The ICAAP is a key input into the PRA's ICG setting
process, which addresses the requirements of Pillar 2 of the Basel
III framework. The PRA's approach is to monitor the available
capital resources in relation to the ICG requirement. Each entity
maintains an extra internal buffer and capital ratios are reviewed
on a monthly basis to ensure that external requirements are adhered
to. All regulated entities have complied with all of the externally
imposed capital requirements to which they are subject.
Pillar 3 complements the minimum capital requirements (Pillar 1)
and the supervisory review process (Pillar 2). Its aim is to
encourage market discipline by developing a set of disclosure
requirements which will allow market participants to assess key
pieces of information on a firm's capital, risk exposures and risk
assessment processes. Our Pillar 3 disclosures for the year ended
31 December 2016 are published as a separate document on the Group
website under Investor Relations (Announcements & Shareholder
Info).
8. Interest income
Re-presented*
2016 2015
GBP000 GBP000
--------------------------------------------- ------- --------------
Cash and balances at central banks 997 670
Loans and advances to banks 124 218
Debt securities held-to-maturity 844 539
Loans and advances to customers 36,106 31,374
----------------------------------------------- ------- --------------
38,071 32,801
--------------------------------------------- ------- --------------
* Prior year numbers have been re-presented
to exclude discontinuing operations (see
note 14).
In 2016, the Group recognised GBP325k (2015: GBPnil)
of additional interest income to reflect actual cash
flows received on the aquired mortgage book having been
in excess of forecast cash flows.
9. Fee and commission income
Re-presented*
2016 2015
GBP000 GBP000
--------------------------------------------- ------- --------------
Banking commissions 1,947 1,666
Investment management fees and commissions 7,122 5,946
Wealth planning fees and commissions 2,156 1,969
Other fee income 205 418
--------------------------------------------- ------- --------------
11,430 9,999
--------------------------------------------- ------- --------------
* Prior year numbers have been re-presented
to exclude discontinuing operations (see
note 14).
10. Net impairment loss on financial assets
Re-presented*
2016 2015
GBP000 GBP000
--------------------------------------------- ------- --------------
Net Impairment losses on loans and advances
to customers 427 1,250
Impairment losses on financial investments 47 34
--------------------------------------------- ------- --------------
474 1,284
--------------------------------------------- ------- --------------
* Prior year numbers have been re-presented
to exclude discontinuing operations (see
note 14).
11. Other income
Other income mainly consists of rental income from the
investment property (see note 29) of GBP1.1m and GBP1.6m realised
on the investment in Visa (see note 24).
12. Operating expenses
Re-presented*
2016 2015
Operating expenses comprise: GBP000 GBP000
--------------------------------------------- ------- --------------
Staff costs, including Directors:
Wages and salaries 26,708 19,483
Social security costs 3,154 2,117
Pension costs 1,247 946
Share based payment transactions (note 37) 215 51
Amortisation of intangibles (note 27) 521 473
Depreciation (note 28) 1,146 855
Financial Services Compensation Scheme Levy 233 160
Operating lease rentals 2,610 1,941
Operating expenses for investment property 115 -
Acquisitions costs 398 1,645
Other administrative expenses 9,764 8,255
--------------------------------------------- ------- --------------
Total operating expenses from continuing
operations 46,111 35,926
--------------------------------------------- ------- --------------
* Prior year numbers have been re-presented
to exclude discontinuing operations (see
note 14).
Details on Directors remuneration is disclosed in the
Remuneration Report on page 21.
2016 2015
Remuneration of the auditor and its associates,
excluding VAT, was as follows: GBP000 GBP000
------------------------------------------------- ------- -------
Fees payable to the Company's auditor for
the audit of the Company's annual accounts 99 95
Fees payable to the Company's auditor and
its associates for other services:
Audit of the accounts of subsidiaries 237 329
Audit related assurance services 157 65
Taxation compliance services 36 82
Taxation advisory services 99 61
Other assurance services 170 321
Corporate finance services - 115
Other non-audit services 15 13
------------------------------------------------- ------- -------
Total fees payable 813 1,081
------------------------------------------------- ------- -------
Other assurance services include regulatory assessments.
Corporate finance services include due diligence work on a
potential corporate transaction.
13. Income tax expense
2016 2015
United Kingdom corporation tax at 20% (2015:
20.25%) GBP000 GBP000
--------------------------------------------------- ------- --------
Current taxation
Corporation tax charge - current year 179 71
Corporation tax charge - adjustments in respect
of prior years 457 -
--------------------------------------------------- ------- --------
636 71
--------------------------------------------------- ------- --------
Deferred taxation
Origination and reversal of temporary differences 11 (67)
Adjustments in respect of prior years 73 (125)
--------------------------------------------------- ------- --------
84 (192)
--------------------------------------------------- ------- --------
Income tax expense/(credit) 720 (121)
--------------------------------------------------- ------- --------
Tax reconciliation
Profit/(loss) before tax 179 (2,606)
Tax at 20% (2015: 20.25%) 36 (528)
Permanent differences 67 531
Tax rate change 87 1
Prior period adjustments 530 (125)
--------------------------------------------------- ------- --------
Corporation tax charge/(credit) for the year 720 (121)
--------------------------------------------------- ------- --------
Prior year adjustments mainly relate to management charges
disallowed, as a result of the resolution of a lengthy dispute with
HMRC.
The tax charge on discontinuing operations is disclosed in note
14.
The UK corporation tax rate reduced from 21% to 20% with effect
from 1 April 2015. On 26 October 2015 the Government substantively
enacted a further reduction to the UK corporation tax rate to 19%
from 1 April 2017 and to 17% from 1 April 2020. In addition, the
Chancellor announced the introduction of a corporation tax
surcharge applicable to banking companies with effect from 1
January 2016. The surcharge is levied at a rate of 8% on the
profits of banking companies, after taking into account an annual
allowance of GBP25m. This will increase the Group's future current
tax charge accordingly.
14. Discontinued operations
The profit after tax from discontinued operations is made up as
follows:
Year Year
ended ended
31 December 31 December
2016 2015
Discontinued operations GBP000 GBP000
----------------------------------------------- ------------- -------------
Profit after tax from discontinued operations
- ELL (up to 13 April 2016) 2,027 9,392
Profit after tax on sale of discontinued
operations - ELL 116,754 -
Profit after tax from discontinued operations
- STB (up to 15 June 2016) 9,149 19,617
Profit after tax on sale of discontinued
operations - STB 100,180 -
----------------------------------------------- ------------- -------------
Profit after tax from discontinued operations 228,110 29,009
------------------------------------------------- ------------- -------------
On 4 December 2015, STB agreed to the conditional sale of its
non-standard consumer lending business, ELL, which comprises
Everyday Loans Holdings Limited and subsidiary companies Everyday
Lending Limited and Everyday Loans Limited, to Non Standard Finance
PLC (NSF) for GBP106.9 million in cash subject to a net asset
adjustment and GBP16.3 million in NSF ordinary shares. The Disposal
completed on 13 April 2016, and on completion, NSF repaid
intercompany debt of GBP108.1 million to STB. After selling costs
of GBP6.2m, this resulted in a gain recognised on disposal of
GBP116.8m.
Details of the profits of discontinued operations, net assets
disposed of and consequential gain recognised on disposal and cash
flow from discontinued operations is set out below.
From
1 January Year
to 13 ended
April 31 December
2016 2015
Note GBP000 GBP000
------------------------------------------ ----- ----------- -------------
Interest income 11,137 39,230
Net interest income 11,137 39,230
------------------------------------------ ----- ----------- -------------
Fee and commission income 147 1,523
Fee and commission expense (124) (358)
------------------------------------------ ----- ----------- -------------
Net fee and commission income 23 1,165
------------------------------------------ ----- ----------- -------------
Operating income 11,160 40,395
------------------------------------------ ----- ----------- -------------
Net impairment loss on financial assets (2,610) (7,537)
Operating expenses (6,016) (21,195)
------------------------------------------ ----- ----------- -------------
Profit before tax 2,534 11,663
Tax expense (507) (2,271)
------------------------------------------ ----- ----------- -------------
Profit after tax 2,027 9,392
------------------------------------------ ----- ----------- -------------
Profit on sale of business 116,754 -
------------------------------------------ ----- ----------- -------------
Total profit from discontinued operation 118,781 9,392
------------------------------------------ ----- ----------- -------------
Profit attributable to:
Equity holders of the Company 61,667 4,876
Non-controlling interests 57,114 4,516
------------------------------------------ ----- ----------- -------------
Profit after tax 118,781 9,392
------------------------------------------ ----- ----------- -------------
Earnings per share for profit attributable to the equity
holders of the Company from discontinued operations during
the year
(expressed in pence per share):
- basic 16 418.4 33.1
- diluted 16 418.2 32.0
The following assets were sold as part of the sale
of ELL:
Recognised
values
on sale
2016
GBP000
----------------------------------------------- -----------
Loans and advances to banks 457
Loans and advances to customers 116,744
Property, plant and equipment 452
Intangible assets 1,258
Deferred tax assets 371
Prepayments and accrued income 451
Other assets 11
----------------------------------------------- -----------
Total assets 119,744
Intercompany funding 108,088
Current tax liability 3,212
Other liabilities 4,748
----------------------------------------------- -----------
Total liabilities 116,048
Net identifiable assets / (liabilities) 3,696
----------------------------------------------- -----------
Consideration 123,206
Costs (2,756)
Profit on sale of ELL 116,754
----------------------------------------------- -----------
The intercompany funding was repaid by NSF at
the time of completion.
From
1 January Year
Cash flow from discontinued operations to 13 ended
- ELL April 31 December
2016 2015
GBP000 GBP000
---------------------------------------------- ----------- -------------
Cash flows from operating activities
Interest received 11,137 40,595
Fees and commissions received 23 1,165
Cash payments to employees and suppliers (8,626) (21,197)
Taxation paid (507) (130)
------------------------------------------------ ----------- -------------
Cash flows from operating profits before
changes in operating assets and liabilities 2,027 20,433
Changes in operating assets and liabilities:
- net increase in loans and advances
to customers (3,618) (27,788)
- net (increase) / decrease in other
assets (249) 654
- net increase in other liabilities 2,621 7,027
------------------------------------------------ ----------- -------------
Net cash inflow from operating activities 781 326
------------------------------------------------ ----------- -------------
Cash flows from investing activities
Purchase of computer software - (33)
Purchase of property, plant and equipment (9) (253)
Net cash outflow from investing activities (9) (286)
------------------------------------------------ ----------- -------------
Net increase/(decrease) in cash and cash
equivalents 772 40
Cash and cash equivalents at 1 January 1,661 1,621
------------------------------------------------ ----------- -------------
Cash and cash equivalents at 13 April
/ 31 December 2,433 1,661
------------------------------------------------ ----------- -------------
On 15 June 2016 Arbuthnot Banking Group ('ABG') sold 6 million
shares in Secure Trust Bank PLC ('STB'), which reduced its
shareholding in STB from 51.92% to 18.93%. From this date the Group
accounted for its remaining shareholding in STB as an associate.
After the sale of the 6 million shares, the Group retained Board
representation and as such is seen to have significant influence
over STB. The profit and cash flow from discontinued operations
relating to ELL have been shown in the tables above. The ELL
entities were subsidiaries of STB and therefore formed part of the
STB result reported in the operating segments of ABG. The tables
below therefore reflect the profit and cash flow from the STB group
excluding ELL. The combined impact can be seen in the operating
segments (see note 42 - Retail banking).
From
1 January Year
to 15 ended
June 31 December
2016 2015
Note GBP000 GBP000
------------------------------------------ ----- ----------- -------------
Interest income 57,498 100,442
Interest expense (12,107) (21,560)
------------------------------------------ ----- ----------- -------------
Net interest income 45,391 78,882
------------------------------------------ ----- ----------- -------------
Fee and commission income 7,981 16,867
Fee and commission expense (779) (3,660)
------------------------------------------ ----- ----------- -------------
Net fee and commission income 7,202 13,207
------------------------------------------ ----- ----------- -------------
Operating income 52,593 92,089
------------------------------------------ ----- ----------- -------------
Net impairment loss on financial assets (12,172) (16,782)
Operating expenses (29,073) (50,133)
------------------------------------------ ----- ----------- -------------
Profit before tax 11,348 25,174
Tax expense (2,199) (5,557)
------------------------------------------ ----- ----------- -------------
Profit after tax 9,149 19,617
------------------------------------------ ----- ----------- -------------
Profit on sale of shares 100,180 -
------------------------------------------ ----- ----------- -------------
Total profit from discontinued operation 109,329 19,617
------------------------------------------ ----- ----------- -------------
Profit attributable to:
Equity holders of the Company 105,017 10,335
Non-controlling interests 4,312 9,282
------------------------------------------ ----- ----------- -------------
Profit after tax 109,329 19,617
------------------------------------------ ----- ----------- -------------
Earnings per share for profit attributable to the equity
holders of the Company from discontinued operations during
the year
(expressed in pence per share):
- basic 16 712.5 70.1
- diluted 16 712.2 67.9
The following assets were deconsolidated as part of
the sale of 6 million shares in STB:
Recognised
values
on sale
2016
GBP000
------------------------------------------------ -----------
Cash and balances at central banks 176,647
Loans and advances to banks 27,618
Loans and advances to customers 1,117,700
Other assets 5,805
Financial investments 15,030
Deferred tax asset 606
Intangible assets 7,017
Property, plant and equipment 8,606
------------------------------------------------ -----------
Total assets 1,359,029
Deposits from banks 25,000
Deposits from customers 1,046,009
Current tax liability 293
Other liabilities 29,748
------------------------------------------------ -----------
Total liabilities 1,101,050
Net identifiable assets 257,979
------------------------------------------------ -----------
Profit on sale of shares was calculated as follows:
2016
GBP000
------------------------------------------------ -----------
Consideration received 150,000
Less costs (2,001)
Less net identifiable assets (257,979)
Add back non-controlling interest 124,046
Add back fair value of remaining investment in
STB 86,114
Profit on sale of STB 100,180
------------------------------------------------ -----------
From
1 January Year
Cash flow from discontinued operations to 15 ended
- STB excluding ELL June 31 December
2016 2015
GBP000 GBP000
---------------------------------------------- ----------- -------------
Cash flows from operating activities
Interest received 68,635 141,145
Interest paid (12,107) (28,210)
Fees and commissions received 7,226 4,355
Cash payments to employees and suppliers (51,552) (76,150)
Taxation paid (6,034) (7,410)
------------------------------------------------ ----------- -------------
Cash flows from operating profits before
changes in operating assets and liabilities 6,168 33,730
Changes in operating assets and liabilities:
- net decrease/(increase) in loans and
advances to banks - 15,000
- net increase in loans and advances
to customers (165,976) (338,343)
- net decrease/(increase) in other assets 117,395 (120,678)
- net (decrease)/increase in deposits
from banks (10,000) 19,059
- net increase in amounts due to customers 12,936 424,655
- net decrease in other liabilities (5,031) 5,613
------------------------------------------------ ----------- -------------
Net cash (outflow)/inflow from operating
activities (44,508) 39,036
------------------------------------------------ ----------- -------------
Cash flows from investing activities
Purchase of computer software (1,754) (2,286)
Purchase of property, plant and equipment (531) (1,068)
Disposal of property, plant and equipment 2,179 -
Proceeds from disposal of businesses 106,912 -
Proceeds from sale of property, plant
and equipment 456 -
Proceeds from redemption of debt securities - 12,487
------------------------------------------------ ----------- -------------
Net cash inflow/(outflow) from investing
activities 107,262 9,133
------------------------------------------------ ----------- -------------
Cash flows from financing activities
Dividends paid (10,005) (12,552)
Net cash used in financing activities (10,005) (12,552)
------------------------------------------------ ----------- -------------
Net increase in cash and cash equivalents 52,749 35,617
Cash and cash equivalents at 1 January 141,595 105,978
------------------------------------------------ ----------- -------------
Cash and cash equivalents at 15 June
/ 31 December 194,344 141,595
------------------------------------------------ ----------- -------------
15. Average number of employees
2016 2015
--------------------------------------------- ------- ------
Retail banking - 706
Private banking 268 210
Group 19 21
--------------------------------------------- ------- ------
287 937
--------------------------------------------- ------- ------
As STB was deconsolidated during the year, the employees
have been removed from the above averages in 2016
16. Earnings per ordinary share
Basic
Basic earnings per ordinary share are calculated by dividing the
profit after tax attributable to equity holders of the Company by
the weighted average number of ordinary shares 14,738,548 (2015:
14,738,548) in issue during the year.
Diluted
Diluted earnings per ordinary share are calculated by dividing
the dilutive profit after tax attributable to equity holders of the
Company by the weighted average number of ordinary shares in issue
during the year, as well as the number of dilutive share options in
issue during the year. The number of dilutive share options in
issue at the year end was 50,000 (2015: 200,000).
2016 2015
Profit attributable GBP000 GBP000
----------------------------------------------------- -------- --------
Total profit after tax attributable to equity
holders of the Company 166,143 12,726
Loss after tax from continuing operations
attributable to equity holders of the Company (541) (2,485)
Profit after tax from discontinued operations
attributable to equity holders of the Company
(STB excl. ELL) 105,017 10,335
Profit after tax from discontinued operations
attributable to equity holders of the Company
(ELL) 61,667 4,876
----------------------------------------------------- -------- --------
2016 2015
Dilutive profit attributable GBP000 GBP000
----------------------------------------------------- -------- --------
Total profit after tax attributable to equity
holders of the Company 166,143 12,448
Loss after tax from continuing operations
attributable to equity holders of the Company (541) (2,485)
Profit after tax from discontinued operations
attributable to equity holders of the Company
(STB excl. ELL) 105,017 10,148
Profit after tax from discontinued operations
attributable to equity holders of the Company
(ELL) 61,667 4,785
----------------------------------------------------- -------- --------
2016 2015
Basic Earnings per share p p
----------------------------------------------------- -------- --------
Total Basic Earnings per share 1,127.2 86.3
Basic Earnings per share from continuing operations (3.7) (16.9)
Basic Earnings per share from discontinued
operations (STB excl. ELL) 712.5 70.1
Basic Earnings per share from discontinued
operations (ELL) 418.4 33.1
----------------------------------------------------- -------- --------
2016 2015
Diluted Earnings per share p p
----------------------------------------------------- -------- --------
Total Diluted Earnings per share 1,126.7 83.3
Diluted Earnings per share from continuing
operations (3.7) (16.6)
Diluted Earnings per share from discontinued
operations (STB excl. ELL) 712.2 67.9
Diluted Earnings per share from discontinued
operations (ELL) 418.2 32.0
----------------------------------------------------- -------- --------
17. Cash and balances at central banks
2016 2015
Group GBP000 GBP000
---------------------------------------- --------- --------
Cash and balances at central banks 195,752 368,611
---------------------------------------- --------- --------
Surplus funds are mainly held in the Bank of England reserve
account, with the remainder held in certificates of deposit, fixed
rate notes and money market deposits in highly rated banks (the
majority held in UK clearing banks).
18. Loans and advances to banks
2016 2015
Group GBP000 GBP000
----------------------------------------------- ------- -------
Placements with banks included in cash and
cash equivalents (note 39) 36,951 28,578
----------------------------------------------- ------- -------
The table below presents an analysis of loans and advances
to banks by rating agency designation as at 31 December,
based on Moody's long term ratings:
2016 2015
Group GBP000 GBP000
----------------------------------------------- ------- -------
Aa1 - 220
A1 20,696 15,972
A2 15,582 6,258
A3 110 5,366
Baa1 555 762
Unrated 8 -
----------------------------------------------- ------- -------
36,951 28,578
----------------------------------------------- ------- -------
None of the loans and advances to banks are
either past due or impaired.
2016 2015
Company GBP000 GBP000
----------------------------------------------- ------- -------
Placements with banks included in cash and
cash equivalents (note 39) 89,072 12,444
----------------------------------------------- ------- -------
Loans and advances to banks include bank balances of
GBP89.1m (2015: GBP12.4m) with Arbuthnot Latham & Co.,
Ltd
19. Debt securities held-to-maturity
Debt securities represent certificates of deposit. The Group's
intention is to hold them to maturity and, therefore, they are
presented in the Statement of Financial Position at amortised
cost.
The movement in debt securities held to maturity
may be summarised as follows:
2016 2015
Group GBP000 GBP000
-------------------------------------------------- --------- ----------
At 1 January 87,728 91,683
Exchange difference 2,087 808
Additions 89,384 145,880
Redemptions (68,103) (150,643)
Deconsolidation of STB (3,796) -
-------------------------------------------------- --------- ----------
At 31 December 107,300 87,728
-------------------------------------------------- --------- ----------
The table below presents an analysis of debt securities
by rating agency designation at 31 December, based on
Moody's long term ratings:
2016 2015
Group GBP000 GBP000
---------------------------------------------- -------- -------
Aaa 40,337 42,618
Aa1 23 23,317
Aa2 26,089 8,913
Aa3 6,000 1
A1 31,953 6,311
A2 - 4,554
A3 2,898 2,000
Baa1 - 14
---------------------------------------------- -------- -------
107,300 87,728
---------------------------------------------- -------- -------
None of the debt securities held-to-maturity
are either past due or impaired.
20. Derivative financial
instruments
2016 2015
----------------------------------- -----------------------------------
Contract/ Fair Fair Contract/ Fair Fair
notional value value notional value value
amount assets liabilities amount assets liabilities
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ---------- -------- ------------- ---------- -------- -------------
Currency swaps 6,566 85 218 34,459 59 135
Interest rate caps 3,800 - 9 - - -
Structured notes 1,607 1,431 - 1,607 1,431 -
-------------------------- ---------- -------- ------------- ---------- -------- -------------
11,973 1,516 218 36,066 1,490 135
-------------------------- ---------- -------- ------------- ---------- -------- -------------
The principal derivatives used by the Group are over the counter
exchange rate contracts and interest rate caps (used for cash flow
hedges). Exchange rate related contracts include currency swaps and
cash flow hedges include interest rate caps.
A forward foreign exchange contract is an agreement to buy or
sell a specified amount of foreign currency on a specified future
date at an agreed rate. Currency swaps generally involve the
exchange of interest payment obligations denominated in different
currencies; exchange of principal can be notional or actual. The
currency swaps are settled net and therefore the fair value is
small in comparison to the contract/notional amount.
An interest rate cap is an option contract which puts an upper
limit on a floating exchange rate. The writer of the cap has to pay
the holder of the cap the difference between the floating rate and
the reference rate when that reference rate is breached. The holder
pays a premium for the cap.
Also included in derivative financial instruments are structured
notes. These notes contain embedded derivatives (embedded options
to buy and sell indices) and non-derivative host contracts
(discounted bonds). Both the host and embedded derivatives are
presented net within derivative financial instruments.
The Group only uses investment graded banks as counterparties
for derivative financial instruments. None of the contracts are
collateralised.
The table below presents an analysis of derivative financial
instruments contract/notional amounts by rating agency
designation of
counterparty bank at 31 December, based on
Moody's long term ratings:
2016 2015
Group GBP000 GBP000
------------------------------------------------ ------- -------
Aa3 - 34,459
A1 10,366 -
Baa1 1,607 1,607
------------------------------------------------ ------- -------
11,973 36,066
------------------------------------------------ ------- -------
21. Loans and advances to customers
2016 2015
Group GBP000 GBP000
------------------------------------------ -------- ----------
Gross loans and advances 759,772 1,615,208
Less: allowances for impairment on loans
and advances (note 22) (973) (35,696)
------------------------------------------ -------- ----------
758,799 1,579,512
------------------------------------------ -------- ----------
On 19 December 2016 AL completed the purchase of a private
banking loan portfolio from Duncan Lawrie Ltd for a consideration
of GBP42.7m. The portfolio is included in loans and advances to
customers at fair value.
For a maturity profile of loans and advances to customers, refer
to note 6.
Loans and advances to customers include finance
lease receivables as follows:
2016 2015
Group GBP000 GBP000
-------------------------------------------------- -------- ----------
Gross investment in finance lease receivables:
- No later than 1 year - 41,906
- Later than 1 year and no later than 5
years - 67,789
- Later than 5 years - 873
-------------------------------------------------- -------- ----------
- 110,568
Unearned future finance income on finance
leases - (18,996)
-------------------------------------------------- -------- ----------
Net investment in finance leases - 91,572
-------------------------------------------------- -------- ----------
The net investment in finance leases may
be analysed as follows:
- No later than 1 year - 31,684
- Later than 1 year and no later than 5
years - 59,074
- Later than 5 years - 814
-------------------------------------------------- -------- ----------
- 91,572
-------------------------------------------------- -------- ----------
Loans and advances to customers can be further
summarised as follows:
2016 2015
Group GBP000 GBP000
-------------------------------------------------- -------- ----------
Neither past due nor impaired 719,515 1,516,236
Past due but not impaired 23,379 23,792
Impaired 16,878 75,180
-------------------------------------------------- -------- ----------
Gross 759,772 1,615,208
Less: allowance for impairment (973) (35,696)
-------------------------------------------------- -------- ----------
Net 758,799 1,579,512
-------------------------------------------------- -------- ----------
(a) Loans and advances past due but not impaired
Gross amounts of loans and advances to customers
that were past due but not impaired were
as follows:
2016 2015
Group GBP000 GBP000
-------------------------------------------------- -------- ----------
Past due up to 30 days 961 643
Past due 30 - 60 days 5,689 1,714
Past due 60 - 90 days 638 1,706
Over 90 days 16,091 19,729
-------------------------------------------------- -------- ----------
Total 23,379 23,792
-------------------------------------------------- -------- ----------
Loans and advances typically fall into this category when there
is a delay in either the sale of the underlying collateral or the
completion of formalities to extend the credit facilities for a
further period. Management have no material concerns regarding the
quality of the collateral that secures the lending.
(b) Loans and advances renegotiated
Restructuring activities include external payment arrangements,
modification and deferral of payments. Following restructuring, a
previously overdue customer account is reset to a normal status and
managed together with other similar accounts. Restructuring
policies and practices are based on indicators or criteria which,
in the judgement of management, indicate that payment will most
likely continue. These policies are kept under continuous review.
Renegotiated loans that would otherwise be past due or impaired
totalled GBPnil (2015: GBPnil).
(c) Collateral held
Collateral is measured at fair value less costs to sell.
Arbuthnot Latham & Co., Ltd
Most of the loans are secured by property. The fair value of the
collateral held against past due but not impaired or impaired
balances is GBP103.7m (2015: GBP93.3m) against loans of GBP40.3m
(2015: GBP43.2m), giving an average loan-to-value of 39% (2015:
46%). The weighted average loan-to-value is 61% (2015: 63%). The
net amount of individually impaired loans and advances to customers
after impairment but before taking into account the cash flows from
collateral held is GBP15.9m (2015: GBP18.0m).
Secure Trust Bank PLC (2015 comparatives)
The majority of the loans were unsecured personal loans with an
average size at inception of GBP5,000; therefore the portfolio did
not have a significant concentration to any individuals, sectors or
geographic locations. GBP0.2m related to a standard mortgage loan
secured upon residential property which was neither past due nor
impaired. The residential property over which the mortgage loan was
secured had a fair value of GBP0.2m based on other property sales,
and a loan to value ratio of 72%.
GBP368.0m of the loans were secured upon residential or
commercial property and these were neither past due nor impaired.
All loans secured were at a loan to value ratio of less than
80%.
GBP165.7m of the loans were secured against motor vehicles where
the security was discharged when the buyer exercised an option to
buy the goods at a predetermined price at the end of the loan term.
Management's estimate of the fair value of the motor vehicles was
GBP127.1m.
22. Allowances for impairment of loans and
advances
Reconciliation of specific allowance for
impairments:
2016 2015
Group GBP000 GBP000
---------------------------------------------------- --------- ---------
At 1 January 35,696 38,411
Adjustments for disposals - (5,812)
Impairment losses 474 26,654
De-consolidation of STB (34,285) -
Loans written off during the year as uncollectible (962) (23,590)
Amounts recovered during the year 50 33
---------------------------------------------------- --------- ---------
At 31 December 973 35,696
---------------------------------------------------- --------- ---------
Reconciliation of collective allowance for
impairments:
2016 2015
Group GBP000 GBP000
---------------------------------------------------- --------- ---------
At 1 January 3,141 2,031
Impairment losses - 1,110
De-consolidation of STB (3,141) -
At 31 December - 3,141
---------------------------------------------------- --------- ---------
A further analysis of allowances for impairment
of loans and advances is as follows:
2016 2015
Group GBP000 GBP000
---------------------------------------------------- --------- ---------
Loans and advances to customers - UK Private
Bank 973 1,411
Loan and advances to customers - Retail Bank - 34,285
---------------------------------------------------- --------- ---------
At 31 December 973 35,696
---------------------------------------------------- --------- ---------
23. Other assets
2016 2015
Group GBP000 GBP000
-------------------------------- ------- -------
Trade receivables 1,197 2,625
Inventory 5,213 5,226
Prepayments and accrued income 5,529 9,043
-------------------------------- ------- -------
11,939 16,894
-------------------------------- ------- -------
Land acquired through repossession of collateral which is
subsequently held in the ordinary course of business with a view to
develop and sell is accounted for as inventory. The land is
currently in the process of being redeveloped and will ultimately
be sold off as individual residential plots. The proceeds from the
sale of these plots will be used to reduce or repay the outstanding
indebtedness.
2016 2015
Company GBP000 GBP000
---------------------------------- ------- -------
Trade receivables 633 732
Due from subsidiary undertakings 158 159
Prepayments and accrued income 96 100
---------------------------------- ------- -------
887 991
---------------------------------- ------- -------
24. Financial investments
2016 2015
Group GBP000 GBP000
--------------------------------------------- ------- -------
Designated at fair value through profit and
loss
- Listed securities 108 112
Available-for-sale
- Listed securities 13 13
- Debt securities 1,443 1,239
- Unlisted securities 581 1,321
--------------------------------------------- ------- -------
Total financial investments 2,145 2,685
--------------------------------------------- ------- -------
Listed securities
The Group holds investments in listed securities which are
valued based on quoted prices.
Debt securities
The Group has made equity investments in unlisted special
purpose vehicles set up to acquire and enhance the value of
commercial properties. These investments are of a medium term
nature. There is no open market for these investments and therefore
the Group has valued them using appropriate valuation
methodologies, which include net asset valuations and discounted
future cash flows. The Directors intend to dispose of these assets
when a suitable buyer has been identified and when the Directors
believe that the underlying assets have reached their maximum
value.
Unlisted securities
On 23 June 2016 Arbuthnot Latham received EUR1.3m cash
consideration following Visa Inc.'s completion of the acquisition
of Visa Europe. As part of the deal Arbuthnot Latham also received
preference shares in Visa Inc., these have been valued at their
future conversion value into Visa Inc. common stock. Management has
assessed the fair value of the Company's investment as GBP569k.
This valuation includes a 31% haircut, as referred to in Note
4.
2016 2015
Company GBP000 GBP000
--------------------------------------------- ------- -------
Financial investments comprise:
- Listed securities (at fair value through
profit and loss) 108 112
- Unlisted securities (available-for-sale) 13 13
--------------------------------------------- ------- -------
Total financial investments 121 125
--------------------------------------------- ------- -------
25. Deferred taxation
The deferred tax asset comprises:
2016 2015
Group GBP000 GBP000
----------------------------------------------------- ------- -------
Unrealised surplus on revaluation of freehold
property - 196
Accelerated capital allowances and other
short-term timing differences 929 697
Unutilised tax losses 736 891
----------------------------------------------------- ------- -------
Deferred tax asset 1,665 1,784
----------------------------------------------------- ------- -------
At 1 January 1,784 2,588
Other Comprehensive Income - available-for-sale
securities 248 (262)
Profit and loss account - accelerated capital
allowances and other short-term timing differences (21) 673
Profit and loss account - tax losses (64) (812)
Deconsolidate / Transfer to assets classified
as held for sale (282) (403)
----------------------------------------------------- ------- -------
Deferred tax asset at 31 December 1,665 1,784
----------------------------------------------------- ------- -------
2016 2015
Company GBP000 GBP000
----------------------------------------------------- ------- -------
Accelerated capital allowances and other
short-term timing differences 397 418
Deferred tax asset 397 418
----------------------------------------------------- ------- -------
At 1 January 418 406
Profit and loss account - accelerated capital
allowances and other short-term timing differences (21) 12
Deferred tax asset at 31 December 397 418
----------------------------------------------------- ------- -------
Deferred tax assets are recognised for tax losses to the extent
that the realisation of the related tax benefit through future
taxable profits is probable.
The UK corporation tax rate reduced from 21% to 20% with effect
from 1 April 2015. On 26 October 2015 the Government substantively
enacted a further reduction to the UK corporation tax rate to 19%
from 1 April 2017 and to 17% from 1 April 2020. In addition, the
Chancellor announced the introduction of a corporation tax
surcharge applicable to banking companies with effect from 1
January 2016. The surcharge is levied at a rate of 8% on the
profits of banking companies, after taking into account an annual
allowance of GBP25m. This is expected to increase the Group's
future current tax charge accordingly.
26. Interests in associates
2016 2015
Group GBP000 GBP000
----------------------------- ------- -------
Tarn Crag 900 943
Secure Trust Bank PLC 81,674 -
----------------------------- ------- -------
Interests in associates 82,574 943
----------------------------- ------- -------
Tarn Crag
On 11 October 2013, Arbuthnot Latham & Co., Ltd together
with Praxis (Holding) Limited, formed a special purpose vehicle in
the form of a separate legal entity (Tarn Crag Limited). The
purpose of this legal entity is to refurbish and re-let a property
in Glasgow, with the intention to exit via a sale to an
institutional investor in circa 5 years time. The investment is
accounted for using the equity method.
During the year the associate recorded a loss of GBP197k (2015:
loss of GBP331k). Legal costs of GBP43k, previously capitalised
against the carrying value of the associate, were written off in
the year.
The summarised balance sheet for Tarn Crag is set out below:
Tarn Crag
2016 2015
At 31 December GBP000 GBP000
------------------------------------ -------- -------
ASSETS
Cash and balances at central banks 3,468 2,236
Loans and advances to customers
Other assets 656 1,010
Property, plant and equipment 9,201 15,412
------------------------------------ -------- -------
13,325 18,658
------------------------------------ -------- -------
EQUITY AND LIABILITIES
Deposits from banks 12,474 12,014
Other liabilities 1,484 667
Debt securities in issue 1,400 1,400
Revaluation reserve (1,418) 4,995
Retained Earnings (615) (418)
------------------------------------ -------- -------
13,325 18,658
------------------------------------ -------- -------
(a) Significant restrictions
Praxis (Holding) Ltd receives GBP0.1m per annum in its capacity
as property manager. Arbuthnot Latham & Co., Ltd subscribed to
GBP0.9m of loan notes and Praxis (Holding) Ltd subscribed to
GBP0.5m of loan notes, which carry interest at 15% and is rolled up
and payable on redemption. The bank debt and interest and the loan
notes and interest thereon as well as the property management fees
need to be repaid, before further distributions to shareholders can
take place.
(b) Risks associated with interests
Arbuthnot Latham & Co., Ltd agreed to subscribe to a further
GBP0.2m of loan notes when required to fund working capital.
Secure Trust Bank
On 15 June 2016 Arbuthnot Banking Group sold 6 million shares in
Secure Trust Bank PLC ('STB') for GBP150m, which reduced its
shareholding in STB from 51.92% to 18.93%. From this date the Group
accounted for its remaining shareholding in STB as an associate.
After the sale of the 6 million shares, the Group retained Board
representation and as such is seen to have significant influence
over STB. The principal place of business of STB is the United
Kingdom. Subsequent to initial recognition at fair value, the
investment is accounted for using the equity method. The fair value
of the investment as at 31 December 2016 was GBP75.4m. STB recorded
a profit after tax of GBP11.4m in the period from 16 June to 31
December 2016. The carrying value of the interest in STB is shown
as the fair value at the date of sale adjusted for the share of the
Group's profit after tax and dividends received. STB is listed on
the main market of the London Stock Exchange.
(a) Significant restrictions
The Group does not have significant restrictions on its ability
to access funds, other than the liquidity in the market for the
sale of the shares.
(b) Risks associated with interests
As STB is a publicly listed company, there are a number of
risks, e.g. conduct risk, regulatory risk and macroeconomic and
competitive environment risks that could have an impact on the
share price and ultimate recoverability of the investment.
(c) Changes in ownership interest
On 15 June 2016 Arbuthnot Banking Group sold 6 million shares in
Secure Trust Bank PLC ('STB') for GBP150m, which reduced its
shareholding in STB from 51.92% to 18.93%. From this date the Group
accounted for its remaining shareholding in STB as an associate.
After the sale of the 6 million shares, the Group retained Board
representation and as such is seen to have significant influence
over STB.
On 7 November 460,419 share options in STB vested. On the same
date 283,335 share options were exercised with admission of the
shares on the stock market on 9 November. This increased STB's
shares in issue from 18,191,894 to 18,475,229 and as a result ABG's
shareholding was diluted from 18.93% to 18.64%. If the remaining
share options of 177,084 were exercised, ABG's shareholding would
further dilute to 18.47%.
2016 2015
Company GBP000 GBP000
------------------------ ------- -------
Secure Trust Bank PLC 5,056 -
------------------------ ------- -------
Interests in associates 5,056 -
------------------------ ------- -------
27. Intangible assets
Computer Other
Goodwill software intangibles Total
Group GBP000 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- ------------- ---------
Cost
At 1 January 2015 2,695 9,470 7,529 19,694
Additions - 3,532 - 3,532
Transfer to assets classified as
held for sale - (349) (5,115) (5,464)
---------------------------------- --------- ---------- ------------- ---------
At 31 December 2015 2,695 12,653 2,414 17,762
---------------------------------- --------- ---------- ------------- ---------
Additions - 5,155 - 5,155
Transfer out on deconsolidation (1,013) (9,301) (2,200) (12,514)
---------------------------------- --------- ---------- ------------- ---------
At 31 December 2016 1,682 8,507 214 10,403
---------------------------------- --------- ---------- ------------- ---------
Accumulated amortisation
At 1 January 2015 - (4,668) (3,708) (8,376)
Amortisation charge - (1,627) (1,167) (2,794)
Transfer to assets classified as
held for sale - 247 4,035 4,282
---------------------------------- --------- ---------- ------------- ---------
At 31 December 2015 - (6,048) (840) (6,888)
---------------------------------- --------- ---------- ------------- ---------
Amortisation charge - (478) (43) (521)
Transfer out on deconsolidation - 4,794 734 5,528
---------------------------------- --------- ---------- ------------- ---------
At 31 December 2016 - (1,732) (149) (1,881)
---------------------------------- --------- ---------- ------------- ---------
Net book amount
---------------------------------- --------- ---------- ------------- ---------
At 31 December 2015 2,695 6,605 1,574 10,874
---------------------------------- --------- ---------- ------------- ---------
At 31 December 2016 1,682 6,775 65 8,522
---------------------------------- --------- ---------- ------------- ---------
Included within Computer Software additions is an amount of
GBP5.5m (2015: GBP0.9m) relating to intangible assets in the course
of construction, which management has assessed to not be available
for use as at 31 December 2016 are not being amortised.
The accounting policy for goodwill is described in note 3.15
(a). The Company reviews the goodwill for impairment at least
annually or when events or changes in economic circumstances
indicate that impairment may have taken place. Significant
management judgements are made in estimations, to evaluate whether
an impairment of goodwill is necessary. Impairment testing is done
at CGU level and the following two items, with judgements
surrounding them, have a significant impact on the estimations used
in determining the necessity of an impairment charge:
-- Future cash flows - Cash flow forecasts reflect management's
view of future business forecasts at the time of the assessment. A
detailed three year budget is done every year and management also
uses judgement in applying a growth rate. The accuracy of future
cash flows is subject to a high degree of uncertainty in volatile
market conditions. During such conditions, management would perform
impairment testing more frequently than annually to ensure that the
assumptions applied are still valid in the current market
conditions.
-- Discount rate - Management also apply judgement in
determining the discount rate used to discount future expected cash
flows. The discount rate is derived from the cost of capital for
each CGU.
The recoverable amount of an asset or CGU is the greater of its
value in use and its fair value less costs to sell. There is
currently one CGU (2015: three) with goodwill attached; the core
Arbuthnot Latham CGU (GBP1.7m).
Management considers the value in use for the core Arbuthnot
Latham CGU to be the discounted cash flows over 5 years with a
terminal value (2015: 5 years with a terminal value). The 5 year
discounted cash flows with a terminal value is considered to be
appropriate as the goodwill relates to an ongoing well established
business and not underlying assets with finite lives. The terminal
value is calculated by applying a discounted perpetual growth model
to the profit expected in 2019 as per the approved 3 year plan. A
growth rate of 11% (2015: 19%) was used for income and 13% (2015:
16%) for expenditure from 2017 to 2019 (these rates were the best
estimate of future forecasted performance), while a 3% (2015: 3%)
percent growth rate for income and expenditure (a more conservative
approach was taken for latter years as these were not budgeted for
in detail as per the three year plan approved by the Board of
Directors) was used for cash flows after the approved three year
plan.
Cash flows were discounted at a pre-tax rate of 12% (2015: 12%)
to their net present value. The discount rate of 12% is considered
to be appropriate after evaluating current market assessments of
the time value of money and the risks specific to the assets or
CGUs. Currently, the value in use and fair value less costs to sell
far exceeds the carrying value and as such no sensitivity analysis
was done. At the time of the impairment testing, if the future
expected cash flows decline and/or the cost of capital has
increased, then the recoverable amount will reduce.
Computer
software
Company GBP000
------------------------------ ----------
Cost
At 1 January 2015 40
At 31 December 2015 and 2016 40
------------------------------ ----------
Accumulated amortisation
At 1 January 2015 (36)
Amortisation charge (4)
At 31 December 2015 and 2016 (40)
------------------------------ ----------
Net book amount
------------------------------ ----------
At 31 December 2015 and 2016 -
------------------------------ ----------
28. Property, plant and equipment
Freehold Computer
land and
and Leasehold other Motor
buildings improvements equipment Vehicles Total
Group GBP000 GBP000 GBP000 GBP000
----------------------------------- ----------- -------------- ----------- ---------- ---------
Cost or valuation
At 1 January 2015 7,488 3,554 13,731 - 24,773
Additions - 1,722 1,576 97 3,395
Disposals - - (2,417) - (2,417)
Transfer to assets classified
as held for sale - (590) (447) - (1,037)
----------------------------------- ----------- -------------- ----------- ---------- ---------
At 31 December 2015 7,488 4,686 12,443 97 24,714
----------------------------------- ----------- -------------- ----------- ---------- ---------
Additions - 127 227 - 354
Transfer out on de-consolidation
of STB (7,488) (226) (9,929) - (17,643)
----------------------------------- ----------- -------------- ----------- ---------- ---------
At 31 December 2016 - 4,587 2,741 97 7,425
----------------------------------- ----------- -------------- ----------- ---------- ---------
At 1 January 2015 (929) (481) (10,888) - (12,298)
Depreciation charge (108) (399) (891) (22) (1,420)
Disposals - - 2,419 - 2,419
Transfer to assets classified
as held for sale - 350 239 - 589
----------------------------------- ----------- -------------- ----------- ---------- ---------
At 31 December 2015 (1,037) (530) (9,121) (22) (10,710)
----------------------------------- ----------- -------------- ----------- ---------- ---------
Depreciation charge - (697) (425) (24) (1,146)
Transfer out on de-consolidation
of STB 1,037 10 8,166 - 9,213
----------------------------------- ----------- -------------- ----------- ---------- ---------
At 31 December 2016 - (1,217) (1,380) (46) (2,643)
----------------------------------- ----------- -------------- ----------- ---------- ---------
Net book amount
----------------------------------- ----------- -------------- ----------- ---------- ---------
At 31 December 2015 6,451 4,156 3,322 75 14,004
----------------------------------- ----------- -------------- ----------- ---------- ---------
At 31 December 2016 - 3,370 1,361 51 4,782
----------------------------------- ----------- -------------- ----------- ---------- ---------
The Group's opening freehold property is also the Registered
Office of Secure Trust Bank and was fully utilised for the Group's
own purposes.
The carrying value of freehold land not depreciated is GBPnil
(2015: GBP1.7m). The historical cost of freehold property included
at valuation was as follows:
2016 2015
Group GBP000 GBP000
-------------------------- -------- --------
Cost - 7,628
Accumulated depreciation - (1,305)
-------------------------- -------- --------
Net book amount - 6,323
-------------------------- -------- --------
Computer
and
other Motor
equipment Vehicles Total
Company GBP000 GBP000 GBP000
-------------------------- ----------- ---------- -------
Cost or valuation
At 1 January 2015 204 - 204
Additions 5 97 102
At 31 December 2015 209 97 306
-------------------------- ----------- ---------- -------
Additions 5 - 5
At 31 December 2016 214 97 311
-------------------------- ----------- ---------- -------
Accumulated depreciation
At 1 January 2015 (77) - (77)
Depreciation charge (3) (22) (25)
At 31 December 2015 (80) (22) (102)
-------------------------- ----------- ---------- -------
Depreciation charge (2) (24) (26)
At 31 December 2016 (82) (46) (128)
-------------------------- ----------- ---------- -------
Net book amount
-------------------------- ----------- ---------- -------
At 31 December 2015 129 75 204
-------------------------- ----------- ---------- -------
At 31 December 2016 132 51 183
-------------------------- ----------- ---------- -------
29. Investment property
Total
Group GBP000
------------------------- -------
Purchase price 50,200
Acquisition costs 3,139
------------------------- -------
At 31 December 2016 53,339
------------------------- -------
Arbuthnot Latham & Co., Limited acquired premises in the
West End of London (namely 20 King Street/10 St James's Street) on
23 June 2016. The property comprises 22,450 square feet of office
space and approximately 7,000 square feet of retail space. The
property is held by way of leasehold from The Crown Estate
Commissioners with 119 years unexpired and with a review every five
years.
The property, which is currently fully tenanted, generates
annual rental income in excess of GBP1.8m. It is accounted for as
investment property and the Group has elected to apply the fair
value model. It is therefore initially recognised at cost and then
subsequently at fair value. The fair value is determined using the
rental income on the property and the associated effective yield of
similar properties in the surrounding area (see note 4.1(e)). At 31
December 2016 there was no material difference between the cost of
the property and the fair value. No property interests are held
under operating leases and accounted for as investment property.
There was also no independent valuation done at year end.
The Group received GBP1.1m rental income during the year and
incurred GBP0.1m of direct operating expenses.
30. Deposits from banks
2016 2015
Group GBP000 GBP000
------------------------------------------------ ------- -------
Deposits from other banks 3,200 55,305
------------------------------------------------ ------- -------
For a maturity profile of deposits from banks,
refer to Note 6.
31. Deposits from customers
2016 2015
Group GBP000 GBP000
----------------------------- -------- ----------
Current/demand accounts 610,512 499,022
Notice accounts 141,728 579,877
Term deposits 245,409 850,939
----------------------------- -------- ----------
997,649 1,929,838
----------------------------- -------- ----------
Included in customer accounts are deposits of GBP8,380,000
(2015: GBP4,195,000) held as collateral for loans and advances. The
fair value of these deposits approximates the carrying value.
For a maturity profile of deposits from customers, refer to Note
6.
32. Other liabilities
2016 2015
Group GBP000 GBP000
------------------------------ ------- -------
Trade payables 1,814 14,581
Accruals and deferred income 15,268 17,396
------------------------------ ------- -------
17,082 31,977
------------------------------ ------- -------
Financial Services Compensation Scheme Levy
In common with all regulated UK deposit takers, AL pays levies
to the Financial Services Compensation Scheme ("FSCS") to enable
the FSCS to meet claims against the Scheme. The FSCS levy consists
of two parts: a management expenses levy and a more significant
compensation levy. The management expenses levy covers the costs of
running the scheme and the compensation levy covers the amount of
compensation and associated interest the scheme pays, net of any
recoveries it makes using the rights that have been assigned to
it.
The Group's FSCS provision reflects market participation up to
the reporting date and the accrual of GBP0.1m (2015: GBP0.3m)
relates to the interest levy for the scheme year 2016/17 which is
payable in September 2017. This amount was calculated on the basis
of the Group's share of protected deposits and the FSCS's estimate
of total interest levies payable for each scheme year. The loan
repayment relating to the scheme year 2016/17 was paid by the Group
in September 2016.
Company GBP000 GBP000
-------------------------------- ------- -------
Due to subsidiary undertakings 3,624 3,068
Accruals and deferred income 1,184 1,167
-------------------------------- ------- -------
4,808 4,235
-------------------------------- ------- -------
33. Debt securities in issue
2016 2015
Group and Company GBP000 GBP000
------------------------------ ------- -------
Subordinated loan notes 12,621 10,834
------------------------------ ------- -------
The subordinated loan notes were issued on 7 November 2005 and
are denominated in Euros. The principal amount outstanding at 31
December 2016 was EUR15,000,000 (2015: EUR15,000,000). The notes
carry interest at 3% over the interbank rate for three month
deposits in euros and are repayable at par in August 2035 unless
redeemed or repurchased earlier by the Company.
The contractual undiscounted amount that will be required to be
paid at maturity of the above debt securities is EUR15,000,000.
Given the fact that the Group has never been subject to a
published credit rating by any of the relevant agencies and the
notes in issue are not quoted, it is not considered possible to
approximate a fair value for these notes.
34. Contingent liabilities and commitments
Contingent liabilities
The Group is subject to extensive regulation in the conduct of
its business. A failure to comply with applicable regulations could
result in regulatory investigations, fines and restrictions on some
of the Group's business activities or other sanctions. The Group
seeks to minimise this risk through the adoption of compliance and
other policies and procedures, continuing to refine controls over
business practices and behaviour, employee training, the use of
appropriate documentation, and the involvement of outside legal
counsel where appropriate.
Capital commitments
At 31 December 2016, the Group had capital commitments of GBPnil
(2015: GBPnil) in respect of equipment purchases.
Credit commitments
The contractual amounts of the Group's off-balance sheet
financial instruments that commit it to extend credit to customers
are as follows:
2016 2015
Group GBP000 GBP000
--------------------------------------------- ------- --------
Guarantees and other contingent liabilities 274 56
Commitments to extend credit:
- Original term to maturity of one year
or less 35,581 178,863
--------------------------------------------- ------- --------
35,855 178,919
--------------------------------------------- ------- --------
Operating lease commitments
Where a Group company is the lessee, the future aggregate
lease payments under non-cancellable operating leases
are as follows:
2016 2015
Group GBP000 GBP000
--------------------------------------------- ------- --------
Expiring:
Within 1 year 2,635 3,710
Later than 1 year and no later than 5 years 8,422 9,974
Later than 5 years 5,745 7,790
--------------------------------------------- ------- --------
16,802 21,474
--------------------------------------------- ------- --------
In 2013, Arbuthnot Latham & Co., Ltd entered into a 16 year
lease on 7 Wilson Street (the head office for Arbuthnot Banking
Group PLC, the principal location for Arbuthnot Latham & Co.,
Ltd and London offices for Secure Trust Bank PLC), with a break at
11 years and rent reviews after 5, 10 and 15 years. The initial
rent is GBP1.75 million per annum. This lease forms the most
significant part of the operating leases disclosed in the table
above.
In addition to the above commitments, ground rent of GBP230k per
annum is payable in relation to the investment property.
35. Share capital
Ordinary
Number share Share
of shares capital premium
Group and Company GBP000 GBP000
------------------------------------- ----------- --------- ---------
At 1 January 2015 15,279,322 153 -
At 31 December 2015 & December 2016 15,279,322 153 -
------------------------------------- ----------- --------- ---------
The Ordinary shares have a par value of 1p per share (2015: 1p
per share). At 31 December 2016 the Company held 390,274 shares
(2015: 390,274) in treasury.
36. Reserves and retained earnings
2016 2015
Group GBP000 GBP000
------------------------------------ -------- --------
Revaluation reserve - 98
Capital redemption reserve 20 20
Available-for-sale reserve (251) 1,047
Treasury shares (1,131) (1,131)
Retained earnings 235,567 123,330
------------------------------------ -------- --------
Total reserves at 31 December 234,205 123,364
------------------------------------ -------- --------
The revaluation reserve represents the unrealised change in the
fair value of properties.
The capital redemption reserve represents a reserve created
after the Company purchased its own shares which resulted in a
reduction of share capital.
2016 2015
Company GBP000 GBP000
------------------------------- -------- --------
Capital redemption reserve 20 20
Treasury shares (1,131) (1,131)
Retained earnings 133,847 46,537
------------------------------- -------- --------
Total reserves as 31 December 132,736 45,426
------------------------------- -------- --------
37. Share-based payment options
Company - equity settled
The Company had the following equity settled share-based payment
awards outstanding at 31 December 2016:
-- On 1 April 2014 Mr Fleming was granted an option to subscribe
for 50,000 ordinary 1p shares in the Company between April
2017 and April 2022 at 1185p. The fair value of these shares at
grant date was GBP53,000.
There are no other vesting conditions for these awards.
On 16 April 2013 Mr. Salmon and Mr. Cobb were granted options to
subscribe between April 2016 and April 2021 for 100,000 and 50,000
ordinary 1p shares respectively in the Company at 930p. The fair
value of the options at grant date was GBP125,000. On 14 June 2016
Mr. Salmon and Mr. Cobb each exercised all their respective options
granted on 16 April 2013 and sold the shares on the same day at a
price of 1591p. No equity settled share options were granted,
forfeited, or expired during the year. ABG incurred an expense in
relation to share based payments of GBP31,000 during 2016 (2015:
GBP37,000), as disclosed in Note 12. In line with the Group
accounting policy, where the equity settled scheme was modified to
cash settled, the entire liability totalling GBP1,128,000 at 14
June 2016 was accounted for as a reserves reclassification, with no
profit or loss recognised in the Income Statement.
Measurement inputs and assumptions used in the Black-Scholes
model are as follows:
2016 2015
---------------------------------------------- -------- --------
Expected Stock Price Volatility 17% 17%
Expected Dividend Yield 2.7% 2.7%
Risk Free Interest Rate 1.20% 1.20%
Average Expected Life (in years) 0.25 0.53
Company - cash settled
On 14 June 2016 Mr. Salmon was granted phantom options pursuant
to the Phantom Option Scheme to acquire 200,000 ordinary 1p shares
in the Company at 1591p exercisable in respect of 50% on or after
15 June 2019 and in respect of the remaining 50% on or after 15
June 2021 when a cash payment would be made equal to any increase
in value. On 14 June 2016 Mr. Cobb and Mr. Henderson were each
granted phantom options pursuant to the Phantom Option Scheme to
acquire 100,000 ordinary 1p shares in the Company at 1591p
exercisable in respect of 50% on or after 15 June 2019 and in
respect of the remaining 50% on or after 15 June 2021 when a cash
payment would be made equal to any increase in market value. The
fair value of the options at grant date was GBP1.3m.
The performance conditions of the Scheme are that for the
duration of the vesting period, the dividends paid by ABG must have
increased in percentage terms when compared to an assumed dividend
of 29p per share in respect of the financial year ending 31
December 2016, by a minimum of the increase in the Retail Prices
Index during that period.
Also from the grant date to the date the Option is exercised,
there must be no public criticism by any regulatory authority on
the operation of ABG or any of its subsidiaries which has a
material impact on the business of ABG.
Options are forfeited if they remain unexercised after a period
of more than 7 years from the date of grant. If the participant
ceases to be employed by the Group by reason of injury, disability,
ill-health or redundancy; or because his employing company ceases
to be a shareholder of the Group; or because his employing business
is being transferred out of the Group, his option may be exercised
within 6 months after such cessation. In the event of the death of
a participant, the personal representatives of a participant may
exercise an option, to the extent exercisable at the date of death,
within 6 months after the death of the participant.
On cessation of employment for any other reason (or when a
participant serves, or has been served with, notice of termination
of such employment), the option will lapse although the
Remuneration Committee has discretion to allow the exercise of the
option for a period not exceeding 6 months from the date of such
cessation.
In such circumstances, the performance conditions may be
modified or waived as the Remuneration Committee, acting fairly and
reasonably and taking due consideration of the circumstances,
thinks fit. The number of Ordinary Shares which can be acquired on
exercise will be pro-rated on a time elapsed basis, unless the
Remuneration Committee, acting fairly and reasonably and taking due
consideration of the circumstances, decides otherwise. In
determining whether to exercise its discretion in these respects,
the Remuneration Committee must satisfy itself that the early
exercise of an option does not constitute a reward for failure.
The probability of payout has been assigned based on the
likelihood of meeting the performance criteria, which is 100%. The
Directors consider that there is some uncertainty surrounding
whether the participants will all still be in situ and eligible at
the vesting date. Therefore the directors have assumed a 9%
attrition rate for the share options vesting in June 2019 and 15%
attrition rate for the share options vesting in June 2021. The
attrition rate will increase by 3% per year until the vesting date.
ABG incurred an expense in relation to share based payments of
GBP0.2m during 2016, as disclosed in Note 12.
Measurement inputs and assumptions used in the Black-Scholes
model are as follows:
2016
----------------------------------------------------- ---------
Expected Stock Price Volatility 33.0%
Expected Dividend Yield 2.3%
Risk Free Interest Rate 0.4%
Average Expected Life (in years) 3.46
38. Dividends per share
Final dividends are not accounted for until they have been
approved at the Annual General Meeting. At the meeting on 4 May
2017, a dividend in respect of 2016 of 18p per share (2015: actual
dividend 17p per share) amounting to a total of GBP2.68m (2015:
actual GBP2.53m) is to be proposed. The financial statements for
the year ended 31 December 2016 do not reflect the final dividend
which will be accounted for in shareholders' equity as an
appropriation of retained profits in the year ending 31 December
2017.
39. Cash and cash equivalents
For the purposes of the Statement of Cash Flows, cash and cash
equivalents are comprised of the following balances with less than
three months maturity from the date of acquisition.
2016 2015
Group GBP000 GBP000
------------------------------------------ -------- --------
Cash and balances at central banks (Note
17) 195,752 368,611
Loans and advances to banks (Note 18) 36,951 28,578
------------------------------------------ -------- --------
232,703 397,189
------------------------------------------ -------- --------
2016 2015
Company GBP000 GBP000
------------------------------------------ -------- --------
Loans and advances to banks 89,072 12,444
------------------------------------------ -------- --------
40. Related party transactions
Related parties of the Company and Group include subsidiaries,
Key Management Personnel, close family members of Key Management
Personnel and entities which are controlled, jointly controlled or
significantly influenced, or for which significant voting power is
held, by Key Management Personnel or their close family
members.
Other than the directors' remuneration (see Remuneration Report
pages 20 to 21), payment of dividends and transactions with
subsidiaries and associates, there were no related party
transactions within the Parent Company. A number of banking
transactions are entered into with related parties in the normal
course of business on normal commercial terms. These include loans
and deposits. Except for the directors' disclosures, there were no
other Key Management Personnel disclosures; therefore the tables
below relate to directors and their close family members.
2016 2015
Group - subsidiaries GBP000 GBP000
-------------------------------------- -------- --------
Loans
Loans outstanding at 1 January 3,123 5,503
Loans advanced during the year 2,076 726
Loan repayments during the year (3,429) (3,106)
Transferred to loans with associates (409) -
-------------------------------------- -------- --------
Loans outstanding at 31 December 1,361 3,123
-------------------------------------- -------- --------
Interest income earned 122 143
-------------------------------------- -------- --------
2016 2015
Group - associates GBP000 GBP000
----------------------------------------- ------- -------
Loans
Loans advanced during the year 5 -
Loan repayments during the year (10) -
Transferred from loans with subsidiaries 409 -
----------------------------------------- ------- -------
Loans outstanding at 31 December 404 -
----------------------------------------- ------- -------
Interest income earned 5 -
----------------------------------------- ------- -------
The loans to directors are mainly secured on property, shares or
cash and bear interest at rates linked to base rate. No provisions
have been recognised in respect of loans given to related parties
(2015: GBPnil).
2016 2015
Group - subsidiaries GBP000 GBP000
----------------------------------------- -------- --------
Deposits
Deposits at 1 January 2,692 2,665
Deposits placed during the year 6,644 2,721
Deposits repaid during the year (5,623) (2,694)
Transferred to deposits with associates (315) -
----------------------------------------- -------- --------
Deposits at 31 December 3,398 2,692
----------------------------------------- -------- --------
Interest expense on deposits 12 13
----------------------------------------- -------- --------
2016 2015
Group - associates GBP000 GBP000
-------------------------------------------- ------- -------
Deposits
Deposits placed during the year 3 -
Transferred from deposits with subsidiaries 315 -
-------------------------------------------- ------- -------
Deposits at 31 December 318 -
-------------------------------------------- ------- -------
Interest expense on deposits 3 -
-------------------------------------------- ------- -------
Details of directors' remuneration are given in the Remuneration
Report. The Directors do not believe that there were any other
transactions with key management or their close family members that
require disclosure.
Details of principal subsidiaries are given in Note
41. Transactions and balances with subsidiaries are
shown below:
2016 2015
Highest Balance Highest Balance
balance at 31 balance at 31
during December during December
the the
year year
GBP000 GBP000 GBP000 GBP000
----------------------------------- --------- ---------- --------- ----------
ASSETS
Due from subsidiary undertakings 150,776 89,224 23,454 12,603
Shares in subsidiary undertakings 54,602 54,602 46,466 46,466
----------------------------------- --------- ---------- --------- ----------
Total assets 205,378 143,826 69,920 59,069
----------------------------------- --------- ---------- --------- ----------
LIABILITIES
Due to subsidiary undertakings 3,650 3,357 5,431 2,832
----------------------------------- --------- ---------- --------- ----------
Total liabilities 3,650 3,357 5,431 2,832
----------------------------------- --------- ---------- --------- ----------
The disclosure of the yearend balance and the highest balance
during the year is considered the most meaningful information to
represent the transactions during the year. The above transactions
arose during the normal course of business and are on substantially
the same terms as for comparable transactions with third
parties.
The Company undertook the following transactions with
other companies in the Group during the year:
2016 2015
GBP000 GBP000
----------------------------------------------- -------- --------
Arbuthnot Latham & Co., Ltd - Recharge
of property and IT costs 1,087 1,587
Arbuthnot Latham & Co., Ltd - Recharge
for costs paid on the Company's behalf 4,015 3,288
Arbuthnot Latham & Co., Ltd - Group recharges
for shared services (1,483) (1,421)
OBC Insurance Consultants Ltd - Dividend
received - (132)
Secure Trust Bank PLC (up to 15 June as
subsidiary) - Group recharges for shared
services (212) (412)
Secure Trust Bank PLC (up to 15 June as
subsidiary) - Dividends received (5,195) (6,517)
Secure Trust Bank PLC (from 16 June as (120) -
associate) - Group recharges for shared
services
Secure Trust Bank PLC (from 16 June as (6,273) -
associate) - Dividends received
West Yorkshire Insurance Company Ltd -
Legal fees settled - 25
----------------------------------------------- -------- --------
Total (8,181) (3,582)
----------------------------------------------- -------- --------
41. Interests in subsidiaries
Investment Impairment
at cost provisions Net
Company GBP000 GBP000 GBP000
------------------------------------------ ----------- ------------ --------
At 1 January 2015 42,530 (2,564) 39,966
Capital contribution to Arbuthnot Latham
& Co., Limited 6,500 - 6,500
At 31 December 2015 49,030 (2,564) 46,466
------------------------------------------ ----------- ------------ --------
Capital contribution to Arbuthnot Latham
& Co., Limited 22,000 - 22,000
Sale of shares in Secure Trust Bank
PLC (8,808) - (8,808)
Transfer to interests in associates (5,056) - (5,056)
------------------------------------------ ----------- ------------ --------
At 31 December 2016 57,166 (2,564) 54,602
------------------------------------------ ----------- ------------ --------
2016 2015
Company GBP000 GBP000
-------------------------- ------- -------
Subsidiary undertakings:
Banks 52,302 44,166
Other 2,300 2,300
-------------------------- ------- -------
Total 54,602 46,466
-------------------------- ------- -------
(a) List of subsidiaries
The table below provides details of the significant subsidiary
of Arbuthnot Banking Group PLC at 31 December:
Ownership
interest
%
-------------------
Country
of incorporation 2016 2015 Principal activity
------------------------- ------------------- ----- ----- -------------------
Arbuthnot Latham & Co.,
Limited UK 100 100 Private banking
Secure Trust Bank PLC UK - 52 Retail banking
-------------------------- ------------------- ----- ----- -------------------
Secure Trust Bank became an associate company of the
Group from 15 June 2016.
The table below provides details of other subsidiaries
and related undertakings of Arbuthnot Banking Group
PLC at 31 December:
Country
% shareholding of incorporation Principal activity
---------------------------- --------------- ------------------ ------------------------
Direct shareholding
Arbuthnot Fund Managers 100.0% UK
Limited Dormant
Arbuthnot Investments 100.0% UK
Limited Dormant
Arbuthnot Limited 100.0% UK Dormant
Arbuthnot Properties 100.0% UK
Limited Dormant
Arbuthnot Unit Trust 100.0% UK
Management Limited Dormant
Gilliat Financial Solutions 100.0% UK
Limited Dormant
Peoples Trust and Savings 100.0% UK
Plc Dormant
Secure Trust Bank PLC* 18.6% UK Retail banking
West Yorkshire Insurance 100.0% UK
Company Limited Non-trading
Windward Insurance Company 100.0% Guernsey
PCC Limited Insurance
Indirect shareholding via intermediate
holding companies
Arbuthnot Latham (Nominees) 100.0% UK
Limited Dormant
Arbuthnot Securities 100.0% UK
Limited Dormant
Artillery Nominees Limited 100.0% UK Dormant
Debt Managers (Services) 18.6% UK
Limited* Debt collection company
John K Gilliat & Co., 100.0% UK
Limited Dormant
Pinnacle Universal 100.0% BVI Property development
Secure Homes Services 18.6% UK
Limited* Property rental
STB Leasing Limited* 18.6% UK Leasing
50.0% Isle
Tarn Crag Limited* of Man Property management
V12 Finance Group Limited* 18.6% UK Holding company
V12 Personal Finance 18.6% UK
Limited* Dormant
18.6% UK Sourcing and servicing
V12 Retail Finance Limited* of unsecured loans
---------------------------- --------------- ------------------ --------------------------
* Treated as interests in associates.
All other subsidiary and related undertakings are unlisted and
none are banking institutions, except for Secure Trust Bank PLC.
All 100% owned entities are included in the consolidated financial
statements and have an accounting reference date of 31 December.
All other entities are disclosed in the consolidated financial
statements under interests in associates (see note 26).
(b) Non-controlling interests in subsidiaries
The only subsidiary in 2015 within the Group with
non-controlling interests was Secure Trust Bank PLC, where external
parties had 48.1% ownership interests in the bank. Summary
financial information for Secure Trust Bank PLC for 2015 is shown
in the table below.
Year Year
ended ended
31 December 31 December
2016 2015
Summary of profit GBP000 GBP000
----------------------------------------------- -------------- -------------
Operating income - 132,484
Profit after income tax - 29,009
------------------------------------------------- ------------ -------------
Total comprehensive income - 29,009
------------------------------------------------- ------------ -------------
Profit allocated to non-controlling interests - 13,798
------------------------------------------------- ------------ -------------
31 December 31 December
2016 2015
Summary of assets and liabilities GBP000 GBP000
------------------------------------------------ -------------- -------------
Loans and advances to customers - 960,610
Other assets - 286,721
Liabilities - (1,106,147)
-------------------------------------------------- ------------ -------------
Net assets - 141,184
-------------------------------------------------- ------------ -------------
Carrying amount of non-controlling interests - 67,887
-------------------------------------------------- ------------ -------------
Year Year
ended ended
31 December 31 December
2016 2015
Summary of cash flows GBP000 GBP000
------------------------------------------------ -------------- -------------
Cash flows from operating activities - 53,188
Cash flows from investing activities - (3,397)
Cash flows from financing activities,
before dividends to non-controlling interests - (12,552)
Cash flows from financing activities
- cash dividends to non-controlling interests - (6,036)
-------------------------------------------------- ------------ -------------
Net increase in cash and cash equivalents - 31,203
-------------------------------------------------- ------------ -------------
(c) Significant restrictions
The Group does not have significant restrictions on its ability
to access or use its assets and settle its liabilities other than
those resulting from the supervisory frameworks within which
banking subsidiaries operate. The supervisory frameworks require
banking subsidiaries to keep certain levels of regulatory capital
and liquid assets, limit their exposure to other parts of the Group
and comply with other ratios. The carrying amounts of the banking
subsidiary's assets and liabilities are GBP1,004m and GBP952m
respectively (2015: GBP2,252m and GBP2,058m respectively; 2015
included Secure Trust Bank PLC).
(d) Risks associated with interests
During the year Arbuthnot Banking Group PLC made GBP22.0m (2015:
GBP6.5m) capital contributions to Arbuthnot Latham & Co., Ltd.
The contributions were made to assist the private bank during a
period of growth to ensure that all regulatory capital requirements
were met.
(e) Changes in ownership interest
On 15 June 2016 Arbuthnot Banking Group sold 6 million shares in
Secure Trust Bank PLC ('STB') for GBP150m, which reduced its
shareholding in STB from 51.92% to 18.93%. From this date the Group
accounted for its remaining shareholding in STB as an associate.
After the sale of the 6 million shares, the Group retained Board
representation and as such is seen to have significant influence
over STB.
42. Operating segments
The Group is organised into three main operating segments,
arranged over three separate companies with each having its own
specialised banking service, as disclosed below:
1) Retail banking (associate) - incorporating household cash
management, personal lending and banking and insurance
services.
2) UK Private banking - incorporating private banking,
commercial banking and wealth management.
3) Group Centre - ABG Group Centre management
Transactions between the operating segments are on normal
commercial terms. Centrally incurred expenses are charged to
operating segments on an appropriate pro-rata basis. Segment assets
and liabilities comprise operating assets and liabilities, being
the majority of the balance sheet.
Discontinued
operations
(Retail Banking) Continuing operations
------------------------------ ----------------------------------------------
Retail
Bank UK
Associate Private Group Group
ELL STB Total Income banking Centre Total Total
Year ended 31 December GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
2016
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
Interest revenue 11,137 57,498 68,635 - 38,245 285 38,530
Inter-segment revenue - - - - (174) (285) (459)
-------------------------- -------- --------- --------- ----------- ---------- --------- ----------
Interest revenue
from external customers 11,137 57,498 68,635 - 38,071 - 38,071
-------------------------- -------- --------- --------- ----------- ---------- --------- ----------
Fee and commission
income 147 7,981 8,128 - 11,430 - 11,430
-------------------------- -------- --------- --------- ----------- ---------- --------- ----------
Revenue from external
customers 11,284 65,479 76,763 - 49,501 - 49,501
-------------------------- -------- --------- --------- ----------- ---------- --------- ----------
Interest expense - (12,107) (12,107) - (7,474) 200 (7,274)
Add back inter-segment
revenue - - - - 174 (174) -
Subordinated loan
note interest - - - - - (352) (352)
Fee and commission
expense (124) (779) (903) - (425) - (425)
-------------------------- -------- --------- --------- ----------- ---------- --------- ----------
Segment operating
income 11,160 52,593 63,753 - 41,776 (326) 41,450
-------------------------- -------- --------- --------- ----------- ---------- --------- ----------
Impairment losses (2,610) (12,172) (14,782) - (474) - (474)
Other income - - - - 4,353 (1,184) 3,169
Income from associates - - 2,145 2,145
Operating expenses (6,016) (29,073) (35,089) - (36,602) (9,509) (46,111)
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
Segment profit
/ (loss) before
tax 2,534 11,348 13,882 2,145 9,053 (11,019) 179 14,061
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
Income tax (expense)
/ income (507) (2,199) (2,706) - (211) (509) (720) (3,426)
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
Segment profit
/ (loss) after
tax 2,027 9,149 11,176 2,145 8,842 (11,528) (541) 10,635
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
Profit on sale
of discontinued
operations 116,754 100,180 216,934 - - - -
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
Segment profit
/ (loss) after
tax 118,781 109,329 228,110 2,145 8,842 (11,528) (541) 227,569
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
Loans and advances
to customers 758,799 - 758,799
Other assets 440,363 66,122 506,485
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
Segment total assets 1,199,162 66,122 1,265,284 1,265,284
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
Customer deposits 997,649 - 997,649
Other liabilities 120,815 (87,538) 33,277
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
Segment total liabilities 1,118,464 (87,538) 1,030,926 1,030,926
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
Other segment items:
Capital expenditure (5,504) (5) (5,509)
Depreciation and
amortisation (1,641) (26) (1,667)
-------------------------- -------- --------- --------- ----------- ---------- --------- ---------- ----------
The "Group Centre" segment above includes the parent
entity and all intercompany eliminations.
Discontinued
operations
(Retail Banking) Continuing operations
--------------------------------- --------------------------------
UK
Private Group Group
ELL STB Total banking Centre Total Total
Year ended 31 December GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
2015
--------------------------- --------- ---------- ---------- ---------- --------- --------- ----------
Interest revenue 39,230 100,442 139,672 32,974 126 33,100
Inter-segment revenue - (211) (211) (181) (118) (299)
--------------------------- --------- ---------- ---------- ---------- --------- ---------
Interest revenue
from external customers 39,230 100,231 139,461 32,793 8 32,801
--------------------------- --------- ---------- ---------- ---------- --------- ---------
Fee and commission
income 1,523 16,867 18,390 9,999 - 9,999
--------------------------- --------- ---------- ---------- ---------- --------- ---------
Revenue from external
customers 40,753 117,098 157,851 42,792 8 42,800
--------------------------- --------- ---------- ---------- ---------- --------- ---------
Interest expense - (21,560) (21,560) (7,691) 25 (7,666)
Add back inter-segment
revenue - 211 211 181 (181) -
Subordinated loan
note interest - - - - (324) (324)
Fee and commission
expense (358) (3,660) (4,018) (206) - (206)
--------------------------- --------- ---------- ---------- ---------- --------- ---------
Segment operating
income 40,395 92,089 132,484 35,076 (472) 34,604
--------------------------- --------- ---------- ---------- ---------- --------- ---------
Impairment losses (7,537) (16,782) (24,319) (1,250) (34) (1,284)
Other income - - - 1,894 (1,894) -
Operating expenses (21,195) (50,133) (71,328) (29,722) (6,204) (35,926)
--------------------------- --------- ---------- ---------- ---------- --------- --------- ----------
Segment profit
/ (loss) before
tax 11,663 25,174 36,837 5,998 (8,604) (2,606) 34,231
--------------------------- --------- ---------- ---------- ---------- --------- --------- ----------
Income tax (expense)
/ income (2,271) (5,557) (7,828) 109 12 121 (7,707)
--------------------------- --------- ---------- ---------- ---------- --------- --------- ----------
Segment profit
/ (loss) after
tax 9,392 19,617 29,009 6,107 (8,592) (2,485) 26,524
--------------------------- --------- ---------- ---------- ---------- --------- --------- ----------
Loans and advances
to customers - 960,610 960,610 618,902 - 618,902
Other assets 118,456 168,655 287,111 385,547 (20,611) 364,936
--------------------------- --------- ---------- ---------- ---------- --------- --------- ----------
Segment total assets 118,456 1,129,265 1,247,721 1,004,449 (20,611) 983,838 2,231,559
--------------------------- --------- ---------- ---------- ---------- --------- --------- ----------
Customer deposits - 1,033,073 1,033,073 896,766 - 896,766
Other liabilities 8,700 64,827 73,527 55,330 (18,541) 36,789
--------------------------- --------- ---------- ---------- ---------- --------- --------- ----------
Segment total liabilities 8,700 1,097,900 1,106,600 952,096 (18,541) 933,555 2,040,155
--------------------------- --------- ---------- ---------- ---------- --------- --------- ----------
Other segment items:
Capital expenditure - (3,639) (3,639) (3,186) (102) (3,288)
Depreciation and
amortisation - (2,865) (2,865) (1,320) (29) (1,349)
--------------------------- --------- ---------- ---------- ---------- --------- --------- ----------
Segment profit is shown prior to any intra-group
eliminations.
The UK private bank has a branch in Dubai, which generated
GBP3.1m (2015: GBP1.9m) fee income and had operating costs of
GBP2.2m (2015: GBP1.8m). All Dubai branch income is booked in the
UK. Other than the Dubai branch, all operations of the Group are
conducted wholly within the United Kingdom and geographical
information is therefore not presented.
43. Country by Country Reporting
Article 89 of the EU Directive 2013/36/EU otherwise known as the
Capital Requirements Directive IV ('CRD IV') was implemented into
UK domestic legislation through statutory instrument 2013 No. 3118,
the Capital Requirements (Country-by-Country Reporting) Regulations
2013 (the Regulations), which were laid before the UK Parliament on
10 December 2013 and which came into force on 1 January 2014.
Article 89 requires credit institutions and investment firms in
the EU to disclose annually, specifying, by Member State and by
third country in which it has an establishment, the following
information on a consolidated basis for the financial year: name,
nature of activities, geographical location, turnover, number of
employees, profit or loss before tax, tax on profit or loss and
public subsidies received.
31 December 2016 Turnover Number Profit/(loss) Tax paid
FTE
Name Nature Location (GBPm) employees before (GBPm)
of activity tax (GBPm)
------------------- -------------- ---------- --------- ---------- -------------- ---------
Arbuthnot Banking Banking
Group PLC Services UK 105.2 272 247.1 6.1
Arbuthnot Banking Banking
Group PLC Services Dubai - 15 (2.2) -
31 December 2015 Turnover Number Profit/(loss) Tax paid
FTE
Name Nature Location (GBPm) employees before (GBPm)
of activity tax (GBPm)
------------------- -------------- ---------- --------- ---------- -------------- ---------
Arbuthnot Banking Banking
Group PLC Services UK 167.1 924 36.0 7.4
Arbuthnot Banking Banking
Group PLC Services Dubai - 13 (1.8) -
The Dubai branch income is booked through the UK, hence
the turnover is nil in the above analysis. Offsetting
this income
against Dubai branch costs would result in a GBP870k
profit (2015: GBP33k). No public subsidies were received
during 2016 or 2015.
44. Ultimate controlling party
The Company regards Sir Henry Angest, the Group Chairman and
Chief Executive Officer, who has a beneficial interest in 53.7% of
the issued share capital of the Company, as the ultimate
controlling party. Details of his remuneration are given in the
Remuneration Report and Note 40 of the consolidated financial
statements includes related party transactions with Sir Henry
Angest.
45. Events after the balance sheet date
There were no material post balance sheet events to report.
Five Year Summary
2012 2013 2014 2015 2016
GBP000 GBP000 GBP000 GBP000 GBP000
------------------- ------------------ -------- -------- -------- -------- --------
Profit for the year after
tax 11,118 11,515 17,016 26,524 227,569
Profit before tax from continuing
operations* (4,654) (1,480) (3,824) (2,606) 179
Total Earnings per share
Basic (p) 54.6 53.8 58.6 86.3 1,127.2
Earnings per share from continuing
operations*
Basic (p) (28.4) (5.7) (24.8) (16.9) (3.7)
Dividends
per share
(p) - ordinary 25.0 26.0 27.0 29.0 31.0
- special - 18.0 - - 325.0
Other KPI:
2012 2013 2014 2015 2016
GBP000 GBP000 GBP000 GBP000 GBP000
------------------- ------------------ -------- -------- -------- -------- --------
Net asset value per share
(p) 449.3 570.5 1,136.0 1,252.7 1,533.8
* - Prior year numbers have been
restated for continuing operations.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEUFWEFWSEDD
(END) Dow Jones Newswires
March 23, 2017 03:00 ET (07:00 GMT)
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